De Alwis v Luvit Foods International HC Auckland CIV 2002-404-1944
[2010] NZHC 418
•24 March 2010
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2002-404-001944
BETWEEN HERALD VICTOR DE ALWIS
First Plaintiff
ANDM E & H V DE ALWIS Second Plaintiff
ANDJOHN WAH KUM Third Plaintiff
(intituling cont’d over)
Hearing: 24 February 2010
Appearances: E Orlov and D Lee for Second Defendant/Applicant and Non-party
Applicant
G A D Neil for Plaintiffs/Respondents
Judgment: 24 March 2010 at 10:00 am
RESERVED JUDGMENT OF COURTNEY J
This judgment was delivered by Justice Courtney
on 24 March 2010 at 10:00 am pursuant to R 11.5 of the High Court Rules.
Registrar / Deputy Registrar
Date……………………….
Solicitors: Meredith Connell, P O Box 2213, Auckland
Fax: (09) 336-7629 – K Wakelin
Equity Law, P O Box 8333, Symonds Street, Auckland 1150
Fax: (09) 303-2018 – E Orlov
DE ALWIS & ORS V LUVIT FOODS INTERNATIONAL & ANOR HC AK CIV-2002-404-001944 24 March
2010
ANDCONNIE FAY LING LUM Fourth Plaintiff
ANDMARSHA ADRIENNE TAI PING TAN Fifth Plaintiff
ANDPETER THUTT PITT WEE Sixth Plaintiff
ANDPAUL SENG POH KOOR Seventh Plaintiff
ANDLUVIT FOODS INTERNATIONAL First Defendant
ANDCHEAN FOOK SEONG AKA JAMES CHEAN
Second Defendant
Introduction
[1] The second defendant, Mr Chean, and his former wife, Ai Nee Chean, have applied to set aside a judgment entered against Mr Chean in this proceeding in 2007 following a formal proof hearing.[1] The basis for the application is generally that the plaintiffs misled the Court at the formal proof hearing. The current issue for determination is whether either Mr or Mrs Chean has standing to bring the application; if they do, the other issues arising on the application will be determined at a later hearing.
[1] 23 May 2007
[2] The plaintiffs assert that Mr Chean does not have standing because he is an undischarged bankrupt whose rights in the proceeding (including the right to apply
to set aside the judgment) vest in the Official Assignee. Mr Orlov, for Mr Chean, argued that the right to set aside the judgment did not vest in the Official Assignee because it is either “after-acquired property” or a personal right that vests in Mr Chean, notwithstanding adjudication. Alternatively, if the right does vest in the Official Assignee, the Official Assignee has either consented to Mr Chean exercising the right or has abandoned the right, thereby entitling Mr Chean to exercise it.
[3] Mrs Chean is a non-party in the proceeding who claims to have been affected
by the judgment. The plaintiffs assert that the principle permitting a non-party to set aside a judgment does not apply to a judgment obtained following a formal proof hearing. Mr Orlov argued that, as a result of findings in the judgment, Mrs Chean now has a judgment entered against her in separate proceedings and so has clearly been affected and does have a right to apply to set aside the judgment.
Jurisdiction
[4] The applications have been brought under R 7.51 or, alternatively, 15.13. The judgment against Mr Chean was obtained following the subsequent a formal proof hearing at which he did not appear. Nor did the Official Assignee, who consented to the proceeding continuing against Mr Chean, participate in the trial. In these circumstances, the application to set aside the judgment should have been
brought under R 10.9 and I intend to treat it as though it had been made under the correct rule.
[5] It appeared from Mr Orlov’s submissions that one of the grounds on which the judgment was being challenged was that Mr Chean had not been served with the plaintiffs’ application for leave under s 32 Insolvency Act 1967 to continue the proceeding notwithstanding Mr Chean’s bankruptcy, which preceded the formal proof hearing.[2] That is better viewed as an application to set aside the order made under s 32 and R 7.49 is the appropriate rule.
[2] Because Mr Chean was adjudicated bankrupt in May 2007 the Insolvency Act 1967 applies.
