Grey Rose Holding Ltd v Arise Construction Ltd

[2023] NZHC 3431

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-0389

[2023] NZHC 3431

BETWEEN

GREY ROSE HOLDING LTD

Plaintiff

AND

ARISE CONSTRUCTION LTD

First Defendant

TERENCE MICHAEL O’HALLORAN
Second Defendant

JOHN CHARLES DAVIS

Third Defendant

Hearing:	On the papers
Counsel:	G Chan for the Plaintiff Second Defendant in person
Judgment:	29 November 2023

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 29 November 2023 at 4 pm.

Pursuant to Rule 11.5 of the High Court Rules.

…………………..

Registrar/Deputy Registrar

Solicitors:

Tompkins Wake, Auckland T M O’Halloran, Remuera

GREY ROSE HOLDING LTD v ARISE CONSTRUCTION LTD [2023] NZHC 3431 [29 November 2023]

Introduction

[1]    The second defendant, Terence O’Halloran, is a director of Arise Construction Ltd (Arise). Mr O’Halloran seeks leave to represent Arise in this proceeding. The plaintiff, Grey Rose Holdings Ltd (Grey Rose), opposes a grant of leave.

Background

[2]    In its statement of claim dated 22 February 2023, Grey Rose seeks judgment against Arise for an amount allegedly outstanding under two term loan agreements, which were secured by mortgages. The mortgaged properties have been sold and Grey Rose seeks to recover the shortfall, together with interest and costs.

[3]    In respect of one loan agreement, Mr O’Halloran is sued as guarantor. In respect of the second loan agreement, Mr O’Halloran  and  the  third  defendant, John Davis, are sued as guarantors.

[4]    Mr O’Halloran has filed a statement of defence dated 21 June 2023. Mr Davis has filed a statement of defence also dated 21 June 2023, which mirrors the defence of Mr O’Halloran. Messrs O’Halloran and Davis are self-represented.

[5]    In their statements of defence, Messrs O’Halloran and Davis admit the existence of the loan agreements and the guarantees, pleading that Arise is not in default. In essence, Messrs O’Halloran and Davis plead that Grey Rose’s director, Tak Yuen Au, agreed with them that they would perform works and services for Grey Rose, and in consideration Arise’s outstanding obligations under the loan agreements would be discharged (the alleged arrangement).

[6]    Messrs O’Halloran and Davis rely on the alleged arrangement as discharging Arise’s debt to Grey Rose, and therefore the obligations of Messrs O’Halloran and Davis as guarantors.

Representation for Arise

[7]    On 26 April 2023, Johnstone J granted leave to Mr O’Halloran to represent Arise for the limited purpose of confirming that Arise did not oppose an order that

Arise remain on the Register of Companies. Johnstone J left open the possibility of a further application by Mr O’Halloran for leave to represent Arise in this proceeding.

[8]    On  1  June  2023,  Mander  J  made  a  further  limited  grant  of  leave  to  Mr O’Halloran to represent Arise, but only to make submissions regarding extending the period for the filing of Arise’s statement of defence. The date for filing that defence was extended to 21 June 2023. Arise did not comply with that direction.

[9]    On 26 October 2023, Mr O’Halloran filed a memorandum renewing his application for leave to represent Arise, and for leave for Arise to file its defence out of time, supported by affidavits from Messrs O’Halloran and Davis.

[10]   Grey Rose filed a memorandum dated 8 November 2023, setting out Grey Rose’s opposition to the representation order.

[11]   Mr O’Halloran replied by memoranda dated 8 November and 16 November 2023.

Legal principles

[12]The general rule regarding corporate representation was stated by Cooke J in

Re G J Mannix Ltd:1

… apart from statutory exceptions, a corporation has no right to bring or carry on proceedings in a Court except by a solicitor. This refers to the filing of documents — writs, statements of defence, notices of appeal, etc.

