Gemmell v Norris
[2017] NZHC 2383
•29 September 2017
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV 2012-442-482 [2017] NZHC 2383
UNDER Part 33 of the High Court Rules BETWEEN
BRUCE DONALD GEMMELL & RHYS JAMES CAIN
Applicants
AND
PATRICK DEAN NORRIS First Respondent
NORRIS MANAGEMENT SERVICES LIMITED
Second Respondent
JACKSON ALEXANDER CHURCHILL Third Respondent
Teleconference: 18 September 2017 Counsel:
G K Riach for Applicants (by telephone) First Respondent in Person
Judgment:
29 September 2017
JUDGMENT OF CHURCHMAN J
[1] By interlocutory application dated 4 August 2017, Patrick Dean Norris (“the
applicant”) applied to strike these proceedings out.
[2] The application sought other relief including what was described as “costs
and/or damages”. The damages were said to be payable to the applicant:
… in respect of those unnecessary costs and expenses as incurred by the First Respondent as a result of the Applicants’ breaches in respect of these proceedings, and/or as subject to the breaches of the Applicants’ undertakings as provided to the Court dated 26 October 2012, and in addition to those further costs and expenses as will be incurred by the First Respondent to the conclusion of these proceedings.
GEMMELL & CAIN v NORRIS [2017] NZHC 2383 [29 September 2017]
[3] The application sought other orders including:
That the Applicants provide by certified copy a full accounting of all funds received in respect of any charges or payments received to them in their capacity as Liquidators of (1) Trafalgar Top Limited (in liq), (2) Frost Steel Compactors Ltd (in liq) and Murchison Buses Ltd (in liq) …
That the Applicants as the successor Liquidators of those three named companies, pay to the First Respondent those funds as received and as referred to … above, in payment of those outstanding fees, expenses and remuneration as due to the First Respondent in priority as the Vacating Liquidator payable by the Applicants as the successor Liquidators of those three named companies in Liquidation as identified.
That the Applicants pay the full costs of the First Respondent’s time and travel to the Applicants’ premises (or storage premises in Christchurch) where the seized documents and files have been stored, and costs on a time charged basis of $80 per hour plus GST for the time taken by the First Respondent to sort those records relative to the liquidations for handover to the Applicants and/or with the overseeing of the independent solicitor during this process as appointed under Rule 33.7, with the balance of those records, documents and/or files, either being destroyed or returned to a nominated address on or after advice from the First Respondent, at the full cost of the Applicants.
To remove the Commissioner of Inland Revenue from these proceedings as a third party.
Costs and expenses in respect of this application payable to the First Respondent by the Commissioner of Inland Revenue to have them so removed.
[4] The grounds upon which the various applications are advanced include what is said to be inordinate delay and breaches of undertakings.
[5] In relation to the Commissioner of Inland Revenue, the applicant alleges that her investigations were at an end and it is claimed that the applicant has “incurred unnecessary cost and expense as a result of the Commissioner of Inland Revenue’s failure to advise the Court that [her] investigations [were] at an end and that [she] has no further interest in these proceedings”.
History
[6] On 16 October 2012 the applicant Patrick Dean Norris was the liquidator of four companies: Frost Steel Compactors Ltd, Murchison Buses Ltd, Trafalgar Top Ltd and Astra Enterprises Ltd.
[7] At 3:58 pm that day Mr Norris was convicted in the District Court of theft by a person in a special relationship under s 220 of the Crimes Act 1961.1 The offending related to the sum of $80,960.51 that Mr Norris had received as the liquidator of Astra Enterprises Ltd. The District Court held that the applicant had fraudulently failed to account for that money.
[8] The fact of conviction meant that Mr Norris could no longer act as liquidator by operation of law.2
[9] The Official Assignee proceeded on the basis that there was a vacancy in the office of liquidator and, on 23 October 2012 exercised his power under s 283(6) of the Companies Act 1993 to appoint Bruce Gemmell and Rhys Cain (“the liquidators”). He did so subject to an order being made that they were not disqualified. Such an order was made on 25 October 2012.
[10] Four days later the liquidators applied on a without notice basis for a search order against Mr Norris and the company he controlled, Norris Management Services Ltd.
[11] On 30 October 2012 Kós J made the order authorising entry to two premises to secure and preserve evidence relating to the liquidations of the four companies. The search order was executed and documents uplifted.
