DHC Assets Limited v Arnerich
[2021] NZHC 1703
•8 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-000975
[2021] NZHC 1703
BETWEEN DHC ASSETS LIMITED
Plaintiff
AND
ANTONY IVO ARNERICH
Defendant
On the papers: 5 July 2021 Appearances:
F Thorp and L J Turner for the Plaintiff
J D McBride and A J Steel for the Defendant
Judgment:
8 July 2021
JUDGMENT OF ASSOCIATE JUDGE GARDINER
[application for leave to appeal and cross-appeal
This judgment was delivered by me on 8 July 2021 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Duthie Whyte, Auckland Doug Cowan, Auckland
F Thorp and L Turner, Auckland
J McBride and A J Steel, Auckland
DHC ASSETS LTD v ARNERICH [2021] NZHC 1703 [8 July 2021]
[1] Mr Arnerich applies for leave to appeal my decision of 25 February 2021 to dismiss his application to strike out the statement of claim and dismiss the proceeding.1
[2] DHC Assets Ltd applies for leave to cross-appeal in the event that I grant Mr Arnerich leave to appeal. Mr Arnerich opposes DHC’s application.
Background
[3]In my decision I found:
(a)DHC’s proceeding is not an abuse of process, because its application for relief under s 301 of the Companies Act 1993 in respect of the TRC claims is not res judicata;
(b)the statement of claim is not barred by the Limitation Act 2010.
[4] After I delivered my judgment, I ordered, by consent, that the proceeding was to be stayed pending delivery by the Court of Appeal of its judgment in CA555/209, or further order of the Court.
[5] The Court of Appeal delivered its judgment on 3 June 2021.2 As the Court of Appeal judgment potentially rendered the present proceeding moot, I enquired of counsel whether it was necessary to determine the applications to appeal and cross-appeal. DHC’s response was that unless the Court of Appeal judgment was appealed and overturned, further progress of this proceeding would be unnecessary. DHC proposed that the stay remain in place and determination of the applications for leave to appeal and cross-appeal wait until any appeal of the Court of Appeal judgment is determined. Mr Arnerich did not share that view, stating that a decision on his application for leave to appeal should still be made.
[6] Subsequently, on 29 June 2021, Mr Arnerich filed a notice of application for leave of the Supreme Court to appeal against the Court of Appeal decision.
1 DHC Assets Ltd v Arnerich [2021] NZHC 277.
2 Arnerich v DHC Assets Ltd [2021] NZCA 225.
[7] In view of the position of Mr Arnerich, and his application for leave to appeal the Court of Appeal’s judgment, I will proceed to determine the applications to appeal/ cross-appeal in this proceeding.
Grounds for appeal
[8] Mr Arnerich contends that the proposed grounds of appeal are capable of bona fide and serious argument, involve questions of general and precedential importance, if allowed would be dispositive of the case, and have reasonable prospects of success. Mr Arnerich submits that it is in the interests of justice that leave be granted.
[9]Mr Arnerich’s specific grounds of appeal are:
(a)I erred in finding that DHC’s claim was not an abuse of process as a result of:
(i)finding at [31] to [35] that the determination of quantum under s 301 of the Companies Act 1993, consequent upon a finding of breach of s 131 is, and can be determined as, a question independent from the question of breach; and
(ii)failing to appreciate that DHC’s cause of action in its statement of claim of 29 June 2020 alleges a breach of s 131 of the Companies Act 1993 on the same basis as was alleged by DHC in an earlier proceeding between DHC and Arnerich and determined by the High Court in DHC Assets Ltd v Arnerich [2019] NZHC 1695.
(b)I erred in not finding that DHC’s claims were time-barred under the Limitation Act 2010.
[10] DHC seeks leave to cross-appeal, in the event that I grant Mr Arnerich leave to appeal, on the grounds the proposed cross-appeal concerns a decision of sufficient
significance to the parties, or a question of law or general principle of sufficient importance, so as to outweigh the cost and delay of the appeal. Specifically:
(a)the importance of the cross-appeal to DHC is that, if leave to appeal were granted and the appeal were to succeed, then in the absence of DHC being able to pursue and potentially succeed on the cross-appeal as to late knowledge, the effect would be that its claim would be struck out altogether on technical limitation grounds;
(b)the issue arising on the proposed cross-appeal could not await determination at trial or in any substantive appeal because, if the scenario at [10](a) transpired, the proceeding would have been struck out without DHC having an opportunity to advance its contention that a late knowledge period applies; and
(c)it is in the interests of justice that leave to cross-appeal be granted, if leave to appeal is granted.
[11] The specific ground of cross-appeal is that I erred in my finding (made in the alternative given the finding that the claim was in any event within the primary period) at [66] that DHC was unable to rely on the late knowledge provisions of the Limitation Act 2010.
