Gemmell v Norris

[2014] NZHC 1071

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV-2012-442-482 [2014] NZHC 1071

BETWEEN

BRUCE DONALD GEMMELL and

RHYS JAMES CAIN Applicants

AND

PATRICK DEAN NORRIS First Respondent

NORRIS MANAGEMENT SERVICES LIMITED

Second Respondent

JACKSON ALEXANDER CHURCHILL Third Respondent

Hearing:	20 May 2014
Appearances:	G K Downing for the applicants The first respondent in person No appearance for the second and third respondents R L Roff for the Commissioner of Inland Revenue
Judgment:	20 May 2014

JUDGMENT OF CLIFFORD J

Introduction

[1]      The applicants, Bruce Gemmell and Rhys Cain, are the liquidators of four companies, Trafalgar Top Ltd, Astra Enterprises Ltd, Murchison Buses Ltd and Frost Steel Compactors Ltd (the Four Companies).  This is an interlocutory application by Messrs Gemmell and Cain to vary the terms on which Kós J directed that certain documents seized by them following searches of the premises of the first, second and

third respondents were to be dealt with.

GEMMELL v NORRIS [2014] NZHC 1071 [20 May 2014]

Factual background

[2]      Mr Norris – a former insolvency practitioner – was between 19 December

2008 and 1 March 2010 appointed liquidator of each of the Four Companies.

[3]      Mr Norris was, on 16 October 2012, convicted in the District Court at Nelson of theft by a person in a special relationship.  That conviction arose when Mr Norris was found to have misappropriated $80,960.51 when acting as liquidator of Astra Enterprises. The evidence at Mr Norris’ judge alone trial was that those monies were paid  into  a bank  account  of the second  respondent  (NMSL)  and  were used by Mr Norris to buy items for or repay debts of that company or Mr Norris himself personally.

[4]      Judge Behrens found that Mr Norris engaged in a blatantly dishonest course of action to try and cover up his failure to deal with or account for the property of Astra (that is, the proceeds of the misappropriated cheque) to Astra’s creditors.

[5]      Mr Norris’  conviction  resulted  in  his  automatic  disqualification  to  be liquidator   of   the   Four   Companies.      Mr Norris   appealed   that   conviction unsuccessfully.

[6]      On  18  October  2012,  some  two  days  after  his  conviction,  Mr Norris addressed a letter to the Registrar of Companies in which – responding to that disqualification  –  he  purported  to  appoint  the  third  respondent,  Mr Jackson Churchill, car salesman of Nelson and a personal friend, as liquidator of the Four Companies in his stead.

[7]      On 23 October 2012 the Official Assignee appointed Messrs Gemmell and Cain liquidators of the Four Companies, to fill the vacancy caused by Mr Norris’ disqualification upon conviction.

[8]      On 29 October 2012 Messrs Gemmell and Cain applied on a without notice basis for, and were granted by Kós J, orders to search Mr Norris’ home and the premises  of  NMSL and  Mr  Churchill,  to  recover  and  preserve  documents  (etc) relating to the conduct of the liquidation of the  Four Companies by Mr Norris.

Messrs Gemmell and Cain gave undertakings to the Court they would provide copies of all material seized to Mr Norris, NMSL and Mr Churchill, to keep all items seized in safe custody and only to use such items for the purpose “of the proceedings in which discovery is made” ie (it would appear) the liquidation of the Four Companies or associated litigation.  But, in their terms, the search orders applied for and granted only provided for the seizure and retention, and not the use, of the subject documents (etc).

[9]      Messrs Gemmell and Cain caused a search of the subject premises in terms of the without notice order on 31 October 2012. As provided in that order, independent solicitors (Messrs Russ and Fraser, partners of Fletcher Vautier Moore) supervised the search and reported to the High Court.

[10]     Again, as provided in that order, on 30 November 2012 the High Court was to consider – in the hearing at which Messrs Gemmell and Cain, the respondents and the independent solicitors were entitled to be heard:

(a)       what was to happen to any goods removed from the premises or to any copies that had been made;

(b)how the confidentiality to which the respondents are entitled was to be maintained;

(c)       any privilege claim;

(d)      any application by a party; and

(e)       any issue raised by an independent solicitor.

[11]     Justice Kós’ minute of that 13 November hearing records that various factors, including inadequate time allowed for the hearing, the fact that the independent solicitors’ reports had not yet reached the Court file, and the welter of material filed

by Mr Norris the day before, prevented a substantive consideration of the issues involved. Accordingly, Kós J made the following order:1

In the meantime and without opposition I make an order that all the documents (of whatever form including digital) and other material seized be placed by Messrs Gemmell and Cain in secure custody and not be used further by them pending further order of the Court. ...

[12]     Justice Kós made further timetabling orders to enable the substantive matters at  large  between  the  parties  to  be  heard  before  Simon  France  J  on  Thursday

29 November 2012.

[13]     On 3 December 2012 Simon France J issued a judgment in which he found that Mr Norris’ appointment of Mr Churchill was not valid and dismissed Mr Norris’ other challenges to the validity of Kós J’s search orders and the search carried out pursuant thereto.2   Justice Simon France directed:3

The liquidators are to file, for Kós J, a proposal as to how it is intended to examine the material seized.  If Mr Norris, Ms Parr or her company are not satisfied, they have three days to file their objections, with reasons.

