Hampson v Donald
[2018] NZHC 2239
•28 August 2018
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2012-442-000291
[2018] NZHC 2239
UNDER the Companies Act 1993 BETWEEN
STEPHEN KING HAMPSON
First Plaintiff
AND
THE DUNES CAFÉ AND BAR LIMITED
Second Plaintiff
AND
ROBERT ARCHIBALD HAYWARD DONALD
Defendant
Hearing: 25 July 2018 Appearances:
S K Hampson (First Plaintiff) in person with D L Hampson assisting for both Plaintiffs (by leave)
A J B Holmes for Defendant
Judgment:
28 August 2018
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on interlocutory applications
Introduction
[1] The plaintiffs commenced this proceeding in 2012. In 2013, some of the claims were struck out and the remainder were stayed. The plaintiffs now apply for an order lifting the stay to allow them to proceed. The defendant says that the stay should not be lifted – instead through his counsel’s submissions he asks that the proceeding be struck out or permanently stayed.
STEPHEN KING HAMPSON v DONALD [2018] NZHC 2239 [28 August 2018]
The losses incurred by Dunes and the Hampsons
[2] In 2004, the second plaintiff, The Dunes Café and Bar Limited (“Dunes”) was successfully running (as it had been for a number of years) a café, bar and casino in leased premises at 643 Rocks Road, Tahunanui, Nelson. With rights of renewal, its lease potentially ran until 2010.
[3] The first plaintiff, Stephen Hampson, was Dunes’ sole director and shareholder. His wife, Danielle Hampson, was also involved actively in the management and running of the business.
[4] About May 2004, an experienced Auckland property developer, Dr Robert Donald, entered the Hampsons’ lives with disastrous financial consequences for Dunes and the Hampsons. Dr Donald was the sole director and shareholder of 623 Rocks Road Limited (“Rocks”). As part of a plan to redevelop 623 and 643 Rocks Road, Dr Donald entered into a contract with Dunes whereby Dunes would surrender its existing lease. Rocks would lease Dunes a café and bar in the new premises. The contract included requirements for Rocks to compensate Dunes for its “stand down” costs and to provide aspects of Dunes’ fit-out.
[5]Differences arose between the parties during the fit-out period.
[6] Rocks purported to cancel the contract. It refused to execute the lease. It let the premises to a different lessee. Dunes accepted Rocks’ repudiation of the contract and itself cancelled the contract in December 2006.
[7]Dunes sued for damages for breach of contract. Rocks counterclaimed.
[8] Following a seven-day trial in 2008, this Court gave judgment for Dunes on liability. It dismissed Rocks’ counterclaims.1 The Court’s judgment on liability was delivered in February 2009. A trial was directed on quantum. On 25 March 2009
1 The Dunes Café and Bar Ltd v 623 Rocks Road Ltd HC Nelson CIV-2006-442-481, 25 February 2009 (the “liability judgment”).
Rocks was put into liquidation by a shareholders’ resolution. It transpired that Rocks was massively insolvent.2
[9] Towards the end of the liability trial Dunes had run out of financial resources to retain legal representation. Mrs Hampson (although not legally qualified) appeared for Dunes over the latter part of the trial.
[10] Mrs Hampson then, following Rocks’ liquidation, pursued and obtained the Court’s leave (opposed by the liquidators of Rocks) to proceed with the quantum trial. On 31 March 2010 Dunes obtained judgment for $600,229.58 together with costs, disbursements and witnesses’ expenses (totalling $86,136.33) and interest from 5 December 2006 on all sums ordered to be paid.3
[11] The Dunes Café and Bar never traded again. The losses caused by Rocks’ breaches were never recovered. The liquidators’ final report in October 2010 identified modest payments to the secured creditor of Rocks leaving a huge deficiency for all creditors. Rocks was removed from the Register of Companies (the “Register”) in December 2010.
[12] Mr and Mrs Hampson had personally incurred and expended substantial sums of money in supporting Dunes’ litigation.
[13] On 28 June 2011 Dunes executed a Deed of Assignment in favour of Mr Hampson. Recognising a debt of $389,294.40 owed by Dunes to Mr and Mrs Hampson, Dunes assigned to Mr Hampson a proportion of its cause of action against Dr Donald for reckless trading and any other personal liability which Dr Donald might have (whether under the Companies Act 1993 (“the Act”) or otherwise). The Deed of Assignment makes it clear that the parties intended that Mr Hampson would then join Dunes in litigation against Dr Donald personally.
