Elvidge v ASB Bank Ltd
[2015] NZHC 44
•2 February 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-441-811 [2015] NZHC 44
BETWEEN ROBERT ELVIDGE and JOHN
RICHARD TOWNSHEND GIFFORD as trustees of CREDIT UNION INSURANCE LIMITED
Plaintiffs
AND
ASB BANK LIMITED Defendant
Hearing: 10-12 February 2014 Appearances:
S E McCabe for Plaintiffs
M J Tingey and N F D Moffatt for DefendantJudgment:
2 February 2015
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 2 February 2015 at 12:00md
Pursuant to Rule 11.5 of the High Court Rules
………………………………………….
Registrar/Deputy Registrar
Solicitors:
Sainsbury Logan & Williams (M E J MacFarlane) Napier, for Plaintiffs
Bell Gully (M J Tingey and N F D Moffatt) Auckland, for Defendant
Barrister:
S E McCabe, Auckland, for Plaintiffs
ELVIDGE and GIFFORD as trustees of CREDIT UNION INSURANCE LIMITED v ASB BANK LIMITED [2015] NZHC 44 [2 February 2015]
TABLE OF CONTENTS
Paragraph
Introduction [1] What the case is about [5] Earlier proceedings [20] What has happened so far in this proceeding [26] The bank’s makeweight arguments [33] Sued for the third time [35]
Gaps in the plaintiffs’ case [36] Pioneer’s deed of settlement [39] Release argument [41]
The bank’s summary judgment application [44] The bank’s partial strike-out application [61] Procedural matters [64]
Merits [75] Interpretation of the new form [84] Is the defence otherwise defeasible? [91]
The bank’s application to dismiss for want of prosecution [97] Have the plaintiffs delayed during the proceeding? [100] Was their delay inordinate? [101] If there was inordinate delay, was it inexcusable? [113] If the delay was inordinate, has it seriously
prejudiced the bank? [120]
Can justice be done despite the delay? [127] The plaintiffs’ application under r 7.51 [130] Rule 7.51 – principles [131] Associate Judge Osborne’s decision [137]
The excluded information [144] The significance of this information [150] Is the new information irrelevant? [152] How does Judge Osborne’s decision stand in the light
of the new information? [158] Did the bank act improperly in excluding the evidence? [159] Clues left by the bank [169] The bank’s evidence objection [173] What consequential orders? [185]
The bank’s application for permanent stay [192] Outcome [206] Pleadings [207] Conference [209]
Costs [210] Extension of time for review [211] Orders [212]
Introduction
[1] It is nearly a year since I heard these applications. I have taken much longer to give my decision than I would have liked. I apologise to the parties for the delay. It must have caused them inconvenience and concern.
[2] Each side made interlocutory applications. The defendant, ASB Bank, applied first. It seeks:
[a] summary judgment under r 12.2 of the High Court Rules on the ground that it has a sound defence against all causes of action based on its verification clause;
[b] strike-out under r 15.1 of the plaintiffs’ cause of action for breach of mandate on the ground that it has a sound defence based on its contractual terms for operating its accounts;
[c] dismissal for want of prosecution under r 15.2; and
[d] permanent stay of the proceeding under r 7.48 for non-payment of costs.
[3] The plaintiffs apply under r 7.51 to rescind a decision of Associate Judge Osborne of 12 October 2012 requiring them to provide security for costs and staying the proceeding.1 They say that his orders were obtained fraudulently or improperly because the defendant failed to disclose relevant documents, in particular a letter of
21 October 2003.
[4] In its fourth application, the defendant relies on non-payment of costs ordered by Judge Osborne in his security for costs decision. It will be necessary to decide whether the costs order survives the plaintiffs’ rescission application. Accordingly, I deal with the plaintiffs’ stay application after the defendant’s first three
applications but before the fourth.
1 Elvidge v ASB Bank Ltd [2012] NZHC 2674.
What the case is about
[5] Between August 2005 and April 2007 Blair Fitzsimons, general manager,
stole from Pioneer Insurance Company Ltd by drawing cheques on the company’s
01 account with the ASB in favour of companies with which he was associated. After his embezzlement came to light, he was prosecuted, convicted and sentenced to imprisonment. In this proceeding, the plaintiffs look to the bank to make good Pioneer’s losses. They say that the bank had no mandate to honour the cheques drawn by Mr Fitzsimons and that the bank failed in its duty to warn Pioneer of the thefts. They seek damages of $3,790,120.502 - the amount stolen by Fitzsimons within six years of the start of the proceeding.
[6] The plaintiffs are former minority shareholders of Pioneer. Mr Elvidge was also a director. In December 2011 they took an assignment of Pioneer’s rights against the bank, including all rights of action. They are suing in respect of Pioneer’s losses, not their own, even though they also say that they suffered heavy financial losses as a result of Fitzsimons’ thefts. They failed in earlier attempts to sue the bank for their personal losses.
[7] Pioneer was incorporated in August 2002 as a specialist motor vehicle insurer. Its office was in Napier. ASB was its bank. Under the Insurance Companies (Ratings and Inspections) Act 1994 Pioneer was required to maintain a reserve capital account to keep its credit rating. At the start, the amount was $4m but this increased as the business grew. A related company, Jojaro Investments Ltd, was used as a vehicle to provide the capital. At the outset Jojaro borrowed $4m from
the bank and in turn advanced the funds to Pioneer.3 $500,000 was invested in
government stock held by the Public Trust and $3,500,000 was to be held by the bank on term deposit. Pioneer began business in August/September 2003 after these arrangements were put in place. The Elvidge and Gifford interests guaranteed the loan to Jojaro and gave the bank security by way of mortgages over their residential
properties.
2 The amount claimed in the statement of claim is $4,853,030.00 but it was accepted in the hearing that that was an overstatement.
3 A further loan was also provided.
[8] Risk Administration Services Ltd, a company associated with Pioneer, provided management and administration for the insurance business. In respect of some of Mr Fitzsimons' thefts, the bank questions whether the funds stolen belonged to Pioneer or to Risk Administration Services Ltd.
[9] The mandate issue turns on who was authorised to operate Pioneer’s bank accounts and how the accounts were in fact operated. In October 2002, Pioneer signed an account operating instructions form for ASB’s account “12-3197-2934-”. That is the original form. Two authorised signatories were required for each cheque. There were three authorised signatories – Pioneer’s three directors, but not Mr Fitzsimons. At that time, Pioneer had one account with the ASB with the suffix
00. It remained inactive while Pioneer obtained its insurance rating so the bank closed it. When Pioneer began business in 2003, the account was reopened with the suffix 01.
[10] Pioneer wanted to set up a new account to pay claims. Two of Pioneer’s directors signed a fresh account operating instructions form for a claims account with the suffix 04. That is the new form. Only one signatory was required. The authorised signatories were Mr Gifford and Mr Fitzsimons. There is a conflict as to when the form was signed. The bank says that it was on 7 October 2003. At an earlier stage the plaintiffs the plaintiffs contended that it was later in 2003.
[11] The plaintiffs’ case is that this new instruction to the bank gave Mr Fitzsimons authority to operate only the 04 claims account, but not the 01 account. The bank rejects that. It says that it gave Mr Fitzsimons authority to operate all of Pioneer’s accounts. It relies on particular terms in its account opening form.
[12] The bank says that it does not allow different signatories for sub-accounts, notwithstanding that other banks apparently do. Its case is that an authority to operate one sub-account is authority to operate all sub-accounts of a particular account. This is the “no split mandate” question.
[13] The plaintiffs say that when the new form was signed the bank manager said that it would alter the signatories only for the claims account, but not the 01 account. The bank contests this.
[14] Against the plaintiffs’ claim that the October 2002 authority continued to apply to the 01 account, the bank says that that account was operated outside the terms of that authority. Only a few of the cheques drawn on the 01 account had two signatures; Mr Elvidge, one of the plaintiffs, was the sole signatory of 180 cheques; Mr Gifford, the other plaintiff, signed a number of cheques alone even though he was not named as a signatory for the 01 account; and Mr Fitzsimons signed many cheques drawn for ordinary business purposes.
[15] The plaintiffs try to explain away the operation of the account. They also say that statements made by a bank officer at the time led them to believe that it was possible to have different signatories for different sub-accounts. While those matters have been traversed in earlier proceedings and applications, for these applications they raise a new matter. On 21 October 2003, Mr Elvidge wrote to the bank asking it to open a new account for Pioneer, with the signatories to be any one of Messrs Elvidge, Gifford and Anderson. The bank duly established a new sub-account with the suffix 05. The plaintiffs say that, given the bank’s terms for operating accounts, that authority applied to all sub-accounts, replaced earlier mandates and brought Mr Fitzsimons’ authority to operate all accounts to an end.
[16] As to the alleged breach of the bank’s duty to warn, the bank accepts that such a duty may arise. Both the New Zealand and the English Courts of Appeal have accepted that a bank may come under a duty to inquire into conduct that may be fraudulent or to warn a customer that an authorised signatory may be embezzling the customer’s funds.4 The bank, however, says that on the facts of this case the duty was never triggered. It will also allege contributory negligence. On the other hand, the plaintiffs point out that on one occasion the bank did inquire as to the
propriety of a payment but it checked with Mr Fitzsimons, the fraudster.
4 Westpac Banking Corp v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA), at [69]-[74];
Lipkin Gorman v Karpnale Ltd [1989] 1 WLR 1340 (CA) at 1356, 1378 and 1387.
[17] His thefts came to light in June 2007. The plaintiffs say that his frauds depleted Pioneer of its capital reserves, but the bank points out that Pioneer had drawn against its term deposit for ordinary business purposes before Mr Fitzsimons stole any funds. Be that as it may, when the frauds were discovered, Pioneer’s directors and shareholders believed that they could not raise finance to put the company back in good financial standing. They sold their shares for a nominal consideration to the New Zealand Association of Credit Unions, which renamed the company Credit Union Insurance Ltd.
