Graham v McNicholl
[2019] NZHC 1973
•27 September 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-151
[2019] NZHC 1973
UNDER the Property Law Act 2007 and the Companies Act 1993 and Part 18 of the High Court Rules IN THE MATTER
of ARENA CAPITAL LIMITED (in
liquidation)
BETWEEN
GRANT ROBERT GRAHAM and NEALE
JACKSON as liquidators of ARENA CAPITAL LIMITED (in liquidation) Plaintiffs
AND
KRIS JAMES MCNICHOLL
Defendant
Hearing: On the Papers Counsel:
T G H Smith for Plaintiffs
K J McNicholl (currently self-represented) Defendant
Judgment:
27 September 2019
JUDGMENT OF ASSOCIATE JUDGE LESTER
(in relation to plaintiffs’ application to stay proceedings under the Trans-Tasman Proceedings Act 2010)
[1] The defendant, who is a resident of Western Australia, has applied to stay this proceeding commenced by the plaintiffs as the liquidators of Arena Capital Ltd (in liquidation) (“Arena”).
[2] These proceedings were commenced in March 2019 and served on the defendant on 24 June 2019.
GRAHAM and JACKSON (as liquidators) of ARENA CAPITAL LIMITED (in liq) v MCNICHOLL [2019] NZHC 1973 [27 September 2019]
[3] The application filed on 8 August 2019 is made under s 22 of the Trans-Tasman Proceedings Act 2010 (“the Act”). Section 22(1) provides that:
A defendant in a civil proceeding commenced in a New Zealand court may apply to the court for an order staying the proceeding on the grounds that an Australian court is the more appropriate court for the proceeding.
[4]Section 22(3) of the Act provides:
The application must be made –
(a)within 30 working days of the New Zealand court after the day on which the defendant was served with the initiating document for the proceeding; or
(b)if, before or after the end of the period in paragraph (a), the plaintiff or defendant applies to the New Zealand court for a shorter or longer period – within any shorter or longer period the New Zealand court considers appropriate.
[5] The present application filed on 8 August 2019 is therefore just out of time. There is, however, in the evidence an email exchange between counsel where counsel agreed that the matter could be filed on or before 8 August 2019. Given that agreement between counsel and that the application was filed only a few days outside the 30 working days, I grant under s 22(3)(b) an extension of time for the application to be made on 8 August 2019.
Nature of the proceeding
[6] This proceeding has its origins in the liquidation of Arena which was a company operated by Lance Ryan and Jimmy McNicholl, who is the father of the defendant. Jimmy McNicholl was the only director of Arena but as I will explain, it is clear that Mr Ryan was also a controller of the company.
[7] The plaintiffs were appointed receivers and managers of Arena on 27 May 2015 by order of the Court, a role that was superseded by the plaintiffs being appointed liquidators by this Court on 24 July 2015.
[8] In short, Arena operated a pure Ponzi scheme paying out account holders fictitious profits and/or capital from funds deposited with Arena by investors. This
was the finding of Mander J in his judgment Graham v Arena Capital Ltd (in liquidation).1
[9] In July 2018, Mr Ryan was sentenced to a prison term for his role in the Ponzi scheme and Jimmy McNicholl was sentenced to home detention after both pleaded guilty.
[10] The liquidators have taken recovery action against the recipients of funds from Arena. The liquidators have made recoveries from 64 of the 96 parties who received fictitious profits.
[11] In the present proceedings the liquidators allege, and the defendant does not deny, that he received around $171,000 from Arena. The plaintiffs allege that the defendant had not deposited funds with Arena and the defendant does not claim he was a depositor.
[12] Given the application for a stay has been filed under an appearance under protest of jurisdiction, no statement of defence has been filed. Other than there being a reference to the defendant intending to raise positive defences, no detail of the intended defences is provided.
The application
[13]The formal application is in summary form. Section 24 of the Act provides:
24 Order of stay of proceeding
(1)On an application under section 22, the New Zealand court may, by order, stay the proceeding if it is satisfied that an Australian court—
(a)has jurisdiction to determine the matters in issue between the parties to the proceeding; and
(b)is the more appropriate court to determine those matters.
(2)In determining whether an Australian court is the more appropriate court to determine the matters in issue between the parties to the proceeding, the New Zealand court must not take into account the fact
1 Graham v Arena Capital Ltd (in liquidation) [2017] NZHC 973.
that the proceeding was commenced in New Zealand, but must take into account the following matters:
(a)the places of residence of the parties or, if a party is not an individual, its principal place of business:
(b)the places of residence of the witnesses likely to be called in the proceeding:
(c)the place where the subject matter of the proceeding is situated:
(d)any agreement between the parties about the court or place in which those matters should be determined or the proceeding should be instituted (other than an exclusive choice of court agreement to which section 25(1) applies):
(e)the law that it would be most appropriate to apply in the proceeding:
(f)whether a related or similar proceeding has been commenced against the defendant or another person in a court in Australia:
(g)the financial circumstances of the parties, so far as the New Zealand court is aware of them:
(h)any other matters that the New Zealand court considers relevant.
