Goodfellow v Draskovich
[2015] NZCA 207
•29 May 2015 at 11.00 am
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA286/2015 [2015] NZCA 207 |
| BETWEEN | WILLIAM GOODFELLOW EXPLORE GROUP LIMITED |
| AND | MARK STEPHEN DRASKOVICH AND Q.T.L. TRUSTEES (NO. 22) LIMITED AUCKLAND DOLPHIN AND WHALE SAFARI (2005) LIMITED |
| Hearing: | 28 May 2015 |
Court: | Ellen France P, White and Miller JJ |
Counsel: | R E Harrison QC and A Hansen for Appellants |
Judgment: | 29 May 2015 at 11.00 am |
JUDGMENT OF THE COURT
The appeal is dismissed. The first respondents will have costs of the appeal as for a standard appeal on a Band A basis.
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REASONS OF THE COURT
(Given by Miller J)
By minute of 18 May 2015 Venning J refused the appellants’ application for an adjournment of the substantive fixture in this proceeding, which is to commence on 8 June 2015. They now appeal.
The proceeding is a dispute among shareholders. The first and second appellants (the principal defendants in the Court below) are said to have mismanaged the financial affairs of the second respondent, Auckland Dolphin and Whale (2005) Safari Limited, to the disadvantage of the first respondents (the plaintiffs below).
The fixture was confirmed on 12 September 2014, and a timetable set then required the exchange of evidence by 2 April (plaintiffs) and 2 May (defendants).
The defendants had opposed setting down on the ground that discovery was incomplete and the plaintiffs meant to file an amended statement of claim, but the proceeding was set down by order of Gilbert J on the basis that the amendments would not materially change the nature or scope of the claim and the amended claim was to be filed by 21 November 2014. A first amended claim was filed on 1 December 2014. Discovery not having been completed, the claim was not quantified as Gilbert J appears to have envisaged, but at that stage there appears to have been no intimation that it would be amended again.
Pleadings closed on 13 May 2015 and the dates for the exchange of evidence were extended by agreement to 13 April and 13 May respectively, apparently because the defendants’ discovery was still incomplete.
Not all of the plaintiffs’ evidence was served on time. Some briefs were not received until 24 April, on which date a second amended statement of claim was also filed. It was filed without leave but no point was taken about that before Venning J and the defendants must be taken to have acquiesced. The amendment had been foreshadowed by an email of 13 April, to which the defendants’ counsel responded that it would be helpful to see a second amended claim since the first one did not quantify the claims. A supplementary brief of the plaintiffs’ expert witness was received on 27 April. Accompanying this evidence were some 34 spreadsheets together comprising several hundred pages.
The amended claim did not alter the single cause of action, which lies in oppression under s 174 of the Companies Act 1993, but it added particulars and enlarged the scope of the claim. The substantive changes were as follows:
(a)The scope of the claim was increased. It had focused on management fees, marketing charges and repair and maintenance charges for the 2011–2014 financial years, but the second amended claim introduced a claim for some $860,000 in overcharged commissions;
(b)The period covered by the claim was substantially enlarged. The claims for commissions and interest extended back to 2006 and the claim was brought up to April 2014;
(c)The claims were quantified;
(d)Claims for interest on an overdrawn current account and overpaid interest on capital contributions were introduced.
Quantum of the claim increased substantially. The plaintiffs dispute the extent of the increase, pointing out that inquiries were sought in the original claim, but it is not in dispute that the large claim for commissions was new.
The defendants had briefed experts, and one of them, Moira Kemp, swore affidavits saying she could not respond to the new claim and late evidence in time for trial. The gist of the evidence was that a great deal of work is needed to analyse the plaintiffs’ evidence and this was not and could not have been anticipated. Each claim necessitates a review of the items making up the disputed costs. It took time to format the plaintiffs’ spreadsheets and link them to the underlying data before analysis could begin. Many line items need to be checked against the company’s ledgers. It would take a week of one person’s time to analyse just one of the spreadsheets received, and her firm has limited resources and other commitments. Ms Kemp estimated (on 12 May) that her firm would require at least a month to complete the work. In an updating affidavit prepared for this hearing she says that it has not been possible to advance the work far enough to complete a brief of evidence.
The plaintiffs resisted, pointing out that the evidence was based on company records within the defendants’ control and blaming them for late discovery.
Refusing the application for an adjournment to allow the defendants’ accountants to complete their analysis of the evidence, Venning J considered that the defendants had overstated the difficulties they face in preparing for the hearing. No new cause of action was included in the second amended statement of claim; the principal amendment was quantification of the amounts claimed and the addition of particulars regarding a claim for commission. The latter claim was based on financial records for the years 2012/2013 and the plaintiffs simply intend to extrapolate from that data for the years preceding and also for the 2014 year. Plaintiffs’ counsel accepted that the most appropriate way to advance those claims might be by way of a direction for an inquiry and if necessary a taking of accounts.
Venning J considered that the defendants’ expert evidence should by 13 May have covered claims in relation to management fees, advertising and marketing charges and repairs and maintenance charges, all of which had been identified in the first amended claim, leaving only the issue of commission. He noted too that the defendants might be expected to hold the primary documents and thus ought to have been in a position to have substantially prepared for the fixture even before receiving the plaintiffs’ evidence.
The Judge accordingly confirmed the fixture but extended the time for the defendants to exchange witness statements to 29 May, so compensating them for the plaintiffs’ delay and allowing them the month originally allocated in the timetable for exchanging their evidence. Costs were reserved.