[18] Jojaro defaulted under its loans from the bank, which issued notices under the Property Law Act 2007 for the mortgages given as security. The plaintiffs applied unsuccessfully to enjoin enforcement of the mortgages. The bank counterclaimed against the guarantors. After the mortgaged properties had been sold, the bank obtained judgment against Jojaro, the Giffords and the Elvidges. The Giffords owe
$764,407 under their judgment, Mr Elvidge $416,857 and Mrs Elvidge $216,857. They have not been able to pay.
[19] Credit Union Insurance Ltd brought a claim against Pioneer’s auditors and former directors. It was settled in mediation. The settlement agreement has not yet been put in evidence, nor the amount received in settlement.
Earlier proceedings
[20] The plaintiffs have taken earlier proceedings against the bank. They claimed for personal losses, rather than for damage suffered by Pioneer.
[21] The first proceeding, started in 2008, included the application for interim injunction (in paragraph [18] above) to restrain the bank from using its powers as mortgagee.5 The plaintiffs in that proceeding included these plaintiffs, their wives, trustees of their family trusts and Jojaro Investments Ltd. Pioneer was not a plaintiff. The plaintiffs claimed that, on the transactions on Pioneer’s account. the bank breached obligations to them in contract, tort and as fiduciary in addition to any
duty to Pioneer. One of the arguments the bank ran in opposition was that Pioneer,
5 Gifford v ASB Bank Ltd CIV HC Napier CIV-2008-441-713, 16 December 2008.
not the plaintiffs, was the victim of any breach of duty and was therefore the correct plaintiff.6 Simon France J dismissed the interim injunction application. While he held that the bank had the stronger case on the merits,7 that was a finding on an interim injunction application, not a final judgment. He did not hold that there was no case at all against the bank. Further, he did not make any finding as to a claim by Pioneer against the bank.
[22] The bank counterclaimed. It also applied for summary judgment but that was not heard. The plaintiffs discontinued in March 2009. In August 2009 the bank obtained judgment by consent against the Elvidge interests and against the Gifford interests (as set out at paragraph [18] above). The judgments have not been satisfied. Enforcement has not been stayed. In that proceeding the bank obtained an order for costs of $10,880 against the plaintiffs as well, but that also has not been paid.
[23] The same plaintiffs began the second proceeding, the Jojaro proceeding, in June 2011.8 The causes of action were in contract and tort. The relief sought was damages of $16,433,022. In other respects the claims were similar to those made in the first proceeding. Pioneer was not one of the plaintiffs. The bank applied for strike-out and summary judgment. Kós J found for the bank. He rejected the plaintiffs’ claim that there was an implied term in the plaintiffs’ contracts with the
bank that the bank would not honour unauthorised cheques in breach of the mandate given by Pioneer,9 and that the bank owed them a duty of care not to breach its contract with Pioneer.10 He held, obiter, that the question of breach of contract raised a factual conflict as to the terms of the mandate. That part of the bank’s summary judgment application was moot.11 He referred to this proceeding:12
As a matter of humanity, it is impossible to look upon what has happened to the plaintiffs without a very great sense of sympathy. As a matter of law, however, the direct rights of action they wish to maintain against the bank are unsustainable. The proper plaintiff in this case is Pioneer. Happily, as I have already noted, Messrs Elvidge and Gifford have secured an assignment of Pioneer’s rights of action against the bank. Thus fortified, they
6 At [25].
7 At [34]-[35] and [43].
8 Jojaro Investments Ltd v ASB Bank Ltd [2012] NZHC 980, [2012] NZCCLR 22.
9 At [65[-[74].
10 At [90]-[106].
11 At [76]-[77].
12 At [110].
have issued separate proceedings in the High Court at Napier. That action may proceed. This one may not.
[24] Costs awarded against the plaintiffs in that proceeding came to $18,736.91 including disbursements. Again, they have not paid.
[25] No estoppels arise out of that judgment that can be applied in these applications. The causes of action in the proceedings are different. In this case the plaintiffs allege that the bank breached duties to Pioneer; in the other they alleged breaches of duty to Jojaro and to themselves as its guarantors. The issues Kós J decided against the plaintiffs do not bear on the bank’s duty to Pioneer. His finding that the question of breach of contract was moot was obiter and not fundamental to
his decision so that issue estoppel could not arise.13
What has happened so far in this proceeding
[26] The plaintiffs started this proceeding on 13 December 2011 after taking the assignment from Pioneer. On 15 February 2012, the bank applied for security for costs and other orders. The plaintiffs opposed. Judge Osborne heard the application on 20 September 2012 and gave his decision on 12 October 2012.14 On the application for security for costs, he fixed security at $62,500 to be paid in two stages, $25,000 for the interlocutory stage to be paid within 20 working days and
$37,500 to be paid at close of pleadings. If the security was not paid, the proceeding would be stayed. He ordered the plaintiffs to pay costs on the application, later calculated at $10,707.12 including disbursements.15
[27] In opposing the security for costs application, the plaintiffs accepted that they could not pay any costs award if they should lose the case. Their homes had been sold by mortgagee’s sales, they had not paid the bank under the judgments against them for the shortfalls under those sales and they had not paid costs ordered against them in the earlier proceedings. Instead they said that security should not be ordered because the bank was responsible for their impecuniosity. That led to
Judge Osborne reviewing the merits of the plaintiffs’ claims. On both breach of
13 Talyancich v Index Developments Ltd [1992] 3 NZLR 28 (CA) at 38.
14 Elvidge v ASB Bank Ltd, above n 1.
15 At [122].
mandate16 and failure to warn,17 he held that, at this stage of the case, the plaintiffs had not shown that their inability to pay a final costs award arose from the bank’s actions. That was because he considered the plaintiffs’ case to be very weak. That assessment is also reflected in his fixing security at 80 per cent of scale costs (by applying a sliding scale as to merits), rather than a more common discounted figure, such as two-thirds.18
[28] On the exercise of the discretion to require security, he took into account the likelihood that requiring security would prevent the plaintiffs from being able to continue this proceeding.19 He cited A S McLachlan Ltd v MEL Network Ltd where the Court of Appeal held that in such cases security should be ordered only after careful consideration and in a case in which the claim has little chance of success.20
The effect of his decision was that any injustice to the bank arising from a barren costs award should prevail over the injustice of barring the plaintiffs from access to the court. He gave a tough security for costs decision.
[29] Neither side applied to review Judge Osborne’s decision. Given the plaintiffs’ application to rescind the security for costs decision, I record that Mr Elvidge’s letter of 21 October 2003 in [15] above was not put in evidence in the security hearing. In their rescission application the plaintiffs contend that it should have been.
[30] In a minute of 9 October 2012 Judge Osborne recorded a stalemate in obtaining non-party discovery of the deed of settlement of Pioneer’s claims against its directors and auditors. The plaintiffs were required to pay the first instalment of security by 9 November 2012, but did not do so. They say that following Judge Osborne’s decision they reconsidered matters and made further investigations. In June 2013 they came across the letter of 21 October 2003 and the email of 29
October, which they say cast a new light on the bank’s defence to the claim for
breach of mandate.
16 At [78].
17 At [94].
18 At [109]-[110] and [115]-[117].
19 At [100].
20 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [15]-[16].
[31] The bank filed these applications on 6 June 2013. The plaintiffs paid the first instalment of security on 15 July 2013. On 25 July 2013 Judge Osborne transferred this proceeding to the Auckland High Court. On 21 August 2013 the plaintiffs applied to rescind Judge Osborne’s decision on security for costs.
[32] The state of play now is:
[a] The proceeding was stayed from 9 November 2012 to 15 July 2013 for non-payment of the first instalment of security for costs, but is no longer stayed.
[b] Although a statement of defence is to be filed within 25 working days of service, the bank has not yet filed and served one. It was not required to file a statement of defence while the proceeding was stayed. While it has not filed a statement of defence, the bank is vulnerable to the plaintiffs applying for formal proof under r 15.9 of the High Court Rules.
[c] Case management directions so far have concerned only the parties’ interlocutory applications. There has not been a conference to give directions for the proceeding generally.
[d] Neither side has made discovery. Until pleadings are completed, it is not possible to decide what directions are required for discovery, let alone other case management directions.
[e] The plaintiffs have not paid the bank the costs of $10,707.12 on the security for costs application.
The bank’s makeweight arguments
[33] Before dealing with the merits of the applications, it is necessary to put out of the way some of the clutter the bank added to the case. It ran a number of arguments directed mainly at downplaying the merits of the plaintiffs’ claim, but which had
little relevance to the applications. I deal with them, if only to show that I have not ignored them.
[34] One reason not to be diverted by these arguments is that the applications raise specific issues. If I were to decide the applications on other grounds, I would be going outside the scope of the applications. In effect, I would be turning these interlocutory applications into the hearing of separate questions under r 10.15 of the High Court Rules, a matter outside my jurisdiction as an associate judge.21
Sued for the third time
[35] The bank complained that this was the third time the plaintiffs had sued it. Its submission invited an induction that because the first two claims had not been any good, this one could be no better. Aside from that fallacy, it is necessary to note that no estoppel based on earlier judgments stands in the way of the plaintiffs bringing this proceeding. One of the bank’s successful arguments for opposing the earlier proceedings was that Pioneer was the rightful plaintiff, not the guarantors of the loans to Jojaro. The bank can hardly complain if the plaintiffs take that lesson on board and arrange to sue on causes of action available to Pioneer.
Gaps in the plaintiffs’ case
[36] On its applications, the bank generally has the burden of proving the facts on which it relies. That is especially the case with its summary judgment application. In Westpac Banking Corporation v MM Kembla New Zealand Ltd, where a customer sued a paying bank for failure to warn of thefts by an employee, the Court of Appeal
said:22
Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff’s claim. That would permit a defendant, perhaps more in possession of the facts than the plaintiff (as is not uncommon where a plaintiff is the victim of deceit) to force on the plaintiff’s case prematurely
21 Separate questions are heard in court, but the matters in issue in this proceeding are not within the court jurisdiction of an Associate Judge – Judicature Act 1908, s 26I.
