Denize v Stockco Ltd
[2011] NZCA 192
•17 May 2011
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA126/2011 [2011] NZCA 192 |
| BETWEEN JOHNATHAN PETER TAPLEN DENIZE AND BRONWYN MAY DENIZE |
| AND STOCKCO LIMITED |
| Hearing: 12 May 2011 |
| Court: O'Regan P, Glazebrook and Stevens JJ |
| Counsel: S A Grant for Appellants |
| Judgment: 17 May 2011 at 2.30 pm |
JUDGMENT OF THE COURT
AThe appeals are dismissed. Costs for both High Court proceedings should now be quantified or determined in that Court in accordance with this judgment.
BThe applications for stay and for suppression orders are dismissed.
CThe appellants must pay to the respondent its actual costs and expenses in connection with the proceedings in this Court in accordance with cl 1.6 of the Livestock Agreement dated 3 July 2008. In the event of any dispute as to the amounts to be paid, the matter should be referred to the Registrar of this Court for resolution.
_______________________________________________________________
REASONS OF THE COURT
(Given by O’Regan P)
Introduction
The appellants, Mr and Mrs Denize, are indebted to the respondent, Stockco. They have resisted paying Stockco and engaged in protracted litigation to avoid being forced to do so. The appeals before us are:
(a)an appeal from a decision of Associate Judge Doogue, in which he entered summary judgment in favour of Stockco.[1] The appellants do not dispute the debt but contest certain aspects of the decision;
(b)an appeal from a decision of Whata J[2] declining to issue temporary orders staying and suppressing the details of Associate Judge Doogue’s decision.
[1]Stockco Ltd v Denize HC Auckland CIV-2010-404-5668, 22 February 2011.
[2] Stockco Ltd v Denize HC Auckland CIV-2010-404-5668, 15 March 2011.
In addition the appellants also apply to this Court for orders staying or suppressing the details of the Associate Judge’s decision.
High Court proceedings
The proceedings commenced when Stockco sought summary judgment against the appellants in respect of a liability to Stockco for $232,562.50.[3] Mr Denize is manager and Mrs Denize is a director of Spotburn Farms Ltd (Spotburn), which had entered into a stock financing arrangement with Stockco (we will call this the stock agreement). The stock agreement provided that a sum of $252,562.50 would be advanced to Spotburn to purchase certain stock. This arrangement was guaranteed by the appellants. For reasons we do not need to traverse, the stock was never purchased, although for a considerable time, Stockco was led to believe it had been. The money advanced by Stockco for the purchase of the stock was not returned to Stockco by Spotburn and Spotburn failed to make payment when a demand was made. There is no prospect that it will be able to pay. It is not disputed that the appellants are therefore liable to pay the sum of $232,562.50 to Stockco.
[3]The High Court Judge actually held that the sum was $252,562.50, but this did not take into account the repayment of $20,000 made by Spotburn in part performance of an earlier repayment plan. We will refer to the lower (correct) sum in this judgment.
Stockco was successful in obtaining summary judgment for $232,562.50 and the Associate Judge also ruled that it was entitled to actual costs of enforcing the claim. The appellants had not disputed that the $232,562.50 was owing. He entered judgment for that sum, but did not enter judgment for costs; instead he adjourned the matter pending quantification of those costs. The Associate Judge refused summary judgment for the interest claimed by Stockco however. He said there was a dispute about interest which would need to be dealt with at a trial.
The appellants claimed that they were not able to pay the judgment sum until 31 May 2011, at which time a proposed sale of part of a property in Wanaka owned by another company associated with the appellants, Develop Spotburn Limited (DSL) (the property is known as Spotburn Station and we will call it the Station) would have settled. They said DSL would then provide funds to the appellants which would give them the ability to repay Stockco. Mr Denize’s evidence is that the DSL’s equity in the Station will be approximately $1.3 million. The appellants requested that the Judge defer entering judgment until 31 May 2011. The Judge refused.