Background to application
[6] At all relevant times Mr Chean was a director of the first defendant, Luvit Foods International Limited (Luvit). The plaintiffs alleged that Mr Chean induced them to invest in Luvit by making misrepresentations about the company’s performance which were misleading and deceptive under the Fair Trading Act 1986. There was also a cause of action advanced for breach of the Securities Act 1978 on the basis that a registered prospectus was required and s 37(6) Securities Act 1978 required repayment of the subscriptions within two months of receipt with the company and its directors fixed with joint and several liability in the event of repayment not being made.
[7] The week before the hearing Mr Chean declared himself bankrupt. The solicitor acting for Mr Chean and Luvit obtained leave to withdraw and the matter proceeded by way of formal proof. I reserved my decision and on 23 May 2007 delivered a judgment in which I held Luvit and Mr Chean jointly and severally liable
to repay the plaintiffs’ subscriptions under s 37(6) Securities Act 1978. In addition, I found that Mr Chean was personally liable under the Fair Trading Act 1986 for misrepresentations amounting to misleading and deceptive conduct.
[8] Enquiries by the Official Assignee indicated that Mr Chean had transferred the majority of his assets to Mrs Chean before his bankruptcy. The plaintiffs
accordingly began proceedings against Mrs Chean and obtained summary judgment
against her.[3] Their claims against Mrs Chean relied substantially on the findings I made in this proceeding, particularly on the cause of action brought under s 37(6) Securities Act 1978, arguing successfully that those issues were res judicatum as a result of my findings. One of the plaintiffs, Mr Wee, obtained judgment pursuant to
[3] HC Auckland CIV-2007-404-005357 4 July 2008
s 37(6) Securities Act 1978 on the basis that Mrs Chean had been a director of Luvit. The plaintiffs also succeeded in knowing receipt in respect of monies that were transferred into the jointly held personal bank account of Mr and Mrs Chean.
[9] Mrs Chean appealed against the summary judgment. In a judgment delivered
on 24 February 2010 the Court of Appeal allowed the appeal in part, with the judgment based on the cause of action in knowing receipt set aside. The judgment under s 37(6) Securities Act 1978 was affirmed.
Does Mr Chean have standing to bring the application?
Does the right to apply to set aside a judgment vest in the Official Assignee?
[10] Under s 42(1) Insolvency Act 1967:
(1) All the property and powers of the bankrupt specified in subsection
(2) of this section are hereby vested upon adjudication or as soon thereafter
as this section becomes applicable thereto in the Assignee of the bankrupt’s property…
[11] The “property and powers” referred to in s 42(1) are identified in s 42(2):
(a) All property whatsoever situated belonging to or vested in the bankrupt at the commencement of the bankruptcy or acquired by or devolving upon him before his discharge;
(b) The capacity to exercise or take proceedings for exercising or such powers in or over or in respect of any property whatsoever or wheresoever situated as might have been exercised by the bankrupt for his own benefit at the commencement of the bankruptcy or before his discharge.
[12] “Property” is defined as:
…Land, money, goods, things in action, goodwill, and every valuable thing, whether real or personal, and whether situated in New Zealand or elsewhere, and includes obligations, easements and every description of estate, interest
and profit, present or future, vested or contingent, arising out of or incident
to property.
[13] A judgment entered against a person cannot be regarded as property even within the wide definition in s 42. Indeed, it is the antithesis of property, being a liability rather than an asset. The scheme of the Insolvency Act 1967 means that a bankrupt is protected by his bankruptcy from liability arising from a judgment. If the nature of the liability is such that it will be met to whatever extent is possible from the assets of the estate, it is not a liability that affects the bankrupt personally. For this reason, a bankrupt cannot exercise powers in respect of a judgment debt that will be met from his estate. The principle was restated by the English Court of Appeal in Heath v Tang:[4]
[4] P697-698
… in principle a bankrupt cannot in his own name appeal from a judgment against him which is enforceable only against the estate vested in his trustee.
And at p701:
… The principle that the bankrupt is divested of an interest in his property and liability for his debts remains fundamental in the new code. The consequences of a bankrupt’s right to litigate do not seem to us inconvenient or productive of injustice. The Bankruptcy Court acts as a screen which both prevents the bankrupt’s substance from being wasted in hopeless appeals and protects creditors from vexatious challenges to their claims.
