Edel Metals Group Ltd v Geier Ltd
[2017] NZCA 359
•22 August 2017 at 1 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA136/2017 [2017] NZCA 359 |
| BETWEEN | EDEL METALS GROUP LIMITED JOHN ANDREW SORENSEN |
| AND | GEIER LIMITED MICHAEL JOHN JACOMB, TRENA KATHLEEN JACOMB AND PETER REGINALD RICHARDSON AS TRUSTEES OF THE GENSET TRUST |
| Hearing: | 10 July 2017 |
Court: | Winkelmann, Brown and Clifford JJ |
Counsel: | D H McLellan QC, KFT Stolberger and J C Adams for First and Second Applicants |
Judgment: | 22 August 2017 at 1 pm |
JUDGMENT OF THE COURT
AThe application for an extension of time to appeal is granted.
BThe second respondents must pay the applicants one set of costs for a standard application on a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Clifford J)
Introduction
The applicants, Edel Metals Group Ltd and John Sorensen, apply for an extension of time within which to appeal against a decision of Fogarty J in the High Court given on 22 February 2017.[1] The second respondents, Michael Jacomb, Trena Jacomb and Peter Richardson as trustees of the Genset Trust, oppose. The first respondent, Geier Ltd, was insolvent by the time of the hearing before Fogarty J and has taken no part in the proceedings since then.
[1]Edel Metals Group Ltd v Geier Ltd [2017] NZHC 225.
After initial submissions were filed the Registrar was directed to bring the decision of the Supreme Court in Almond v Read to the attention of the parties.[2] The Genset trustees then filed further submissions, addressing the application in light of that decision. Edel Metals and Mr Sorensen did not. They did, however, file a memorandum attaching a letter their solicitors had written to the Genset trustees’ solicitors, pointing to that decision as being determinative, in their favour, of this application. As will become apparent, we too consider that decision is determinative of this application, notwithstanding Mr Ingram QC’s submissions on behalf of the Genset trustees to the contrary.
The litigation to date
[2]Almond v Read [2017] NZSC 80 [Almond (SC)].
Fogarty J’s decision came, as the Judge put it, at the end of much litigation pertaining to a former director of Edel Metals, Kenneth Wikeley. For the purpose of this application, that history can be summarised briefly.
In 2008 Mr Wikeley promoted a Chilean mineral processing operation to the Genset trustees. Edel Metals was formed to undertake the venture. Of its 100 million shares, 76.25 million were issued to Geier, as nominee for Mr Wikeley. The remaining 23.75 million were issued to the Genset trustees. No capital was called at the time of the issue of those shares. Sometime later the Genset trustees lent Edel Metals USD 1,500,060. Mr Wikeley personally guaranteed half of that loan.
The mineral venture failed. Edel Metals was struck off for failure to file an annual report. On 10 April 2013 the Genset trustees obtained judgment against Mr Wikeley on his guarantee for USD 862,534.50.[3] That judgment was not appealed. Whilst it was pending, however, Edel Metals had been restored to the register at Mr Wikeley’s instigation. On 16 April 2013, that is six days after that judgment, Mr Wikeley procured a fresh issue of shares, to dilute the Genset trustees, and called the capital on the original shares. The Genset trustees challenged the validity of that call. They also served a bankruptcy notice on Mr Wikeley, based on the judgment they had obtained.
[3]Jacomb v Wikeley [2013] NZHC 707.
Mr Wikeley applied to have that bankruptcy notice set aside, on the basis that a cross-claim existed by reference to the Genset trustees’ obligation to meet the call on their shares. Associate Judge Bell dismissed that application on 13 November 2013.[4] He found Mr Wikeley’s cross-claim to be not genuinely triable. In doing so he commented:[5]
This engineering of a call on shares to defeat the trustees’ rights under their loan is nothing more than a device to defeat the Genset Trust’s rights against Mr Wikeley under the judgment.
[4]Jacomb v Wikeley [2013] NZHC 3034.
[5]At [43].
Mr Wikeley appealed to this Court. His appeal was dismissed on 12 March 2014.[6] In doing so this Court also commented critically on what it described as the “elaborate and highly contrived series of events” that led to the call on the original shares.[7] The Court said that, on the face of it, those steps were suggestive of bad faith and impropriety.[8]
[6]Wikeley v Jacomb [2014] NZCA 46 [Wikeley (CA)].
[7]At [43].
[8]At [43].
