Frimley Estate Ltd v Fog
[2015] NZHC 2757
•6 November 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-003364 [2015] NZHC 2757
BETWEEN FRIMLEY ESTATE LTD
Applicant
AND
MARIANNE FOG Respondent
Hearing: 2 November 2015 Counsel:
PM Fee and AR Durrant for Applicant
RB Hucker and J Schwarcz for Respondent
PJ Davey for interested partyJudgment:
6 November 2015
JUDGMENT OF ASHER J
This judgment was delivered by me on Friday, 6 November 2015 at 3 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Fee Langstone, Auckland.
Hucker & Associates, Auckland. Steindle Williams Legal Ltd, Auckland.
PJ Davey, Auckland.
FRIMLEY ESTATE LTD v FOG [2015] NZHC 2757 [6 November 2015]
Introduction
[1] This proceeding concerned an application by Frimley Estate Ltd (Frimley) for relief under s 37AH of the Securities Act 1978 (the Act) from the consequences of issuing a security to the public without a registered prospectus. The application was opposed by one of the subscribers, the respondent Marianne Fog. It was common ground that the Act applied.1
[2] By a judgment of 13 May 2015,2 I declined relief in respect of Ms Fog. The application for relief in relation to other subscribers was adjourned. I gave leave to Frimley to seek relief for other specific subscriptions if it wished to do so. Frimley had 28 days to make submissions on those proposed orders.
[3] Frimley appealed the judgment in a notice of appeal filed on 8 June 2015. That appeal is set down to be heard between June and August 2016. In the meantime by an application dated 17 August 2015, it has filed an application for stay of the relief proceedings pending the outcome of the applicant’s appeal to the Court of Appeal. The application is made in reliance on r 12 of the Court of Appeal (Civil) Rules 2005 and the principles set out in Keung v GBR Investments Ltd3 and Dymocks
Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd.4
[4] The application is opposed by Ms Fog. It is also opposed by two other subscribers, Giles and Katrina Rinckes, which although they had not opposed the granting of relief at the hearing, now do, and wish to recover their subscription from Frimley. One other subscriber Eleanor Selley, also now opposes relief but has not appeared to oppose this application for stay.
A background problem
[5] An appeal does not operate as a stay of proceedings.5 However, pending the determination of an appeal the Court appealed from may on application order a stay
1 The Securities Act 1978 has been repealed. However, under the Financial Markets Conduct Act
2013, sch 4, cls 15, 17 and 19, the Securities Act still applies.
2 Frimley Estate Ltd v Fog [2015] NZHC 1010.
3 Keung v GBR Investments Ltd [2010] NZCA 396.
4 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (CA).
5 Court of Appeal (Civil) Rules 2005, r 12(1).
of the proceeding in which the decision was given, or a stay of the execution of the decision.6 There is also a power to grant any interim relief.7
[6] The problem is that the judgment of 13 May 2015 did not make any orders save as to costs, and there is nothing to stay. The judgment went no further than denying Frimley, the plaintiff, relief against Ms Fog and adjourned the relief proceedings in relation to other subscribers. Thus, the position that existed prior to the proceeding being filed, prior to the hearing and prior to the judgment continued. There was no relief and the provisions of the Act which made the allotments void
continued to apply.8
[7] The effect of a stay of the proceeding would be that the plaintiff was stopped from seeking the relief which it continues to seek and which it will be seeking in the Court of Appeal. That is not what it wants (although it wishes to adjourn the proceeding pending appeal). There is therefore nothing to stay, save the continuation of a proceeding which Frimley wishes to pursue.
[8] Frimley does not really want or indeed need a stay of this proceeding at this point. What it really wants is a stay of any proceedings for repayment of their subscriptions by the subscribers under s 37(5)(b) and (6) of the Act. That application for a stay would not be considered under the Court of Appeal (Civil) Rules, but under whatever particular stay discretion applied to the proceeding.