[14] In Heath v Tang the Court rejected the proposition that, as an exception to that general principle, a bankrupt could appeal against the judgment on which his bankruptcy order was founded:[5]
[5] [1993] 4 All ER 694 (CA) at p700
By s 306 of the Insolvency Act 1986 the bankrupt’s estate vests in his trustee when appointed and by s 285(3) no creditor has after the making of a bankruptcy order any remedy against the property or person of the bankrupt in respect of the debt provable in the bankruptcy. The effect is that the bankrupt ceases to have an interest in either his assets or his liabilities except insofar as there may be a surplus to be returned to him upon his discharge. What effect does this have upon legal proceedings to which he is a party?
…
In cases in which the bankrupt is a defendant, there is of course usually no question of the cause of action being vested in the trustee. Unless the defence is set off… the bankrupt will not be asserting by way of defence any
cause of action of his own. But in cases where the plaintiff was claiming an interest in some property of the bankrupt, that property will have vested in the trustee. And in claims for debt or damages, the only assets out of which the claim can be satisfied will have likewise vested. It will therefore be equally true to say that the bankrupt has no interest in the proceedings. As we have seen, s 285(3) deprives the plaintiff of any remedy against the bankrupt’s person or property and confines him to his right to prove.
[15] In New Zealand the same position has been adopted in Re Wilson ex parte UDC Finance Limited[6] where Tipping J, considering an attempt by the bankrupt to attack the judgment debt upon which the bankruptcy notice and petition had been founded, said:
[6] HC Christchurch v348/89 5 December 1989
What the applicant wants to do is to be able in her name to attack the judgment debt. It seems clear to me from the decision of the English Court of Appeal in Boaler v Power [1910] 2 KB229 that following an order for adjudication the right to attack a judgment debt vests in the Official Assignee. Indeed the point is put even more strongly in the judgment of the English Court of Appeal where at p238 Farwell LJ says:
It is open to the Court in bankruptcy if it thinks fit to allow the debtor to contest in the Bankruptcy Court the validity of the Petitioning creditor’s judgment on the ground of fraud, collusion, or for any other sufficient reason: in Re Flatau (1888) 22 QBD83. But this is the only way in which the bankrupt can contest it: the adjudication, while it stands, is conclusively binding on him: he cannot contest it in any other Court on the ground of fraud or on any other ground.
That of course demonstrates that once the order for adjudication is made the bankrupt’s powers to contest the debt are gone and if there is a wish and validity in the proposition that the debt should be contested it is the Official Assignee who must do so.
[16] That was followed in Hunter v Commissioner of Inland Revenue[7] and
Commissioner of Inland Revenue v Neal.[8]
[7] HC Auckland V515-IM99 June 2000
[8] HC Auckland V1719/97 2 October 1998
[17] Mr Orlov sought to distinguish Heath v Tang, Wilson and Neal [9] on the basis that they all involved judgment debts which pre-dated the adjudication, whereas the judgment against Mr Chean post-dated the adjudication (Mr Chean having declared himself bankrupt the week before the hearing). Mr Orlov submitted that the
judgment was therefore after-acquired property which did not vest in the Official
Assignee.
[9] Wilson v UDC Finance Ltd HC Christchurch B No. 348/89 5 December 1989; Commissioner of Inland Revenue v Neal HC Auckland B1719/97 2 October 1998
[18] It is correct that under the Insolvency Act 1967 after-acquired property does
not vest in the Official Assignee unless he chooses to intervene.[10] However, the date
the judgment was entered would make no difference to the general principle discussed above; because the judgment debt is not one for which the bankrupt has any personal liability, he therefore has no interest in proceedings connected with it. The debt is enforceable against his estate and is to be dealt with by the Official Assignee.
[10] Gough v Fraser [1977] NZLR 279. This position has altered under Insolvency Act 2006.
[19] If the Official Assignee chooses not to take steps to appeal or set aside a judgment debt the bankrupt has recourse under s 86 Insolvency Act 1967 (or its equivalent under the Insolvency Act 2006) which permits the bankrupt or any other person aggrieved by a decision of the Official Assignee to apply to the Court. Thus, a person in Mr Chean’s position is not without remedy.
