Global Cover Insurances Limited (in liquidation) v Mario

[2023] NZHC 515

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-002219

[2023] NZHC 515

BETWEEN

GLOBAL COVER INSURANCES LIMITED (IN LIQUIDATION)
First Plaintiff

VIVIAN JUDITH FATUPAITO
Second Plaintiff

AND

JURIA RAIJELI MARIO

Defendant

Hearing:	15 March 2023 (by teleconference)
Appearances:	S L Hawksworth for Plaintiffs Defendant in Person
Judgment:	15 March 2023

JUDGMENT OF VENNING J

APPLICATION TO SET ASIDE JUDGMENT

This judgment was delivered by me on 15 March 2023 at 3.00 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Simpson Grierson, Auckland Copy to:  Defendant

GLOBAL COVER INSURANCES LIMITED (IN LIQ) v MARIO [2023] NZHC 515 [15 March 2023]

Introduction

[1]                Juria Mario applies to set aside a judgment entered against her on 3 July 2020.1 Gordon J entered judgment against Ms Mario in the sum of $30,266.53 together with interest and costs on a 2B basis. The judgment was entered on a formal proof basis.

[2]Ms Mario seeks to set aside the judgment as she says:

i.I did not know about the proceedings until this was told to me well after the judgment was entered;

ii.I have a valid defence to this claim;

iii.I wish to be heard about this claim and present my side of the story if given the opportunity.

Her application is supported by an affidavit sworn by her in October 2022.

Procedural background

[3]                Ms Mario initially brought her application on a without notice basis. Gordon J directed it be served.2 I then issued a further minute on 27 February 2023 setting the application for hearing at a teleconference on 15 March 2023 and made directions for the exchange of submissions. Ms Mario failed to file any submissions but after

5.00 pm on 14 March 2023 filed a memorandum seeking to adjourn the hearing. At the outset of the teleconference call I raised Ms Mario’s application for an adjournment with her. She advised that she no longer pursued an adjournment and wanted to proceed. On that basis I accepted that she could make oral submissions in support of the application.

Factual background

[4]                The first plaintiff, Global Cover Insurances Limited (in liquidation) (the company) was placed in liquidation on the application of the Commissioner of Inland Revenue on 13 July 2018. The second plaintiff, Vivian Fatupaito, was the liquidator of the company. The plaintiffs pursued Ms Mario seeking to recover certain moneys from her as the former sole director of the company.

1      Global Cover Insurances Ltd (in liq) v Mario [2020] NZHC 1556.

2      Minute of Gordon J, dated 1 November 2022.

[5]                I take the relevant background to the entry of judgment from the facts as established by Gordon J at the formal proof hearing:

[4]        The company was incorporated on 27 January 2015. At all material times it was engaged in the business of providing insurance brokering services. Ms Mario was the sole director and a shareholder of the company from the date of incorporation to 20 August 2017. Ms Fatupaito says that there are no accounting records or financial statements available for the company. She had to reconstruct the company’s affairs using its bank account statements.

[5]        I draw the following further brief summary from the submissions of Ms Hawksworth for the plaintiffs which I accept accurately summarise Ms Fatupaito’s evidence. The company’s financial position began to deteriorate shortly after its incorporation. The company began dishonouring payments to creditors and its bank account was overdrawn from as early as April 2015. By 30 June 2015, the company was balance sheet insolvent with its liability to the Inland Revenue exceeding its only asset (funds available in its bank accounts) at the end of each financial year.

[6]        The company was also cashflow insolvent from at least 20 July 2015 (and likely earlier) with no apparent means of paying its tax liabilities of

$2,067.29 to Inland Revenue. Ms Mario nevertheless continued to trade the company for a further two years until she resigned as a director on 20 August 2017.

[7]        From 30 June 2015, the company’s position continued to deteriorate. But it continued to operate and accrue liabilities to Inland Revenue when it had no ability to pay those amounts. From 20 May 2016, the company failed to pay fortnightly wages to its sole employee, with Ms Mario telling the employee that the company had insufficient funds to meet its costs. Throughout Ms Mario’s directorship, the company began dishonouring payments to at least one other creditor, Fleet Partners.

[8]        The liquidator has received creditors’ claims in the liquidation totalling $48,238.63. Ms Fatupaito’s evidence is that of that sum, $30,266.53 became due and owing to Inland Revenue while Ms Mario was the sole director of the company.

The judgment

[6]                  After referring to s 301 of the Companies Act 1993 (the Act) Gordon J directed herself to the two-stage evaluation required by that section. The Judge was satisfied that there had been a breach of duties under ss 135, 136 and 137 of the Act. On the evidence the Judge was satisfied that Ms Mario caused the company to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors, particularly Inland Revenue. Next, the Judge found Ms Mario agreed to the company incurring obligations when she did not believe on reasonable grounds the company

would be able to perform the obligations when required to do so. Finally the Judge accepted that from at least 30 June 2015 Ms Mario did not exercise the level of care, diligence, and skill that a reasonable director would have exercised in the same circumstances.

[7]                  As to the consequences, the Judge accepted there was a necessary link between Ms Mario’s carrying on the company’s business in the manner referred to and the indebtedness of the company for which the plaintiffs sought to impose personal liability, namely $30,366.53. The wrongful trading continued from 30 June 2015 to 20 August 2017, a period of just under two years, two months. For those reasons the Judge considered the deterioration of the company’s position was represented by the amount owed to the Inland Revenue in liquidation, namely $30,263.53 and the appropriate relief was an award of 100 per cent of that sum. The Judge entered judgment accordingly.

