George v Dilks
[2018] NZHC 435
•26 February 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2014-404-2139 [2018] NZHC 435
BETWEEN ARIANA CAILEEN GEORGE
First Plaintiff
RODNEY LEE TE WAKA TOTO HOLLAND
Second Plaintiff
AND
PAUL DILKS
Third Defendant
Hearing: 26 February 2018 Appearances:
R S Pidgeon for the Plaintiffs
D M O’Neill for the Third Defendant
Judgment:
26 February 2018
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Pidgeon Law (J M Pidgeon), Auckland, for the Plaintiffs
Garth O’Brien & Associates (G W O’Brien), Te Awamutu, for the Third Defendant
Copy for:
R S Pidgeon, Barrister, Auckland, for the Plaintiffs
D M O’Neill, Barrister, Hamilton, for the Third Defendant
GEORGE v DILKS [2018] NZHC 435 [26 February 2018]
[1] On 4 December 2015, the plaintiffs obtained judgment by default against Mr Dilks, the third defendant. They registered the judgment in the Federal Court of Australia under the Australian equivalent of the Trans-Tasman Proceedings Act 2010. The amount of the judgment registered in Australia was AUD$410,708.81. On 5 August 2017, a bankruptcy notice issued out of the Federal Court was served on Mr Dilks at his home at Calamvale, Brisbane, Queensland.
[2] On 8 September 2017, he applied to set aside the judgment of this court. His application is under r 15.10 of the High Court Rules 2016:
15.10 Judgment may be set aside or varied
Any judgment obtained by default under rule 15.7, 15.8, or 15.9 may be set aside or varied by the court on such terms as it thinks just, if it appears to the court that there has been, or may have been, a miscarriage of justice.
Mr Dilks says that the judgment of 4 December 2015 was obtained irregularly because he was never served with the proceeding. He also says that once the judgment came to his notice he acted promptly to have the judgment set aside and he has substantial grounds of defence. He also claims that the plaintiffs will not suffer irreparable injury if the judgment is set aside.
Background
[3] The background to the proceeding is set out in the formal proof judgment of Keane J of 4 December 2015.1 Ms George and Mr Holland were in a de facto relationship. That has now come to an end. They, with Mr Holland’s mother, owned a property at Weymouth, Auckland. It was subject to a first mortgage to the ANZ Bank. They had limited equity.
[4] At the start of 2007, both Ms George and Mr Holland were in employment. She worked as a teacher. In February 2007, she made two agreements with Sell Smart Biz Ltd. Under the first, she bought a licence to sell tourism advertising using touch
1 George v Dilks [2015] NZHC 3060 at [1]–[21].
screen electronic kiosks owned by Sell Smart. Under the second, she bought a franchise for $105,000 under which a $50,000 deposit was to be paid, with the balance to be paid over time. The ANZ Bank would not provide any financial assistance to pay for the franchise. Instead, Ms George and Mr Holland refinanced their mortgage with TEA Custodians (Bluestone) Ltd, and in doing that they bought out Mr Holland’s mother. In obtaining finance from Bluestone, they had the assistance of Mr Dilks who carried on business as a mortgage broker. He says that he carried on business through companies, but the plaintiffs’ case is that they dealt with him personally. They do not suggest that they appreciated that they were dealing with a corporate entity.
[5] The essence of their complaint is that Mr Dilks wrongly represented to Bluestone that the purpose of the loan was to carry out home improvements. They also allege that he misrepresented to them that he would apply to Bluestone for an advance for refinancing to buy the franchise. Their case is that if he had correctly stated the purpose of the loan to Bluestone it would never have offered finance, and if they had known what he was up to they would never have gone ahead with the transaction as well.
[6] By the end of 2007, Ms George and Mr Holland were in default under their mortgage. They approached Bluestone and found out then that Mr Dilks had stated that the purpose of their taking further finance was for home improvements, and he had misrepresented to Bluestone the purpose of the loan. Their defaults continued and eventually Bluestone issued notices under the Property Law Act. Evidently they did not comply with those notices. Bluestone arranged for the property to be sold by mortgagee sale. Mr Holland and Ms George lost all their interest in the Weymouth property. There was a shortfall on the sale of some $227,000.
[7] In 2008, the Mortgage Brokers Association dealt with a complaint by Ms George and Mr Holland against Mr Dilks. The Association held a hearing. Mr Dilks appeared. He was found to have breached the code of ethics and associated standards of the Mortgage Brokers Association. He was suspended for a period and was also ordered to pay the sum of $4,000 by way of fine, and hearing costs. Mr Dilks says that he no longer carries on business as a mortgage broker. He apparently did serve his suspension and he did pay the sums ordered.
