Diver v Loktronic Industries Ltd
[2012] NZCA 272
•22 June 2012
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA258/2011 [2012] NZCA 272 |
| BETWEEN STEPHEN JOHN DIVER |
| AND LOKTRONIC INDUSTRIES LIMITED |
| CA259/2011 |
| AND BETWEEN NEIL RICHARD HINGSTON & ANOR |
| AND LOKTRONIC INDUSTRIES LIMITED |
| CA260/2011 |
| AND BETWEEN ROY BOWYER & ORS |
| AND LOKTRONIC INDUSTRIES LIMITED & ORS |
| Hearing: 22 June 2012 |
| Counsel: S A Grant for Loktronic in support |
| Judgment: 22 June 2012 at 1 pm |
JUDGMENT OF WILD J: APPLICATION FOR STAY AND INTERIM RELIEF PENDING DETERMINATION OF LEAVE TO APPEAL APPLICATION BY SUPREME COURT
ALoktronic’s application is amended to seek a stay of execution and/or the grant of interim relief under r 30(2) of the Supreme Court Rules 2004.
B Execution of the costs order in D of this Court’s judgment of 4 April 2012 is stayed pending further order of the Supreme Court.
CPending further order of the Supreme Court Loktronic is granted interim relief in these terms:
(a)The High Court is directed not to dismiss Loktronic’s bankruptcy proceeding against Mr Diver.
(b)The High Court is directed not to release Assa Abloy’s bank guarantee to the High Court.
DDirection that the security for costs given by the appellants not be paid out while the stay remains in force.
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REASONS OF WILD J
Relevant materials
The following are relevant to this judgment:
(a)Application dated 31 May 2012 by Loktronic for a stay of execution of this Court’s judgment delivered on 4 April, setting aside the judgment of Courtney J delivered in the High Court on 31 March 2011.
(b)Notice of opposition dated 8 June 2012 by Mr Diver (appellant in CA258/2011).
(c)Memorandum of counsel for Mr Hingston filed 15 June 2012 indicating that Mr Hingston does not wish to take an active part in opposing Loktronic’s stay application, and abides the Court’s decision.
(d)Notice of opposition dated 8 June 2012 by Mr Bowyer and others (the appellants in CA260/2011).
Chronology
This is a broad chronology of what has occurred in these proceedings through the High Court and this Court:
| Date | Event |
| 1.4.11 | Courtney J enters judgment against the appellants (defendants in the High Court) for a total (including interest) of $2.26 million. Appellants’ liability is joint and several. |
| 13.4.11 | Loktronic makes demand on Mr Diver for the judgment debt. |
| 15.4.11 | Mr Hingston and his Company apply for an order staying enforcement of the High Court judgment. |
| 21.4.11 | Loktronic files request for issue of a bankruptcy notice against Messrs Diver and Hingston. |
| 28.4.11 | 1. All appellants lodge appeals. 2. Mr Diver applies to High Court for a stay of execution of the High Court judgment. |
| 5.5.11 | Loktronic serves bankruptcy notice on Mr Diver. |
| 6.5.11 | Loktronic serves bankruptcy notice on Mr Hingston. |
| 10.5.11 | Mr Hingston applies for a stay of the bankruptcy notice. |
| 11.5.11 | Mr Diver’s solicitors request withdrawal of the bankruptcy notice and cessation of any further steps enforcing the judgment, pending determination of Mr Diver’s stay of execution application. |
| 23.5.11 | Loktronic files bankruptcy proceeding against Mr Diver for non-payment of the judgment debt. |
| 1.6.11 | 1. Rodney Hansen J grants stay of execution of bankruptcy proceeding on condition that applicants provide bank bond securing judgment plus interest. 2. Bankruptcy proceeding served on Mr Diver (i.e. after Rodney Hansen J’s judgment staying that proceeding). |
| 4.4.12 | Court of Appeal allows appeals. Quashes the judgment of Courtney J. |
| 11.4.12 | Mr Bowyer’s solicitors (Minter Ellison) seek payment out of security for the costs of the appeal. |
| 4.5.12 | Loktronic applies for leave to appeal to the Supreme Court. |
| 7.5.12 | Mr Diver seeks discontinuance of bankruptcy proceeding against him. |
| 23.5.12 | Mr Diver seeks payment by 1.6.12 of the costs of the appeal in the sum of $41,700. |
| 31.5.12 | Loktronic applies to Court of Appeal for order staying execution of its 4.4.12 judgment pending determination of its application for leave to appeal to the Supreme Court. |