[12] Mr Norris filed an application to set aside the search order and for an order that the material seized be returned. He was unsuccessful in that application before the High Court.3
[13] Mr Norris claimed that, prior to his conviction, he had validly appointed an associate of his, Jackson Alexander Churchill, as liquidator of the four companies in question.
[14] Simon France J in the High Court rejected this claim and held that Mr Norris had not validly appointed a new liquidator at any time prior to the entry of his
1 R v Norris DC Nelson CRI 2011-042-1272 16 October 2012.
2 Companies Act 1993 ss 280(1)(k), 382(1)(b) and 283(1).
3 Gemmell v Norris [2012] NZHC 3339 and on appeal Norris v Gemmell & Cain [2014] NZCA
490.
conviction on 16 October 2012.4 That finding was upheld by the Court of Appeal.5
The Supreme Court refused leave to appeal.6
[15] Issues in relation to the search order and use of the material received came before the Court on a number of occasions including before Kós on 13 November
2012, Simon France J on 3 December 2012 and Simon France J on 12 February
2013. On that occasion costs in the sum of $6,368 and disbursements of $986.25 were awarded to the liquidators with recovery of these sums to be able to be brought against any or all of the respondents.7
[16] The Commissioner of Inland Revenue became interested in the tax affairs of Mr Norris and Norris Management Services Ltd. On 3 April 2014 the liquidators filed an application to vary the order made by Kós J on 13 November 2012 to allow them:
… to inspect and use all documents obtained pursuant to the search order of
31 October 2012 except any documents appearing on their face or by their title to be communications either between the first and/or second
respondents and their named legal advisers.
[17] The Commissioner of Inland Revenue supported the application and sought to be joined as an interested party. The Commissioner was so joined by Clifford J in a judgment dated 20 May 2014.8 In his 20 May 2014 judgment Clifford J also made certain directions regarding accessing the documentation seized. He noted that, although Mr Norris had appealed Simon France J’s decision, that did not stay the decision and progress needed to be made with the liquidation of the four companies.9
[18] The matter came before Dobson J on 1 April 2015 and by minute of 14 April
2015 Dobson J made orders varying the directions made earlier by Clifford J.10
Current application
[19] This issue currently before the Court is Mr Norris’ application to strike out
dated 4 August 2017.
4 Gemmell v Norris [2012] NZHC 3339.
5 Norris v Gemmell & Cain [2014] NZCA 490 at [26].
6 Norris v Gemmell & Cain [2014] NZSC 190.
7 Gemmell v Norris HC Nelson CIV 2012-442-482, 12 February 2013, per Simon France J at [9].
8 Gemmell v Norris [2014] NZHC 1071 at [21].
9 At [23].
10 Gemmell v Norris HC Nelson CIV 2012-442-482, 14 April 2015.
[20] By notice dated 7 August 2017 the Commissioner of Inland Revenue partially opposed the application made by Mr Norris. The Commissioner specifically acknowledged that the application to remove the Commissioner from these proceedings was not opposed.
[21] The Commissioner opposes [1(g)] of the application of 4 August 2017 which seeks:
Costs and expenses in respect of this application payable to the first respondent by the Commissioner of Inland Revenue to have them so removed.
[22] The grounds of the Commissioner’s opposition are that the first respondent is not entitled to expenses against the Commissioner as it was not necessary to bring the application to have the Commissioner removed to conclude the matter and secondly that the first respondent was not entitled to costs as he was a lay litigant and had not incurred representation costs.
[23] The Commissioner filed an affidavit of Wayne Cosgrove in support of the notice of opposition. That affidavit details the procedure undertaken by the Commissioner and confirmed that by letter dated 17 March 2016 the Commissioner had informed the respondents that no further action would be taken in relation to the tax audits.
[24] By notice of opposition dated 21 August 2017 the liquidators opposed the application.
[25] The grounds on which the application is opposed include that there had not been any inordinate or excessive delay in progressing the matter and that the costs and expenses incurred were, in significant part, a consequence of proceedings instigated by Mr Norris challenging various decisions. These proceedings had resulted in the applicant being subject to several Court costs orders which remained unpaid.
[26] The notice of opposition indicated that the liquidators were prepared to agree to discontinue these proceedings and close down the liquidation on the basis that:
(a) They were not subject to adverse costs orders.
(b)This was in full and final settlement of any claims the applicant may have against the liquidators arising out of the liquidations or the proceedings.