[14] The intended litigation ensued when Mr Hampson and Dunes commenced this proceeding on 25 July 2012. The focus of the proceeding was on allegations that
2 The liquidators’ first report dated 26 April 2009 estimated the total deficiency as $19,793,100.
3 The Dunes Café and Bar Ltd v 623 Rocks Road Ltd (In Liq) HC Nelson CIV-2006-442-481, 31 March 2010 (the “quantum judgment”).
Dr Donald had engaged in reckless trading in breach of s 135 of the Act resulting in losses to Mr Hampson of $389,294.40 and to Dunes of the difference between that sum and the balance of the quantum judgment sum.
Developments in this proceeding
[15]The plaintiffs have filed a number of amended pleadings.
[16] In 2013 the Court heard and determined an application to strike out causes of action. The plaintiffs’ pleading at that point identified two causes of action against Dr Donald, identified in the Court’s strike out judgment thus:4
[11] Mr Hampson and Dunes lay their two separate claims … First they say that Dr Donald breached the statutory duties imposed on him as a director of Rocks Road by ss 131, 133, 135, 136 and 137 Companies Act 1993. They say that these duties are owed to Rocks Road under s 169(3), but they are also owed to Dunes and to Mr Hampson as creditors of Rocks Road, “whether under section 301 or otherwise”.5 In a statement of further particulars, they say the duties were owed to Dunes as a creditor of Rocks Road and to Mr Hampson as director of Dunes. In the notice of opposition to this application, they say the duties are owed to Dunes as a creditor of, and contractor with, Rocks Road and to Mr Hampson as a creditor and director of Dunes.
[12] The second and distinct claim is that Dr Donald owed a common law duty to Mr Hampson and Dunes, as well as to Rocks Road, to use reasonable care, diligence and skill, and that he breached this duty.
[17]The Deed of Assignment between Dunes and Mr Hampson was not pleaded.
[18] In the event, this Court on 24 May 2013 struck out all pleadings by Mr Hampson that relied on the fact that he was a director of Dunes; all pleadings by which Mr Hampson and/or Dunes said that in their capacity as creditors of Rocks they were owed duties by Dr Donald under any section of the Act; and all pleadings relating to causes of action in tort. The second cause of action was stayed while the claim for restoration of Rocks to the Companies Register was pursued, with the stay to be lifted only if restoration occurred. The terms of any lifting of the stay were to be determined at that time subject to the requirement that any amended pleading would seek only a remedy under s 301 of the Act for breaches of statutory duties.
4 Hampson v Registrar of Companies [2013] NZHC 1202 (the “strike-out judgment”).
5 Amended statement of claim paragraphs 54 and 55.
[19] The strike-out judgment records that counsel did not address the Court on the effect of the Deed of Assignment. The claim of Mr Hampson based on his (alleged) position as a creditor of Rocks by virtue of the assignment (referred to by the Court – above at [16] – as the “second and distinct claim”) was therefore not struck out. The Court nevertheless ordered that, if the stay were to be lifted, the repleaded statement of claim would be required to set out with precision the facts on which it is alleged that Mr Hampson was a creditor of Rocks entitled to a remedy under s 301 of the Act.
Intervening developments
[20]In the meantime, there have been two developments.
[21] The first is in relation to a claim commenced by the new liquidator of Rocks after Mr Hampson achieved the restoration of Rocks to the Register. The initial liquidator (Geoff Falloon) filed a claim in the Court earlier this year. He sues Dr Donald for breaches of s 301 of the Act. Mr Falloon himself was, on 21 May 2018, replaced as Rocks’ liquidator (by Ryan Eathorne). The legal representation of Rocks in that proceeding has now been changed. Counsel for Rocks in the proceeding has explained that the new liquidator is seeking to understand the long history of allegations made by Mr and Mrs Hampson against Dr Donald and prefers to await the delivery of judgment in this proceeding before making a decision on the prudence of continuing the claim brought by Rocks.
[22] In a second development, Dunes was removed from the Register on 24 January 2017. Mr Hampson has made an application for an order restoring Dunes to the Register. That application is in the initial stages of case management. Removal from the Register extinguished Dunes’ legal status irrespective of the possibility of later restoration.6 For the time being no one has authority to act on behalf of Dunes.7
[23] When this hearing started, it was recognised for both parties that it was in their combined interests to obtain a determination on the current interlocutory issues. It was acknowledged that any order lifting the 2013 stay in order to permit Dunes to
6 See Wire Supplies Ltd v Commissioner of Inland Revenue (No 2) (2005) 22 NZTC 19,390 at [19].
7 Order of St John Northern Regional Trust v Gemini 10 Ltd HC Auckland CIV-2002-404-1559, 9 March 2010 at [27], citing Salton v New Beeston Cycle Company [1900] 1 Ch 43, 49.
proceed on its claim would have to be on terms as to there first being a restoration of Dunes to the Register.