[9] There has indeed been one such exercise already. Ms Fog has applied to have Frimley placed into liquidation. Frimley opposed that application and filed an application seeking a stay of the proceedings as well as a stay of execution. In a judgment of 2 October 2015 Associate Judge Sargisson declined the application for a
stay.9 She held:10
I consider that the liquidation application has been properly made. it is not a question of applying unfair pressure. Frimley has, at this point, failed to show the strong prima facie case it is required to demonstrate in order to
6 Rule 12(3)(a).
7 Rule 12(3)(b).
8 Securities Act 1978, s 37(1) and (4).
9 Fog v Frimley Estate Ltd [2015] NZHC 2247.
10 At [38].
justify a stay of proceedings, nor even to show that the balance of convenience runs in its favour. On the contrary, Ms Fog has shown prima facie evidence that Frimley is unable to pay its debts. The requirements of rule 31.11 have not been met. In these circumstances, I cannot grant the applications for stay.
[10] When I raised this issue with Ms Fee, she recognised the application had unusual features and stated that she was trying to stay any further application or proceeding for recovery by the subscribers. I could understand her wishing to continue the adjournment of this relief proceeding against subscribers other than Ms Fog pending the outcome of the appeal, but that, as she accepted, is not before me at this time. There is no such application and I have had no submissions on the point. All that is before me to determine is a stay application.
[11] It is my view therefore that this stay application is misconceived. I decline to grant a stay because there is in essence nothing to stay. Putting it another way, there is no interim relief sought or needed from the orders made by me, pending the appeal. A Court will only make a stay order if there is something to stay. There must be a practical consequence that follows the making of such an order. There being no such practical consequence I decline the application for that reason alone.
[12] In case I am wrong, and in deference to the extensive argument that I had from Ms Fee and Mr Hucker for Ms Fog, and Mr Davey for the Rinckes, I will refer now to the merits, assuming for the purposes of this application that if I was to grant a stay it might have some practical effect.
The stay application
Background factors
[13] The principles to be applied in relation to stay applications under r 12 are well settled and were summarised by Hammond J in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd. In determining whether or not to grant a stay the Court must weigh the factors “in the balance” between the successful litigant’s rights to the fruits of a judgment and “the need to preserve the position in
case the appeal is successful”.11 Factors to be taken into account in this balancing exercise include:12
1. If no stay is granted will the applicants’ right of appeal be rendered
nugatory?
2. The bona fides of the applicants as to the prosecution of the appeal.
3. Will the successful party be injuriously affected by the stay?
4. The effect on third parties.
5. The novelty and importance of the question involved.
6. The public interest in the proceedings.
7. The overall balance of convenience.
The apparent strength of the appeal is now treated as an additional factor.13
[14] Ms Fee in her submissions in support of the stay submitted that the appeal might be rendered nugatory if Frimley had to repay the subscription money to Ms Fog because Frimley might experience difficulties in recovering that money from Ms Fog in the event that the appeal succeeded. She submitted that in any event Frimley was not in a position to repay all of the subscription money to Ms Fog, the Rinckes and Ms Selley. Such a payment would impact on Frimley’s financial position and could well mean that Frimley would not be able to pursue the appeal due to a lack of funding.
[15] Ms Fee submitted that Frimley had prosecuted the appeal in a timely way, and that Ms Fog, the Rinckes and Ms Selley would not be injuriously affected by a stay as through its process of selling blocks of land Frimley is moving closer to a situation where funds may be available for distribution to subscribers. She submitted that the majority of other subscribers supported the application for relief and the appeal, and that the wishes of the other subscribers should not be undermined. She submitted that the overall balance of convenience favoured the granting of an appeal
and relied by analogy on s 37AL(5) of the Act.
11 Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 87.
12 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd, above n 4, at [9].
13 Keung v GBR Investments Ltd, above n 3, at [11], citing Body Corporate No 188529 v North
Shore City Council (No 6) HC Auckland CIV-2004-404-3230, 11 February 2009.
Will the appeal be rendered nugatory by the lack of a stay?
[16] It follows from my reasoning that the appeal will not be rendered nugatory by the lack of a stay. The appeal could be rendered nugatory by other proceedings that had the effect of liquidating Frimley or in other respects making it financially impossible for it to continue with the appeal, but that will not occur as a direct consequence of anything done in this proceeding.