[14] Both counsel have reviewed the applicable criteria under s 24(2). The defendant has referred to the decision of Lang J in Skelton v Z487 Ltd, where His Honour considered the factors that were relevant in that case to determine whether a factor favoured a stay or not and then addressed the overall balance of the factors to determine whether a stay should be granted.2
[15] I propose to follow a similar approach and that is the approach that counsel have adopted.
Section 24(2) factors
(a)Place of residence of the parties
[16]The plaintiffs are based in New Zealand.
2 Skelton v Z487 Ltd [2014] NZHC 707.
[17] The defendant has resided in Australia since 2010 and in Perth since 2012. The defendant’s employment and family ties are in Perth. The defendant’s parents apparently reside in New Zealand and I have already referred to the position regarding the defendant’s father.
[18] The plaintiffs point to the defendant having sought an extension of time for the filing of the application. The email from his solicitors advised:
… please note that our client recently had a bereavement in his family requiring him to travel to New Zealand and thus impeding his ability to instruct lawyers in Western Australia.
[19] This confirms that the defendant continues to have family ties to New Zealand and is some indication that he has the ability to travel both financially and that his employment can accommodate for unexpected matters such as a bereavement. I accept most employers would accommodate a bereavement.
[20] I also note that the defendant works one week on, one week off. A hearing in New Zealand could be scheduled for the period during which the defendant is not working. This factor overlaps with the next factor, the location of witnesses and under s 24(2)(g) the financial circumstances of the parties.
[21]I accept the submission of the plaintiffs that this factor is relatively neutral.
(b)Place of residence of witnesses
[22]The plaintiffs’ evidence will come from New Zealand-based witnesses.
[23] In the absence of knowing what the defence to the claim is, the plaintiffs assume that only the defendant will be giving evidence.
[24] Again, not knowing what the defence is likely to be, how long the hearing would be and accordingly how long the defendant would have to be in New Zealand cannot be determined. However, given similar proceedings have been determined in this Court and that it seems the focus will be on the unspecified positive defences, I would be surprised if more than two days’ hearing time was required.
[25]Again, I accept that this factor is neutral.
[26] The fact that the defendant may have to travel (subject to his evidence being given by video link or similar) comes back to the financial circumstances which is the focus of the submissions made by the defendant.
(c)The place where the subject matter of the proceeding is situated
[27] All of the events in question occurred in New Zealand, save for the receipt of the funds into the defendant’s Australian bank account. Again, the fact of payment is not in dispute. Given the matters relied on by the plaintifsf are essentially a matter of record, I do not consider this factor to be significant albeit it is in favour of declining the stay.
(d)The law that it would be most appropriate to apply in the proceeding
[28] The plaintiffs’ causes of action are under two New Zealand statutes being the Property Law Act 2007 and the Companies Act 1993.
[29] In my view, it is a significant factor against the application that there is a developed body of law in New Zealand in respect of ss 347 and 348 of the Property Law Act, including the Supreme Court’s recent decision on materially similar facts in McIntosh v Fisk.3
[30] There is also a developed body of law on voidable transactions in New Zealand.
[31] The plaintiffs have already brought a similar proceeding to judgment in Graham & Neale v Tyler.4 While that case was a formal proof hearing, it is nonetheless confirmation that the causes of action the plaintiffs wish to advance are appropriate to the present case and that New Zealand law supports the plaintiffs. The defendant’s submissions are silent on the state of the applicable Australian law in respect of the plaintiffs’ causes of action.
3 McIntosh v Fisk [2017] NZSC 78, [2017] 1 NZLR 863.
4 Graham & Neale v Tyler [2019] NZHC 530.
[32] Given the law in New Zealand is settled as regards to the Property Law Act by the McIntosh v Fisk decision involving a Ponzi scheme, and given that the application of the Property Law Act clauses of action and the voidable transaction provisions have been considered by this Court on a claim practically on all fours with the present one in the Tyler decision, in my view this is a significant factor against granting the stay,
(e)Whether related or similar proceedings have been commenced in Australia
[33] The plaintiffs have brought no proceedings in Australia. All of the steps in respect of the Ponzi scheme operated by Arena have occurred in New Zealand.
[34]Again, the defendant does not point to any similar cases in Australia.
[35] I treat this factor as neutral and not adding significantly to the proceeding factor.
(f)Financial circumstances
[36]It is this factor that is most developed by the defendant.