[24] For Dr Donald, Mr Holmes submitted that, in the event Dunes is restored to the Register, the Court would not be empowered to lift the stay so as to allow the continuation of Dunes’ claim. Mr Holmes referred to authority which might be taken to require a new proceeding to be commenced when a company is restored to the Register. Mr Holmes referred to a passage in the judgment of Chambers J in Floorlines (New Zealand) v Commissioner of Inland Revenue, in which his Honour stated:8
If Floorlines is able to be reinstated, then it may be in a position to commence a new judicial review proceeding.
[25] I do not regard that passage in Floorlines as authority for the proposition that a restored company would have to commence a new proceeding instead of continuing with a previously commenced proceeding – the provisions of both ss 330(2) and 331(1) of the Act require the Court to treat a restored company as if it had continued in existence (and not been removed from the Register).9
Plaintiffs’ application to lift the stay of proceedings
[26] On 22 March 2018 Mr Hampson filed an application for an order lifting the 24 May 2013 stay of proceedings.
[27] The ground of application was that Mr Hampson had achieved the restoration of Rocks to the Register as sought in the first cause of action. The Court had ordered Rocks restored to the Register on 30 May 2014.
[28] Mr Hampson deposes that the plaintiffs now intend to pursue relief - s 301 of the Act (for breach of statutory duties).
8 Floorlines (New Zealand) Ltd v Commissioner of Inland Revenue (2001) 20 NZTC 17,249 at [12].
9 See also Clark v Libra Developments [2007] 2 NZLR 709.
[29] Mr Hampson has since submitted a re-amended statement of claim in which the plaintiffs would seek orders for payments by Dr Donald to each of them pursuant to ss 301(1)(b) and/or (c) of the Act.
[30] Mr Hampson has also had brought on for hearing an application filed in August 2013 seeking leave for himself and Dunes to be represented by Mrs Hampson.
[31] Dr Donald opposes both applications. He seeks not merely the dismissal of the application for the lifting of the stay, but requests instead that the proceeding be struck out under r 15.1 High Court Rules.10 In the event the proceeding is not struck out, Dr Donald asks that an earlier-filed application for security for costs be brought on for hearing.
The re-amended statement of claim
[32] The re-amended statement of claim (“ASOC”) is a lengthy, discursive document. It continues to contain (as did previous pleadings) many passages which are not appropriate pleadings because they contain for instance matters of submission or evidence or irrelevant allegations.
[33] For Dr Donald, Mr Holmes submits that the very nature and extent of repeated deficiencies in the pleading is of itself reason that the Court should refuse to lift the stay.
[34] For present purposes, I prefer first to focus on the way in which the plaintiffs plead their cause of action under s 301 of the Act. That allows focus particularly on whether the substance of the plaintiffs’ proposed claim is one which the Court should permit to be pursued.
[35] The ASOC contains in its first 25 paragraphs pleadings relating to the restoration of Rocks to the Register, a matter now achieved through a separate proceeding. That part of the claim stands to be dismissed, it already having been achieved.
10 The power to strike out a proceeding under r 15.1 High Court Rules does not depend upon an application having been made: Siemer v Stiassny [2011] NZCA 1 at [14].
[36] The second cause of action (the claim for relief under s 301 of the Act) is then set out in 94 paragraphs. Broadly speaking, the sequential pleadings deal with:
(a)Mr Hampson’s funding of Dunes;
(b)The history of Rocks’ precarious funding arrangements, disputes in relation to the redevelopment, and litigation with Dunes;
(c)The knowledge that Dr Donald had or should have had from 2006 of the financial position and insolvency of Rocks;
(d)Dr Donald’s responsibility for causing the insolvency of Rocks;
(e)Dr Donald’s responsibility for causing Rocks to trade while insolvent; and
(f)Dr Donald’s propensity to incorporate companies, some of which go on to incur losses for creditors, and to then incorporate new companies (with details of struck off companies provided).
[37] The plaintiffs allege breaches by Dr Donald of duties owed under the Act, being:
(a)To act in good faith and in the best interests of the company (s 131(1));
(b)To exercise his powers, as sole director of the company, for a proper purpose (s 133);
(c)Not to agree to a company incurring obligations unless he believed, on reasonable grounds, that the company would be able to perform the obligations when required to do so (s 136); and
(d)To exercise duly reasonable care, diligence and skill (s 137).
