Eversons International Ltd (in liquidation) v Stewart

[2023] NZHC 2325

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2020-409-192

[2023] NZHC 2325

BETWEEN

EVERSONS INTERNATIONAL LTD (IN LIQUIDATION)

First Plaintiff

ELIZABETH HELEN KEENE and LUKE NORMAN

Second Plaintiffs

AND

EVAN KERRY STEWART

Defendant

CIV-2023-409-225

BETWEEN

EVAN KERRY STEWART
Plaintiff

AND

ELIZABETH HELEN KEENE

First Defendant

KPMG NEW ZEALAND

Second Defendant

Hearing:

16 August 2023

Counsel:

E K Stewart in Person

P C Murray for Plaintiffs in CIV-2020-409-192 and for Defendants in CIV-2023-409-225

Judgment:

23 August 2023

JUDGMENT OF CHURCHMAN J

EVERSONS INTERNATIONAL LTD v STEWART [2023] NZHC 2325 [23 August 2023]

Introduction

[1]    Two separate applications in related proceedings were heard  before me on  16 August 2023.

[2]    The first application was Mr Stewart’s application opposing the sealing of the judgment of Nation J dated 22 December 2022.1

[3]    The second application was by the defendants in CIV-2023-409-225 to strike out the statement of claim filed in those proceedings.

Background

[4]    Eversons International Ltd (in liquidation) (the Company) was placed into liquidation on 9 April 2018 by a special resolution of its shareholder. Its sole director and shareholder was Evan Kerry Stewart (Mr Stewart).

[5]    Elizabeth Helen Keene (Ms Keene) and Vivian Fatupaito were appointed Liquidators of the Company. Luke Norman (Mr Norman) replaced Vivian Fatupaito on 11 March 2022. Following a review of the Company’s accounts, the Liquidators identified payments they considered were made to, or for the benefit of, Mr Stewart which were not debited to his shareholder current account.

[6]They determined that the current account was, in fact, overdrawn by

$2,074,876.

[7]    The Companies debts were determined to be substantial, principally a liability of $3,766,110 to the Inland Revenue Department (IRD) for unpaid tax.2

[8]    On 13 May 2022, the Company and the Liquidators filed proceedings against Mr Stewart asserting two causes of action:

1      Eversons International Ltd (in liq) v Stewart [2022] NZHC 3616.

2      See Eversons International Ltd (in liq) v Stewart [2022] NZHC 3188 at [7].

(a)recovery of the reconstructed overdrawn current account in the sum of

$2,074,876; and

(b)recovery for breach of Mr Stewart’s duty as a director in respect of unpaid Company income tax liabilities of $2,096,000 incurred when the Company was insolvent.

[9]    In respect of the current account claim (but not the breach of director’s duties claim), the application proceeded by way of summary judgment.

[10]   On 3 December 2020, the summary judgment application was dismissed by Associate Judge Paulsen.3

[11]   Paulsen AJ dismissed the summary judgment application on the basis that he could not be satisfied that there was no arguable defence. He held that there were further enquiries that the liquidators would need to undertake in respect to disputed issues of fact including discovery and non-party discovery. There was also a potential limitation defence in respect of some payments Mr Stewart had made.

[12]   In the judgment, Paulsen AJ noted that there was a reason to view Mr Stewart’s evidence with scepticism and recorded that he had not cooperated with the liquidators or provided details of claimed investments or relevant Company records. He noted that despite Eversons’ financial statements indicating that the Company had, as at   31 March 2017, overseas investments exceeding $6,592,166, the liquidators had not been able to locate any overseas investments belonging to the Company and had not seen any documents that might prove such investments exist.4

[13]   The liquidators subsequently filed an amended statement of claim and the proceedings continued.