[20] Mr Orlov submitted, in the alternative, that the judgment against Mr Chean contains findings of a personal nature such that the right to set aside the judgment remained vested in him. There are, of course, some rights of action and some liabilities that are personal to the bankrupt and over which the Official Assignee has no control, as Hoffman LJ recognised in Heath v Tang:[11]
[11] Heath v Tang at 697 and 698
… There are certain causes of action personal to the bankrupt which do not vest in his trustee. These include cases in which “the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind, or character, and without reference to his rights of property… Actions for defamation and assault are obvious. The bankruptcy does not affect his ability to litigate such claims…
… On the other hand, there are actions seeking relief such as injunctions against the bankrupt personally which do not directly concern his estate. They can still be maintained against the bankrupt himself and he is entitled to defend them and, if the judgment is adverse, to appeal. This distinction was the basis of the decision in the Court of Appeal in Dence v Mason [1879] WN177 in which a bankrupt wished to appeal against an order made before the bankruptcy granting an injunction to restrain passing off and
ordering him to pay costs. His trustee declined to appeal but the Court said
at p177 that the bankrupt himself could appeal against the injunction:
“Which was a personal order against him, notwithstanding the bankruptcy, though he had no interest in the order as to costs, his estate now being vested in the trustee.”
This implies that the bankrupt would have been entitled to appeal against an order which was enforceable only against his estate.
[21] Mr Orlov submitted that the findings that Mr Chean made misleading statements were of a quasi-criminal nature. He submitted that the findings had affected Mr Chean’s personal rights and reputation.[12] Mr Orlov also submitted that the “right” to attack a judgment debt for fraud is preserved as a personal right of action or by s 27 New Zealand Bill of Rights Act 1990. None of these propositions are valid.
[12] Mr Orlov advised me from the bar that Mr Chean had lost his right to citizenship following the judgment but there is no evidence whatsoever before me on that issue and I cannot take that advice into account.
[22] Mr Chean’s liability under the Securities Act 1978 arose solely by virtue of
his status as a director. So it could not be suggested that such a liability affected him personally so as to preserve any right to set aside the judgment.
[23] Findings in a civil claim of misleading and deceptive conduct under the Fair Trading Act 1986, whilst reflecting adversely on Mr Chean’s reputation, cannot be described as quasi-criminal. In this regard, Mr Orlov relied on Allan J’s decision in Knight v European Language Academy (NZ) Ltd & Anor where the defendant argued that the plaintiff was not entitled to sue for breach of the Fair Trading Act 1986 without the consent of the Official Assignee.[13] The allegations were of misleading and deceptive conduct in the form of statements alleging fraud and other criminal conduct by the plaintiff. Allan J considered that, had the claim been cast as one for defamation, there could be no doubt that the plaintiff could have maintained the claim despite his bankruptcy. Rejecting the defendant’s argument that a claim under the Fair Trading Act 1986 did not fit easily within the category of permitted claims by a bankrupt the Judge said:
… The cases suggest that a wide range of proceedings may be commenced by a bankrupt without the consent of the Official Assignee, provided that the cause of action pleaded is sufficiently connected with the plaintiff’s person
and does not affect property that has passed to the Official Assignee.
[13] HC Auckland CIV-2008-404-002411 14 November 2008
[24] However, the point does not appear to have been argued in much detail. Further, the Judge was considering the very different situation of a plaintiff with a cause of action, which is not the position Mr Chean is in. Self-evidently, nearly all claims that result in a judgment enforceable against the estate will involve allegations of wrongdoing by the defendant. It would be a most surprising result if the principle articulated in Heath v Tang were undermined merely by the fact that the proceedings in which the judgment debt was obtained included allegations of wrongdoing against the defendant. I would add that, even where the allegations of wrongdoing could otherwise be regarded as defamation, that fact alone would not change the position in this case where the complaint is about findings of the Court,
given that statements made in the course of legal proceedings are privileged.[14]
[14] Royal Aquarium & Summer and Winter Garden Society v Parkinson [1892] 1 QB 431 at 451
[25] Further, although a judgment obtained by fraud is liable to be set aside,[15] that does not alter the fact that the right to impugn a judgment debt on that basis still lies with the Official Assignee. Nor do I accept, as Mr Orlov submitted, that the rights conferred by s 27 New Zealand Bill of Rights Act 1990 entitle a bankrupt to challenge a debt on this ground; that section is directed towards the right to natural justice before tribunals and public authorities, judicial review of administrative action and the right to bring proceedings against and defend proceedings brought by the Crown. It has no application to the present case.