Requirement for leave
[12] A party must apply to the High Court for leave to appeal any order or decision of the High Court made on an interlocutory application in respect of any civil proceeding.3 That application for leave must be made within 20 working days after the date of the order or decision, or within any further time that the High Court may allow.
3 Senior Courts Act 2016, s 56(3).
[13] Leave is required in this case as the decision in question was made on Mr Arnerich’s interlocutory application to strike out the statement of claim and dismiss the proceeding.
Considerations relevant to determining whether to grant leave
[14] In Greendrake v District Court of New Zealand4 the Court of Appeal agreed with the observation of Fitzgerald J in Fine Wood Upholstery Ltd v Vaughan5 that the requirement for leave to appeal should serve as a “filtering mechanism” to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either the parties or, more generally, do not unnecessarily delay the proceedings in which the orders are made. The Court of Appeal noted that Fitzgerald J recognised the following considerations as relevant to an application for leave to appeal:
(a)a high threshold exists;
(b)the applicant must identify an arguable error of law or fact;
(c)the alleged error should be of general or public importance warranting determination, or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the circumstances must warrant incurring further delays; and
(e)the ultimate question is whether the interests of justice are served by granting leave.
[15] In Li v Chief Executive of the Ministry of Business, Innovation and Employment (No 2),6 Palmer J considered the authorities and suggested that leave is likely to be granted if:
4 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].
5 Fine Wood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].
6 Li v Chief Executive of the Ministry of Business, Innovation and Employment (No 2) [2018] NZAR 1134 (HC).
(a)the appeal is not likely to be overtaken by the substantive hearing or cannot otherwise be considered as effectively in a substantive appeal;
(b)the appellant is likely to be prejudiced by postponement to the substantive appeal;
(c)the appeal may be dispositive of the case in law or as a practical matter;
(d)the arguments are capable of bona fide and serious argument;
(e)the issue concerns a decision of enough significance to the parties, or a question of law or general principle of sufficient importance to outweigh the cost and delay of an appeal.
Mr Arnerich’s application for leave
[16] I will consider Mr Arnerich’s second ground for appeal, concerning whether DHC’s claims are time-barred, first.
[17] I am satisfied that an appeal is justified on this ground. Mr Arnerich has identified an arguable error of law, the alleged error has both general importance and significance to the parties, and the appeal could be dispositive of the case.
[18]Mr Arnerich relies on this comment of Goddard J in Yan v Mainzeal:7
Thus, as this Court held in Arataki Properties Ltd v Craig, time runs in relation to a breach of duty by a director from the time that the company could bring a claim in respect of that breach. Section 321 of the 1955 Act did not have the effect of giving the liquidator a new cause of action, in respect of which time started running when the liquidation began. There is no indication that the current Act was intended to produce a different result.
[19] In my view the statement is obiter, as limitation was not an issue in that case. It is unclear whether the Court of Appeal was referred to s 16(1)(i) of the Limitation Act 2010, which I concluded modified the position from that under Arataki and means that the start date of DHC’s s 301 claim’s primary period was the date on which the
7 Yan v Mainzeal [2021] NZCA 99 at [300].
liquidator was appointed to Vaco. However, it is a statement from the Court of Appeal. I consider that there would be merit in the Court of Appeal being given the opportunity to confirm the position in a case where limitation is an issue in dispute and the effect of s 16(1)(i) of the Limitation Act 2010 is argued.
[20] DHC does not oppose Mr Arnerich’s application for leave to appeal for that reason (without conceding that any of the grounds of the proposed appeal are capable of bona fide or serious argument).
[21] In terms of Mr Arnerich’s first ground of appeal, relating to abuse of process, the justification for an appeal is less clear. Mr Arnerich relies on other statements by Goddard J in Yan v Mainzeal, to the effect that a creditor must, when making an s 301 claim, plead all the facts relevant to establishing a breach of duty by the director, and establish the loss caused by that breach, as they would in a claim by the company for breach of the relevant duty. Mr Arnerich also relies on the observation of Goddard J in Arnerich v DHC Assets Ltd at [180] that it would be an abuse of process for a liquidator to make successive s 301 claims. Mr Arnerich contends that the appeal is of general commercial significance, as my decision sanctions multiple proceedings against directors in respect to the same breach of director’s duties (without any constraints under the Limitation Act).
[22] I do not accept that the appeal has that general significance, because the decision does not stand for the proposition contended. Mr Arnerich’s strike-out application was argued on the basis that the proceeding amounted to an abuse of process because it was res judicata. My decision was that it was not res judicata because certain losses, while pleaded by DHC, were not determined by Davison J because he considered he did not have jurisdiction. I also rejected the argument that the proceeding was an abuse of process based on Neylon v Dicken for the same reason, namely that DHC did seek all its intended relief in the original claim, but Davison J declined to consider whether to grant relief. Mr Arnerich’s reliance on the statements from Yan v Mainzeal and Arnerich v DHC Assets seems to overlook this feature.