[14]   On 2 August 2022, the parties reached a settlement and entered into a Settlement Deed. The relevant provisions of the Settlement Deed provided:

3      Eversons International Ltd (in liq) v Stewart [2020] NZHC 3188.

4 At [140].

(a)the Company, liquidators and Mr Stewart agreed to settle all outstanding matters among them on the terms set out in the Settlement Deed;

(b)Mr Stewart agreed to pay the settlement sum of $1,000,000 to the liquidators by instalments;

(c)Mr Stewart was to  procure  the  owners  of  a  property  situated  at  39 Westpark Drive, Burnside, Christchurch (the Property) to pay the Liquidators an amount not exceeding $300,000 from the net proceeds of sale of the Property, after deduction of amounts payable to the mortgagee and the reasonable costs of sale and settlement;

(d)if the sale of the Property had not settled by 1 November 2022, then Mr Stewart was to pay $100,000 to the Liquidators as part of the settlement sum;

(e)Mr Stewart was to complete an admission of claim and acknowledgement of debt in the sum of $2,000,000 in the Liquidators’ proceeding. The admission was not to be filed unless there was a default under the Settlement Deed and a default notice served and not complied with;

(f)Mr Stewart agreed that he would not bring any claim against the Company or any claim against the Liquidators, their staff or agents, in respect of any matter arising in relation to the Company and its liquidation;

(g)the Liquidators’ proceeding  was  to  be  adjourned  and,  provided  Mr Stewart complied with his obligations under the Settlement Deed, the proceeding would be discontinued.

[15]   The proceedings were adjourned to the nominal date of 12 December 2022 for the terms of settlement to be implemented.

[16]   On 9 December 2022, the Company and Liquidators filed a memorandum advising that Mr Stewart had not complied with the Settlement Deed. The Company and Liquidators sought judgment under the signed admission of claim for $1,720,000 being $2,000,000 less $280,000 paid to date, plus costs on a solicitor and client basis. Mr Stewart opposed the entry of judgment.

[17]   On 22 December 2022, Nation J entered judgment for the Company and Liquidators against Mr Stewart in the sum of $1,720,000. However, he reserved leave for Mr Stewart to protest  the sealing of the judgment by filing an application under  r 15.16(5) of the High Court Rules 2016 (HCR), together with the supporting affidavit by 27 January 2023.

[18]   On 27 January 2023, Mr Stewart filed an affidavit but not an application. Dunningham J treated the affidavit as if it was an application on the basis that a formal application would be filed within seven days. Mr Stewart was also directed to make the next instalment payment of $80,000 due under the Settlement Deed.5

[19]   Mr Stewart made the payment of $80,000 (received on 20 February 2023) and filed a formal application.

[20]   Mr Stewart then informed the Court he was filing charges against the Liquidators in the District Court by way of a private prosecution.

[21]   On 20 February 2023, he was directed to provide copies of the charges.6 He has not complied with that direction.

[22]   The Property has been sold and the sale settled. Mr Stewart has failed to make the agreed payment in relation to the sale proceeds. He claims that there were no funds left after repayment of the mortgage but has failed to provide evidence of that.

[23]   On 27 February 2023, Mr Stewart was ordered by the Court to provide the following information by 13 March 2023:

5      Minute of Dunningham J, 13 February 2023 at [4].

6      Minute of Dunningham J, 20 February 2023.

(a)details of the District Court charges which he claimed he had filed; and

(b)copies of the Settlement Statement for the sale of the Property and other documents showing how the proceeds of sale were paid or disbursed.7

Mr Stewart has failed or refused to comply with these orders.

[24]   Mr Stewart has also failed to make further instalment payments of $80,000 each due on 1 May 2023 and 1 August 2023.

Mr Stewart’s stay application

[25]   By application dated 11 May 2023, Mr Stewart applied to stay the proceedings in CIV-2020-409-192. The application was self-drafted. There were no supporting affidavits. It makes little sense.

[26]   It lists KPMG as a party. KPMG is not a party to the proceedings CIV-2020- 409-192.

Mr Stewart’s new proceedings

[27]   On 11 May 2023, Mr Stewart filed a statement of claim in proceedings CIV- 2023-409-225. The statement of claim was also self-drafted. It is in a narrative form rather than in the form of pleadings. It lists the firm “KPMG Partners” as second defendant but no relief is sought against that firm. Indeed, there is no prayer for relief at all in the document.