22 Westpac Banking Corp, above n 4, at [63]. The Court applied this reasoning at [71] and [72].
before completion of discovery or other interlocutory steps and before the plaintiff’s evidence can reasonably be assembled.
[37] Notwithstanding that, at a number of points the bank tried to fill in gaps in its own evidence by asserting that it was for the plaintiffs to adduce evidence on the issue and they had failed to do so. There are some points where an onus does fall on the plaintiffs. I identify them where it applies. In all other respects, the bank is required to prove its facts on its applications and cannot slough off that burden.
[38] The bank also made play of inconsistencies in the plaintiffs’ evidence, especially with regard to the circumstances of the signing of the authority for the claims account, and also the inconsistency of that signing with the letter of 21
October 2003. In that, the bank was inviting me to make final decisions on the substantive merits of the case before all the evidence was in.
Pioneer’s deed of settlement
[39] The bank took the plaintiffs to task for not having disclosed how much Credit Union Insurance received under the settlement of its claim against Pioneer’s auditors and former directors. While the plaintiffs acknowledge the settlement and that sums paid under that settlement less costs must be brought into account in calculating damages in their claim against the bank, they have so far apparently not been able to obtain a copy of the deed of settlement or details of the amounts received. The bank had sought particulars in the hearing before Judge Osborne. The plaintiffs showed that Credit Union Insurance had resisted disclosure for reasons of confidentiality. Judge Osborne noted that an application for non-party discovery was required but declined to order either side to make such an application. There has apparently been no change in that impasse.
[40] The matter goes to the quantum of damages. The plaintiffs will need to bring the amount into account. The case should not be given a close of pleadings date until they have finalised the amount of the losses after making allowance for the settlement. But that does not mean that to respond to the bank’s applications to stall this proceeding, the plaintiffs now need to give full details of the settlement.
Release argument
[41] The bank raised a second argument based on the settlement. It claimed that the settlement released it from liability. It relied on the rule that a release of one joint tortfeasor releases all other joint tortfeasors.23 The weakness of the argument
can be seen in the tentative assertion of one of the bank’s officers:24
Pioneer may have released ASB as a joint tortfeasor when it released its former directors and auditor on settlement of its claims against them.
And in the ground pleaded in the bank’s application:
…
(f) given the failure to disclose any details of the above settlement, ASB cannot be sure that the former directors and
shareholders have been given a release that would also
release ASB as a joint tortfeasor.
[42] The difficulties for the bank are:
[a] The settlement is not in evidence so it is not possible to make findings as to its terms. In particular, it is unknown whether there was a release from liability or merely an undertaking not to sue.25
[b] There is no evidence that the bank was a joint tortfeasor. The release rule applies only to joint tortfeasors, not to concurrent tortfeasors. The Law of Torts in New Zealand puts the distinction this way:26
Joint liability arises where there is concurrence in the act or acts causing damage, concurrent liability where there is a coincidence of separate acts which by their conjoined effect cause damage.
In the circumstances of this case it is unlikely that the bank joined
with Pioneer’s directors or auditors in giving effect to or concealing
23 See Brooks v New Zealand Guardian Trust Co Ltd [1994] 2 NZLR 134 (CA), New Zealand
Guardian Trust Co Ltd v Brooks [1995] 1 WLR 96 (PC); Allison v KPMG Peat Marwick [2000]
1 NZLR 560 (CA); and Robinson v Tait [2002] 2 NZLR 30 (CA).
24 Affidavit of Peter Robinson of 5 June 2013 at [42](a).
25 An undertaking not to sue is for the benefit of only the promisee, whereas a release is for the benefit of all joint tortfeasors: Duck v Mayeu [1892] 2 QB 511 (CA).
26 Stephen Todd “Multiple Tortfeasors and Contribution” in Stephen Todd (ed.) The Law of Torts in
New Zealand (6th ed, Brookers Ltd, Wellington, 2013) at 1214-1216.
Mr Fitzsimons’ thefts. The bank has not shown why I should find that it was jointly involved in wrongs done by Pioneer’s auditors or directors. The plaintiffs have not alleged any such complicity by the bank.
[43] None of the bank’s arguments noted in this part of the decision, alone or in combination with other matters, add anything to the bank’s applications or give any reason for bringing this proceeding to an end. With that, I go to the applications.
The bank’s summary judgment application
[44] Although summary judgment applications are usually made at the start of a proceeding, this one was filed eighteen months later. The bank did not have to obtain leave under r 12.4(3) of the High Court Rules, because it has not yet filed a statement of defence.27 The bank also applied for strike-out on the same ground as its summary judgment application. Where the strike-out application overlaps the summary judgment application, it is not necessary to deal with the strike out aspects
separately. In the hearing, the bank also advanced submissions for a partial strike- out on additional grounds. That extra strike-out is considered separately.
[45] Both sides accept that the principles set out in the Court of Appeal’s judgment in Westpac Banking Corporation v MM Kembla New Zealand Ltd apply to a defendant’s summary judgment application.28 It is unnecessary to set them out in full.
[46] The bank’s ground for its application is that a verification clause, one of the terms on which Pioneer operated its accounts, gives it a watertight defence to all the plaintiffs’ causes of action. Here is the clause:
You must check your bank statements for each Account to ensure that the entries recorded in those statements are correct. You must notify us in writing 60 days from the date your bank statement is sent to you of any incorrect entry in the bank statement or if you have elected not to receive
27 A defendant can apply for summary judgment after filing a statement of defence only with leave of the court.
28 Westpac Banking Corp, above n 4, at [58]-[64].
paper statements within 60 days from the date of any incorrect entry. Failure to notify us in this manner shall, to the fullest extent permissible by law:
i. be deemed to be acceptance by you that the balance in that Account and all transactions recorded in your bank statement are lawful and correct;
ii. provide us with a full defence against any action taken by you for any claims of any nature including claims for breach of contract, negligence, wrongful debiting of funds and any other tort, equitable remedy or any other cause of action whatsoever brought against us in respect of the Account or transaction recorded in the bank statement.
[47] The bank says that it did not receive any notifications in time from Pioneer that any entries in its bank statements were incorrect and accordingly the clause bars Pioneer from suing it under the claims in this proceeding. The plaintiffs accept that the clause has contractual effect, but deny that the bank is entitled to summary judgment or strike-out.
[48] A verification clause is a form of conclusive evidence clause. Unless a customer notifies the bank, within the time set, of any incorrect entries in a bank statement, the customer cannot later contest the correctness of those entries. Its purpose is to transfer the risk of losses arising from unauthorised or improper transactions on the account from the bank to the customer. In Dobbs v National Bank of Australia, the High Court of Australia held that conclusive evidence clauses
are not contrary to public policy.29
[49] In Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd, the Privy Council indicated that verification clauses are to be construed strictly. It found that the clauses in that case did not amount to conclusive evidence clauses:30
If banks wish to impose upon their customers an express obligation to examine their monthly statements and to make those statements, in the absence of query, unchallengeable by the customer after expiry of a time limit, the burden of the objection and of the sanction imposed must be brought home to the customer. In their Lordships' view the provisions which they have set out above do not meet this undoubtedly rigorous test. The test is rigorous because the bankers would have their terms of business so construed as to exclude the rights which the customer would enjoy if they were not excluded by express agreement. It must be borne in mind that, in their Lordships' view, the true nature of the obligations of the customer to his
29 Dobbs v National Bank of Australia (1935) 53 CLR 643.
30 Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80 (PC) at 110.
bank where there is not express agreement is limited to the Macmillan and Greenwood duties. Clear and unambiguous provision is needed if the banks are to introduce into the contract a binding obligation upon the customer who does not query his bank statement to accept the statement as accurately setting out the debit items in the accounts.
[50] Sub-clause (ii) of the verification clause in this proceeding addresses the shortcoming of the clauses in Tai Hing Cotton Mill Ltd because the effect of the clause is stated clearly and unambiguously.
[51] For its summary judgment application, the bank would have it that it need only prove the clause and allege that there were no notifications under the clause to obtain judgment. The matter is not quite so straightforward. The effect of the clause is to deem entries on bank statements to be correct and not open to further challenge. The bank, therefore, needs to show that the transactions on Pioneer’s account on which it is being sued were entered on bank statements it sent to Pioneer. It cannot do that unless it puts the statements in evidence, but it has not done so. Not one bank statement has been put in evidence.
[52] The bank also has to show that it sent the relevant statements to Pioneer.31
Obviously a customer cannot check a bank statement without first having received it. The bank’s evidence on the point is inadequate. Its witness is an Executive Manager Group Credit Structuring – Commercial in Auckland. He does not say that Pioneer had elected to dispense with receiving bank statements. He does not say that he sent the statements to Pioneer. He does not appear to have any personal knowledge of the bank’s systems for sending statements to customers. There is no evidence that sending statements to customers is within his job description. He does no more than assume due despatch:
In accordance with ASB’s systems at the time, Pioneer would automatically have received paper statements upon opening the Current Account which would have been sent to Pioneer’s address listed on the Account. If Pioneer elected to suppress its paper statements at any stage via ASB’s online banking services, it would have then had access to the Current Account statements online. ASB has no record of Pioneer requesting that it did not receive paper statements.
31 Ri Jong Son v Development Bank of Singapore [1998] SGHC 84, [1998] 1 SLR(R) 824 at [53]; Pertamina Energy Trading Ltd v Credit Suisse [2006] SGCA 27 [2006] 4 SLR(R) 273 at [65]; and Jiang Ou v EFG Bank AG [2011] SGHC 149, [2011] 4 SLR 246 at [27].
An assumption is not evidence of a fact, except the witness’ state of mind.
[53] Faced with this difficulty, the bank invoked a “deemed receipt” clause in its
terms of business:
You are deemed to have received any communications from us three days after we have posted such a communication to your last notified address, and in the case of a facsimile communication you are deemed to have received such a communication on the date and at the time sent by us to your last notified facsimile address.