It is not in dispute that this Court’s jurisdiction under s 66 of the
Judicature Act 1908 extends to appeals from interlocutory decisions.[1] Appropriate weight will be given to the trial judge’s exercise of discretion where, as in this case, the decision had a discretionary character. We do not accept the plaintiffs’ claim that their application received insufficient attention; the telephone conference took half an hour and the minute is brief, but the Judge made it clear that he had read the file and his reasons were sufficiently detailed. He was not obliged to accept the defendants’ evidence.[1]Siemer v Heron [2011] NZSC 133, [2012] 1 NZLR 309.
The question is where the interests of justice lie. The answer depends at this late stage on whether it is now possible for the defendants to get a full and fair hearing on 8 June. As this Court put it in Knauf Insulation Ltd v Tasman Insultation New Zealand Ltd:[2]
Appellate courts should be, and traditionally have been, reluctant to interfere with an interlocutory decision unless it is such as to effectively resolve the case or has such a substantial impact on the trial that it would be unfair to require the appellant to wait until after the trial to pursue it.
[2]Knauf Insulation Ltd v Tasman Insultation New Zealand Ltd [2013] NZCA 427, (2013) 21 PRNZ 535 at [10].
On the one hand, the defendants say that through no fault of their own they have not had sufficient time to prepare, and cannot now do so adequately. On the other, the plaintiffs say that their own delay is explained, that the defendants have had all the time they ought to need, and that the plaintiffs ought not be put to the delay and costs of an adjournment. Also relevant, although of secondary importance, is the interest of other litigants and the public at large in the efficient disposal of litigation.[3]
[3]Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383.
So far as discovery is concerned, it is not now in dispute that the second appellant’s (Explore NZ (2004) Ltd) financial records became relevant because, it is alleged, the subject company was run as a mere division of Explore. There may be something in the defendants’ claim that some of the material sought was not within the scope of the claim as originally pleaded or within the scope of discovery as originally agreed. What is clear, however, is that following an audit completed in August 2014 it became apparent that the claim did involve Explore’s records, that these were requested and refused, only to be provided by consent after an application was made by memorandum of 25 February 2012, and that the last of them were not provided until 10 April 2015.
That said, we do not think that discovery entirely explains the plaintiffs’ delay in completing their evidence and the second amended claim. The plaintiffs’ principal explanation for delay in formulating their claim is that the financial accounts they obtained on discovery were in a woeful state and much time had to be spent compiling a set of accounts from base records. They have evidently developed an alternative and detailed set of financial accounts. Plainly that took time.
The plaintiffs say that the defendants ought to be able to respond within the month originally allowed for their evidence because the base information was within the defendants’ control throughout. That is only partly correct. Given that the records were in a poor state and had to be reconstructed, one might reasonably expect that the defendants would also need time to analyse the plaintiffs’ evidence, to compare it to the same base records, and to respond at the same level of detail as the plaintiffs’ witnesses. This work is not necessarily a simple question of quantifying the alleged overpayments; it may affect how the payments are to be characterised. Ms Kemp asserts that it is a substantial exercise that could not be begun until she had the plaintiffs’ evidence.
The plaintiffs respond that the claim for commissions, which is the only new head of claim, can be quantified by inquiry after trial and the defence appears to be simply that no undisclosed commissions were set off against the company’s revenue. They say that the specifics of the claim to be argued at trial are confined to two years, 2012 and 2013. We accept that the commissions claim may be run in that way, with the claim for other years to be dealt with by inquiry if the initial claim is made out. There is something in Mr Chisholm’s point that all the defence need do to meet the claim is produce the invoices on which the commissions charged were based. He gave us to understand that the sums involved are all characterised as commissions in the company’s records, so it is a matter not of classifying the payments but of verifying that they were genuine. He explained that the invoices that ought to support the commissions have not been produced on discovery because discovery was limited by agreement.
If that were all there were to the second amended claim, it would be plain that an adjournment is unwarranted. However, we accept that the commissions claim is only one dimension of the claim. So far as the rest of it is concerned, the substance was pleaded earlier but the plaintiffs now seek judgment for specified sums and put in issue longer periods during which the defendants are said to have acted oppressively. The defendants say they must be able to meet the claim at the level of detail at which it has been advanced.
Viewed overall, we accept the amendments to the claim are material, but we agree with Venning J that the defendants were aware of all the heads of claim by the time the first amended claim was filed with the exception of the commissions claim. And although the claim is based on a reconstruction of base financial records, Mr Chisholm was at pains to emphasise both that questions of liability are management issues, to be decided as among directors, and that the reconstruction is closely based on work done by the defendants’ accountants in preparation for trial and disclosed to the plaintiffs on 17 March 2015. For these reasons we are not persuaded that Venning J was wrong to take the view that sufficient time remained for the defendants to prepare adequately for trial. By 8 June they will have had a substantial period in which to do so.
We observe that there is nothing to prevent the defendants from renewing their application before the trial Judge after filing their evidence, or to prevent the trial Judge from managing the trial so as to mitigate any disadvantage that may remain. It may be that some issues, such as damages, can be dealt with in a second hearing, or by inquiry, or (if necessary) the proceeding can be adjourned part-heard to ensure that the defendants can supplement their case if that proves necessary.
For these reasons, we have concluded that the appeal should be dismissed. The proceeding is remitted to the High Court for such further case management as may be necessary. The first respondents will have costs of this appeal as for a standard appeal on a Band A basis.
Solicitors:
Heimsath Alexander, Auckland for Appellants
Blackwells, Auckland for Respondents
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