Eden Refuge Trust v Hohepa HC Auckland CIV-2003-404-000539
[2011] NZHC 1816
•21 December 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2003-404-000539
BETWEEN EDEN REFUGE TRUST First Plaintiff
ANDJOANNE LYDIA MALETINO Second Plaintiff
ANDCALLUM MACDONALD Third Plaintiff
ANDATTORNEY-GENERAL Fourth Plaintiff
ANDCHARLES HOHEPA First Defendant
ANDCHARLES FLETCHER Second Defendant
Hearing: 20 December 2011
Counsel: G Bogiatto for the Third Plaintiffs
C R W Linkhorn for the Fourth Plaintiff
D A Wood for the Second Defendant
Judgment: 21 December 2011
JUDGMENT OF DUFFY J [Re Stay of Execution]
This judgment was delivered by Justice Duffy on 21 December 2011 at 5.00 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
EDEN REFUGE TRUST and ORS v HOHEPA and ANOR HC AK CIV-2003-404-000539 21 December 2011
[1] On 17 March 2010, an interim judgment on liability was entered against the second defendant and in favour of the third plaintiff. Then on 8 June 2011, a judgment on quantum was delivered. The third and fourth plaintiffs have now commenced steps to enforce the judgment against the second defendant.
[2] However, on 12 April 2010, the second defendant filed an appeal against the liability judgment, which is to be heard in the Court of Appeal on 7 March 2012. The present issue for determination is whether the plaintiffs’ attempts to recover the judgment should be stayed pending a determination of the appeal.
[3] In October 2011, the third and fourth plaintiffs obtained a sealed judgment for
$560,940.03 in favour of the third plaintiffs, and $17,812.22 in favour of the fourth defendant, totalling $578,725.25 against the second defendant. This was against a background where they had been seeking the second defendant’s comments on the draft orders for sealing since 9 August 2011.
[4] On 30 November 2011, the third plaintiff filed and served a bankruptcy notice on the second defendant. He committed an act of bankruptcy on 15 December
2011 when the notice went unpaid.
[5] On 9 December 2011, the second defendant filed and served an application for a stay of proceedings, or stay of execution of judgment under r 12 of the Court of Appeal (Civil) Rules 2005. The application is opposed. I have concluded, for the reasons expressed below, that the application should be granted on the following terms:
(a) The stay of execution of judgment is to remain in force until the end of the day of 7 March 2012, which is when the second defendant’s appeal against the judgment I delivered on liability will be heard in the Court of Appeal;
(b)The second defendant is to pay the judgment sum of $578,725.25, together with any outstanding costs awarded to the third and fourth plaintiffs to the solicitors for the third plaintiff. Those solicitors are to
retain the funds received in their trust account and to hold the funds on trust for the benefit of the party or parties who are successful in the appeal; or
(c) In the alternative, the second defendant is to provide the third plaintiff’s solicitors with a registered security over realty that is to the value of the judgment sum of $578,725.25 and any outstanding costs awarded to the third and fourth plaintiffs.
[6] There is settled authority about the approach the Court should take in deciding whether or not to grant a stay: see Keung v GBR Investment Ltd CA310/2010 [2010] NZCA 396 at [11]:
The stay application is brought under r 12(3) of the Court of Appeal (Civil) Rules 2005. In determining whether or not to grant a stay, the Court must weigh the factors “in the balance” between the successful litigant’s rights to the fruits of a judgment and “the need to preserve the position in case the appeal is successful”. Factors to be taken into account in this balancing exercise include:
(a) Whether the appeal may be rendered nugatory by the lack of a stay;
(b) The bona fides of the applicant as to the prosecution of the appeal;
(c) Whether the successful party will be injuriously affected by the stay;
(d) The effect on third parties;
(e) The novelty and importance of questions involved; (f) The public interest in the proceeding; and
(g) The overall balance of convenience.
That list does not include the apparent strength of the appeal but that has been treated as an additional factor.
[7] The second defendant submits that the above factors are not determinative, nor are they all applicable in every case. He contends that they demonstrate that the ultimate test to be addressed by a court is to balance the overall interests of justice between the parties by constraining developments in the interim, which would have the effect of preventing an appellate court ultimately doing such justice when the
appeal is heard. In the present case, the second defendant submits that his appeal will be rendered nugatory if a stay is not granted.
[8] The total sum sought under the bankruptcy notice comes to $581,361.25. This comprises the judgment sum in favour of the third plaintiff, plus costs awarded against the second defendant.
[9] The second defendant acknowledges that he has failed to satisfy payment under the notice, which required payment by 15 December 2011. He says, therefore, that the third plaintiff may issue bankruptcy proceedings against him and that he “may be adjudicated bankrupt on the third plaintiff’s application”. He argues that it is obvious if this happens that he will not be able to proceed with his appeal. He says this provides “no better example” of rendering an appeal nugatory, if he is prevented from pursuing his appeal by operation of law. He submits that on this basis alone, a stay of execution is warranted.