[14]     On 17 December 2012 the applicant, Ms Parr and NMSNZ Limited filed a consent memorandum seeking a variation to the 13 November 2012 order (that is the order by Kós J following the incomplete hearing that day) “permitting the applicants to inspect those documents known or appearing to be the property of Ms Parr or NMSNZ Limited and returning those which do not, in the opinion of the applicants, relate to the liquidations in question”.  Justice Kós made an order in terms of that consent  memorandum.    It  is  not  clear  whether  any  steps  have  been  made  to implement the terms of that consent order.

[15]     On 18 December 2012 Mr Norris filed an appeal against Simon France J’s decision of 3 December 2012.  Mr Norris has not, however, applied for any stay of that decision.

[16]     That was where matters stood until recently.

1      Gemmell v Norris HC Nelson CIV-2012-442-482, 13 November 2012 at [6].

2      Gemmell v Norris HC Nelson CIV-2012-442-482, 30 November 2012.

3 At [42].

The current application

[17]     On 3 April 2014 Messrs Gemmell and Cain 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”.

[18]     A procedure was planned to deal with privileged documents, involving the independent solicitors.  Messrs Gemmell and Cain also sought a variation to enable them to comply with certain notices to furnish information which had been served on them by the Commissioner or Inland Revenue.

[19]     Mr Norris opposes that  application, repeating assertions of confidentiality previous advanced by him.  NMSL, and Ms Parr, do not oppose the application.  The Commissioner of Inland Revenue seeks to be joined as an interested party, and supports the application.

Decision

[20]     I deal first with the position of the Commissioner.

[21]     I grant the Commissioner’s application to be joined as a third party.  I also vary Kós J’s orders of 13 November 2012 to allow the applicants to comply with lawful requests by the Commissioner to inspect and take copies of documents (in whatever form, electronic other otherwise) seized in the search on 31 October 2012. I note that in [17] to [19] of the affidavit of Mr Wayne Cosgrove in support of the Commissioner’s application, Mr Cosgrove outlines the Commissioner’s standard procedures to identify and protect privileged documentation found amongst electronically stored information.  The Commissioner is, within one week of today, to outline to Mr Norris in writing how Mr Norris may inform the Commissioner of, for example, the names of his legal advisers, so that electronic searches can be made to identify possible relevant documentation.  Mr Norris is to provide that information to the Commissioner within two weeks of today’s date.

[22]     The Commissioners’ interest is limited to the tax affairs of Mr Norris and the second respondent.  Accordingly, between Messrs Gemmell and Cain, as liquidators of the Four Companies, and the Commissioner appropriate arrangements will need to be put in place so that documents which fall outside that category are either not provided to or, if they are, are returned by, the Commissioner.   That requirement overlaps with my approach to the second aspect of Messrs Gemmell and Cain’s interlocutory application, namely to be able to search and use, for the purposes of the liquidation of the Four Companies, documents (as before) seized on 31 October

2012.

[23]     I agree in  principle  that,  given  the time that  has  past  and  the  fact  that, although Mr Norris is appealing Simon France J’s decision, there is no stay of that decision, progress now needs to be made with the liquidation of the Four Companies. In principle, therefore, Messrs Gemmell and Cain need access to relevant documents seized on 31 October 2012.   At the same time, questions of privilege, and of the possibility that documents not relating to the liquidation of the Four Companies were contained amongst that wide range of material, need to be dealt with.

[24]     In making that application, Messrs Gemmell and Cain propose that, again, the independent solicitors be used to assist with respect to privileged material.   I agree that may be appropriate.  What is required is a process to identify privileged material and material that does not relate to the liquidation of the Four Companies, which  is  nevertheless  contained  in  the  documentation  (as  before)  seized  on

31 October. The liquidators will, no doubt, need to inspect that documentation to determine whether it is of use to them in the liquidation of the Four Companies. In doing so, they would in the first instance also identify material that did not fall within that category. In my view, the cost of that process is one for the liquidators to carry as it was during their search that that material was seized. I do not think, therefore, that Mr Norris should be required to pay the costs of the independent solicitors. The proposal for the involvement of the independent solicitors was made at the outset, by Messrs Gemmell and Cain, as part of the proposal whereby their without notice search orders were obtained. I also note the undertakings originally given referred to at [8].

[25]     I therefore also vary Kós J’s orders of 13 November to provide for the use by Messrs Gemmell and Cain in the liquidation of the Four Companies of relevant and, as regards either Mr Norris or Ms Parr, material which does not attract personal legal privilege, in the liquidation of the Four Companies.  The liquidators will, over time, need to identify and return documents which fall within that category to either of Mr Norris or Ms Parr as relevant.

[26]     To keep matters moving, the independent solicitors are to provide a report to the Court, with a copy to be sent to Mr Norris no later than six weeks from today’s date, updating the Court as to progress with these matters and, in particular, the identification and return of privileged and non-relevant material found amongst the documents seized on 31 October 2012.

“Clifford J”

Solicitors:

Harmans Lawyers, Christchurch. Crown Law Office, Wellington

Copies to: Mr P D Norris

The Commissioner of Inland Revenue