The presumption under that clause can arise only on proof of posting and so far that evidence is missing.
[54] The Singaporean cases on posting are instructive. Ri Jong Son v Development Bank of Singapore and Jiang Ou v EFG Bank AG were not summary judgment cases, but went to a full hearing. In both cases, the banks relied on verification and deemed receipt clauses and called witnesses to describe the banks' mailing systems, but it was held that the banks had not proved posting, despite more extensive evidence than has been given here. In response, the bank referred to Tjoa
Elis v United Overseas Bank where posting of statements was found.32 In that case
the point was not necessarily in issue. In any event, the varied findings in these cases show that the issue is a factual one, requiring fuller proof than has been given here.
[55] The bank also submitted that there was some onus on the plaintiffs to show that Pioneer did not receive the statements, but that was one of the bank’s abortive onus-switching arguments. On this, the burden remains on the bank throughout.33 It may turn out later after discovery, including non-party discovery from Pioneer, that it did receive the relevant statements, but so far that remains unproved.
[56] The plaintiffs submitted on another aspect of the bank’s reliance on the verification clause. On the bank’s case, it needs to send only bank statements to its
customer. The plaintiffs say that for Pioneer to carry out a proper scrutiny, the bank
32 Tjoa Elis v United Overseas Bank [2003] SGHC 1, [2003] 1 SLR 747 (SGHC).
33 Westpac Banking Corporation, above n 4, at [64].
also had to return Pioneer’s cleared cheques. They referred to the banks’ failure to
return cleared cheques in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd.34
[57] The question is relevant because of the way Mr Fitzsimons carried out some of his frauds.35 He told Pioneer’s directors that $3m (which he had misappropriated) was held on term deposit with GE Finance and forged documents to show this fictitious investment. When he drew Pioneer cheques in favour of his company, BJ & MJ Investments Ltd, he recorded on the cheque butts that the payments were to “GE Finance on term deposit.” Because of his deceit, the bank statements alone
would not have alerted Pioneer to his fraud, but a comparison of the cleared cheques with the butts would have.
[58] In response, the bank referred to dicta in the Singapore Court of Appeal’s judgment in Pertamina Energy Trading Ltd v Credit Suisse that it should not make any difference whether cleared cheques are returned or not.36 The statement was obiter, as the case did not involve a cheque account.
[59] On this, it would be helpful to have evidence as to current banking practice in New Zealand so as to establish the application of a verification clause, when the bank statements alone will not alert the customer to incorrect entries. There is a real question whether a bank should be able to rely on the clause, when it has retained documents that would alert its customer to incorrect entries. In Westpac Banking Corp v MM Kembla New Zealand Ltd, the Court of Appeal said that the construction of contractual exclusion clauses requires consideration of the surrounding facts, a
matter inappropriate for determination on a summary judgment application.37
Evidence of banking practice is relevant contextual material, which is lacking here. The matter is better suited for a fuller examination in a substantive hearing.
[60] The bank has not satisfied me, on the evidence adduced so far as to its
verification clause, that none of the plaintiffs’ causes of action can succeed. The
summary judgment application must therefore be dismissed. Similarly the strike-out
34 Tai Hing Cotton Mill Ltd, above n 30, at 109.
35 I have taken this from the summary of facts in the Serious Fraud Office’s prosecution of
Mr Fitzsimons.
36 Pertamina Energy Trading Ltd, above n 31, at [62].
37 Westpac Banking Corp, above n 4, at [71].
application fails, insofar as it is based on the verification clause. It should go without saying that the failure of the summary judgment application does not stand in the way of the bank running a defence based on the verification clause at the substantive hearing. The success of the defence will turn on the evidence given then, not on what has been given in this application.
The bank’s partial strike-out application
[61] In its written submission for the hearing the bank sought an order striking out paragraph [45] of the statement of claim, which says:
ASB breached this term by honouring cheques drawn and signed by
Blair Fitzsimmons on the 01 account.
[62] This paragraph followed the pleading in paragraph [44] as to the bank’s authority to operate Pioneer’s accounts, namely that the bank’s mandate was to honour cheques drawn by two of the three authorised signatories, as provided in the original form of 2002; the new form of 2003 applied only to Pioneer’s claims account with the 04 suffix; and Mr Fitzsimmons was not authorised to draw cheques on the current account with the 01 suffix.
[63] The bank’s intention was that by removing paragraph [45] from the statement of claim, it could cut out the allegations of breach of mandate. In its submission the claim for breach of mandate was not available because of the terms of the new form of 2003. It ran that submission as an alternative to its summary judgment application, which was directed at getting rid of all the allegations against it. It accepted that the plaintiffs could still have a claim against it for breach of duty for failure to warn, but said that the scope of the substantive hearing would be cut down markedly.
Procedural matters
[64] There are some procedural difficulties with this partial strike-out application. They were not raised in the hearing, but they became apparent as I worked on the decision.
[65] First, the bank did not make clear in its application that it sought strike-out of only paragraph [45] of the statement of claim. An interlocutory application is required to state the relief sought and the grounds justifying that relief.38 The bank’s application sought strike-out of the entire proceeding, not just paragraph [45]. The grounds of the application did not refer to the new form of 2003 or allege that the form provided a stand-alone basis for striking out part of the case against it. Instead any experienced lawyer would understand that the strike out application was being run in tandem with the summary judgment application, which was directed at the
whole proceeding and was based on the verification clause, not on the new form. In their submissions, the plaintiffs addressed the merits of the bank’s submission without referring to this procedural aspect.
[66] The second matter arises from the plaintiffs’ pleading. The statement of claim is drafted as a single claim for breach of contract. But it alleges two kinds of breach of contract, one for breach of mandate and the other for failure to exercise reasonable care and skill (in particular, the failure to warn). The different breaches give rise to different tests for liability (strict for the first, lack of due care for the second), for scope of duty (the duty to warn may arise even if Mr Fitzsimons was authorised to draw cheques), for causation (the duty to warn might arise only for some cheques) and available defences (such as contributory negligence). They may turn on different facts. In short they raise different causes of action and should have
been separated.39 If they had been, there was a better chance that the bank would
have made it clear that it was targeting the entire cause of action for breach of mandate, not just the paragraph alleging breach.
[67] Third, the bank argued for strike-out on the basis that the relevant pleading did not disclose a reasonably arguable cause of action, the ground under r 15.1(a) of the High Court Rules 2008. It cited the standard test for strike out on that ground.40
That was misdirected. The bank was not saying that the statement of claim was not
reasonably arguable. Instead, even if the claim were arguable, it had such a strong
38 High Court Rules, 2008, r 7.19(1)(a).
39 Rule 5.17(1).
40 Andrew Beck and others McGechan on Procedure (online loose-leaf ed, Thomson Reuters) at [HR 15.1.02(1)]; Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267; and Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].
defence that the claim for breach of mandate should be struck out straightaway. It was relying on an affirmative defence. Specifically its argument was that the plaintiffs’ claim, based on the mandate given in the form signed in 2002, could not succeed because that mandate had been replaced by the new form, which allowed Mr Fitzsimons to operate the 01 account. The fact that its application was based on an affirmative defence rather than an absence of arguable claim may have been obscured by the plaintiffs’ proleptic pleading in paragraph [44] of the statement of claim that the new form had limited application. The point remains that the bank is relying on an affirmative defence.
[68] Strike-out applications based on affirmative defences differ from those alleging no arguable cause of action. The well-known cases are on limitation defences. They offer useful guidance. In Ronex Properties Ltd v John Laing Construction Ltd the English Court of Appeal indicated that where there was a very clear limitation defence, the court could strike out a claim because it was frivolous, vexatious or an abuse of process.41 Tipping J followed that in Matai Industries Ltd v
Jensen:42
The present defendants contend that this is a very clear case of claims barred by the Limitation Act and apply to dismiss the proceeding, inter alia, on that ground. The onus is clearly on the defendants to show that the plaintiff's claim, or at least some part of it, is statute-barred. Evidence can be tendered either way by affidavit, and that is what has occurred in the present case.
If the plaintiff in opposition to the defendants' proposition can show that it has a fair argument that the claim is not statute-barred or that the limitation period does not apply or is extended for any reason, then of course the matter must go to trial. To hold the interests of plaintiffs and defendants in fair balance in this context the Court should in my view be slow to strike out a claim or cause of action altogether in limine but against that, if the position is quite clear, then a defendant should not be vexed by having to go to full trial when the answer is obvious and inevitable.
[69] And in Murray v Morel & Co Ltd he said:43
… Read as a whole my judgment in Matai can be seen as holding that the onus is on the defendant to show that a claim, or at least part of it, is statute- barred, unless the plaintiff is able to rely on some extension of the ordinary
41 Ronex Properties Ltd v John Laing Construction Ltd [1983] QB 398 (CA)
42 Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (HC) at 532.
43 Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [32]-[34].
limitation period or some postponement of the commencement of that period. The question which arises in this case concerns what the plaintiff must do to resist the striking out of a claim which, subject to matters of postponement and extension, is clearly statute-barred.
I consider the proper approach, based essentially on Matai, is that in order to succeed in striking out a cause of action as statute-barred, the defendant must satisfy the Court that the plaintiff’s cause of action is so clearly statute- barred that the plaintiff’s claim can properly be regarded as frivolous, vexatious or an abuse of process. If the defendant demonstrates that the plaintiff’s proceeding was commenced after the period allowed for the particular cause of action by the Limitation Act, the defendant will be entitled to an order striking out that cause of action unless the plaintiff shows that there is an arguable case for an extension or postponement which would bring the claim back within time.
In the end the Judge must assess whether, in such a case, the plaintiff has presented enough by way of pleadings and particulars (and evidence, if the plaintiff elects to produce evidence), to persuade the Court that what might have looked like a claim which was clearly subject to a statute bar is not, after all, to be viewed in that way, because of a fairly arguable claim for extension or postponement. If the plaintiff demonstrates that to be so, the Court cannot say that the plaintiff’s claim is frivolous, vexatious or an abuse of process. The plaintiff must, however, produce something by way of pleadings, particulars and, if so advised, evidence, in order to give an air of reality to the contention that the plaintiff is entitled to an extension or postponement which will bring the claim back within time. A plaintiff cannot, as in this case, simply make an unsupported assertion in submissions that s 28 applies.