In the meantime, Mr Sorensen had in late 2013 become the sole director of Edel Metals as a result of Mr Wikeley’s bankruptcy. After Associate Judge Bell’s 13 November 2013 decision was released, but before this Court’s 12 March 2014 decision was, Mr Sorensen resolved to revoke the previous call on the original capital and to make a new call of 25 cents per share. The call was not met, and Edel Metals brought proceedings in the High Court against Geier (by then insolvent) and the Genset trustees (the Call proceedings). The Genset trustees defended those proceedings. Ultimately, Edel Metals (then under Mr Sorensen’s control) abandoned those proceedings. The Genset trustees then applied for strike-out and for costs, including increased or indemnity costs, against Edel Metals and Mr Sorensen.
The matter came before Fogarty J. Edel Metals did not oppose either the strike-out or the order for costs, except to the extent that order included increased or indemnity costs. Mr Sorensen for his part opposed the making of any costs order against him, let alone indemnity costs. In his 22 February 2017 judgment, Fogarty J ordered that Mr Sorensen was to pay indemnity costs, namely the actual costs and disbursements incurred by the Genset trustees, totalling some $900,000.[9] He did so commenting:[10]
It was quite an extraordinary step for Mr Sorensen to endeavour to call the capital on the shares. He did so in the face of the very severe criticism of the Court of Appeal set out above.
[9]Edel Metals, above n 1, at [44].
[10]At [19] (footnote omitted).
He made a similar order for Edel Metals.
This application
The notice of appeal was filed on 21 March 2017, one day in time. That notice was not, however, served on the Genset trustees until 31 March 2017 — seven days outside the appeal period. This meant the appeal was not brought in time, within r 31 of the Court of Appeal (Civil) Rules 2005. The applicants’ solicitors deposed they had erroneously expected that an endorsed copy of the notice of appeal would be returned to them by the High Court, so that the Genset Trustees could be served. When they inquired of the Court Registry by telephone on 28 March 2017 as to when the endorsed notice would be returned, they were advised that this Court’s practice was not to return endorsed notices. The next day, they took steps to serve the notice. In so doing they discovered they were out of time. Accordingly, when copying the notice of appeal to the Genset trustees’ solicitors they sought the consent of the Genset trustees to an extension of time. The Genset trustees declined.
On 4 April 2017 the applicants made this application under r 29A of the Court of Appeal (Civil) Rules.
Analysis
Rule 29A
Rule 29A provides:
29A Extension of time for appealing
(1) If the appeal period prescribed by an enactment or the period prescribed by rule 29(1) or (2) has expired, a party who wishes to appeal may apply for an extension of time in which to appeal.
(2) If the other party consents to an extension of time and signifies that consent on an application to extend time, the Court or a Judge may—
(a) grant an extension of time in which to appeal; or
(b) direct that the application be dealt with as if it were an application for leave to appeal under Part 2 to which consent has been given in terms of rule 26.
(3) If the Court or a Judge grants an extension of time under subclause (2)(a), the party wishing to appeal must bring the appeal—
(a) within the time specified by the Court or the Judge when granting the extension; or
(b) if no time is specified by the Court or the Judge, within 20 working days after the day of the decision granting the extension of time.
(4) If the other party does not consent to an extension of time, the party wishing to appeal must apply under Part 2 for an extension of time in which to appeal.
(5) An application under subclause (4) must be made and treated as if it were an application under Part 2 for leave to appeal, and Part 2 applies with all necessary modifications.
Almond v Read
In Almond v Read, a decision released on 30 May 2017, the Supreme Court restated the correct approach to applications for extension of time under r 29A.[11] The case involved a family dispute over entitlements to real property. One sibling, Ms Almond, had been involved in a dispute with her mother (Mrs Read) and her two siblings about their respective entitlements to the property in which Ms Almond lived. In the High Court, Thomas J found in favour of the mother and Ms Almond’s two siblings.[12] Ms Almond instructed her solicitors to file an appeal. That appeal was served on the respondents within time, but filed in this Court one day late. This Court refused to extend time.[13] In doing so, it identified the principles that it had settled on in relation to applications for extension of time:[14]
The overarching consideration is the interests of justice. The factors relevant to that inquiry are the length of the delay and its reasons; the parties’ conduct; the extent of the prejudice caused by the delay; the prospective merits of the appeal; and whether the appeal raises any issue of public importance. The first three factors favour Ms Almond. The second two factors favour the Reads. Our function is to determine which factors, in the interests of justice, should be given predominant weight.
[11]Almond (SC), above n 2.
[12]Read v Almond [2015] NZHC 2797.
[13]Almond v Read [2016] NZCA 147.
[14]At [9] (footnotes omitted).
Applying those principles, this Court said that whilst it would normally have exercised its discretion to grant an extension of time, it was not doing so because it was satisfied that the appeal was hopeless, and that no purpose would be served by “granting an indulgence”.[15]
[15]At [1].