[10] The second defendant also argues that the appeal has been brought in good faith and that he has not delayed in bringing the appeal. He submits that the only parties affected by the decision are those engaged in the appeal and that a stay will have no effect on other third parties. He submits that the appeal raises arguable points, particularly in regard to the accessory liability of knowing receipt and dishonest assistance. He submits that the successful parties will not be injuriously affected by the stay. In this regard, he points to the fact that the relevant charitable trust of which the third plaintiff is trustee has been out of its assets for some eight years. The appeal is to be heard on 7 March 2012; thus, he argues that the difference in time between now and the appeal hearing date, in contrast with the considerable time the trust has already been out of funds, is such that it would not suffer any great injury if a stay is ordered until the appeal hearing date.
[11] The plaintiffs contend that this is not a case where the second defendant has moved to expedite the appeal. Rather than bringing an appeal promptly against the liability judgment, the second defendant filed an appeal but then did not progress it until after delivery of the quantum judgment, more than a year later. The plaintiffs argue that there was nothing to stop the second defendant from pursuing an appeal
against the liability judgment much sooner than he has done. They contrast this with their own position, which is that until judgment on quantum was delivered, they were unable to take any steps to recover the fruits of the liability judgment.
[12] The plaintiffs say that whether the appeal will be rendered nugatory is not determinative of whether or not a stay should be granted. But in any case, they argue that the refusal of a stay of the appeal will not render the second defendant’s appeal nugatory. They contend that here, the second defendant has failed to provide the Court with the evidence it requires in order to determine whether the appeal will be rendered nugatory. In this regard, the plaintiffs say that the second defendant has failed to produce evidence of his inability to pay the judgment sum. Thus, there is nothing to establish that refusal of a stay will lead to the second defendant being bankrupted before the appeal hearing.
[13] It is correct that the second defendant has produced no evidence of his financial circumstances. Thus, there is no evidence that he is unable to pay the judgment sum. In his affidavit in support of the application for a stay, he says he does not wish to have to address enforcement of the judgment before the appeal hearing. He also says that he is surprised by the steps the plaintiffs have taken. But he says nothing about his ability or inability to satisfy the judgment sum.
[14] Furthermore, in his submissions in support of a stay when it comes to the issue of providing security for the judgment, he has argued that the provision of any security would take as long, if not longer than the period between now and the appeal date. Thus, he has not offered the plaintiffs any alternative to payment of the judgment such as paying the judgment sum into a solicitor’s trust account until the appeal has been heard, or offering security for the judgment sum.
[15] The plaintiffs submit that even if the second defendant could not meet the existing judgment, it does not automatically mean that his appeal could not be pursued. First, there is nothing to show that he will be bankrupted by the time of the appeal hearing date. Secondly, even if he is bankrupted, it would then be a matter for the Official Assignee to determine whether or not to pursue the appeal or, alternatively, to exercise his discretionary authority to allow the second defendant to
pursue an appeal after bankruptcy. The principles regarding assignment of proceedings to a bankrupt are well settled. In Callis v Pardington (1996) 7 NZCLC
261,211 (CA) and in Edmonds Judd v Official Assignee [2000] 2 NZLR 135 (CA), the Court of Appeal found that when it comes to a decision to assign civil proceedings back to a bankrupt, the Official Assignee must consider the merits of those proceedings and if he concludes they are without merit, he should refuse to assign them. I consider it follows from this that if the proceedings have merit, the Official Assignee will either assign them to the bankrupt or proceed with them himself. It cannot, therefore, be assumed that following bankruptcy, the second defendant’s appeal will be brought to an end. Whilst this is likely to be the outcome should the Official Assignee determine the appeal is without merit, it seems to me that there would be some benefit in that outcome, as it will enable the plaintiffs to avoid the further costs associated with an unmeritorious appeal.
[16] The third and fourth plaintiffs submit that when it comes to payment of a money judgment the general principle is that money judgments are expected to be paid pending appeals: see Keung at [12]. Alternatively, satisfactory security should be provided. The second defendant has offered to do neither, to date. The third plaintiff is willing to provide an undertaking to hold the judgment in a form capable of ready repayment, should the judgment of this Court on liability be reversed on appeal or on any second appeal. Furthermore, the fourth plaintiff is the Attorney- General and he has submitted that he is able to hold the judgment sum in a way which would protect it and see it readily returnable to the second defendant, should his appeal be successful. The plaintiffs submit that the third plaintiff will be affected injuriously if a stay is ordered in terms of his continuing ability to perform the charitable trust objects for the benefit of the congregation of the charitable trust (it being a charitable trust having religious purposes). It is also submitted that there is a public interest arising from the principle that property devoted to charity should be managed prudently for the charitable and public purposes for which it has been provided.