[15] See e.g. Ongley v Brdjanovic [1975] 2 NZLR 242; Shannon v Shannon (2002) 16 PRNZ 420 at [50][51]
[26] Mr Orlov effectively seeks to separate the right to set aside a judgment from the judgment itself and to elevate such a right to a personal right of action in itself. However, the judgment debt is a liability to be enforced only against Mr Chean’s estate and, as such falls to be dealt with only by the Official Assignee.
Order under s 32 Insolvency Act 1967
[27] Prior to commencing the formal proof hearing the plaintiffs sought and obtained an order under s 32 Insolvency Act 1967 permitting them to continue the proceedings notwithstanding Mr Chean’s bankruptcy. Section 32 provides:
Subject to s 55 of the Apprenticeship Act 1983 upon an adjudication being advertised, all proceedings to recover any debt provable in the bankruptcy shall be stayed, but the Court may on application by any creditor or any person interested, allow any proceedings commenced to be continued on such terms and conditions as it thinks just.
[28] Mr Chean was not represented at the hearing of the application as his counsel had been granted leave to withdraw. The Official Assignee consented to the application. I proceeded to hear the evidence and reserved my decision in respect of both the s 32 application and the substantive proceeding, granting leave under s 32 as part of my substantive judgment.
[29] Mr Orlov submitted that Mr Chean was entitled to be heard on that application and the order ought not to have been made in his absence. In support of
his submission that Mr Chean had standing to bring an application in respect of the s
32 order Mr Orlov relied on a decision of Morris J in Navix Line (NZ) Ltd v Milo.[16]
[16] HC Auckland CP281 SD99 5 December 2002
Judgment had been obtained against the defendant prior to adjudication. Proceedings were stayed while the defendant was in prison and leave under s 32 sought to continue them upon his release. The issue of standing was not in contention, with the Judge recording that the defendant had standing
… As the Official Assignee has been invited to become involved in opposing this application but declined to do so. The Official Assignee has, however, granted [the defendant] to oppose this application in his own capacity…
[30] The factual position was therefore completely different to the present case where the Official Assignee had become involved and had consented to proceedings continuing. I do not find the Navix Line decision of assistance to me because the issue of standing was not argued and, to the contrary, it is implicit in the Judge’s
comments that the defendant only had standing because the Official Assignee did not
wish to become involved and had agreed that the defendant should oppose the application in his own right.
[31] I note also that in Property Restoration Ltd (in liquidation) v Bruns & Anor[17]
[17] HC Auckland CP338/97 3 August 1998
Randerson J proceeded to hear an application under s 32 Insolvency Act 1967 even though the defendant (described in the application as a bankrupt but since discharged) had not been served but where the application had been served on the Official Assignee.
[32] Keeping in mind the fact that, as already discussed, Mr Chean no longer has
an interest in the proceeding by virtue of his bankruptcy and where the Official Assignee had consented to the s 32 application, I do not consider that there was any need to personally serve Mr Chean with the application. To the contrary, the fact that the Official Assignee consented means that Mr Chean has no standing to bring the present application.
Has the Official Assignee consented to Mr Chean bringing the application to set aside the judgment?
[33] I turn next to deal with Mr Orlov’s argument that the right to bring the application is one that has either been abandoned by the Official Assignee or which the Official Assignee has consented to Mr Chean exercising. Mr Chean relies on a letter from the Deputy Assignee 6 May 2009 responding to his request that the Official Assignee either assign the right to appeal the judgment to him or his wife or that the Official Assignee himself appeal the judgment. The Deputy Assignee’s response was:
3. In respect of the first issue, the right to appeal the Courtney J judgment is not a cause of action. As such, it is not a property right that vested in the Official Assignee upon your adjudication. Accordingly, the Official Assignee has no ability to assign the right to appeal to you or any other party (including your wife).[18]
[18] The Official Assignee wrongly referred to the proposed course as an appeal.