[8] Ms George and Mr Holland began a proceeding against Bluestone. They sought relief under the Credit Contracts and Consumer Finance Act 2003. They alleged oppressiveness on the part of Bluestone, in particular that Bluestone had induced them to enter into the contract by oppressive means. Woodhouse J heard the case in 2009.2 Mr Dilks gave evidence for Ms George and Mr Holland. They were not represented by a lawyer. Woodhouse J held that Ms George and Mr Holland had not made out a case for oppressiveness, and made findings adverse to Mr Dilks. While he did not make express findings of liability against Mr Dilks, he preferred the evidence of witnesses for Bluestone and was critical of the role played by Mr Dilks.
This proceeding
[9] Ms George and Mr Holland began this proceeding in 2014. Originally they sued not only Mr Dilks but also Sell Smart Biz Ltd, its director, Mr Padfield, Bluestone and Prendos New Zealand Ltd (a registered valuer). At an early stage, the plaintiffs accepted that they could not succeed against any of the defendants except Mr Dilks. By a minute dated 17 June 2015, Associate Judge Sargisson gave leave under r 15.20(4) of the High Court Rules to discontinue against all the other defendants. That left the proceeding on foot only against Mr Dilks. The plaintiffs contended that Mr Dilks had been served on 28 February 2015. They applied for judgment in default, and there was a formal proof hearing before Keane J.3
[10]The statement of claim alleged four causes of action against Mr Dilks:
[a]misrepresentation;
[b]deceit;
[c]negligence; and
[d]breach of fiduciary duty.
[11]Keane J found on the evidence of Ms George and Mr Holland:
2 George v Tea Custodians (Bluestone) Ltd HC Auckland CIV-2009-004-890, 18 June 2009.
3 George v Dilks [2015] NZHC 3060.
[a]Mr Dilks had misrepresented to Bluestone the purpose for which they wanted the loan, holding out that it was to renovate a property;
[b]he also misrepresented to them the purpose for which he had applied for the loan on their behalf, which was to purchase the franchise;
[c]but for those misrepresentations, the loan would never have been granted;4 and
[d]the fact that Ms George had already agreed to buy the franchise before taking up the loan did not alter his finding that Mr Dilks was responsible for the losses that Ms George and Mr Holland suffered after entering into the refinancing agreement with Bluestone.
Keane J held that the cause of action which was most appropriate to found liability was the fourth cause of action—the claim for breach of fiduciary duty. He awarded damages: $50,000 for loss of the deposit; $116,000 for loss of equity in the home, and
$227,179 for the debt to Bluestone in the amount of the shortfall.
Was Mr Dilks served?
[12] The only question here is the matter of service. Keane J gave judgment because the plaintiffs filed an affidavit showing that Mr Dilks had been served. The process server’s affidavit says that he served the notice of proceeding and the statement of claim on Saturday, 28 February 2015 at 1 Parliament Street, Auckland. His affidavit says that he does not personally know Mr Dilks but he believes that the person he served was Mr Dilks. That person identified himself as Paul Dilks and accepted service of the documents.
[13] On the other hand, Mr Dilks denies service. He says that on 28 February 2015 he was in Australia. To prove that, he has put in evidence copies of his British and New Zealand passports, a copy of a bank statement which covers transactions in February 2015, copies of letters addressed to him in Australia, and correspondence
4 At [42]–[44].
from a gas company showing an address for him in Sunnybank Hills, also a suburb of Brisbane. He says that he lived in that part of Brisbane from 2014.
[14] In response to Mr Dilks’ evidence, the process server has sworn another affidavit. He adds to the information in his initial affidavit. He recalls that service took place on a Saturday and that the proceeding involved service on several defendants. No.1 Parliament Street, Auckland is the site of The Statesman Apartments (over the road from this courthouse). He says that there is a security pin-code beneath the access door. He says he was fortunate that an Asian couple was entering at the time and through them he gained access to the premises and asked if they knew which apartment Paul Dilks was in. He says he did not use Mr Dilks’ name but recalls he had a job title. The Asian couple knew, and pointed out his door. It was on the ground floor on the right hand side on entering. He knocked on the door. It opened. The process server says that the person who answered confirmed that he was Paul Dilks. The process server says that it is his invariable practice to ask the name of the person served, and he is confident that he did so this time.
[15] Mr Dilks has New Zealand and United Kingdom passports. There are entries on his UK passport which show an arrival in Sydney, Australia, on 11 January 2013; an arrival at Brisbane airport on 16 December 2013, and an arrival in New Zealand on 17 December 2013. It also shows that he has a Returning Residents Visa for New Zealand. His New Zealand passport, which was issued in May 2008, shows a stamp by Immigration Australia dated 7 May 2014. It is stamped by the Brisbane Regional Office and it is said to be for a Special Category Visa-holder. Neither of the passports have any stamps for a date later than 7 May 2014.