[37] The defendant explains that he and his partner have two young children aged four and six years old. The defendant is the primary breadwinner of the family and he works as a “fly in fly out” mining warehouse supervisor in a remote area of Western Australia.
[38] The defendant’s submissions say that the defendant and his partner do not have savings and the majority of his earnings are applied to their mortgage and personal loans.
[39]The submission is made:
The defendant would bear greater expense, financial costs and disbursements if he is required to defend the action in the High Court of New Zealand rather than an Australian Court.
[40] The defendant submits that requiring him to defend proceedings in New Zealand would be particularly challenging for him given his impecunious
financial circumstances. The defendant reinforces that financial circumstances is one of the mandatory considerations under the Act.
[41] The plaintiffs accept that financial circumstances are a mandatory factor. They point out, however, that the defendant’s affidavit gives limited information as to his circumstances.
[42] It is on this issue that the lack of evidence about comparable Australian law also stands against the defendant. Given the clarity of the law in New Zealand and that in particular, Osborne J has dealt with the recoverability of payments such as those in issue in this case in Tyler, the case in New Zealand will be focused and relatively short. In the absence of evidence that the law in Australia is similarly certain, the hearing in Australia is likely to take longer and to incur more expense.
[43] The defendant initially instructed an experienced litigation firm in Christchurch, but it has been replaced by a law firm in Western Australia. That is of course a choice open to the defendant, but it is a choice that creates cost in terms of counsel having to travel as well. To the extent that the defendant must meet the cost of Australian counsel travelling, and assuming such having to get up to speed with New Zealand law, I do not take into account those costs which are a result of the defendant not continuing with local counsel.
[44] There is no sworn statement of assets and liabilities or income and expenditure. As the plaintiffs point out, the defendant received $171,000 from Arena but he does not say where the money went.
[45] At the end of the day, what this issue focuses on is the cost of the defendant travelling to Christchurch, but in the scheme of things, that is not a significant cost in terms of litigation expenses. Again, I do not have regard to costs of Australian counsel travelling given the defendant elected not to continue with Christchurch counsel.
[46] As noted by the plaintiffs, the defendant and his counsel have the ability to seek to appear remotely from Australia and the defendant’s means once properly established would be a relevant consideration in regard to such an application.
[47] I note it appears the defendant was able to fund a trip to New Zealand in respect of the bereavement. I of course recognise the very different circumstances that a family bereavement presents, but under this category I am concerned with the defendant’s ability to fund his travel to New Zealand as the defendant will have to meet the costs of representation irrespective of what country the proceedings are in. At the end of the day, I conclude this is a factor that is in the defendant’s favour but only marginally.
(g)Other matters
[48] The present proceedings are underway. There would inevitably be delay if the matter had to be commenced in Australia.
Conclusion
[49] The respective merits of the proceeding favour the case continuing in New Zealand. As noted above, the law in New Zealand is settled. Again, the defendant has not signalled what positive defences he intends to run. The ability of the defendant and his Australian counsel to appear remotely is also significant. Given that this case is likely to be brief, that is another factor that would favour the defendant and his counsel appearing remotely.
[50] Drawing all the factors together, I conclude that the application for stay should be dismissed. I consider that the clarity of the law in New Zealand is a factor that swings the balance significantly in the plaintiffs’ favour. That the defendant says that he intends to plead affirmative defences if anything is an indicator that the plaintiffs are entitled to relief and that the defendant must run a positive defence to avoid judgment.
[51] I have not overlooked that the defendant has raised the issue of the delay between these proceedings and the payments received. Mr McNicholl in his affidavit say that it has been more than four years between the dates of the transactions and the receipt of the statement of claim. However, given the defendant received $171,000 from Arena without it seems paying any money into the company and given the conviction of his father for events relating to Arena, that the amounts he received were
going to be examined cannot have been a significant surprise to the defendant and he does not suggest in his affidavit that the proceedings came as a shock.
[52] As I said, the settled state of the law in New Zealand means the hearing will be shorter and therefore reduce the costs. An outcome that reduces costs is considered within the purposes of the Act set out in s 3. The prospects of an appeal are likely to be reduced given the clarity of the law in New Zealand particularly when the Supreme Court has dealt with payments from a Ponzi scheme in McIntosh v Fisk. Again, the defendant does not deal with the state of the relevant law in Australia.
[53]Accordingly, the application for stay is dismissed.
[54] There is no reason why costs should not follow the event and the defendant is to pay the plaintiffs’ costs on a 2B basis together with disbursements as fixed by the Registrar.
Associate Judge Lester
Solicitors:
Tang Law, Perth, Australia Bell Gully, Wellington
Mr K J McNicholl (Defendant)
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