| 5.6.12 | Mr Bowyer’s solicitors (Minter Ellison) apply to High Court to discharge bank guarantee. |
| 8.6.12 | Mr Diver, Mr Bowyer, Trimec Technology and Assa Abloy all file notices of opposition to Loktronic’s stay of execution application. |
Basis for application
The basis for Loktronic’s stay application is that a successful appeal to the Supreme Court will reinstate the basis for its bankruptcy proceeding against Mr Diver. This Court’s judgment should accordingly be stayed in the interim because, if it is not, Loktronic’s bankruptcy proceeding will be dismissed with irretrievable detriment to Loktronic. That detriment will comprise:
(a)Having to start the bankruptcy proceeding afresh, with the costs and inevitable delays involved in that. In particular Loktronic points to the delay in the ability of the Official Assignee to claw back transactions, charges and gifts made within the two year relation back period preceding adjudication.
(b)The risk that Loktronic may be wound up if the costs allowed by this Court in its judgment are pursued in the interim.
(c)The affect on Loktronic’s ability to enforce any restored judgment, if the guarantees required by the High Court are released in the interim.
(d)Mr Diver obtained a stay of execution in the High Court in the same circumstances on practically the same grounds as Loktronic now seeks a stay. It is just that Loktronic be given the same protections Mr Diver had in the High Court.
Loktronic argues that the balance of convenience favours retaining the status quo until the Supreme Court rules on its application for leave. Somewhat obviously, Loktronic urges its good prospects if it is granted leave to appeal to the Supreme Court.
Opposition to application
The appellants’ common opposition to Loktronic’s stay application can be summarised thus:
(a)This Court has no jurisdiction to stay its judgment, which (apart from the award of costs) was a non-executory judgment which took effect the moment it was delivered. As there is nothing (with the exception of costs) to be executed, there is nothing capable of being stayed. Rule 12 does not give jurisdiction, and the Court lacks inherent jurisdiction.
(b)If this Court has jurisdiction, then it should not be exercised. That is because a stay will permit Loktronic to proceed with its bankruptcy proceeding against Mr Diver, although the basis for that proceeding – the judgment of the High Court – has been quashed by this Court.
(c)The appellants’ ability to recover costs awarded by this Court may be unduly prejudiced, as Loktronic has no assets and is not trading and its director, who guaranteed Loktronic’s costs in the High Court, has stated that he has limited financial means. Loktronic will undoubtedly incur further cost in pursuing its application for leave to appeal to the Supreme Court.
(d)Loktronic’s proposed appeal to the Supreme Court will not be rendered nugatory if there is no stay. If Loktronic is wound up, its appeal rights can still be pursued by the liquidator should they be considered meritorious.
(e)Loktronic’s submission that the release of the bank guarantee will prejudice its ability to execute any restored judgment is misconceived. The stay ordered by the High Court came to an end when the Court of Appeal quashed the High Court’s judgment. The bank guarantee provided by Assa Abloy has in fact been released to it, or at least is in the process of being released.
(f)Loktronic’s application for leave to appeal lacks merit. The grounds are a recitation of the arguments that failed before this Court.
Mr Diver’s opposition to Loktronic’s stay application goes further. He is the person against whom Loktronic sought to execute the judgment it obtained in the High Court, through a bankruptcy proceeding. Mr Diver makes these additional points:
(a)This Court’s judgment absolved him from all liability to Loktronic.
(b)Because the stay in the High Court was discharged following delivery of this Court’s judgment, Mr Diver is exposed to enforcement of the High Court judgment through the extant bankruptcy proceeding or charging or garnishee orders, although there is no longer any judgment debt.