[28]   Ms Keene is listed as the first defendant and there are claims that she and others “falsely” attempted to bring claims that were part of the summary judgment application dealt with by Paulsen AJ. It is alleged that Ms Keene was “in breach of the Oaths and Declarations Act 1957 by making false statements and affidavits.” It is alleged that Ms Keene, Mr Norman and Ms Fatupaito had “attempted to create a

7      Minute of Mander J, 27 February 2023.

situation of extortion using false accounting as per the statuary [sic] demand … for

$3,766,118.05.”8

The submissions on the stay application

Mr Stewart’s submissions

[29]   Mr Stewart does not challenge the terms of the Settlement Deed. Instead, he advances the proposition that he is entitled to disregard it:

Because I was worn down by the litigation, I was given and took bad advice from my previous counsel to capitulate and acquiesce on the pretence that I put this issue behind me and move on.

[30]   In his written submissions in support of the stay application, Mr Stewart repeated the allegations contained in the statement of claim in the CIV-2023-409-225 proceedings discussed above alleging Ms Keene had “used false accounting, fabricated evidence, and (made) false statements for the purposes of extortion by fraud.”

[31]   Mr Stewart also claims that he was not in default of his obligations under the Deed. Specifically, in relation to the proceeds of the sale of the Property, he says that there was no surplus therefore he had no obligation to procure the payment of anything.

[32]   In oral submissions, Mr Stewart said he had applied for a stay while the criminal charges he said he had filed in the District Court were pending. He did not explain why he had not complied with the direction of Dunningham J to provide details of the District Court charges and copies of the Settlement Statement for the sale of the Property or other documents showing how the proceeds of sale were paid or disbursed.

Submissions by plaintiffs in opposition

[33]   The liquidators and company submit that an application under HCR 15.16(5) is not available, as the plaintiff was never under a duty or obligation to the defendant

8      That sum was the amount set out in the statutory demand from Inland Revenue to Mr Stewart on 23 March 2018.

not to enter judgment on the admission and has not acted contrary to any such duty. It is submitted that the plaintiffs have also not acted fraudulently, unconscionably or in wilful or reckless disregard of the defendant’s rights.

[34]   Any claim that Mr Stewart was not in breach of his payment obligations under the Deed was untenable. There was no dispute that he had failed to pay the two instalments of $80,000 due on 1 May 2023 and 1 August 2023.

[35]   In relation to the breach of the obligation to pay a sum not exceeding $300,000 from the net sale proceeds of the Property, counsel pointed to the fact of Mr Stewart’s failure to comply with the Court’s direction to provide details of what the sale proceeds were and where they went.

Analysis – stay application

[36]   Mr Stewart’s claims of fraud, false accounting and extortion are misconceived. They appear to be based on a fundamental misunderstanding by him of what the issues were in the summary judgment application and what Paulsen AJ decided.

[37]   Contrary to Mr Stewart’s assertions, nothing in the summary judgment decision could be said as providing any support for the allegations that the liquidators had falsified anything, fabricated evidence or attempted to extort anything by fraud. All that the Judge found was that the matter was not suitable to proceed by way of summary judgment because there were arguably defences available in respect of some components of the claim. The reconstruction of the current account balance by the liquidators to incorporate payments to Mr Stewart which appeared to be payments of a personal nature is entirely conventional accounting practice. The sum of $3,766,110 claimed to have been an attempt at extortion by the Liquidators was the unpaid tax liability demanded of him by the IRD.

[38]   An application under HCR 15.16(5) is not a merits review of the decision in question. Mr Stewart’s liability in terms of the Deed of Settlement has been conclusively determined by that decision. Mr Stewart has not been able to identify any duty or obligation on the part of the liquidators/company not to enter judgment on the admission. Neither has he been able to point to any information that would support

a conclusion that in entering the judgment, the liquidators/company acted fraudulently, unconscionably or in wilful or reckless disregard of his rights.

[39]   Mr Stewart was legally represented at the time he entered into the Deed of Settlement and acted on the legal advice he received. He was also legally represented in the hearing before Nation J on 12 December 2022.

[40]   The allegations of fraud and extortion now made by Mr Stewart were not made at any stage when he was legally represented. Given that they are wholly misconceived, it is unsurprising that no lawyer would have made them. They are serious allegations that should never be made without a sound evidential basis. They should not have been made by Mr Stewart in this case.