[38]The plaintiffs then plead:
109. The duties under sections 131, 133, 135, 136 and 137 are owed to the company in the first instance.
110. However in times of insolvency these duties become owed to the creditors of the company. See Nicholson v Permakraft (NZ) Ltd (in liq)11 and Sojourner v Robb.12
[39] The first plaintiff also expressly relies on the Deed of Assignment for status as a creditor of Rocks, pleading:
113. The first plaintiff qualifies as a creditor of the company as a result of being an assignee of a proportion of the second plaintiff’s cause of action … This assignment was, admittedly, after the commencement of the company’s liquidation but related to a portion of a debt that was already an ascertained claim under section 306 and which was a provable debt in terms of 302 of the Companies Act 1993 and sections 231-232 of the Insolvency Act 2006.
[40]The plaintiffs’ pleadings identify their cause of action as follows:
116.The plaintiffs apply as creditors of the company under section 301 against the second defendant for the already pleaded breach of statutory duties owed to the company.
117.The plaintiffs allege that the second defendant has been guilty of negligence, default, negligent misstatement and breach of all duties in relation to the company, and request that the court enquires into the conduct of the second defendant and to order that the second defendant pay or transfer money and interest directly to the plaintiffs, as it has the discretion to do, or to order the second defendant to contribute directly to the assets of the company as the court sees fit.
118.The plaintiffs allege that the company was insolvent from as early as 31st March 2006, if not earlier, and that at this time the duties owed by sections 131, 133, 135, 136, 137 of the Companies Act 1993 then become owed to the creditors of the company.
119.The plaintiffs allege that the funds paid to the associated company, Donald Design, of which the second defendant was sole director and shareholder. Were misapplied and were part of the collateral benefit to the second defendant of continuing to operate an insolvent company.
11 Nicholson v Permakraft (NZ) Ltd (in liq) [1985] 1 NZLR 242 (CA) at 250.
12 Sojourner v Robb [2006] 3 NZLR 808 (HC) at [103], upheld on appeal: Sojourner v Robb [2007] NZCA 493, [2008] 1 NZLR 751 at [25].
[41]The relief sought by the plaintiffs is as follows:
A.The first plaintiff claims either personally (and on behalf of his wife) under section 301(1)(c) or on behalf of the company in liquidation under s 301(1)(b) against the second defendant for the latter’s breaches of duty as pleaded:
(a)$389,294.40; original assignment
(b)$135,340.00; further repayments of debt since 2011.
(c)Interest from 28 June 2011 to date of judgment at the prevailing prescribed rate under section 87 of the Judicature Act;
(d)Costs.
B.The second plaintiff claims either personally under section 301(1)(c) or on behalf of the company, under section 301(1)(b) against the second defendant for the latter’s breaches of duty as pleaded:
(a)Such balance of its judgment of 31 March 2010 against the company as is not awarded to the first plaintiff;
(b)Interest on the whole judgment from 1 April 2010 to date of judgment less any interest awarded to the first plaintiff;
(c)Costs.
Two questions – should the stay be lifted/should the claim be struck out?
The plaintiffs’ case
[42] Mr Hampson’s application is for a lifting of the 2013 stay on the basis that the restoration of Rocks to the Register has been achieved. Mr Hampson recognises that any order lifting the stay in favour of Dunes would have to be conditional upon Dunes’ restoration to the Register.
[43] In the event the stay is lifted, the plaintiffs request leave to have Mrs Hampson represent both Mr Hampson and Dunes (if restored).
Dr Donald’s opposition
[44]The key points of Dr Donald’s opposition are:
(a)The plaintiffs’ remaining claims relate to events in and before December 2006;
(b)The plaintiffs delayed in issuing this proceeding until 2012 after the previous liquidators of Rocks had finalised the liquidation, Rocks had been struck off, and the company records had been destroyed by the liquidators;13
(c)The plaintiffs have pursued misconceived allegations and claims, with claims already struck out, and those which remain still requiring re- pleading in order to conform to the requirements of the High Court Rules;
(d)Six years after this proceeding was commenced the plaintiffs have yet to file a compliant statement of claim;
(e)While the proceeding has remained stayed since 2013, the plaintiffs have elected to pursue other remedies in preference to this proceeding, including:
(i) complaints to the New Zealand Police;
(ii) complaints to the Registrar of Companies;
(iii) complaints to the Attorney-General; and
(iv) obtaining (through restoration of Rocks to the Register) appointment of a new liquidator who caused Rocks to file a claim against Dr Donald for breaches of directors’ duties under the Act, substantially paralleling the plaintiffs’ claims in this proceeding;
(f)The plaintiffs’ delays have resulted in serious prejudice to Dr Donald in presenting any defence in that in 2016 he was diagnosed with advanced