The appellants then made an interlocutory application for orders restraining publication of Associate Judge Doogue’s judgment pending appeal and staying execution of the judgment until 31 May 2011. This application was heard by Whata J. Again, the appellants did not dispute liability for the judgment sum. However Mr Denize filed an affidavit claiming that, unless the judgment was stayed and the appellants’ names suppressed, the family business (property syndication and development) would be put under severe financial difficulty and its ability to continue trading would be put at risk. This was said to be because its credit rating would reduce, negatively impacting the ability of the business to obtain further credit.
Whata J declined the application for the stay and for a suppression order. However he granted an interim order prohibiting publication of Associate Judge Doogue’s decision pending the appeal to this Court, subject to certain conditions, including that an appeal to this Court would be lodged within 48 hours.
Appeals and applications to this Court
On 8 March 2011, the appellants filed at notice of appeal against the decision of Associate Judge Doogue on the grounds that:
(a)the Judge ought to have allowed a 90 day delay before entry of the judgment under r 11.5 of the High Court Rules;
(b)the Judge erred in finding that the stock agreement entitled Stockco to actual out-of-pocket expenses incurred by Stockco in bringing the summary judgment proceedings.
The appellants filed an amended Notice of Appeal on 17 March 2011 which included an appeal against the decision of Whata J and an application to this Court for a stay and for suppression orders. This appeared to be designed to comply with the condition on which Whata J made his interim suppression order (appeal to be filed within 48 hours). However, the amended notice was rejected by the Registry of this Court. Counsel for the appellants then indicated in a letter dated 28 March 2011 that the appellants sought only to rely on the original Notice of Appeal (dated 8 March 2011), which did not appeal against the judgment of Whata J. So there is an issue as to whether the order made by Whata J remains in effect. It is not necessary for us to resolve that issue.
The appellants did apply on 28 March 2011 for a “Stay and Restraint Order”. This application raised essentially the same issues as had been aired before Whata J but did not request any orders in respect of the judgment of Whata J.
When we alerted counsel for the appellants, Ms Grant, to the fact that there was no appeal before us against the judgment of Whata J, she sought orally an extension of time to appeal against that judgment. Counsel for Stockco, Mr Morrison, took the pragmatic and reasonable position that it was in everyone’s interest that all issues should be resolved and did not oppose the extension of time. We therefore extended time and treated the notice of appeal before the Court as also an appeal against the decision of Whata J.
A further complication was that there was no sealed order in relation to Associate Judge Doogue’s decision. Mr Morrison said he had submitted a draft order for sealing but the High Court had not sealed it. We questioned whether Associate Judge Doogue had made an order for costs that was amenable to appeal because, although he ruled that indemnity costs were payable, he did not enter judgment for those costs, but adjourned the matter until a further hearing could take place at which he would decide the amount of costs. That hearing has not taken place. After discussion with counsel we proceeded to hear the appeals and applications on all matters including costs. This was on the basis that Mr Morrison undertook to file a further draft order in the High Court including an order recording the Associate Judge’s ruling on costs. We have issued a minute in which we have asked the High Court to give priority to the sealing of the orders.
The upshot of all this is that we have appeals before us from the decisions of Associate Judge Doogue and Whata J and applications for stay and suppression orders in relation to the former. In summary, we are asked to:
(a)set aside Associate Judge Doogue’s decision to enter judgment (on the basis that entry of judgment should be deferred until 31 May 2011);
(b)set aside his ruling that the appellants are liable for indemnity costs;
(c)make an order staying execution of Associate Judge Doogue’s judgment until 31 May 2011;
(d)make an order restraining publication of Associate Judge Doogue’s judgment until 31 May 2011.
Just prior to the hearing of the appeals and applications, the appellants filed an affidavit from their solicitor updating events relating to the proposed sale of part of the Station by DSL.[4] In brief, the proposed purchaser has exercised its right to cancel the sale contract because title has not issued within the agreed timeframe. However, it has apparently indicated in a text message from its principal that it may agree to revive the sale contract. The solicitor says if this happens, settlement could occur within 32 days, which would be on 14 June 2011. So Ms Grant asked that all references to “31 May” in the applications for suppression and stay be treated as references to “14 June”.
[4] See [5] above.
We will deal with the issues relating to suppression and stay first, before dealing with the indemnity costs issue.