[70] This approach can be applied to other cases of affirmative defences. Master Faire (as he then was) applied it in the case of a contractual limitation provision in Heinz-Wattie Ltd v Hamburg Südamerikanische Dampfschiffahrtsgesellschaft.44
Affidavit evidence may be used more extensively than in an application based on the ground of no arguable case, which turns largely on the soundness of the pleading. There is an initial onus on the defendant to show clearly the basis for the affirmative defence. Showing clearly means that there cannot be any room for argument that the defence may not apply. If the defendant establishes that, the onus moves to the plaintiff to show that notwithstanding that defence, the claim is still fairly arguable
(for example, if the defence is defeasible by reason of other facts).
44 Heinz-Wattie Ltd v Hamburg Südamerikanische Dampfschiffahrtsgesellschaft (1999) 14 PRNZ
227 (HC).
[71] Evidence by the defendant as to other weaknesses in the plaintiff’s case is not relevant. So long as the plaintiff has shown a fairly arguable answer to the defence, it does not need to prove its case in full.
[72] The strike-out power is still exercised cautiously. The admonition of Elias CJ and Anderson J in Couch, that it is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed, applies in applications based on affirmative defences.45 The court will not attempt to resolve genuine factual conflicts.
[73] Notwithstanding the procedural irregularities, I should still deal with the partial strike-out. If I were to decline to do so because of the absence of a proper application, that would require the bank to file and serve a fresh application and for the matter to be heard afresh, at greater expense and delay for both sides. It is more efficient to get on with the matter. In particular, I find that the plaintiffs have not been prejudiced. They came to the hearing armed with substantive argument. Besides, the discussion of the new form gives a run-up to the plaintiffs’ rescission application.
[74] I will treat the strike-out as directed at the entire cause of action for breach of mandate and based on the ground that that cause of action is frivolous, vexatious or otherwise an abuse of process.
Merits
[75] In the Jojaro case, one of the bank’s arguments in support of its summary judgment was that it had a sound defence because of the new form. As Kós J found the point moot because of factual conflicts, the bank is optimistic in expecting a different answer on this application.
[76] The bank’s argument is that the new form, signed in late 2003, gave
Mr Fitzsimons authority to operate all of Pioneer’s accounts, not just the 04 claims
45 Couch, above, n 40 at [33].
account, and therefore Pioneer can have no claim against it for cheques drawn by
Mr Fitzsimons on the 01 account.
[77] It is necessary to say a little more about the form. Near the top it states:
Please note these forms are to be read in conjunction with Business Banking and Rural Banking Terms and Conditions.
[78] Below that there is room to provide the ASB account number. In this case, the hand-written number is “12-3197-2934-04”. The point to note is that the 04 suffix has been added: the entire number is given as the account.
[79] And below that is space for the customer’s name, which is given as: “Pioneer Insurance Company – Claims Account”. The customer is not Pioneer generally, but only its claims account.
[80] The form is filled in to provide for one authorised signatory, either
Mr Gifford or Mr Fitzsimons, neither of them directors.
[81] The form has a number of terms in small print. Here are the particular terms the bank relies on:
B This authority applies to all suffixes of the account, and to all channels of access to the account, including electronic access.
...
H This authority to operate supersedes all previous authorities given by the Customer to the Bank with the exception of any outstanding liabilities and instruments executed under a previous authority.
[82] It also relies on the definition of “account” in its Business Banking and Rural
Banking Terms and Conditions:
“Account” means any account with the same base number, which may have
several different suffix numbers.
[83] Two directors, Mr Elvidge and Mr Anderson, signed the form. The bank manager witnessed their signatures.
Interpretation of the new form
[84] The bank says that under these terms Mr Fitzsimons was authorised to sign cheques on all Pioneer’s accounts without requiring a co-signatory. It would have been in breach of its contract with Pioneer if it had declined to honour cheques drawn by Mr Fitzsimons while there were funds in the account. Citing well-known
authorities,46 it invokes the parol evidence rule to exclude extraneous evidence to
contradict, vary, add to or subtract from the terms in the form. It submits that it is therefore not open to the plaintiffs to refer to discussions between Mr Gifford and the bank manager when the form was signed. Alleged representations by the bank manager as to the effect of the document are not admissible. It also takes an evidential point that the plaintiffs have not proved that Mr Gifford told others in Pioneer about his conversation with the bank manager, but that is another abortive onus-switching argument.
[85] The bank’s interpretation approach is to take the text of the form without regard to the context. But context cannot be ignored. See for example Tipping J in Vector Gas Ltd v Bay of Energy Ltd:47
Nor does the objective approach require there to be an embargo on going outside the terms of the written instrument when the words in issue appear to have a plain and unambiguous meaning. This is because a meaning that may appear to the court to be plain and unambiguous, devoid of external context, may not ultimately, in context, be what a reasonable person aware of all the relevant circumstances would consider the parties intended their words to mean.
...
Context is always a necessary ingredient in ascertaining meaning. You cannot claim to have identified the intended meaning without reference to context. Hence it is always permissible to go outside the written words for the purpose of identifying the context in which the contract was made and its objective purpose.
[86] Notwithstanding the parol evidence rule, the plaintiffs are entitled to give evidence as to context (excluding, of course, their subjective beliefs as to the
meaning of the form). For them it is arguable that the purpose of the form was to
46 Lysnar v National Bank of New Zealand Ltd [1935] NZLR 129 (PC) at 140, A M Bisley & Co
Ltd v Thompson [1982] 2 NZLR 696 (CA) at 701.
47 Vector Gas Ltd v Bay of Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [22] and [23].
establish a separate account for paying claims and to give signing authority only for that account to two identified people, each of whom could sign alone. The purpose was no wider. It was not to replace the authorities already given to operate other Pioneer accounts. It is not necessary to look for the purpose outside the document, because it appears on the face of the form: that identifies the claims account by its specific number and identifies it as the customer, not Pioneer generally.
[87] Arguable contextual matters supporting this limited purpose are:
[a] The existing authority for the 01 account required two signatories among three, each of whom was a director.
[b] There is no evidence of any intention to alter the existing authority for the 01 account by enlarging the number of authorised signatories, reducing the number of signatures required for that account or allowing non-directors to sign cheques on that account.
[c] The plaintiffs’ evidence is that the bank manager was aware that the sole purpose of the new account and the new form was for payment of claims. He would have seen this from the form anyway.
[d] It would be odd for those authorised only to sign cheques for claims also to have general authority to operate all other accounts in place of existing signatories.
[88] On the bank’s literal approach, the superseding effect of clause H is that the existing authority would lapse, so that either Mr Fitzsimons or Mr Gifford could sign cheques on all Pioneer accounts, but the directors would lose the authority of any two of them to sign cheques. At this stage it is not clear that that did happen. An affidavit of another bank officer says that Mr Gifford and Mr Fitzsimons were added as signatories, rather than substituted.48 If clause H did not operate, that weakens the
bank’s case that the plaintiffs should be held to clause B.
48 Affidavit of Angela Mary Reyland, 9 September 2011, at [9]. See also Milne email of 18 July
2007, Exhibit C, affidavit of John Gifford of 21 August 2013.
[89] The plaintiffs have an arguable interpretation of the form that, when read in context, it is limited to giving authority to Mr Gifford and Mr Fitzsimons to operate only the 04 claims account, but not other Pioneer accounts. In the Jojaro decision, Kós J referred to this argument.49 The interpretation requires passing over clause B, under which the authority extends to other suffixes. But disregarding the clause is still open, given these considerations:
[a] Clause B is inconsistent with the purpose of the form. See Lord
Halsbury in Glynn v Margetson & Co:50
Looking at the whole of the document, and seeing what one must regard... as its main purpose, one must reject whole words, indeed whole provisions, if they are inconsistent with what one assumes to be the main purpose of the contract.
[b] The handwriting on the form specifying the account number, including the 04 suffix and the name of the customer as specifically the claims account are particular terms adopted by the parties to show that the form was limited to the claims account. Those particular terms prevail over the more general printed clauses on the form. See Lord Bingham in Homburg Houtimport BV v Agrosin Private Ltd:51
...it is common sense that greater weight should attach to terms which the particular contracting parties have chosen to include in the contract than to pre-printed terms probably devised to cover very many situations to which the particular contracting parties have never addressed their minds.
[c] It is consistent with business sense, given the improbability that Pioneer would remove its directors’ authority to sign cheques (but only with two signatories) and replace it with authority for any one of
two non-directors to operate all Pioneer accounts generally.52
49 Jojaro, above n 8, at [77].
50 Glynn v Margetson & Co [1893] AC 351 (HL) at 357. See also Lord Herschell at 355.
51 Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715.
52 See Lord Diplock’s dictum as to the need to yield to business common sense in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 (HL) [the Antaios] at 201; and Lord Hoffmann’s fifth point in his statement of the modern approach to interpretation in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912-913, adopted in Boat Park Ltd v Hutchison [1999] 2 NZLR 74 (CA) at 81-82. See also Vector Gas Ltd, above n 43, at [11], [22], [61] and [123].
[d] Alternatively to [c], if clause H did not operate, the bank must accept that it cannot hold the plaintiffs to all the small print in the new form.
[90] The bank may have had a subjective belief that the form meant something different: that it added to the existing authority, but did not replace it and that it allowed Mr Gifford and Mr Fitzsimons to operate all accounts without a co- signatory. That belief is of course not determinative. The bank could have checked with Pioneer’s directors whether its belief coincided with the objective meaning of the form, but there is no evidence that it did so. On that, the bank was at risk in relying on its subjective view of what the form meant.
Is the defence otherwise defeasible?