4.However, the Official Assignee does have the power to seek leave to appeal the Courtney J judgment. Having fully considered the matter, the Official Assignee has decided not to do so …
5The Official Assignee has no objection to you appealing the decision yourself. However, he requires disclosure as to how any appeal will be funded. In the event that you attempt proceeding with any appeal, please contact me in that regard.
[34] Mr Orlov submitted that this letter clearly amounted to permission for the application to set aside or showed that the Official Assignee had evinced an intention to abandon the right to apply.
[35] Under s 75 Insolvency Act 1967 the Official Assignee may formally disclaim property that is unsaleable or not readily saleable. There is no dispute that a right of appeal (or, by analogy, a right to set aside a judgment) is property that might be the subject of a disclaimer under s 75.[19] Disclaimer under s 75 must be made in writing by the Official Assignee and filed in the Court. It is common ground that there has been no formal disclaimer in this case.
[19] In Re Collier HC Christchurch B No. 28/91 20 August 1993
[36] Mr Orlov, however, submitted that it was also open to the Official Assignee
to abandon the right to set aside the judgment and has evinced an intention to do so
in the letter 6 August 1993. Mr Orlov relied heavily on Paterson J’s decision in Moynihan v Berkett in which the Judge recognised a common law right of abandonment, the effect of which being that so far as the bankrupt’s interest is concerned the property becomes “nobody’s property”, capable of being picked up by the first passerby.[20] The case was ultimately dealt with on other grounds and there was no real discussion about the basis for the common law right of abandonment as it was asserted.
[20] HC Tauranga CP3/94 27 July 1998
[37] I have reservations about the strength of the authorities relied on by the Judge
in that case. Further, following the Court of Appeal’s decision in Edmonds Judd v Official Assignee, there must be doubt about the application of any such principle under the Insolvency Act 1967.[21] The existence of a common law right of abandonment was not actually in issue because its existence had been accepted by counsel in the High Court but the Court of Appeal expressed real doubt about its existence:
[21] Edmonds Judd v Official Assignee [2000] 2 NZLR 135
[22] It is questionable whether under the scheme of the statute there was any room for a non-statutory broad abandonment process sitting alongside the statute’s constrained disclaimer provisions and, even if there is, whether those consequences follow…
[38] The Court pointed out that at common law abandonment is a recognised mode of losing title to property, noting the distinction between a transfer of property and the abandonment of property altogether, concluding that:
[26] But it does not follow that any property remains when the chose is abandoned… the better view may be that the effect of abandonment is to relinquish or to surrender the right of action which thereafter has no existence.
[27] If then abandonment is the antithesis of transfer, if on the abandonment of a right of action the chose ceases to exist and if for both those reasons it is legally impossible for the Official Assignee to abandon the right of action in favour of the former bankrupt (or anyone else) there is no immediate inconsistency in this regard between an abandonment (if an available mechanism) and a disclaimer which, in terms of s 75 of the Insolvency Act 1967, cannot give rise to a claim by the former bankrupt to have the disclaimed property vested in him or her (Auckland City Council v Glucina [1997] 2 NZLR 1). On that hypothesis the effect of abandonment corresponds with the statutory effect of disclaimer as operating “to determine, as from date of disclaimer, the rights, interests and liabilities of the bankrupt and his property in or in respect of the property disclaimed” (s75(2)).
[28] On this arguable analysis the bankrupt does not acquire the right of action which might otherwise give rise to maintenance and champerty concerns given that the basis for the well-settled rule that the sale by the Official Assignee of a bankrupt’s right of action, even to the bankrupt, is not impeachable on the ground of maintenance or champerty is that the statutory power of the Official Assignee to enter into contracts precludes any such challenge…
[39] In my judgment the courses open to the Official Assignee were either to formally disclaim the right under s 75 or to refuse to exercise the right, both decisions being capable of challenge under s 86 of the Insolvency Act 1967 by either Mr Chean or the creditors. It will be evident from the foregoing discussion that it is not open to the Official Assignee to merely give permission to Mr Chean to advance the application to set aside himself. The Official Assignee’s obligations are to ensure the orderly administration of the bankrupt’s estate. Because the effect of setting aside the judgment debt was one that would adversely affect the judgment creditors it is difficult to see how that decision might be justified. At the least, it is a decision that the affected creditors might challenge under s 86.