Ms Almond was granted leave by the Supreme Court to appeal that decision.[16] The approved question was whether this Court was right to refuse Ms Almond’s application. Ms Almond did not challenge the correctness of the settled principles. Rather, she said that in assessing the merits of her appeal this Court had done so in a manner contrary to the Supreme Court’s decision in Austin, Nichols & Co Inc v Stitching Lodestar.[17]
[16]Almond v Read [2016] NZSC 145.
[17]Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
In its decision allowing the appeal, the Supreme Court comprehensively reviewed the background to r 29A, and the way in which it had been interpreted and applied by this Court over time, including by reference to decisions of the England and Wales Court of Appeal. That review focused on identifying the circumstances in which a consideration of the merits of a proposed appeal would feature materially in the decision as to whether to grant an extension of time. In doing so, the Supreme Court emphasised the importance of rights of appeal and, hence, the hesitation a court should have before summarily dismissing an appeal, for example by declining an extension of time.
The Supreme Court summarised the position as follows:[18]
[35] It may be helpful at this point if we summarise the principles that we consider should guide the exercise of the discretion to grant or deny an extension of time to appeal. While this statement builds on the authorities, it also adds to them.
[36] The first point we make is that in most civil cases in New Zealand there is a right to a first appeal. The Court of Appeal (Civil) Rules do not confer an explicit power on the Court of Appeal to strike out timely appeals summarily on their merits (although they do contemplate appeals being struck for non-payment of security for costs or non-compliance with directions). Even if the Court has such a power, it has not been the Court’s practice to exercise it, so that those who bring timely appeals will almost always be able to have them heard on the merits. We think that this is an important part of the background against which extension applications must be determined.
[37] Accordingly, where a litigant takes steps to exercise the right of appeal within the required timeframe (including advising the other party), but misses the specified time limit by a day or so as a result of an error or miscalculation (especially by a legal adviser) and applies for an extension of time promptly on learning of the error, we do not think it is appropriate to characterise the giving of an extension of time as the granting of an indulgence which necessarily entitles the court to look closely at the merits of the proposed appeal. In reality, there has simply been a minor slip-up in the exercise of a right. An application for an extension of time in such a case should generally be dealt with on that basis, with the result that an extension of time should generally be granted, desirably without opposition from the respondent.
[38] The ultimate question when considering the exercise of the discretion to extend time under r 29A is what the interests of justice require. That necessitates an assessment of the particular circumstances of the case.
[18]Almond (SC), above n 2 (footnotes omitted and emphasis added).
The Court then identified and commented on factors which are likely to require consideration, namely: the length of the delay; the reasons for the delay; the conduct of the parties, particularly of the applicants; any prejudice or hardship to the respondent or to others with a legitimate interest in the outcome; and the significance of the issues raised by the proposed appeal, both to the parties and more generally.[19]
[19]At [38].
The Court did not include the merits of the proposed appeal in that list of relevant factors. It went on to observe, however, that it accepted the merits of a proposed appeal may, in principle, be relevant to the exercise of the discretion to extend time.[20] That was because there would be occasions on which a court would risk facilitating unjustifiable delaying tactics on the part of dilatory or recalcitrant litigants if it did not consider the merits.[21] It qualified that in principle acceptance by reference to two situations:
(a)Where any possible merits an appeal might have were “overwhelmed” by other contrary factors, such as delay and associated prejudice.[22]
(b)Generally, in cases of insignificant delay resulting from legal adviser error, where no prejudice to the respondent was identified other than the fact of the appeal.[23] In such cases respondents would generally be best advised to consent to an extension of time to enable the appeal to be determined promptly.[24] A respondent who did not consent in such a case ran the risk of an adverse costs award.[25]
[20]At [39].
[21]At [39].
[22]At [39(a)].
[23]At [39(b)].
[24]At [39(b)].
[25]At [39(b)].
The Court further explained that, even where the merits of an appeal were relevant, any consideration of them in the context of an application to extend time would necessarily be relatively superficial.[26] Thus, a decision to refuse an extension of time based substantially on the lack of merit of a proposed appeal should only be made where the appeal was clearly hopeless.[27] An appeal would be hopeless where, on the challenged facts, it could not possibly succeed, where the court lacked jurisdiction, where there was an abuse of process or where the appeal was frivolous or vexatious. The lack of merit must be readily apparent.[28]
[26]At [39(c)].
[27]At [39(c)].
[28]At [39(c)].
The Supreme Court explained in a footnote its use of the word “generally”, in [37] of its judgment, by reference to that characterisation of “lack of merit”. It said:[29]
We say “generally” because we accept there may be instances where the delay is short and there is no prejudice but the lack of merit is so obvious (for example, the claim is legally untenable) that the Court is justified in refusing to extend time.