[91] At this stage the bank has not shown clearly that it has a watertight defence based on the new form. It is arguable that, when read in context, the form authorised Mr Fitzsimons to operate only the claims account, but not other Pioneer accounts. In case I am wrong and the bank’s interpretation of the form is correct, I consider whether the plaintiffs have an arguable case against the bank invoking the form.
[92] One of the recognised exceptions to the parol evidence rule is that a party to a contract may be barred from invoking a contractual provision if the requirements for promissory estoppel are made out.53 Mr Gifford has given evidence as to assurances given by the bank manager that the new form applied only to the claims account, but did not apply to others. While the bank attacked his evidence for inconsistency and incompleteness, there is enough to suggest that promissory estoppel is fairly
arguable. For this application it is not necessary or appropriate to resolve conflicts
between Mr Gifford’s evidence and the bank manager’s.
[93] The plaintiffs also rely on Mr Elvidge’s letter of 21 October 2003 instructing the bank to open a new account with the signatories to be any one of Messrs Elvidge, Gifford and Anderson. The bank duly opened an account with the suffix 05. The
plaintiffs say that if the opening of this account was on the bank’s standard terms and
53 John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (4th ed., LexisNexis NZ, Wellington, 2012) at 200.
the bank is not able to have different signatories for different suffixes, then this instruction must have revoked Mr Fitzsimons’ authority given in the new form. I accept that the point is arguable.
[94] Part of the bank’s response to the letter of 21 October 2003 is to assert that it provided authority only for the new suffix that was opened. If that is so, that belies its own case that signing authorities must apply to all suffixes of an account. It also shows that it is possible to have suffix-specific signing authorities. I deal with the letter of 21 October further in the plaintiffs’ rescission application.
[95] The plaintiffs say that they came across the letter only in 2013. Discovery has not been completed yet. The relevance of the letter highlights the risks of making strike-out orders pre-emptively, when not all materials have been made available. It reinforces the caution to be applied on strike-out applications.
[96] I am not satisfied that the plaintiffs’ cause of action for breach of mandate should be struck out because of the new form. At the same time it is necessary to make the point that the bank has an arguable defence based on the form. It also has other defences, not the least of which is the way that the 01 account was operated. The refusal to strike out does not mean that the plaintiffs have a clear run for breach of mandate. The case must go to a full hearing.
The bank’s application to dismiss for want of prosecution
[97] The bank applies to strike out under r 15.2 for the plaintiffs’ failure to prosecute the proceeding to hearing. Such applications are uncommon these days. That is because under modern rules for case management the court actively supervises the interlocutory stages of a case with the result that any delays are identified and addressed in a timely way, without the need for applications under r 15.2. The rule survives from the days before case management. It may not be coincidental that such an application has been made in a proceeding which has not had ordinary case management.
[98] In Lovie v Medical Assurance Society New Zealand Ltd, Eichelbaum CJ
summarised the principles under the rule:54
Turning to the principles applicable to the substantive issue, the applicant must show that the plaintiff has been guilty of inordinate delay, that such delay is inexcusable, and that it has seriously prejudiced the defendant. Although these considerations are not necessarily exclusive, and at the end one must always stand back and have regard to the interests of justice, in this country, ever since New Zealand Industrial Gases Ltd v Andersons Ltd [1970] NZLR 58 it has been accepted that if the application is to be successful, the applicant must commence by proving the three factors listed.
And, after reviewing the authorities:55
I can now summarise what I regard as the principles applicable to the matters presently in issue:
1.By itself, delay prior to the issue of proceedings cannot constitute inordinate and inexcusable delay for purposes of a striking out application.
2.If such delay has occurred, further delay after issue of proceedings will be looked at more critically by the Court, and will be regarded more readily as inordinate and inexcusable than if the proceeding had been commenced earlier.
3. The defendant must show prejudice caused by the post-issue delay.
If however the defendant has suffered prejudice as a result of pre- issue delay, he will need to show only something more than minimal additional prejudice to justify striking out the proceeding.
4.An overriding consideration is whether justice can be done despite the delay. As to that, all factors, including pre-issue prejudice and delay, have to be taken into account.
[99] I add that the previous conduct of the defendant is relevant. The defendant cannot rely on unnecessary delay for which it is responsible.56
Have the plaintiffs delayed during the proceeding?
[100] At the hearing of these applications the proceeding had been running for two years two months (to that must be added the time I have taken to give this decision –
54 Lovie v Medical Assurance Society New Zealand Ltd [1992] 2 NZLR 244 (HC) at 248.
55 At 253.
56 Allen v Sir Alfred McAlpine & Sons Ltd [1968] 2 QB 229 (CA) at 260, one of the founding cases.
The facts of the cases in those appeals contrast strongly with the present as they exemplify real tardiness.
my responsibility, not the plaintiffs’!). There is only one period of inactivity that requires consideration – the eight months from 9 November 2012, the date by which the first instalment of security for costs should have been paid, to 15 July 2013, when it was paid. There is no basis for saying that at other times after the start of this proceeding the plaintiffs were not prosecuting their claim to a hearing. Most of that time has been taken up with the bank’s applications. The bank did not contend that the plaintiffs had delayed at other times during this proceeding. On 9 November
2012 the proceeding was stayed for non-payment of security. The plaintiffs were not in default under Judge Osborne’s order before that date. To lift the stay the plaintiffs had to pay the security. No other steps by them would allow the proceeding to continue. Their default in paying was a failure to prosecute under r 15.2.
Was their delay inordinate?
[101] This question is distinct from the question whether the delay is inexcusable but to a certain extent they overlap. In Allen v Sir Alfred McAlpine & Sons Ltd, Salmon LJ said:57
It would be highly undesirable and indeed impossible to attempt to lay down a tariff - so many years or more on one side of the line and a lesser period on the other. What is or is not inordinate delay must depend on the facts of each particular case. These vary infinitely from case to case, but it should not be too difficult to recognise inordinate delay when it occurs.
[102] The typical circumstances in which the question arises are where there are no factors constraining the plaintiff but the proceeding goes to sleep. A common explanation is inertia or lethargy by the plaintiffs or their lawyers. This case is different. Judge Osborne had made a tough security for costs decision – one of those cases where security was ordered even if it meant that the plaintiffs would not be able to continue the proceeding because of their lack of funds.58 The plaintiffs had conceded their lack of funds. The bank had sold their homes under mortgagee sales and the judgments for the shortfalls had not been satisfied. In those circumstances
the plaintiffs would need time to find funds for security for costs.
57 At 268.
58 Elvidge, above n 1, at [100], [102] and [111].
[103] In other security for costs cases, I have fixed a time for payment after which the plaintiff will be in default. Fixing a time for payment is discrete from staying the proceeding pending payment. The time is fixed with regard to the plaintiffs’ means and ability to pay. In Robinson v Whangarei Heads Enterprises Ltd the plaintiff was a bankrupt. His causes of action were personal and had not vested in the Official
Assignee. I fixed security at $20,000 and the time for payment at six months.59
On review, Heath J set aside the order in one proceeding and reduced the amount in the other, but left the time for payment unchanged.60 This case is not on all fours but the Robinson case is an example of the period that can be set for payment before the defendant can apply for strike out for non-compliance.
[104] I am not aware of any cases under r 15.2 where delay of less than twelve months has been held to be inordinate. None were cited.
[105] There is guidance from the way cases were run before the case management rules introduced in 2003.61 Rule r 426A of the High Court Rules 1985, in force from
1993 to 2003, required leave of the court to take a step in a proceeding if no steps had been taken in the proceeding for 12 months.62 Decisions under that rule made it clear that it was not to be used as a shortcut to dismiss a proceeding for want of prosecution.63 Leave would be refused only if dismissal for want of prosecution was justified. In McEvoy v Dallison the delay was three years but leave was granted. In New Zealand Kiwifruit Marketing Board v Waikato Valley Co-operative Dairies Ltd the proceeding had been left unattended for over a year, but the delay was not fatal, even though that was the second application under r 426A. The rule and decisions under the rule show that delay for less than a year is not generally considered inordinate.
[106] The bank says that there was delay before the start of the proceeding. When that is taken into account, as it may be under the principles set out in Lovie v Medical
59 Robinson v Whangarei Heads Enterprises Ltd [2013] NZHC 1029 at [44].
60 Robinson v Whangarei Heads Enterprises Ltd [2013] NZHC 2247.
61 High Court Amendment Rules 2003.
62 High Court Rules 1985, r 426A inserted by r 9 High Court Amendment Rules (No.2) 1992, substituted by High Court Amendment Rules 2003, r 7.
63 McEvoy v Dallison [1997] 3 NZLR 11 (CA); New Zealand Kiwifruit Marketing Board v Waikato Valley Co-Operative Dairies Ltd (1997) 10 PRNZ 431 (CA); Commerce Commission v Giltrap City Ltd (1997) 11 PRNZ 573 (CA).
Assurance Society New Zealand Ltd, the delay in paying security has been
inordinate. The bank points out that Mr Fitzsimons’ fraud was discovered in June
2007. This proceeding was started five and a half years after the fraud was discovered.
[107] The bank tries to make some play of the fact that the Elvidge and Gifford interests had brought other fruitless proceedings in the meantime. The other proceedings might be relevant to other aspects of the application, but this aspect does not seem relevant to the length of the delay. Those proceedings were based on other causes of action. In this case the cause of action is based on the bank’s alleged breaches of duty to Pioneer.
[108] Credit Union Insurance apparently saw no benefit in suing the bank, but assigned its causes of action to the plaintiffs. As assignees the plaintiffs cannot be treated as in a better position than Pioneer. By and large, any matter that the bank could raise against Pioneer it should also be able to run against the plaintiffs as assignees. The relevant delay is Pioneer’s inaction in not suing. The plaintiffs took the assignment of Pioneer’s rights with that weakness. For the bank it is irrelevant when the plaintiffs took the assignment. It is entitled to rely on the delay in suing, no matter who the plaintiff is.