[16] The bank statements that Mr Dilks attaches to his affidavit are for the St George Bank. I take judicial notice that the St George Bank carries on business in Australia, but does not carry on business in New Zealand. The bank statements begin on 10 February 2015 and end on 17 March 2015. One of the transactions is for an EFTPOS purchase on 28 February 2015 at 12:25pm (Queensland time). It is for a purchase at a pharmacy at Mount Gravatt, a suburb of Brisbane. Other transactions show Visa purchases and use of EFTPOS cards for ATM withdrawals in Brisbane, generally at areas such as Calamvale and Mount Gravatt. There are regular payments
of wages. The employer making the wages payments is “Admiralty Quays”. I advised counsel that before the hearing I had made a Google search for “Admiralty Quays” and found that that was an apparently up-market apartment building on the river in Brisbane. Mr Dilks says that he was the building manager at “The Statesman” apartments from 2010 till 2013, and when he finished that employment in 2013 he went to Australia.
[17] Mr Dilks has the onus of showing that he was not served. He has to show that on the balance of probabilities. There is a clear conflict between the process server and Mr Dilks. I am satisfied, on Mr Dilks’ evidence, that he has been living in Australia since at least early 2014, and that he has not returned to New Zealand since then. If he had, that would have appeared by some stamp on one of his passports. If he had flown out of Australia, Immigration Australia would have been likely to have made an entry in one of his passports. It is more likely that he would have used a New Zealand passport than his UK passport for travel between Australia and New Zealand because of the preferential treatment given to New Zealanders when passing through Australian immigration.
[18] There is correspondence for electricity and gas accounts. That also shows him as having an Australian address.
[19] There is a difficulty with the bank statements because the name of the account- holder is not shown. But it seems improbable that Mr Dilks’ would have obtained someone else’s bank statements to put in evidence. It seems more likely that he would have put his own bank statements in instead of somebody else’s. The evidence, as a whole, points to his being in Australia throughout.
[20] I am not familiar with the process server, even though I do read many affidavits of service. On the other hand, the lawyer who was then acting for the plaintiffs does vouch for the process server. He says that he has used him regularly and he found him to act with integrity and reliability. The process server has said that he has looked at the passport photographs. He is not confident in identifying the person in the photographs with the person he saw. He says that the person he served was a European
male who looked to be between 30 and 35 years old. The birthday given in Mr Dilks’
passports put him closer to 45 years old at the time of service.
[21] In my judgment, the weight of evidence is in favour of Mr Dilks and shows that he was in Australia. The process server appears to have made a mistake in identification when he served the documents in 2015. The plaintiffs’ evidence included a printout from The Statesman Apartments which gives the name of the current building manager. They have a different name. Although not certain on this, I suspect that he may have mistaken the current building manager for Mr Dilks. With that, I find that Mr Dilks was not properly served, and had no knowledge of this proceeding until he was served with the bankruptcy notice issued out of the Federal Court.
Judgement obtained irregularly
[22] With that finding, the result follows with little difficulty. It has sometimes been said that when judgment has been irregularly obtained the judgment must be set aside ex debito justitiae. In more recent times, there has been a movement away from that. The courts have emphasised that the power to set aside a judgment is discretionary, and there is still a residual discretion whether to set aside a judgment or not. Here, I refer to the decision of Hammond J in Korochine 15 Ltd v RP Charans Investments Ltd,5 Gendall J’s decision in Arnott v Artisan Holdings Ltd,6 and Asher J’s decision in Madsen-Ries v Thompson.7 There, Asher J commented that:
Issues of relevance will include the degree of irregularity, the strength of the claim and whether there may have been a miscarriage of justice.
(citations omitted)
[23] An example is a case where the defendant became aware of a proceeding even though he was not properly served. While he was aware of the time he had in which to defend the proceeding, he made enquiries with the plaintiff bank about the claim. His application to set aside the judgment failed notwithstanding the irregularity in
5 Korochine 15 Ltd v R P Charans Investments Ltd HC Hamilton M338/94, 13 December 1994 at 6.
6 Arnott v Artisan Holdings Ltd (1998) 12 PRNZ 205 (HC).
7 Madsen-Ries v Thompson [2015] NZHC 3270 at [15].
obtaining judgment. That may serve as an example where the residual discretion is exercised against a judgment debtor where the defendant has failed to take steps even though judgment was obtained irregularly. In contrast, on the evidence in this case there is no suggestion that Mr Dilks had any knowledge of this proceeding until he was served with the bankruptcy notice long after judgment had been entered against him.
[24] I am satisfied that the failure to serve Mr Dilks resulted in a miscarriage of justice. He lost the opportunity to take steps in defence. He has set out matters that he would have wished to raise in opposition to the claim. He disputes the account given by Ms George as to their dealings and with other parts of her evidence. To a large extent this can be seen as a dispute as to “who said what”. He says that Ms George and Mr Holland understood the basis on which he would try to re-finance on their behalf.