[29]At n 91.
The Supreme Court then considered Ms Almond’s application on that basis. This Court’s judgment, that it was time to bring Ms Almond’s intra family litigation to an end, whilst understandable was neither here nor there. Ms Almond had a right of appeal. It then considered this Court’s assessment that Ms Almond’s appeal was hopeless. It did so by reference to its decision in Austin, Nichols. It decided that this Court’s assessment was flawed. This Court had deferred too much to the High Court’s credibility assessments and the findings that followed.[30] The Supreme Court concluded Ms Almond’s appeal was not “hopeless” in the way, in this context, that term was to be understood. It said:
[44] We are not persuaded this is one of those cases where the merits are so obvious that it can be said with certainty following a summary process that the appeal cannot possibly succeed. Indeed, it will be a relatively rare case where it is possible to conclude summarily that an appeal, even one against factual findings, must necessarily fail, so that the appeal can (effectively) be struck out.
The application
[30]At [43]–[44].
In our view, the undisputed facts bring this application within the type of application the Supreme Court identified as being involved in Almond v Read — that is, due to solicitor error there has been a brief (seven working days) delay in serving a notice of appeal, filed within time in this Court, on the Genset trustees. Once discovered, the solicitors moved promptly to address the problem. The Genset trustees have identified no particular prejudice arising from that delay, other than the fact of the appeal itself.
Contrary to Mr Ingram’s submission, we do not see there being any material difference between the length of the delay in this case, and that in Almond v Read. As to the nature of the error leading to the delay, Mr Ingram submitted that because it arose from a failure to check the Court of Appeal (Civil) Rules, it was a far more egregious error than the error in counting days in Almond v Read. There is nothing in this point. The error remains that of the solicitor and not the party, and in any event we see little in the distinction Mr Ingram seeks to draw as to the magnitude of the error. Moreover, given the extent and cause of the delay, we do not accept it is to be assessed in the context of an overall pattern of delay.
Mr Ingram also pointed to the longer period of delay, some 27 working days, which arose in conjunction with the applicants meeting their obligation to serve the notice of appeal on Mr Gibson, an interested party. Mr Gibson, a chartered accountant, is being sued by the Genset trustees for alleged breaches of duty owed to them in the circumstances arising out of the collapse of Edel Metals. Mr Gibson, notwithstanding the fact he was served, took no part in the Call proceedings. Any oversight in serving a notice of appeal on him was not only, very obviously, a lawyer’s error, but also clearly a minor one. Mr Gibson, who filed a memorandum as a “party served”, identified no prejudice arising out of that delay. The delay is itself relatively short.
In our view, those circumstances are also ones which come within the Almond v Read type of application.
On that basis, and subject only to the applicability here of the qualification represented by the Supreme Court’s use of the word “generally” in the last sentence of [37] of Almond v Read, set out above, this application would be allowed without there being a need to consider the merits.
As to that Mr Ingram argued that Mr Sorensen came within the class of “dilatory or recalcitrant litigants”, employing unjustifiable delaying tactics, where a consideration of the merits would play a material part in a decision on an application for extension of time. Here, and particularly in light of this Court’s earlier judgment,[31] he argued that the merits were so obviously against Mr Sorensen that the extension of time he sought was an unjustifiable indulgence. Thus, even if on the face of things this application arose in similar circumstances to those which applied in Almond v Read, the very obvious lack of merits of Mr Sorensen’s proposed appeal took it outside the general situation in which such applications were to be granted.
[31]Wikeley (CA), above n 6.
We acknowledge the criticisms of Mr Wikeley’s behaviour in the earlier judgment of this Court. On the other hand, and contrary to Fogarty J’s understanding, Mr Sorensen could not have been aware of those criticisms when he procured the second call. That judgment had not been released by then. Nor do we know whether Mr Sorensen was aware of Associate Judge Bell’s similar observations in declining Mr Wikeley’s application to have the Genset trustees’ bankruptcy notice set aside. Given that, on the facts before us it cannot be said his appeal merits the epithet “hopeless”, in the sense now to be used in applications of this kind.
We therefore grant the application for an extension of time to appeal.
The second respondents must pay the applicants one set of costs for a standard application on a band A basis and usual disbursements. As this is the first occasion on which we have considered an application for extension of time in light of the Almond v Read decision, we decline Mr Sorensen’s application for increased or indemnity costs. Given the Supreme Court’s reference to the risk of an adverse costs award in these circumstances, parties who oppose such extensions in the future may not be treated similarly.
Solicitors:
Lowndes Jordan, Auckland for First and Second Applicants
Kendall Sturm & Foote, Auckland for First and Second Respondents
McElroys, Auckland for Interested Party
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