[109] Does the late start, only 6 months before the causes of action became statute- barred, make the delay of 8 months in paying security inordinate? There might be something in the bank’s argument if its approach had been passive - to wait and see if the plaintiffs could prosecute their claim in good time.64 Unlike most cases under r 15.2 where the defendant has not applied any constraint, in this case the security for costs orders the bank obtained were calculated to slow the plaintiffs down. The
orders were made with the clear understanding that they may prevent the plaintiffs
from continuing their claim altogether.
64 The defendant is not required to spur the plaintiff on, but may properly wait until the time is ripe to apply for dismissal: Allen v Sir Alfred McAlpine & Sons Ltd above n 56, at 257-258.
[110] Tipping J considered a similar matter in Matai Industries Ltd v Jensen.65 The delay was four years. The plaintiff attributed two of those to difficulties in providing ordered security. Tipping J was not impressed:66
I do not find at all persuasive the plaintiff's contention that its own failure to give security constitutes an excuse for not prosecuting its action with due diligence. Equally unattractive is the plaintiff's proposition that defendants who obtain an order for security, which must ex hypothesi be regarded as justified, bring the prejudice inherent in the plaintiff's delay in complying with the order on themselves. Mr Atkinson even went so far as to submit that a defendant who obtains an order for security exchanges his right to a speedy trial for the right not to have to face the risks inherent in being sued by an impecunious plaintiff.
[111] The case can be distinguished on its facts. The delay was longer. It is not possible to tell if the court had made a tough security for costs decision, but Tipping J appears to have assumed that the plaintiff in that case would be able to comply. Here the order was made in the appreciation that these plaintiffs may not be able to put up the required security. Notwithstanding that decision, in my view if a defendant has taken deliberate steps to slow a plaintiff in prosecuting a claim, it becomes more difficult for the defendant to complain that the time taken is inordinate.
[112] Given these considerations, I do not regard the time taken to pay the security to be unacceptably long, even taking into account the lapse of time before the start of the proceeding. That is enough to dismiss the application. I consider the remaining questions in case I have erred in finding no inordinate delay.
If there was inordinate delay, was it inexcusable?
[113] The bank submitted that until a credible excuse is made out for delay, the natural inference is that it is inexcusable.67 The plaintiffs did not submit otherwise. Mr Elvidge’s affidavit of 26 June 2013 is the only evidence of the plaintiffs on the matter. His explanation is that after Judge Osborne’s decision the plaintiffs
reassessed their position. They needed to decide whether to continue. They were
65 Matai Industries Ltd, above, n 42.
66 At 546-547.
67 Citing Allen above n 56, at 268. This is one occasion where the bank successfully submitted that the plaintiff had an evidential onus.
aware that the defendant had much greater resources for the proceeding. They were also aware of the need to see if they could find further evidence. He spent time going through records. Much of his affidavit deals with the discovery in June 2013 of the letter of 21 October 2003, which he believes strengthens the plaintiffs’ claim. At the time of that affidavit, the plaintiffs did not have the funds to pay the first instalment of security, but he was confident that they would be able to do so.
[114] He does not set out exactly how much time he had spent on further research and investigations. It appears that the plaintiffs had obtained access to Pioneer’s records only after they had taken the assignment.
[115] In assessing the steps taken by the plaintiffs, it is appropriate to consider what a reasonable plaintiff in their position would have done. It is not reasonable to expect them to act in the same way as a well-equipped commercial organisation that regularly takes proceedings as part of its business, such as insurers and banks. The plaintiffs are legally qualified but are no longer in active practice. That must have helped. All the same, they were in a dire financial position. While they had lawyers acting for them, of necessity they had to do much of the leg work themselves. They seem to be at a disadvantage in not having any expert or consultant who could advise them on banking systems and practice.
[116] Any litigant receiving Judge Osborne’s decision would think long and hard about whether to continue. His decision gave a pretty clear steer that he did not think much of their chances and, if they wanted their day in court, they had to put up security. The need to protect the bank against a worthless costs order prevailed over their interest in having their claim heard in court. It is understandable that the plaintiffs would reassess their claim.
[117] Mr Elvidge’s evidence does not explain why it took so long to find the funds for the security instalment. One reason may be that the plaintiffs elected to pay only after they were satisfied that they did have a case worth continuing.
[118] The bank picked holes. If the plaintiffs believed that they had a good case, they should have got on with paying. Then they could have obtained further
to deter irresponsible litigation.114 Judge Osborne set security for costs at 80 per cent
of anticipated costs. I would reset it at say 50 per cent. That would reduce the security to be paid from $62,500 to say $39,000, of which the plaintiffs have paid
$25,000 already.
[189] I have set out that notional reconsideration so as to allow a comparison of the alternatives. Is this adjustment to the security order by some $23,000 an adequate response to the bank’s misleading conduct? In my judgment it is not, because:
[a] The misconduct was serious. While I am not required to find fraud, the bank acted with gross impropriety. There was a badly flawed error of judgment in believing that the exclusion of the information could be justified by resort to a flimsy argument alleging irrelevance.
[b] There are wider interests than the parties’. The court has a vital
interest in ensuring that those who give evidence in its proceedings do
114 Recklessness on the basis of “Nothing to lose.”
so honestly, not on the basis of half-truths given in the hope of avoiding detection. The court needs to be protected against being misled. Something stronger than tweaking is required to show that misleading the court cannot be worthwhile.
[c] There is guidance from the way the courts deal with non-disclosure of material facts in without notice applications, where information withheld might have affected the court’s order. The court does not reconsider the application, but dismisses it.115 That encourages due disclosure. The bank’s misconduct in this case was no less serious.
[190] Accordingly the appropriate response is to grant the plaintiffs’ application, rescind the orders for security for costs of 12 October 2012116, including the order for costs, and dismiss the application for security for costs. The first tranche of security paid by the plaintiffs should be refunded. I shall need to hear further from the parties on what order for costs ought to be made now on the security for costs application.
[191] In paragraph [134] above I set out some matters that require the court under r 7.51 to respect the finality of interlocutory orders. At the outset I was sceptical as to this application. I was concerned that it was an inappropriate attempt to obtain a rehearing of the security for costs application. Orders made after a fully argued hearing should not be disturbed lightly. The plaintiffs had a difficult job to persuade me. But as I worked through the issues, I found that they had made out their case and I could not disagree with their application. This is alas one of those rare cases where orders were improperly obtained.
The bank’s application for permanent stay
[192] The bank seeks a permanent stay under r 7.48(2)(c):
(1) If a party (the party in default) fails to comply with an interlocutory order or any requirement imposed by or under subpart 1 of Part 7
115 Haddow v New Zealand Insurance Co Ltd [1958] NZLR 704 (SC); United People’s Organisation
(World Wide) Inc v Rakino Farms Ltd (No 1) [1964] NZLR 737 (SC).
116 Elvidge, above n 1, at [122].
(case management), a Judge may, subject to any express provision of these rules, make any order that the Judge thinks just.
(2) The Judge may, for example, order—
(a) that any pleading of the party in default be struck out in whole or in part:
(b) that judgment be sealed:
(c) that the proceeding be stayed in whole or in part:
(d) that the party in default be committed:
(e) if any property in dispute is in the possession or control of the party in default, that the property be sequestered:
(f) that any fund in dispute be paid into court:
(g) the appointment of a receiver of any property or of any fund in dispute.
(3) An order must not be enforced by committal unless the order has been served personally on the party in default or that party had notice or knowledge of the order within sufficient time for compliance with the order.
[193] The basis for the application is that the plaintiffs have not paid orders for costs despite demand. The bank relies in particular on the orders for costs made in the Jojaro proceeding and on Judge Osborne’s security for costs decision, but also refers to the order for costs in the first proceeding. It seeks a permanent stay of the proceeding. It does not adduce any evidence in support of this application beyond proving the orders for costs and showing that the plaintiffs did not pay when requested. While the bank’s application sought a stay, it did not set out any grounds. The bank’s written submissions addressed them and the plaintiffs, not prejudiced, replied to them.
[194] As to jurisdiction, in Kidd v van Heeren, Cooper J held that an interlocutory order for costs could be enforced under r 7.48.117 He also held that under s 63 of the Judicature Act 1908 and s 32 of the Supreme Court Act 2003, orders for costs in the Court of Appeal and the Supreme Court could be enforced in this court under the
rule.118 There is however a question whether costs orders made in other proceedings
117 Kidd v van Heeren HC Auckland CIV-2004-404-6352, 16 November 2006.
118 At [20]-[21].
in this court can be the basis for any order under r 7.48. The purpose of the rule is to secure compliance with interlocutory orders or case management directions given in the proceeding in which the r 7.48 order is sought. There is nothing in the rule itself or the objective under r 1.2 (of securing just, speedy and inexpensive determinations) that allows non-compliance in one proceeding to be enforced by orders fettering the ability of a party to take part in another proceeding. Accordingly, the only order I could deal with is Judge Osborne’s costs order for $10,707.12 in this proceeding. I do not have jurisdiction under the rule to deal with the costs orders in the earlier proceedings.
[195] As I have rescinded Judge Osborne’s costs order, there is no longer any basis for the bank to allege that the plaintiffs have breached that order. No order should be made under r 7.48.
[196] Nevertheless, in case I am held to have erred in rescinding the costs order, I
set out how I would have dealt with the stay application.
[197] The order for costs was final. Under r 14.8 the costs were payable when fixed. There was no stay of enforcement of the order. The plaintiffs were in default for not having paid the costs.
[198] There is a ready explanation why the plaintiffs did not pay: they are short of funds. After all, the bank applied for security for costs because there was reason to believe that the plaintiffs would not be good for costs and the plaintiffs accepted that. The time the plaintiffs took to pay the first tranche of security is also consistent with their not having ready funds. It is inability, not deliberate refusal, which put the plaintiffs in default.
[199] The bank points out that it was put to considerable expense to apply successfully for the security for costs order, and it had not received from the plaintiffs the normal contribution to its costs, to which it is entitled. Aside from that, it does not identify any particular prejudice arising from the non-payment. In particular it does not say that it is suffering any hardship or that the lack of payment
stifles its ability to run its defence. It had a bad debt in its books, but its evidence does not show anything more serious.