(c)Any of those processes is highly prejudicial to Mr Diver’s personal and business interests and reputation. He is an international mergers and acquisitions consultant. Having a public record of a bankruptcy proceeding against him is highly prejudicial.
(d)Any prejudice that may be suffered by Loktronic would be outweighed by the prejudice suffered by Mr Diver through having an extant bankruptcy proceeding particularly in circumstances where there is no judgment debt.
(e)This Court did not deal with the quantum aspects of the appeals and cross-appeals and will need to do so if the proposed appeal to the Supreme Court succeeds. As those appeals were based upon serious and substantial alleged errors in the High Court’s calculation of damages, it is speculative to suggest that the appellants (defendants in the High Court) would not be able to pay any revised judgment debt.
(f)Loktronic has brought the present situation upon itself by filing its bankruptcy proceeding after Mr Diver had sought a stay of execution of the High Court’s judgment. The predicament upon which Loktronic bases this present application would not have occurred had it prudently waited before commencing a bankruptcy proceeding.
(g)The present situation is quite different from the situation that confronted Rodney Hansen J when he granted Mr Diver a stay of the bankruptcy proceeding. Paragraphs [8] and particularly [15]–[16] of Rodney Hansen J’s judgment demonstrate that. In particular, the Judge noted that Mr Diver’s appeal rights would be rendered nugatory if he were made bankrupt, and he also noted Loktronic’s asset-less position, and the appellants’ concern that any payments to Loktronic would prove irrecoverable.
(h)The balance of convenience overwhelmingly favours the appellants, and is against the grant of a stay.
Decision
Loktronic in its application relied on r 12 of the Court of Appeal (Civil) Rules 2005, and Mr Diver has also focused his opposition on that rule. As I think all counsel accepted during the hearing, r 12 is not available to Loktronic. It permits this Court to grant a stay or interim relief only pending the determination of an application for leave to appeal or an appeal to this Court. It distinctly does not continue to apply after this Court has determined an appeal.
Rule 30 of the Supreme Court Rules 2004 is the applicable one. Rule 30 gives this Court (including a single Judge of this Court: r 7(1)(b) Court of Appeal (Civil) Rules) jurisdiction to stay the execution of its judgment pending the determination of an application for leave to appeal. Rule 30 is in almost identical terms to r 12, so the same jurisdictional point raised by counsel for the appellants needs to be confronted.
With the exception of costs, I accept that this Court’s judgment was non-executory. That is because the judgment comprised the setting aside of the judgment of the High Court, the dismissal of the appeal in CA259/2011 as well as the cross-appeal, and the award of costs. The setting aside and the dismissals took effect upon delivery of the judgment: r 52(1). As those parts of the judgment do not require execution, there is nothing capable of being stayed pursuant to r 30(2). This was the position confronting Anderson J in Area One Consortium Ltd v Treaty of Waitangi Fisheries Commission.[1] Counsel for the appellants rightly conceded that this Court’s costs order requires execution, and can be stayed. With the exception of costs, I therefore uphold the appellants’ jurisdictional challenge to a stay under r 30(2)(a).
[1] Area One Consortium Ltd v Treaty of Waitangi Fisheries Commission (1993) 7 PRNZ 200.
Interim relief under r 30(2)(b) (or its r 12(3)(b) counterpart) was not sought by Loktronic. It should have been because what Loktronic really seeks are orders, pending determination by the Supreme Court of Loktronic’s application for leave to appeal:
(a)Directing the High Court not to dismiss Loktronic’s bankruptcy proceeding against Mr Diver.
(b)Directing the High Court not to release the bank guarantee provided by the appellants (in fact, by Assa Abloy) to the High Court as a condition of the stay granted by Rodney Hansen J.
Upon its plain wording, I consider r 30(2)(b) is wide enough to encompass that type of relief. The judgment of Asher J in Fullers Bay of Islands Ltd v Otehei Bay Holdings Ltd[2] supports a wide and purposive interpretation.
[2]Fullers Bay of oIslands Ltd v Otehei Bay Holdings Ltd HC Auckland CIV-2009-404-7207, 23 February 2011 at [14].