[17] In any event, a case has not been made out that the appeal will be rendered nugatory by the lack of a stay. Mr Duff who deposed on behalf of Frimley on this issue, stopped short of asserting that. One reason why it could not be asserted is that there will be an opportunity to argue stay issues in relation to any enforcement proceedings that may be brought by the subscribers. This decision should not be determinative.
[18] In any event, Mr Duff’s affidavit evidence on the issue of a stay is equivocal. He says that if Frimley is required to refund Ms Fog this will have a “material impact” on Frimley’s financial position. Frimley clearly has sections that it is trying to sell, and indeed deposes that some have been sold. It is not established that it could not raise funds to pay out Ms Fog.
Bona fides of Frimley as to the prosecution of the appeal
[19] Mr Hucker for Ms Fog relied on an email that Mr Duff sent to the shareholders of Frimley dated 29 May 2015, in which he discussed the filing of an appeal against the decision of 13 May 2015. He noted:
In my considered opinion I think we should appeal the decision. First, it buys us time. Second, in my opinion, the judgment is badly flawed. …
He goes on to discuss the prospect of obtaining a barrister’s opinion, avoiding the “sudden death” of a statutory demand and to elaborate on his view that there are deficiencies in the judgment.
[20] Within days of the appeal being filed Ms Fog sought an order from the Court of Appeal that the appeal be fast-tracked. This was opposed by Frimley. In a
memorandum filed on 16 June 2015 it was pointed out that in general the fast-track is intended for appeals expected to take no more than half a day’s hearing time, and in the view of Frimley’s counsel it would take a full day. It was stated that Frimley would be inviting the Court of Appeal to reconsider an earlier decision. It was submitted that there were no special reasons justifying the appeal being entered on the fast-track, and that since it was a private scheme the Court should err on the side of refusing the application. It was stated that the appellant did not anticipate “further” deterioration of its financial position, and it was argued that the appeal should be heard by a permanent Court.
[21] This material does not show that the applicant is not bona fide in the prosecution of the appeal. However, it does seem to me to be a factor against the granting of a stay that the motivation for the appeal was at least in part tactical to gain time to sell assets, and that Frimley has resisted a quick hearing of the appeal. I am informed that if the appeal had gone on the fast-track it would have been determined by now, or about now. This would have resolved the very issue that Frimley now seeks to address in this stay application. It was entirely open to Frimley, while pointing out that the appeal would take a full day, to join with Ms Fog in seeking the fast-track. If, as Frimley appears to assert, its appeal will be rendered nugatory if no stay is granted, it could have been expected that Frimley would have done everything possible to support a quick hearing. The fact that it has done the opposite calls into question its motivation in bringing the appeal.
[22] Ultimately the Court of Appeal in a short minute refused to place the appeal on the fast-track. It is impossible to predict what would have happened if Frimley had supported the application. It can only be said that it is quite possible that the case could have been placed on the fast-track.
Will Ms Fog be injuriously affected by the stay?
[23] Ms Fog’s affidavits disclose that through this year Frimley has been selling properties, one at least of the sales being to an entity associated with Mr Duff. There was a sale on 9 December 2014 to D R Property Ltd in which he has an interest. There has been a sale of a significant block to a company Killarney Capital Ltd at a
price less than that outlined in supporting valuations. There has been a failure to provided audited accounts for Frimley for the 2015 year.
[24] As I have recorded in my judgment, Mr Duff has in the past charged extensive management fees. It remains a prospect that he may charge further management fees. There is also the effect that a stay may have on the relationship back period should Frimley be liquidated.
[25] Thus, although there is not enough information to point to definite injury resulting from the stay, there remains a real prospect that Ms Fog’s ability to recover her subscription will be significantly affected by delay.
The issues in the appeal
[26] Ms Fee submitted that there are points of merit and significance involved in the appeal, while Mr Hucker and Mr Davey argued that the appeal was weak. They relied on Associate Judge Sargisson’s comments in her judgment of 2 October
2015.14
[27] In the end I go no further than to observe that the points raised are particular to the facts of this case and relate to a now repealed Act. I do not consider that the nature of the questions that are involved in the appeal point strongly either for or against the grant of a stay.