Suppression of judgment
The appellants request that Associate Judge Doogue’s judgment be suppressed until (now) 14 June 2011, at which date the settlement of the sale of the Spotburn Farm in Wanaka will take place (if the purchaser agrees to revive the sale contract). Stockco does not oppose the application and is prepared to abide by the Court’s decision, on the basis that suppressing the judgment does not prevent Stockco enforcing it. In fact, Stockco has already applied for Notices of Bankruptcy in the High Court, but counsel for Stockco told us that, for reasons that are unclear to him (or to us) those notices will not be issued until July 2011.
In an affidavit filed in the High Court, Mr Denize deposed as follows:
Develop Spotburn Limited (“DSL”), a company for which Bronwyn Denize is the sole director and I am the manager, has recently sold a part of the Station for $7m (“the Spotburn Sale”).
...
The Agreement is due to settle by about 13 May 2011 at the latest, when title will issue. The agreement is unconditional except for the issue of title. Clark Fortune, Surveyors, is managing that issue. ... DSL has raised finance to enable it to pursue the issue of title, an essential step towards obtaining title and preserving the sale.
Upon settlement of the Spotburn sale, DSL will be able to advance the judgment sum to us, and we will be able to pay this sum to the plaintiff.
...
If the judgment is published then my reputation as manager of the Denize group companies will be severely damaged and the companies will be unable to carry on business and also unable to raise finance to [assist DSL to obtain title for part of the Station, which is essential to enable DSL to complete the sale of the property.][5]
Although we have disclosed the existence of the debt, the publication of a judgment will seriously negatively affect our credit rating because of the perceived risk of bankruptcy.
...
The result of this will be that a finance facility that I have negotiated for JP & BM over the Station will fall through.
...
If we cannot raise finance we will not be able to keep our business working, will lose our income stream and be unable to pay the mortgages, bills and put food on the table for our family.
[5]In a later affidavit, dated 14 March 2011 Mr Denize claimed this comment was in error and should have read “carry on business and also unable to raise finance to realise the sale of the remainder of Spotburn Station”.
A number of points arise from Mr Denize’s affidavit. First, the Station is not owned by Spotburn or the appellants but by DSL. And it is subject to a number of encumbrances. A further affidavit of Mr Denize discloses that in fact there are three registered mortgages and a caveat securing a sum of approximately $26 million over the Station. Approximately 38.9 per cent of the Station is the subject of the sale contract but the sale price is only $7 million. Mr Denize claims that approximately $1.3 million will be available as equity at the conclusion of the sale to pay off debts. As the respondents point out, there is no evidence to suggest that this is the case and the appellants will only have funds to repay Stockco if DSL advances funds to them so they can do so. Accordingly there is some question over whether the sale of part of the Station, if it settles, will release funds that can be used by the appellants to pay Stockco.
The second point is that the reasons given by Mr Denize for suppressing his name are concerning. He claims that it will adversely affect his reputation and his ability to negotiate financing and lower the credit rating of him and his wife. The appellants accept that the judgment debt is correct and is owed. In the normal run of things, information about a defaulting debtor would be publicly available for the very reason that financiers might hesitate to do business with someone who has a record of defaulting on his or her debts. Ms Grant said the appellants would undertake to notify all creditors, but that offer was made only in argument before us in response to our expressions of concern. And it does not address the need for rating agencies and potential funders and investors to have an accurate picture of the credit record of those they are dealing with. In effect, the Court is being asked to participate in the concealment of information. As Associate Judge Doogue and Whata J did, we consider this to be improper and inappropriate.
Third, the judgment was released and, before any suppression application was made, published by Judgments Unlimited Express (albeit with an incorrectly spelled name). Even if this Court now suppressed the decision, the cat is effectively out of the bag.
Fourth, the basis of the application was that the settlement of the sale of part of the Station would occur on 31 May 2011 whereupon the judgment would be satisfied and the appellants would no longer be defaulting debtors. These proceedings have been highlighted by a number of broken promises by the appellants and “imminent” payments that fell at the final hurdle. The late advice to this Court of the cancellation of the sale of part of the Station[6] seemed to reflect this pattern. The practical effect of it is that there is now no imminent settlement and no other source of payment of the Stockco debt. We are told that the sale contract may be reactivated, but that is outside the control of the appellants and is no more than a hope. The substratum of the application has now collapsed. Ms Grant accepted that the position is now worse for the Denizes than when the application was made before Whata J.