I have decided to exercise my r 5 powers to amend Loktronic’s application to include an application for interim relief under r 30(2)(b). I see no prejudice to the appellants in doing this because whether or not the relief Loktronic seeks should be granted was thoroughly canvassed in written and oral submissions. I amend the application accordingly.
In my view a grant of interim relief in terms I have set out in [10] is appropriate pending determination. If that application is granted, any further relief would properly be a matter for the Supreme Court. I consider that the balance of convenience pending determination of the leave application falls decisively in favour of Loktronic. First, the potential prejudice if Loktronic’s bankruptcy proceeding is dismissed is real. I am referring to the costs and delays of having to start afresh, and the knock on effect of that on the relation back period. Further, although it is unlikely, given the likely time lapse before the Supreme Court decides Loktronic’s leave application, if Loktronic were wound up in the interim its appeal rights may well be lost.
Second, I accept that the prejudice to Mr Diver of having a bankruptcy proceeding against him remain on foot in the interim is also real. There is considerable force in Mr Diver’s point that he should not continue to face a bankruptcy proceeding when the debt upon which it was founded no longer exists. But the point is, that debt may be reinstated. There was a substantial judgment against Mr Diver. This Court has set it aside. But the Supreme Court may reinstate that judgment, in whole or in part. There are not concurrent liability judgments of the High Court and this Court, demonstrating that the substantive issues are amenable to different views. Further, it is not (alas) unknown for the Supreme Court to allow appeals from this Court.
I assess that the prejudice to the appellants — and it is greatest to Mr Diver — is a good deal less than the potential irretrievable prejudice to Loktronic if it is not granted interim relief. The prejudice to Mr Diver is continuing, not new, prejudice. He has faced a bankruptcy proceeding for over a year now. A significant factor is that the bankruptcy proceeding thus far has not been advertised.
Counsel for Mr Bowyer relied also on the continuing cost to Assa Abloy of the bank guarantee it has provided to the High Court. The guarantee is for $2.26 million (in round figures). I accept there will be a continuing cost, but unfortunately Mr Kennedy was not able to tell me what it was. He suggested that the cost would equate that for a commercial loan, and suggested a figure of around five per cent. I doubt that because a guarantee is distinctly different from a loan, but I simply do not know.
In looking to see where lies the balance of convenience, I have taken into account the likely time lapse before the Supreme Court decides the leave application. I have had an inquiry made of the Registrar of the Supreme Court. That indicates that a decision might be expected around the middle or latter part of July. That comparatively short period argues strongly in favour of the grant of a stay in respect of this Court’s costs order, and the grant of interim relief in the terms set out in [10]. I reiterate that the Supreme Court, if it grants leave, can re-assess any further stay or interim relief, hopefully armed with better information than I have.
Accordingly, pursuant to r 30(2) of the Supreme Court Rules 2004, I:
(a)Stay execution of the costs order in B of this Court’s judgment of 4 April 2012, pending further order of the Supreme Court.
(b)Grant Loktronic interim relief pending further order of the Supreme Court by directing the High Court not to:
(i)Dismiss Loktronic’s bankruptcy proceeding against Mr Diver.
(ii)Release Assa Abloy from the bank guarantee it provided to the High Court as a condition of the stay granted by Rodney Hansen J.
Security for the costs of the appeal
I was expecting that counsel may raise this, but they did not. Consistent with the stay I have granted, it is appropriate that the security given by the appellants not be paid out to them while the stay remains in force. I so direct.
Costs
Although Loktronic has succeeded, there is a distinct element of indulgence to Loktronic in the granting of a stay and interim relief. There is also some force in Mr Diver’s complaint that Loktronic has got itself into its present predicament. Accordingly, I make no order as to the costs of Loktronic’s application.
Solicitors:
Lowndes Jordan, Auckland for Appellants in CA258/2011
Haigh Lyon, Auckland for Appellants in CA259/2011
Minter Ellis Rudd Watts, Auckland for Appellants in CA260/2011
Baldwins Law Ltd, Auckland for Loktronic Industries Ltd
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