[13]   The rule was reaffirmed by the Court of Appeal in Commissioner of Inland Revenue v Chesterfields Preschools Ltd.2 In that case, the rationale behind the rule was described as follows:

[34] We consider that there are sound policy reasons why a solicitor, rather than a lay person such as an officer of a company, should act for the company in commencing and continuing civil litigation. A company is not a natural body and may have a number of officers, each with their own individual concerns and interests. A solicitor is ethically constrained to represent the

1      Re G J Mannix Ltd [1984] 1 NZLR 309 (CA) at 311.

2      Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2 NZLR 679.

company’s interests, unlike an individual officer who seeks to represent it. Moreover, if a solicitor is involved, the court can generally be satisfied that careful attention has been given to the validity of the proceedings, and that the company’s interests will be adequately presented and protected. Similarly, solicitors recognise the duties and responsibilities that are owed to the court and to the defendant in the conduct of litigation, and are less likely to require indulgences in the rules of procedure or to use court processes for vexatious purposes. The court must also have a solicitor on the record as it cannot exercise its disciplinary powers over a company. If a director or shareholder is representing the company there is a heightened risk that the representative will lack the objectivity that an independent solicitor can bring to the case …

(footnotes omitted)

[14]   In appropriate circumstances a court may make an exception to the general rule and exercise its discretion to allow a non-lawyer to appear on behalf of a corporate.3 However, a corporate’s lack of funds will not, by itself, justify the making of an exception.4

[15]    In Re G J Mannix, the Court discussed an exception to allow a “one-man” company to be represented by its owner.5 McMullin J said:6

… it may seem somewhat unrealistic and illogical to allow a private person a right of audience in a superior Court as a party to proceedings but deny it to him when he is the governing or managing director of a small "one-man" company which is no more than his business alias. The principle that a company is a separate entity from its members … would suffer no erosion if he were given that right.

[16]   In AFFCO New Zealand Ltd v NZ Premium Trading Company Ltd, Hinton J considered that in circumstances:7

… where a tightly-held, private company cannot afford representation, and where the interests of the company and a director are clearly aligned, a commonsense approach towards exercising the discretion is appropriate.

Grey Rose’s opposition

[17]   Grey Rose submits that there are no exceptional circumstances in this case. Impecuniosity is not exceptional, and unqualified representation for a company should

3      See Keemati Ltd v Civil Ltd [2021] NZHC 538 at [6].

4      Business Associates Ltd v New Zealand Post Ltd (1998) 12 PRNZ 497 (HC) at 501 citing

Radford v Freeway Classics Ltd [1994] 1 BCLC 445 (CA) at 448–449.

5      Re G J Mannix Ltd, above n 1, at 314–315.

6      At 315.

7      AFFCO New Zealand Ltd v NZ Premium Trading Company Ltd [2017] NZHC 2218 at [4].

be a rare occurrence. Grey Rose contends there is no emergency situation, as the proceeding is in its preliminary stages. It argues Mr O’Halloran is not equipped to deal with case management and that there is no clear alignment of the defendants’ interests.

Discussion

[18]Arise cannot afford legal representation. The company no longer trades.

[19]   Messrs O’Halloran and Davis each own 50 per cent of the shares in Arise and are Arise’s only directors. Mr Davis has filed an affidavit confirming that he consents to Mr O’Halloran representing Arise in this proceeding.

[20]   I accept Mr O’Halloran’s submission that the interests of Arise are aligned with the interests of Messrs O’Halloran and Davis. If Messrs O’Halloran and Davis are successful in their defence, then that will require a finding that there is no principal debt owed by Arise to Grey Rose. The defence advanced on behalf of Arise will be exactly the same as the defence advanced by Messrs O’Halloran and Davis in their personal capacities.

[21]   Mr O’Halloran holds a law degree, although he has not practised as a lawyer. In my dealings with him, he has demonstrated that he can grasp procedural requirements.

[22]   Mr O’Halloran is committed to advancing his own defence. Grey Rose is already obliged to deal with Messrs O’Halloran and Davis as self-represented parties. Therefore, an order appointing Mr O’Halloran as Arise’s representative, to advance Arise’s defence on the same basis as his own defence, will not materially prejudice Grey Rose in the conduct of this proceeding.

[23]   The interests of Arise, Mr O’Halloran and Mr Davis are clearly aligned, and a commonsense approach warrants an exercise of the discretion in Mr O’Halloran’s favour.

Result

[24]   I grant leave to Mr O’Halloran to represent Arise in this proceeding, pending further order of the Court.

[25]Costs in respect of this application lie where they fall.

Associate Judge Brittain