[200] In asking for a permanent stay, the bank was asking for an unconditional or absolute order. That is tantamount to an order striking out the whole proceeding. It does not matter that the plaintiffs might later obtain funds to meet the costs order. Because it will be permanent, they will not be able to apply later for it to be lifted. While the bank has sought the remedy of last resort, that would not prevent me considering less extreme orders, such as a temporary stay, to apply only so long as the order for costs remains unpaid.
[201] How then should the discretion be exercised? The bank’s approach is categorical: the plaintiffs submitted to the court’s jurisdiction in starting the proceeding and cannot pick and choose which orders they will comply with. Because they are in breach of a court order, they have forfeited their right to continue the proceeding. That is not however the way these applications are decided. A useful starting point is this passage from Denning LJ in Hadkinson v Hadkinson:119
Those cases seem to me to point the way to the modern rule. It is a strong thing for a court to refuse to hear a party to a cause and it is only to be justified by grave considerations of public policy. It is a step which a court will only take when the contempt itself impedes the course of justice and there is no other effective means of securing his compliance. In this regard I would like to refer to what Sir George Jessel M.R. said in a similar connexion in In re Clements v. Erlanger: "I have myself had on many occasions to consider this jurisdiction, and I have always thought that, necessary though it be, it is necessary only in the sense in which extreme measures are sometimes necessary to preserve men's rights, that is, if no other pertinent remedy can be found. Probably that will be discovered after consideration to be the true measure of the exercise of the jurisdiction." Applying this principle I am of opinion that the fact that a party to a cause has disobeyed an order of the court is not of itself a bar to his being heard, but if his disobedience is such that, so long as it continues, it impedes the course of justice in the cause, by making it more difficult for the court to ascertain the truth or to enforce the orders which it may make, then the court may in its discretion refuse to hear him until the impediment is removed or good reason is shown why it should not be removed.
Denning LJ was in the minority. The other members of the court took a more hard- line stance, but later cases have preferred his approach.120
119 Hadkinson v Hadkinson [1952] P 285 (CA) at 298.
120 X Ltd v Morgan-Grampian (Publishers) Ltd [1991] 1 AC 1 (HL) at 46-47, Siemer v Stiassny
[202] In Smith v Antons Trawling Company Ltd, Fisher J said:121
The principles to be applied have been referred to in a number of cases including Jagwar Holdings Ltd v Fullers Corporation Ltd (1991) 4 PRNZ
577 and Speed Up Holdings Ltd v Gough & Co (Handly) Ltd [1986] FSR
330. These days we try to decide cases on their merits if we possibly can. Cases should not lightly be dismissed on purely technical or procedural grounds. On the other hand there comes a point at which the victim of procedural default is entitled to justice too. And effective case management rests upon credible procedural directions which the Courts will enforce where necessary.
There is a discretion to be exercised in the light of the circumstances of each individual case but in my view the following aspects of the default will usually be critical:
[a] Its duration.
[b] Its impact upon the progress of the proceedings as a whole. [c] Whether there appears to be any excuse or explanation.
[d] Whether it continued after reasonable opportunities and reminders, particularly where the Court has already made a fresh order, or given a warning, due to earlier non- compliance.
[e] Whether it has substantially prejudiced the innocent party, whether procedurally or due to some wider impact upon the innocent party’s interests or affairs.
[f] Whether there is any realistic expectation that it will be rectified following further opportunity for compliance.
I do not suggest that that list of criteria is or could ever be comprehensive or binding but I intend to approach this case with those ones particularly in mind.
[203] That case did not concern non-payment of costs, but failures to pay security for costs, to give particulars and to make particular discovery. One case that did involve non-payment of costs (as well as failure to give ordered particulars) was Stephens v Cribb, where the Court of Appeal set aside an order debarring the
defendant from defending:122
We do not doubt that, in its inherent jurisdiction to control its own procedure and deal with contempt of Court, the High Court could make an order debarring a defendant from defending. But such an extreme order could be
[2008] 3 NZLR 22 (CA) at [45].
121 Smith v Antons Trawling Company Ltd HC Auckland CL40/98, 24 March 2000 at [3]-[5].
122 Stephens v Cribb (1991) 4 PRNZ 337 (CA) at 343-344.
proper in an extreme case only. Provoking though the defendant’s conduct in not providing particulars earlier had been, this case was not in that extreme category…As for the $300, the ordinary execution processes were available to enforce the order, including removal of the order into a District Court and a distress warrant.
[204] I would take these factors into account:
[a] The continuing failure to pay the costs order was not impeding the course of justice, as might be the case with failure to give proper discovery or to take other steps required to ensure a fair hearing.
[b] The bank was not suffering any particular hardship from the non- payment.
[c] The bank has other means of enforcing the order. It might take up the Court of Appeal’s suggestion in Stephens v Cribb of transferring the order to the District Court for enforcement there. It could issue a bankruptcy notice.123 I would however accept that the order may not be enforced under Part 17 of the High Court Rules, by reason of the exclusion under r 17.2 of orders made on interlocutory applications.
[d] While not to be condoned, the breach of the order was not serious.
[e] The plaintiffs’ conduct was not contumelious, as described by
Eichelbaum CJ in Lovie v Medical Assurance Society.124
[f] In line with Stephens v Cribb, imposing a permanent stay would be excessive. This is not an extreme case.
[g] A temporary stay, pending payment, would not be appropriate. That would further delay this proceeding. It seems likely that the plaintiffs would struggle to find the funds. While making applications that
have slowed the proceeding, the bank has made much of alleged
123 An order for costs made on an interlocutory application may be the basis for a bankruptcy notice: Far North District Council v Pollock [2014] NZHC 2473 at [15].
124 Lovie, above n 54, at 255.
delay. It would be more efficient to direct this case on to a hearing, while leaving the bank to use other means to enforce the order.
[205] For the above reasons, I would not be satisfied that the non-payment of the order for costs called for a permanent or temporary stay. The bank has other means of enforcing the order. While dismissing the application, I would make it clear to the plaintiffs that the costs order, like other costs orders and judgments already given against them in the earlier proceedings, is payable and might be enforced against them. I would reserve leave to the bank to make a further application for an order under r 7.48, if it could show that there is fresh reason for an order.
Outcome
[206] The defendant has failed on all its applications. The plaintiffs have succeeded on theirs. They will be able to continue the proceeding without providing security for costs. The case should go ahead in a more conventional manner than it has to date. Case management is required.
Pleadings
[207] The statement of claim needs to be amended, if only to separate out the two causes of action and to correct the overstatement in the prayer for relief. Unless the plaintiffs have since found out how much Pioneer received in settlement of its claim against the auditors, they do not have to bring that into account yet, but will be required to do so before the close of pleadings date.
[208] The defendant needs to file and serve a statement of defence. It is now some three years late. Despite that delay it would be unjust not to allow it to defend. Time to file a statement of defence will be extended. When it files its statement of defence, the bank is to make initial disclosure under r 8.4. The plaintiffs are not to apply for judgment by default before the defendant’s time for filing a defence has passed.
Conference
[209] Following the exchange of pleadings, there will be a case management conference. Ahead of that conference, the parties are to confer as to directions required, especially as to discovery, non-party discovery and other interlocutory steps. At the conference directions may be given through to hearing. The parties should therefore have information as to the number of witnesses likely to be called and the likely time required for hearing. The parties may file a joint memorandum if they agree on directions. Failing that, the plaintiffs are to file and serve a memorandum five working days before the conference, the bank two days.
Costs
[210] There are three matters to deal with:
[a] costs on the defendant’s security for costs application; [b] on the defendant’s applications in this decision; and
[c] on the plaintiffs’ rescission application.
I invite the parties to confer. If they are not able to agree, the plaintiffs are to file and serve their memorandum and any other documents they rely on 15 working days after this decision and the defendant is to reply five days later. I will decide costs on the papers. If no memoranda are filed, I shall take it that costs have been agreed and orders are not required.
Extension of time for review
[211] I expect that the parties will wish to consider this decision and take advice. The bank may seek advice whether to challenge it. It may need to consider whether its proper course is to seek a review under s 26P(1) of the Judicature Act 1908 or appeal under s 26P(2). The normal period to apply for review is five working
days.125 In this case I do not regard that as sufficient time for the defendant to take advice fully and give instructions for a review application. The time to apply for a review will be extended under r 2.3(2) of the High Court Rules.
Orders
[212] I make these orders:
[a] I dismiss the defendant’s applications for summary judgment under r
12.2, strike-out under r 15.1, dismissal under r 15.2 and stay under r
7.48.
[b] I grant the plaintiffs’ application under r 7.51, rescind the orders in
paragraph [122](d)-(i) of Judge Osborne’s decision of 12 October
2012, including the order for costs, dismiss the application for security for costs and direct that the first tranche of security for costs paid by the plaintiffs be refunded.
[c] Any application for costs is to be filed and served within 15 working days of this decision, any memorandum in response within a further 5 working days.
[d] The time for applying under r 2.3 for review of any reviewable part of this decision is extended to 20 working days from the date of delivery.
[e] The plaintiffs are to file and serve an amended statement of claim within 10 working days of this decision.
[f] Leave is granted to the defendant to file and serve a statement of defence for up to 20 working days from the date that it receives the plaintiffs’ amended statement of claim, but no later. It is to make
initial disclosure at the same time as it files its statement of defence.
125 High Court Rules, r 2.3(2).
The plaintiffs are not to apply for judgment by default before the time for filing a statement of defence has passed.
[g] The plaintiffs are to file and serve any reply to the statement of defence no later than 10 working days after receiving the statement of defence.
[h] The Registrar is to allocate a face-to-face case management conference no earlier than 27 March 2015. The directions in paragraph [209] above apply.
[i] Leave is reserved to apply further.
………………………………..
Associate Judge R M Bell
15
8
1