Section 37AH
[28] Ms Fee relied on s 37AL(5) of the Act as by analogy supporting her case. Section 37AL(5) provides:
37AL Other proceedings for relief in respect of section 37
…
(5) The Court must, on the application of the issuer, order that the proceedings to require the repayment of subscriptions or interest under section 37(5) or (6) be stayed until after the determination of the application, or applications, for a relief order unless the application, or applications, for a relief order—
14 Fog v Frimley Estate Ltd, above n 9, at [30].
(a) is, or are, frivolous or vexatious; or
(b) is, or are, an abuse of the process of the Court.
[29] This section only gives jurisdiction to order a stay in respect of proceedings requiring the repayment of subscriptions or interest under s 37(5) or (6). This proceeding is not such a proceeding. It is not a proceeding in which Ms Fog, or indeed any subscriber, seeks repayment. Rather it is a proceeding by Frimley for relief. In submissions Ms Fee accepted this and did not rely on s 37AL(5) directly. She submits, however, that it has an indirect relevance in that it indicates that stays should be readily granted in the s 37 context.
[30] I am unable to agree with this submission. Even if s 37AL applied, there would be no stay in respect of Ms Fog, as the relief application relating to her has been determined. I have declined relief. “Determined” is not defined, but on the face of it a judgment declining relief has determined in the sense of decided the application. Appeal is a further stage after determination. Any other approach could lead to absurd delays which could encompass determination of a Supreme Court appeal.
The overall balance of convenience
[31] On the face of it Frimley is having difficulty in paying its due debts, and it is reducing its net assets by the disposition of properties. I have real concerns about any order I make which has the result of imposing a long term delay on Ms Fog recovering her subscriptions. There is a real risk that the buying by Frimley of time will act to the detriment of Ms Fog’s ability to recover. Questions of the liquidity of Frimley and whether the discretion to stay a judgment in the context of any particular application to recover the subscription are best addressed in those proceedings.
[32] My consideration of the balance of convenience is inevitably influenced by my finding that the application for the stay is misconceived. However, even putting that to one side, I am not persuaded that Ms Fog should be denied any fruits of the judgment denying relief at least in this proceeding, unconnected as it is to any application to enforce the repayment of the monies that she invested. This
application could be seen as an attempt by Frimley to get short term relief for the period leading up to the appeal, to avoid the need to bring stay applications on enforcement proceedings.
[33] I accept that the majority of the shareholders support the application for relief and the appeal, and a refusal to stay proceedings might impact them. However, none of them have considered it necessary to appear to support a stay or file supportive material. I am not at all persuaded that any short term relief would be fair to Ms Fog or appropriate in all the circumstances. Ms Fog at present has a good claim for the recovery of her subscription. Frimley has sought to contest that by obtaining an order for relief, and it has failed. Ms Fog has already had to wait a very long time for the recovery of her investment, and should not be faced with a de facto interim relief order. She should be entitled to pursue the recovery of her subscription, and stay issues can be dealt with in the context of any specific proceedings that she may bring, as they already have been in relation to the liquidation proceedings.
[34] I record that it has not been shown that Ms Fog would be unable to repay any amount she recovered from Frimley, should the appeal be successful. However, the relevance of this factor is in any event questionable as in this proceeding Ms Fog does not seek to recover any sum from Frimley, and that is an issue that can be better dealt with in specific proceedings for the recovery of the subscription.
[35] The substantive hearing of those liquidation proceedings will be later this month, and Frimley will be able to argue at that point that it would be wrong and premature for a liquidation order to be made. I do not seek to make any comment on the merits of any such application. However, in the meantime I am not prepared to make a stay order.
Result
[36] The application is dismissed.
[37] In the usual course costs would follow the event. However, if the parties are unable to agree on costs Ms Fog and the Rinckes are to file their submissions in
support of any application within 14 days, Frimley to respond within a further 14 days.
……………………………..
Asher J
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