[27] The liquidators filed an affidavit of Rhys James Cain dated 21 August 2017 in support of their notice of opposition.
[28] This affidavit noted that, unlike a normal liquidation, at the time Messrs Gemmell and Cain were appointed liquidators of the four companies, the companies were already in liquidation. The liquidators had no legal ability to simply enter the premises of the former liquidator (Mr Norris) and obtain the records of the liquidation.
[29] Mr Cain explained that because of the circumstances surrounding Mr Norris’ conviction (the fraud related to Mr Norris unlawfully claiming costs and rendering false invoices in relation to the liquidation of one of the companies) there was a real concern that Mr Norris might not voluntarily provide all relevant information.
[30] Mr Cain also set out the series of legal challenges and appeals mounted by Mr Norris which significantly delayed the implementation of the original search and seizure order obtained in these proceedings.
[31] Mr Norris went so far as applying for leave to appeal to the Supreme Court. That application was finally dismissed in a decision released on 19 December
2014.11
[32] The affidavit refers to the fact that Dobson J directed that Mr Norris supply the liquidators’ counsel by 1 May 2015 a list of all physical or electronic files which he considered were irrelevant to the liquidation of the companies and a list of all legal practitioners in respect of whom he claimed privilege along with an approximate indication of the time period during which each practitioner provided advice to him in his personal capacity. The affidavit notes that Mr Norris failed to
comply with those directions.12
11 Norris v Gemmell & Cain [2014] NZSC 190.
12 Affidavit of Rhys James Cain, 21 August 2017 at [12] and [13].
[33] Mr Cain’s affidavit explained the costs that had been incurred in proceeding with this matter (and responding to Mr Norris’ many legal challenges) and the fact that, as a result of the lack of funding and what was described as “the constant objections from Mr Norris as to the method of inspection of his documents” the respondent had not taken any recent steps to advance the liquidation or these proceedings.
[34] The affidavit explained the reason for the original search application:13
A significant focus of our initial appointment was to review the dealings of Mr Norris as liquidator in light of evidence obtained by the Official Assignee in other proceedings which showed transactions which were questionable and which included the sale and purchase of company assets to and by friends and associates of Mr Norris or other entities with which he was interested (potentially at undervalues).
[35] Mr Cain said, in relation to identified suspect transactions:14
However the amounts that could potentially be recovered in respect of those transactions were, compared to the subsequent costs that have now been incurred, insufficient to return anything of substance to creditors. … Mr Norris has consistently stated that he has little financial substance and indeed could only make reparation in respect of the amount ordered by the District Court to be repaid in respect of Astra at the rate of $216.66 per month.
[36] Mr Cain concluded:15
In the circumstances therefore the exercise has become entirely uneconomic and futile from the point of view of creditors of the companies in liquidation.
[37] In relation to the undertakings which Mr Norris had implied had been breached by the liquidators, Mr Cain said:16
… the undertakings in question were not personal in the sense they were expressly given in the capacity as liquidators of the companies in question. Apart from undertakings as to the method of execution of the search order, they were related only to any damages suffered by the Respondents in relation to or as a result of the search order and no such damages have been established. These undertakings do not, as Mr Norris would have it, give a guarantee that we would have and continue to have sufficient funding to maintain these proceedings.
13 At [20].
14 At [21].
15 At [22].
16 At [24].
[38] Mr Cain suggested in his affidavit that this proceeding be discontinued by leave with no costs ordered and that liquidations be closed down to avoid any further costs being incurred in relation to those liquidations.
[39] Mr Cain appended to his affidavit copies of certain emails to Mr Norris including an email of 12 May 2017 which contained the following proposal:
Given the effluxion of time and the likelihood of any recovery not being economic in the sense of returning funds to creditors, the liquidators are minded to bring matters to an end by closing down the liquidations (apart from Astra which will remain ongoing while you finally repay the Court ordered reparation) and foregoing the enforcement of the Court costs orders provided you do not seek any costs on these liquidations or on the Court proceedings and agree that you have no further claims against the liquidators or companies in liquidation.
The Commissioner
[40] The applicant wants the Commissioner of Inland Revenue removed from these proceedings as a third party. The Commissioner consents to be removed. Therefore, by consent, I direct that the Commissioner be removed as a third party.