[6] See [14] above.
But Ms Grant suggested that the decision of Heath J in Houston v ANZ National Bank Ltd[7] was a precedent for the making of confidentiality orders of the kind sought in this case. We disagree. The facts of that case bear no resemblance to the present facts and the cautious approach taken by Heath J and the limited scope of the orders exemplify the care which must be taken before a Court suppresses information about proceedings involving defaulting debtors. Applying the caution shown by Heath J in that case leads inevitably to a refusal of the orders sought in this case.
[7]Houston v ANZ National Bank Ltd (No 2) HC Auckland CIV-2004-404-6932, 20 December 2004.
In short, we agree with Whata J that no factors have been identified that override the presumption of open and transparent justice.[8] We uphold his refusal of a suppression order and decline the application to this Court to make such an order. Whata J’s interim order will expire on delivery of this judgment, if it has not expired already.
Stay of execution or delay of judgment
[8] Clark v Attorney-General [2005] NZAR 481 (CA) at [36].
The appellants appeal against Associate Judge Doogue’s refusal to defer entry of judgment until 31 May 2011 and Whata J’s refusal to stay the judgment until that date. They also seek a stay in this Court. All of these raise similar issues about the appropriateness of preventing a creditor from enforcing an uncontested debt. The grounds on which these arguments are made are the same as the grounds for seeking suppression orders. We reject them in this context for the same reasons as we rejected them in the suppression context.
We also record our view that the Judge was correct not to delay the judgment as he was asked to do. The appellants say that r 11.5 of the High Court Rules gives power to do this. That rule simply provides that the time of delivery of a judgment is the time that the Judge directs. It is a long bow to say that this empowers a Judge to direct that a judgment not be entered for some months on the off chance that by the time that period has elapsed, the debt will have been satisfied. It is not necessary for us to define the metes and bounds of r 11.5. It suffices to say that we agree with Associate Judge Doogue that there was no proper basis for delaying entry of judgment on the facts of this case.
Indemnity costs
The appellants appeal against the order that they are liable to Stockco for an amount equal to the costs and expenses actually incurred by Stockco in relation to the summary judgment proceedings. Associate Judge Doogue made an order for indemnity costs based on cl 8.3 of the stock agreement. Stockco supports Associate Judge Doogue’s judgment and, in addition, seeks to support it on another ground, namely that indemnity costs are payable under cl 1.6 of the stock agreement. We will deal with cl 8.3 first.
Clause 8 of the stock agreement provides:
8.1.This Agreement can be terminated by Stockco immediately by notice to the Farmer [Spotburn] if one or more of the following events occur:
8.1.1.The Farmer fails to deliver the Stock in accordance with the Clauses 6.1 and 6.3 above [which required delivery of the stock to a processing plant nominated by Stockco at an agreed date].
...
8.2.In the event of termination pursuant to Clause 8.1 above, and without detracting from any rights Stockco has to recover any outstanding debts or to seek remedies or damages against the Farmer then:
8.2.1.Stockco shall no longer be required to make any payments to the Farmer.
8.2.2.All Stock then shall forthwith be removed from the property of the Farmer and delivered to the property or properties nominated by Stockco. All costs associated with the removal of the Stock shall be paid by the Farmer.
8.2.3.Stockco shall be entitled to remove the stock from the Farmer’s property and carry out a sale of the Stock either by auction or private agreement. The Farmer agrees to co-operate fully with the identification, rounding up and removal of stock.
8.3.In the event of termination pursuant to Clause 8.1 and without diminution of any or all the remedies provide by virtue of Clause 8.2, in the event that the Farmer has sold or disposed or otherwise parted with the possession of the Stock then Stockco at its option is entitled to elect to make demand upon the Farmer a sum equal to all the aggregate of the sums set forth in Clause 6.6 [essentially the cost price of the Stock and all costs associated with processing the stock] insofar as they are applicable together with penalty interest at a rate 6% above the rate set out in Schedule A calculated from the date of sale or disposal together with the costs and expenses and the Farmer shall be bound upon receipt of such notice to make payment immediately to Stockco.