Outcome

[41]   Mr Stewart’s application under HCR 15.16(5) to set aside the judgment entered by Nation J on 22 December 2022 is therefore dismissed.

The strike-out application in CIV-2023-409-225

The defendants’ arguments

[42]The defendants advance four grounds in support of the strike-out application:

(a)the doctrine of res judicata applies to the proceedings;

(b)the proceeding is a collateral attack on the judgment of Nation J and the allegations of fraud are unsupported by any new or cogent affidavit evidence, are inadequately pleaded and are untenable;

(c)the terms of the Settlement Deed prevent Mr Stewart from bringing claims against either of the Liquidators, KPMG and its staff; and

(d)the pleadings do not disclose any cause of action against KPMG despite it being named as second defendant.

The plaintiff ’s arguments

[43]   As to the res judicata point, Mr Stewart says that he was under duress at the time he entered into the Settlement Deed. He does not explain the nature of the duress other than implying it was some form of economic duress.

[44]   He says that by notifying him on 28 November 2022 of his default on his obligations under the Settlement Deed, the defendants “entered into more litigation”. He submits that because the defendants’ notice of default sought “further penalties” when he was “not in default”, the defendants acted “fraudulently” and this caused him “to take actions into my own hands and ignore bad legal advice”.

[45]   Mr Stewart claims that the Settlement Deed was a “contract to conceal a crime” and is therefore not legally binding.

[46]   In relation to the proposition that these proceedings are a collateral attack on the judgment of Nation J, Mr Stewart repeats the claims of fraud that have been addressed above in relation to the application under HCR 15.16(5). His submissions seem to confuse these civil proceedings with a criminal prosecution. His written submissions say, “the prosecution must proceed where there is clearly no abuse of process”.

[47]   In relation to the issue that the statement of claim does not disclose a cause of action against the second defendant, Mr Stewart submits that Ms Keene was the agent of KPMG and that KPMG NZ “accepted the case from the Inland Revenue”.

Analysis

The legal principles

[48]Under HCR 15.1, the court may strike out a pleading if it:

(a)discloses no reasonably arguable cause of action, or case appropriate to the nature of the pleadings; or

(b)is likely to cause prejudice or delay; or

(c)is frivolous or vexatious; or

(d)is otherwise an abuse of the process of the Court.

[49]Strike-out applications proceed on the assumption that:

(a)the facts pleaded in the statement of claim are true;

(b)the causes of action must be so clearly untenable that they cannot possibly succeed;

(c)the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material; and

(d)the fact the application to strike out raises difficult questions of law does not exclude jurisdiction.9

Res judicata

[50]   The subject matter of these proceedings is the same as the subject matter of the CIV-2020-409-192 proceedings namely the quantum of Mr Stewart’s current account with the Company, the reconstruction of that current account by the Liquidators to incorporate payments to Mr Stewart that should have been reflected in the current account but had not been, and the calculation of the Company’s liabilities including its tax debt to IRD.

[51]   In the Deed of Settlement and the admission of the plaintiffs’ claim (both dated 2 August 2022), Mr Stewart specifically admitted the plaintiffs’ claims against him as set out in the amended statement of claim. The admissions specifically confirmed that he had no defence to those claims including by way of set-off or counterclaim.

9      See Couch v Attorney-General [2008] 3 NZLR 725 at [33], and Attorney-General v Prince [1998] 1 NZLR 267 at 267 (CA).

[52]   A judgment based on an admission of claim gives rise to res judicata in the same way as any other judgment would.10

[53]   The doctrine of res judicata therefore applies and Mr Stewart is prohibited from seeking to relitigate the matters that were in issue in the CIV-2020-409-192 proceedings in respect of which he signed a full admission of liability.

[54]   The proceedings are also clearly a collateral attack on the judgment of Nation J given that his judgment was based on the admission of liability.

[55]   Where a plaintiff seeks to attack a prior judgment on the basis that it was obtained by fraud, there are certain specific requirements. Allegations of fraud are one circumstance where, on a strike-out, the Court is not bound to treat allegations in the statement of claim as being true. This principle was articulated by Randerson J in Paper Reclaim Limited v Aotearoa International Limited where he said:11

[14]      Where a fraud proceeding of this kind is brought, the court is being asked to entertain a collateral attack on a solemn and considered judgment of this court outside the ordinary processes of appeal. There is an obligation on the plaintiff to produce some probative evidence to support its claim when the defendant applies to strike out. ...