[25] Keane J found that he made intentional misrepresentations. That is a finding of actual dishonesty by him. That finding ought not to be allowed to stand on the basis of a default judgment, when Mr Dilks has not been given the opportunity to answer them. Justice requires that he should have the opportunity to respond to them and he was not given that opportunity. That, in my view, is a clear miscarriage of justice. On that basis, I set aside the judgment against him.
Other matters
[26] I make some other observations in case they may assist the parties. It seemed to me when I read the file, that there is an additional matter that may be open to Mr Dilks by way of defence: a defence of limitation. So far as the common law causes of action are concerned—deceit, negligence and misrepresentation—the Limitation Act 1950 applies.8 In tort causes of action the limitation period is six years from when the cause of action accrued.9 There is an argument that the cause of action accrued when Ms George and Mr Holland suffered loss and that was when they drew down the loan from Bluestone. There may be an argument for Ms George and Mr Holland
8 As this action is based on acts occurring before 1 January 2011, see Limitation Act 1950, s 2A.
9 Section 4.
that the period was postponed because of fraud on the part of Mr Dilks.10 But Ms George and Mr Holland, on their own evidence, became aware of what Mr Dilks had done later in 2007. They would certainly not have been in any doubt as to his actions after the hearing by the Mortgage Brokers Association in which they took part. They had full knowledge of his alleged misconduct by April 2008. That is shown by the fact that they made a complaint to the Mortgage Brokers Association. At the very latest time began running from April 2008. Six years would have expired by the time this proceeding was started.
[27] The claim for breach of fiduciary duty is not a common law claim but arises at equity. It is not possible to make categoric rulings as to the operation of the limitation periods in the claim for breach of fiduciary duty. It seems to me, however, that it may be arguable for Mr Dilks that the limitation period applies by analogy under s 4(9) of the Limitation Act 1950. In that regard, I refer to the decision of the Court of Appeal in Johns v Johns.11
[28] Another matter is that both counsel referred to my decision in Williams v van Loghem Investments Ltd.12 I want to put it on record that it is not safe to rely on that decision. It was set aside on review.13
[29] Because I have found that judgment was obtained irregularly, it is not necessary for me to consider the three factors in Russell v Cox.14 It would only be necessary to apply that test if I found that Mr Dilks had in fact been served, so that judgment was regularly obtained. Even so, because of Ellis J’s decision in Williams v van Loghem Developments Ltd, where she tolerated gross delay by the judgment debtor knowingly and deliberately avoiding taking any steps after being repeatedly warned about the proceeding by other parties, the debtor was entitled to have the judgment set aside on the grounds of substantial defence. In this case, the facts are not as extreme as in Williams v van Loghem Investments Ltd. I would set judgment aside given that there seems to be seriously arguable defences available to Mr Dilks
10 Limitation Act 1950, s 28.
11 Johns v Johns [2004] 3 NZLR 202 (CA) at [80] and [81].
12 Williams v van Loghem Investments Ltd [2012] NZHC 829 at [21].
13 Williams v van Loghem Investments Ltd [2012] NZHC 1446.
14 Russell v Cox [1983] NZLR 654.
which would need to be assessed on the merits rather than leave in the default judgment against him.
[30] I appreciate that setting aside the judgment is going to be burdensome for the plaintiffs. I appreciate that they are in difficult circumstances. Ms George has assigned her interest in the claim to Mr Holland. Mr Holland is on legal aid. Ms George is described as a sickness beneficiary. Notwithstanding that, unless judgment is set aside, Mr Dilks will suffer injustice through having judgment entered against him even though he was never offered the opportunity to be heard on the merits of the case against him. While there may be hardship to Mr Holland, that is not enough to stand in the way of judgment being set aside.
Costs
[31] Because Ms George has assigned her interest in the claim to Mr Holland, Mr Holland is the effective plaintiff in the case. He has a grant of legal aid. I therefore cannot make an order for costs against him. Mr O’Neill seeks a certificate as to the amount of any order for costs that would be made but for the grant of legal aid. In an ordinary case, but for the grant of legal aid, I would have ordered the plaintiffs to pay costs for not having succeeded in setting aside the judgment when it was not obtained regularly. I trust that counsel will be able to agree as to the amount of the certificate. If they cannot agree, memoranda may be filed.
[32] I direct Mr Dilks to file and serve a statement of defence within 25 working days.
[33] I direct the Registrar to arrange a conference before Associate Judge Sargisson for further case management.
………………………………..
Associate Judge R M Bell
Postscript
Since I gave the above decision in court, I have seen a copy of the judgment of the Court of Appeal in EA v Rennie Cox Lawyers.15 The Court appears to have reaffirmed the standard approach to applications to set aside a judgment when it has been obtained irregularly.
15 EA v Rennie Cox Lawyers [2018] NZCA 33
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