[23] Having said that, I accept that my decision may involve an arguable error of law. To be clear, that decision is: that it is not an abuse of process for a creditor to
bring a successive 301 claim for losses in circumstances where the losses arise out of a breach of duty found to exist in a previous s 301 claim but where the losses in question, while pleaded, were held to be outside the jurisdiction of the Court.
[24] While I do not accept that this aspect of the decision has the general significance contended by Mr Arnerich, it is significant to the parties as if I am wrong it will dispose of the proceeding. Further, to a certain extent the two grounds for appeal are interrelated as they concern the nature of the s 301 inquiry. For that reason, I conclude that the relevant threshold is met for an appeal on this point also.
DHC’s application for leave
[25] Mr Arnerich submits that DHC’s application for leave to appeal by way of cross-appeal has been filed out of time.8 However, Mr Arnerich does not oppose the application being made out of time.
[26] DHC submits that the application for leave to cross-appeal was applied for within time but, if it is incorrect in that view, seeks an order under r 1.19 extending the time for applying for leave to cross-appeal to 9 April 2021.
[27] Mr Arnerich filed and served his notice of application for leave to appeal on 24 March 2021. DHC filed and served its application for leave to cross appeal on 9 April 2021. An application for leave to cross-appeal must be made within 10 working days after the date on which a copy of the application for leave to appeal was served.9 Friday 9 April 2021 was the tenth working day after 24 March, and accordingly, DHC’s application for leave to cross-appeal was filed within time.10
[28] Turning to the substance of DHC’s application, in my judgment at [56] to [60] I decided that DHC had issued its proceeding within the primary period and therefore it was not time-barred. However, I went on to find that, if I was incorrect in that
8 Memorandum of counsel for the defendant dated 15 April 2021 at [3].
9 High Court Rules 2016, r 20.22(3).
10 High Court Rules 2016, r 1.3(1): 2 and 5 April 2021 not being working days (Good Friday and Easter Monday).
conclusion, DHC was unable to establish a late knowledge date within the meaning of s 14 of the Limitation Act 2010 on 1 March 2017.
[29] DHC contends that I erred in finding that once DHC knew that Mr Arnerich had distributed or paid out all Vaco’s funds to himself or associated interests, it had knowledge, in terms of s 14 of the Limitation Act, of the “act” upon which the claim of breach of s 131 is based. DHC contends that each of the eight separate payments Mr Arnerich made to himself, or to his interests in April 2013, and then each of the subsequent payments, constituted an “act or omission on which the claim is based”. DHC contends that as an analysis of the relevant duty requires a focus on whether the director complied with the relevant duty at the time of the alleged breach, there is room for serious argument that knowledge of the dates and amounts of the payments of company funds was required, within the meaning of s 14 of the Limitation Act 2010.
[30] Mr Arnerich submits that DHC’s application for leave to cross-appeal should be refused, primarily because it is not capable of bona fide and serious argument; and it raises no question of general or public importance. Mr Arnerich relies on the decision of this Court in Driver v Radio New Zealand.11 In that case, the Court observed that knowledge, for the purposes of s 14, does not mean certain knowledge. Rather, knowledge requires that the plaintiff knows enough to make it reasonable to begin to investigate whether they have a case against the defendant. The plaintiff then has two years in which to commence proceedings. Moreover, Mr Arnerich submits that DHC’s assertions of late knowledge are nothing more than unsupported assertions by way of submissions.
[31] I accept that DHC’s proposition is capable of bona fide argument. I also accept that it has general significance, as it concerns the relationship of ss 131 and 301 of the Companies Act and s 14 of the Limitation Act. That is, when a claimant under s 301 will be found to have late knowledge of an act of a director that allegedly breaches s 131.
[32] The issue on appeal also has significance to DHC as, if Mr Arnerich is granted leave to appeal and the appeal succeeds, in the absence of DHC being able to pursue
11 Driver v Radio New Zealand [2019] NZHC 3275, [2020] 3 NZLR 76.
its cross-appeal as to late knowledge, DHC’s TRC claims would be struck out altogether on limitation grounds.
[33] Moreover, the cross-appeal being argued will not give rise to any delay to the progression of the substantive proceeding beyond that already occasioned by Mr Arnerich’s appeal.
Result
[34]Therefore, I grant:
(a)Mr Arnerich leave to appeal DHC Assets Ltd v Arnerich [2021]
NZHC 277; and
(b)DHC Assets Ltd leave to cross-appeal that decision.
Associate Judge Gardiner
0
5
0