There was no dispute in the High Court that Stockco had terminated the stock agreement cl 8.1.1. The Judge found that the fact that no stock had ever been purchased meant the events contemplated by cl 8.3 had never happened. But he noted that cl 8.3 gave Stockco the option of demanding the aggregate of the sums set out in cl 6.6 [here, the cost price of the Stock] together with the costs and expenses. The Judge found that this option:[9]
... supports the view that costs and expenses which fall within the clause include those of enforcing the demand which clauses 8.3 and 8.2 entitle Stockco to make. The expression “costs and expenses” does not require to be read down in any way and therefore would include the actual out-of-pocket expenses incurred by Stockco in bringing proceedings.
[9] At [39].
He therefore found Stockco was entitled to solicitor-client costs, but was concerned about the amount he thought Stockco was claiming. Mr Morrison explained to us that the amount mentioned by the Associate Judge was much greater than that actually claimed by Stockco, because it included costs for unrelated matters. In any event, the Associate Judge reserved the matter of solicitor and client costs, leaving it to the parties to settle or, if that did not happen, for the amount to be determined by him at a future hearing. They have not yet been fixed.
The stock agreement was drafted on an assumption that the funds received by the appellants would be used to purchase stock. In fact the money was advanced to Spotburn but no stock was purchased. Many provisions of the stock agreement are therefore an awkward fit in this case because they are predicated upon stock having been purchased.
In order to have a right to elect under cl 8.3, Spotburn must have “sold or disposed or otherwise parted with the possession of the Stock”. It may be that Spotburn’s action in failing to complete the purchase of the stock that was intended to be purchased with the funds advanced to it by Stockco amounts to “parting with possession” of that stock. It would be incongruous if Spotburn’s failure to abide by a fundamental requirement of the stock agreement, meaning it never had any stock in its possession, had less serious consequences in terms of exposure to costs than a disposal of stock otherwise than in accordance with the agreement.
It is not necessary for the Court to resolve this issue because we are satisfied that cl 1.6 provides a resolution of the issue. It provides:
The Farmer [Spotburn] indemnifies Stockco against any cost loss or liability or expense whatsoever incurred by Stockco as a result of the Farmer acting except in strict accord with the authority hereby given.
This clause is effective once Spotburn has breached the authority in the stock agreement. Ms Grant argued that “authority” in this context referred to an authority granted by Stockco outside the terms of the stock agreement itself. We see no reason to adopt such a strained interpretation. The authority to buy stock on Stockco’s behalf is a fundamental obligation within the stock agreement, and Spotburn accepted the advance from Stockco on the clear basis that it would use it to buy stock that would belong to Stockco. It did not do so, and thus did not act in strict accord with the authority given to it under the stock agreement. In our view, cl 1.6 is clearly engaged and entitles Stockco to indemnity costs in relation to all of the present litigation, including the present appeal and applications in this Court.
We agree that Associate Judge Doogue was correct to order that Stockco was entitled to indemnity costs. As he has not yet quantified those costs as they relate to the summary judgment proceeding, the matter will be remitted to the High Court to allow him to do so. We also note that Whata J has not yet dealt with costs. He should now do so on the basis set out in this judgment.
Result
We dismiss the appeals against the decisions of Associate Judge Doogue and Whata J and dismiss the applications to this Court for a stay of Associate Judge Doogue’s decision and for suppression orders.
Costs in this Court
As already indicated, we consider that Stockco is entitled to indemnity costs under cl 1.6 of the stock agreement in respect of both the High Court proceedings and the proceedings in this Court. We award costs and disbursements to Stockco in this Court on that basis. If there are any difficulties in calculating the amounts to which Stockco is entitled, the Registrar should determine them.
Solicitors:
Knight Coldicutt, Auckland for Appellants
Lowndes Jordan, Auckland for Respondent
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