The application

[8]The application to set aside is made under High Court Rules 2016, r 15.10:

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.

[9]                  Ms Mario essentially repeated the grounds in her notice of application during her submissions at the teleconference hearing. She said she had not received notice of the plaintiff’s claim or the hearing and the first she knew of the judgment was when her bank contacted her in April 2021. When asked what her defence to the claim would be she explained that the company’s employee had managed the company not her, and said she had resigned as a director in 2016. She also noted that the company only had a turnover of $38,000 so could not understand how the judgment could exceed that sum. Ms Mario also said that she had offered to make a payment arrangement to avoid bankruptcy but that had been rejected. There is a defended bankruptcy hearing scheduled for 3 April 2023.

Analysis

[10]              The first issue is whether the judgment was regularly or irregularly obtained. If irregularly obtained there will almost always be a miscarriage of justice, such that the judgment should be set aside without considering the merits of the proposed claim.3

[11]              If, as Ms Mario says, the proceeding had not been served, then that would be an irregularity.4 In her affidavit in support of the application Ms Mario says:

2.	I was not served the proceedings.
3.	I only came to know about the proceedings when I was contacted by my Bank.
And:
8.	I did not now about the proceedings that ended up with a judgement entered against me on 03 July 2020 until this was told to me well after the judgement was entered.

Ms Mario gives no further information.

[12]              Ms Mario may not have been personally served with the proceedings but she was served by substituted service. The plaintiffs experienced difficulty in serving Ms Mario. On 19 December 2019 Associate Judge Andrew made an order dispensing with personal service on her, directing that any documents in the proceeding be served by:

(a)leaving a copy of the documents at her address (5a Fergusson Avenue, Sandringham, Auckland);

(b)sending a text message to her mobile phone [phone]) advising her that the documents could be collected from the plaintiff’s solicitors, Simpson Grierson; and

3      EA v Rennie Cox Lawyers [2018] NZCA 33 at [20].

4      White v Weston [1968] 2 QB 647 (CA).

(c)sending a copy of the documents to her at her email address ([email protected]).

[13]              Mr Abraham Trask-Coombs, a law graduate employed by the plaintiff’s solicitors, has confirmed that on 20 December 2019 Simpson Grierson served Ms Mario by sending an email to the defendant’s email address, and also by a text message to the phone number. There is no suggestion the email was returned nor that the text message was not received. (I note the phone number is the same number Ms Mario still uses on documents filed with the Court, although the email is now Gmail rather than Hotmail). Ms Mario does not deal with that issue in the very general affidavit.

[14]              Ms Kelly-Anne Baya, a process server, has confirmed that on 20 December 2019 she visited the property at 5a Fergusson Avenue, Sandringham. She spoke with a male occupant at that address who accepted service of the documents.

[15]              Ms Mario does not provide any explanation why the documents sent to her email address, and served at her property, were not received by her. Nor does she explain why she failed to respond to the text message, which was clear advice of the proceedings. There is no irregularity.

[16]The plaintiffs were entitled to pursue a judgment by formal proof.

[17]The issue then is, the judgment having been obtained regularly, whether:

(a)Ms Mario has a substantial ground of defence;

(b)Ms Mario’s failure to take any steps is reasonably explained; and

(c)whether the plaintiff will suffer irreparable harm if the judgment is set aside.

[18]              As yet there is no substantive defence advanced by Ms Mario. She accepts she was a director of the company but her defence seems to be based on an employee of the company failing to meet sales targets and mismanaging the company. However that does not absolve her of her responsibilities as a director. The Court also notes that

the same employee took proceedings against Ms Mario in the Employment Relations Authority and on 22 September 2016 obtained orders against the company for breach of its obligations towards him. I note that rather than resigning as a director in 2016 as she suggested, the company records disclose Ms Mario remained a director until 20 August 2017.

[19]              While the judgment exceeds the company’s turnover, it is based on the obligations incurred by the company and includes interest.

[20]              Ms Mario does not appear to have any reasonably arguable defence to the claim.

[21]              As to the delay, Ms Mario’s unsworn assertion that she was unaware of the proceedings and judgment until April 2021 appears wrong. Ms Sprosen (the replacement liquidator) has deposed that she left a message on Ms Mario’s phone on 11 December 2020 that judgment had been entered. Then on 15 December Ms Mario rang back and Ms Sprosen told her about the judgment. Ms Mario then hung up. Ms Sprosen called back and left a message confirming the judgment.

[22]              A considerable period of time has passed since December 2020 and even since April 2021 which, on Ms Mario’s best case is when she became aware of the judgment.

[23]              Ms Mario seeks to explain the reason for failing to take any steps on the basis she had to care for her sister who was terminally ill with cancer. Ms Mario says in her recent memorandum that her sister has recently died. Even accepting that Ms Mario had the responsibility to care for her sister, that cannot excuse her failure to take any steps to initially respond to the proceedings or to take steps to challenge the judgment when she was advised about it in December 2020. Her application to set aside was only filed on 19 October 2022.

[24]              The plaintiff will suffer harm, albeit not irreparable harm, if the judgment were set aside.

Summary

[25]              The proceedings were served in accordance with orders of the Court and should have come to Ms Mario’s notice. She has no reasonably arguable defence to the claim. Ms Mario has no adequate explanation for the inexcusable delay in failing to take any steps to set the judgment aside.

[26]Finality is important in litigation.

Result

[27]The application to set aside the judgment is dismissed.

Venning J