[41] This leaves the question of costs against the Commissioner. The applicant asks for “costs and expenses in respect of this application payable to the first respondent by the Commissioner of Inland Revenue to have them so removed”.
[42] There has been no suggestion that there was anything inappropriate in the Commissioner originally being joined as a third party. It is hardly surprising that the Commissioner took an interest in the tax affairs of Mr Norris and Norris Management Services Ltd. The audits undertaken by the Commissioner, facilitated in part by their being joined as a third party to these proceedings, were appropriate.
[43] Responsibly, having reached a conclusion that no further action would be taken in respect of the order, by letter of 17 March 2016 the Commissioner informed Mr Norris of that fact.
[44] Accordingly, there was no need for Mr Norris to apply formally to have the Commissioner struck out. He could, had he wished to have a formal order to that effect, have prepared a simple memorandum as to consent orders for the Commissioner to sign.
[45] Additionally as a lay litigant, there was no basis for awarding Mr Norris costs.17
[46] Accordingly, there is no basis for any award of costs against the
Commissioner.
The liquidators
[47] In considering the various forms of relief sought by Mr Norris in the application of 4 August 2017 (and indeed some of the directions sought by Mr Cain detailed above) it is important not to lose sight of what these proceedings were actually about. They were commenced by originating application under Part 33 of the High Court Rules and related solely to the securing and/or preserving of physical and electronic documents. They involved what is known as a search and seizure order.
[48] Notwithstanding the notice of opposition which stated that the liquidators were opposed to the making of all of the orders sought in the interlocutory application, it appears that the liquidators are not opposed to the striking out of these proceedings and that their real opposition is to the costs application.
[49] The Court clearly has jurisdiction to strike the proceedings out and to make costs orders or other orders incidental to implementing the application for securing and preserving documents.
[50] However, these proceedings did not involve a claim for damages or for any direction in relation to the liquidation.
[51] Accordingly, other than the claim for costs, there is no jurisdiction for Mr Norris to seek any of the remedies set out in [1(b)–(e)] of his application against the liquidators.
[52] Quite apart from the lack of jurisdiction, there does not appear to be any legal basis for granting any of those remedies even if there were proceedings before the
Court seeking that sort of relief.
17 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010) 24
NZTC 24,500 at [162]; Re Collier (a bankrupt) [1996] 2 NZLR 438 (CA).
[53] Just as many of the remedies sought by Mr Norris in his strike out application are beyond the jurisdiction of the Court in these proceedings, so too are the remedies sought by Mr Cain in his affidavit. The Court cannot, in dealing with proceedings relating to the striking out of an application for a search and seizure order, direct that any entity provide undertakings in relation to the liquidation or future potential proceedings.
[54] That is not to suggest that Mr Norris, Norris Management Services Ltd or any other entity might have a valid cause of action against the liquidators. Nothing in the material placed before this Court would support such a view. The settlement proposal set out in the email from counsel for the liquidators to Mr Norris of 12 May
2017 is eminently sensible but is not something the Court can impose.
[55] That brings the Court to a consideration of whether there is any basis for the
Court awarding costs to Mr Norris in respect of the strike out application.
[56] There can be no doubt that the search and seizure order was validly and appropriately obtained. Various Courts have consistently rejected all of Mr Norris’ challenges to the search order.
[57] As to the original undertakings given by the liquidators, I accept the evidence of Mr Cain as set out in [24] of his affidavit. There has been no breach of those undertakings. Neither have there been any damages sustained by Mr Norris or his related entities as a result of the execution of the search order. The fact that these proceedings have stretched out over a number of years appears to be largely the result of the repeated legal challenges mounted by Mr Norris and his opposition to the implementation of the orders.
[58] The liquidators cannot be criticised for seeking the search and seizure order or ultimately coming to the view that as there is no realistic prospect of recovering any further sums for the benefit of creditors, there is therefore no basis for these proceedings to continue.
[59] Accordingly, I make no order for costs and costs will lie where they fall.
[60] I am not in a position, in these proceedings, to give directions to the
liquidators as to whether or not the liquidation should be “closed down”. Neither
can I prohibit Mr Norris or any of his related entities from bringing such proceedings in relation to the liquidation that they should so choose.
[61] The liquidators do not need a direction from the Court to conclude the liquidation. Unless and until varied by agreement between the parties, the costs awards made against Mr Norris and his related entities on earlier occasions remain enforceable and continue to accrue interest.
Churchman J
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