[17] Regarding the apparent strength of the appeal, the plaintiffs submit that the legal issues arising on appeal are not novel or important. The third and fourth plaintiffs submit that the appeal rests to a significant extent on factual findings made
by the High Court, rather than points of legal principle. In this regard, it is important to recognise that the judgment on liability does not hinge on a finding of accessory liability of knowing receipt or dishonest assistance and so any change in the principles in these areas of the law will not alter the outcome of the findings on liability that were made against the second defendant. In the present case, the second defendant, as a solicitor acting for a charitable trust, was found to owe his own separate fiduciary duty to that charitable trust and to have breached it in circumstances where he was liable to make good to the trust property that was lost as a result of his breach.
[18] The third and fourth plaintiffs submit that the balance of convenience favours refusal of the application so that the judgment sums owed by the second defendant are obtained.
[19] I find it very unsatisfactory that the second defendant applies to this Court for a stay of execution but fails to disclose his financial circumstances. Without knowing his financial circumstances and specifically his ability to repay the money judgment, it is not possible for this Court to determine whether or not the refusal of a stay will result in him being bankrupted with this potentially rendering his appeal nugatory. I have already said that I do not consider that bankruptcy will render an appeal nugatory. But insofar as it might have that effect, I consider that an essential aspect of establishing this ground in support of a stay is full disclosure of financial circumstances. Such disclosure enables the Court to assess whether the defendant is unable to pay the money judgment and is at real risk of bankruptcy, or simply would prefer not to pay the money judgment while the appeal is outstanding. The former may persuade a Court to stay enforcement, whereas the latter is an abuse of the process which enables an application for a stay to be made.
[20] The second defendant is a solicitor who continues to practice in the Waikato region. His failure to pay the judgment on receipt of a bankruptcy notice is not, in my view, sufficient evidence of his inability to pay. I am not prepared to assume from this omission that he has insufficient means to pay the judgment sum. Even if he did lack such means, I consider that in the space of time between now and the appeal hearing on 7 March 2012 it is unlikely that any bankruptcy proceedings taken
against the second defendant would progress to the point where he was made bankrupt. And even if that were to occur, I consider it would not automatically bring the appeal to an end. I have already noted the Official Assignee’s authority to permit the appeal to proceed. If the appeal is a sound appeal that has merit and raises good arguable points, there is nothing to cause me to conclude that the Official Assignee would not pursue it. There is no evidence that the second defendant is unable to pay other debts. If the only creditors are the third and fourth plaintiffs pursuing the judgment sum and there is merit in the appeal, I would find it surprising if the Official Assignee were not prepared to allow the appeal to proceed.
[21] I am satisfied, therefore, that this is not a case where the second defendant’s appeal will be rendered nugatory if no stay is ordered. I am satisfied that neither the scope of the appeal nor the issues on appeal weigh heavily in favour of a stay being required now to do justice between the parties. I have no evidence before me that would cause me to think the second defendant cannot pay the judgment sum, or is not able to provide the alternative in the form of a security.
[22] The second defendant has sought to persuade me to adopt the approach taken in Rees v Firth [2011] NZCA 359, where an unconditional stay was granted by the Court of Appeal. I consider the present case is distinguishable from Rees v Firth. In that case, there was clear evidence that the applicant for a stay would be bankrupted before the appeal was heard, the appeal hearing was two weeks away (so that the Official Assignee would have had insufficient time to consider allowing the appeal to proceed) and the court at first instance had made determinations in both parties’ favour, which suggested the appeal had a measure of success. Here, there is no evidence the second defendant will be bankrupted; indeed there is no evidence he cannot pay the judgment sum, he simply says that he wishes not to do so. I fail to see why successful plaintiffs should be denied a judgment simply because the liable party wishes to delay payment until after the appeal is heard. Furthermore, the second defendant had no success in the first instance hearing and had factual and credibility findings made against him. These factors place him in an entirely different position from the applicant in Rees v Firth.
[23] This is a case that fits within the general well-settled principle that a stay upon payment of a judgment sum will only be granted on provision of security: see Keung at [12]. I consider that the third plaintiff is entitled to the fruits of its judgment, and I accept the plaintiffs’ arguments that there is a public interest in preserving charitable trust property for charitable purposes that would be affected negatively if a stay were ordered. I consider, however, that justice can best be obtained here by granting a stay, but on terms which require the second defendant to pay the money to the third defendant’s solicitors, where it will be held on trust until the outcome of the appeal is known; or, alternatively, to provide a reliable form of security as outlined earlier in the judgment herein to the value of the judgment sum. In this way, the plaintiffs will know that the judgment sum is secured, whilst the second defendant will have the comfort that should he be successful in his appeal, the payment he has made will be readily recoverable. Such an outcome between now and the appeal hearing strikes a fair balance between the interests of the parties.
Duffy J
Counsel: D A Wood P O Box 152 Shortland Street Auckland 1001 for the
Second Defendant
Solicitors: G Bogiatto P O Box 106120 (DX CP19060) Auckland 1001 for the
Third Plaintiff
The Solicitor-General Crown Law P O Box 2858 (DX SP20208) Wellington 6140 for the Fourth Plaintiff
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