[15]      In a proceeding such as this, I consider it is appropriate on a strike-out application for the plaintiff to produce some probative evidence to support its allegations and to explain how and when the new material came to light. Otherwise, the ordinary processes of the court by way of appeal could be subverted by the simple expedient of making allegations in the statement of claim without any factual foundation of any kind. Plainly, that could amount to an abuse of process.

[56]   These observations were endorsed by the Court of Appeal in Shannon v Shannon.12

[57]   Any new evidence of fraud must be specifically pleaded,13 and it must be pleaded with precision.14

10     Kelly v Bridgecorp Limited (in receivership) Abbott AJ, 14 February 2008, CIV-2007-404-2580 at [30].

11     Paper  Reclaim  Limited  v   Aotearoa   International   Limited   HC  AK   CIV-2004-404-4728 [6 December 2004].

12     Shannon v Shannon CA 192/04 14 April 2005, at [123].

13     Shannon v Shannon [2005] NZCA 83 at [123] and [132].

14     Shannon v Shannon [2002] 3 NZLR 567 at [35].

[58]   Allegations of fraud and perjury of the type here made by Mr Stewart must be fully and exactly particularised.15 In the present case, Mr Stewart has not done this.

[59]   I conclude that this proceeding is a collateral attack on the judgment of Nation J and that the pleading of matters such as fraud, perjury and extortion have not been supported by the appropriate evidential foundation. This also justifies the proceedings being struck out.

[60]   The first defendant in these proceedings is Ms Keene. Ms Keene was listed as a party to the Deed of Settlement. At [9] of the Settlement Deed provides:

Mr Stewart agrees that he will not bring any claim against the Liquidator, any former Liquidator of the Company, or of any of their staff or agents, in respect of any matter arising in relation to the Company and its liquidation.

[61]   The Deed of Settlement is binding on Mr Stewart and he has bound himself not to bring any proceedings against Ms Keene. His obligations under the Settlement Deed prohibit him from doing that. That also justifies the strike out of the proceedings.

[62]   Mr Stewart has added KPMG as second defendant in these proceedings. KPMG were not a party to the proceedings in CIV-2020-409-192. The reason for that is no doubt that the appointment as Liquidators was  to  Ms Keene and  (initially)  Ms Fatupaito personally, with Mr Norman subsequently replacing Ms Fatupaito.

[63]   The allegations of fraud, perjury etc made by Mr Stewart are against Ms Keene personally. No relief is sought against KPMG and there is no obvious cause of action pleaded against them.

[64] Even if some alleged wrongdoing on the part of the KPMG in relation to the proceedings bought by the Liquidators could be identified (and none has been), they would also appear to qualify for protection in terms of cl 9 of the Settlement Deed set out at [60] above. KPMG has clearly been improperly joined to the proceedings and is entitled to be struck out.

15 At [35].

[65]   For the reasons set out above, these proceedings are an abuse of the Court’s process being an impermissible attempt to collaterally attack the judgment of Nation J, and I strike them out.

[66]   The defendants also, separately to their strike-out claim, sought summary judgment against the plaintiff. Given that I have struck the claim out in its entirety, there is no need to address the summary judgment application.

Costs

[67]   The Liquidators and Company, having successfully opposed Mr Stewart’s application under HCR 15.16(5), are entitled to costs. The defendants in proceedings CIV-2023-409-225, having been successful in their strike-out application are also entitled to costs.

[68]   I encourage the parties to settle the question of costs by agreement. In the absence of agreement, within 14 days of the date of this decision, the Liquidators/Company are to file submissions in support of their costs application in both matters, such submissions to be no more than five pages in length. Within five days of receipt of those submissions, Mr Stewart is to file and serve his submissions in reply, again, no longer than five pages in length. Costs will then be dealt with on the papers.

Churchman J

Solicitors:

Martelli McKegg, Auckland for Plaintiffs in CIV-2020-409-192 and Defendants in CIV-2023-409-225