Does Mrs Chean have standing?
[40] Mrs Chean brings her application on the basis that, although not a party to the proceeding, she has been adversely affected by it and accordingly has a right to apply to set aside the judgment. The nature of the prejudice to her is said to be the summary judgment which was obtained in significant part on reliance by the plaintiffs on findings made on the judgment.
[41] It is settled that a stranger to an action in which judgment has been obtained
by default and who is adversely affected by the judgment may apply to have it set aside.[22] However, Mr Neil, for the respondents, argued that the authorities that establish this principle apply strictly to judgments obtained by default. Mr Neil submitted that since the present case does not involve a default judgment Mrs Chean has no right to apply to set aside the judgment obtained by formal proof.
[22] Jacques v Harrison (188) 12 QBD165; Windsor v Chalcraft [1939] 1 KB279; Argyle Estates Ltd v
Bowen Group Ltd (2002) 17 PRNZ 57
[42] I consider that if Mrs Chean is affected by the judgment she has standing to bring her application. Whilst accepting that there appears not to be authority directly confirming that a stranger to an action in which a judgment has been obtained by formal proof may apply to set the judgment aside, I consider that the principle stated in Jacques v Harrison and Windsor v Chalcraft applies equally to the present situation because the rationale applies equally. The rationale for the principle as expressed by MacKinnon LJ in Windsor v Chalcraft is that:
… the nominal defendant has no pecuniary interest in the action and that the strangers to it really have the whole interest in it. The point is that it would
be unjust if, through no fault of his or her own, a non-party affected by the judgment should be bound by it without the opportunity to argue the issues arising in the proceeding. In practical terms it is difficult to see any real difference between a judgment obtained by default because the nominal defendant takes no steps and a judgment obtained following formal proof where the nominal defend fails to appear at trial.
[43] Following the decision of the Court of Appeal in the proceedings brought against her by the current respondents, Mrs Chean now has a judgment against her
for $150,000 on the cause of action brought under the Securities Act 1978.[23] It is
[23] [2010] NZCA 30
apparent from that judgment that Mrs Chean’s liability followed from my finding in this proceeding that a registered prospectus was required. To that extent I accept that Mrs Chean has been affected by the judgment and does have standing.
[44] In reaching this conclusion I do not express any view on the likely outcome
of the application, save to observe that if the finding was justified on the evidence at the time and no fresh evidence is available, it is difficult to envisage what ground would exist to justify setting aside the judgment. I note that the Court of Appeal rejected Mrs Chean’s argument that the proviso to s 37(6) applied.
[45] Mr Neil raised a further point. In Jacques the Court made it clear that it was essential that the non-party seeking to set aside a judgment ensures that the nominal defendant is served and made a party to the application. Not only is this intended for the benefit of the defendant who has previously made the decision to submit to the plaintiff’s claim rather than contest it, but it is also in the plaintiff’s interests to ensure that he is not left without a defendant to proceed against. In this case the nominal defendant is, of course, Mr Chean, who is already a party to the application and, indeed, has made the same application himself. If the right to make the application vested in Mr Chean then there would be no difficulty. However, Mr Neil submitted that as the right to make the application vests in the Official Assignee then it is the Official Assignee who ought to have been joined. That is correct, but I do not see it as a fatal omission. The substantive application is yet to be determined and I make an order now that the Official Assignee be joined as a party to the proceeding.
Result
[46] I find that Mr Chean does not have standing to bring the application because the right to do so vests in the Official Assignee. The Deputy Assignee’s letter 6 May
2009 is not effective to confer on Mr Chean the right to bring the application. Mr Chean’s application is therefore dismissed.
[47] Mrs Chean does have standing to bring the application in respect of the judgment against her under the Securities Act 1978. Mrs Chean’s application is therefore granted. A date for the substantive application is to be allocated.
[48] Costs are reserved.
P Courtney J
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