13 Pursuant to s 256(1)(b) Companies Act.
prostate cancer, the treatment of which has impacted on his health, including his memory;
(g)Rocks had at the time of its liquidation (and continues to have) a debt to the Inland Revenue Department exceeding $600,000 (which has preference over other debts) and debt of over $17,000,000 to its mortgagee, Bridgecorp (since amalgamated) which ranks pari passu with the debt of other unsecured creditors including Dunes;
(h)Mr Hampson is not personally a creditor of Rocks. To the extent that he purported (through the Deed of Assignment) to take an assignment of a portion of a cause of action (a bare right of action) the assignment is legally ineffective; and
(i)In relation to the plaintiffs’ representation, Mrs Hampson does not understand what is required to manage a High Court proceeding of this complexity and is not capable of conducting the proceeding. (If the stay were to be lifted, many months would be involved in dealing with security for costs, having the plaintiffs achieve an acceptable form of amended statement of claim, and having the plaintiffs attend to discovery).
Discussion – the plaintiffs’ causes of action
Plaintiffs’ re-pleaded causes of action
[45] Through the strike-out judgment, the plaintiffs themselves are precluded from pursuing causes of action that rest on alleged duties owed to creditors under ss 131 to 137 of the Act, duties alleged to exist in the law of tort or duties based on any assertion that Mr Hampson is a director of Dunes. To the extent that the re-amended statement of claim might be read as re-asserting claims based on such duties, it would have to be the subject of serious excision or amendment. In paragraphs 117 to 118 of the ASOC (above at [40]) the plaintiffs’ pleading ignores the scope of the strike-out orders.
[46] What the strike-out judgment and the accompanying stay left the plaintiffs was the potential ability to have the stay lifted in order to pursue remedies provided under s 301 of the Act. In the case of Mr Hampson, that would involve reliance upon the status as a creditor of Rocks pursuant to an assignment.
[47] If significant parts of the ASOC are stripped away, one finds (in paragraphs 112, 113 and 116) pleadings as to the plaintiffs being creditors of Rocks who were owed statutory duties pursuant to s 301 of the Act. The preceding paragraphs in the ASOC go so far as to identify case law relied upon for the proposition that, in times of insolvency, duties owed by directors to their company become owed also to creditors of the company.
Duties of directors at law
[48] A classic description and explanation of the duties of directors is found in the judgment of Cooke J in Nicholson v Permakraft (NZ) Ltd, where his Honour stated:14
The duties of directors are owed to the company. On the facts of particular cases this may require the directors to consider inter alia the interests of creditors. For instance creditors are entitled to consideration, in my opinion, if the company is insolvent, or near-insolvent, or of doubtful solvency, or if a contemplated payment or other course of action would jeopardise its solvency.
[49] Subsequently, in Sojourner v Robb,15 the Court of Appeal cited with implicit approval the judgment of Gummow J in Re New World Alliance Pty Ltd:16
It is clear that the duty to take into account the interests of creditors is merely a restriction on the right of shareholders to ratify breaches of the duty owed to the company. The restriction is similar to that found in cases involving fraud on the minority. Where a company is insolvent or nearing insolvency, the creditors are to be seen as having a direct interest in the company and that interest cannot be overridden by the shareholders. This restriction does not, in the absence of any conferral of such a right by statute, confer upon creditors any general law right against former directors of the company to recover losses suffered by those creditors … the result is that there is a duty of imperfect obligation owed to creditors, one which the creditors cannot enforce save to the extent that the company acts on its own motion or through a liquidator. [emphasis added]
14 Nicholson v Permakraft (NZ) Ltd, above n 11, at 249, endorsed by Richardson J at 254.
15 Sojourner v Robb [2008] 1 NZLR 751 (CA), above n 12, at [25].
16 Re New World Alliance Pty Ltd (1994) 51 FCR 425 at 444-445.
[50] It is against that background that there exists through s 301 of the Act in the course of a liquidation a regime of remedies available to the Court on the application of the liquidator or a creditor or shareholder. As described by Fogarty J in the first instance (High Court) judgment in Sojourner v Robb:17
The scheme of the Companies Act 1993 is to separate out the duties of directors (ss 131-138) from the remedies which a Court may impose as the Court thinks just.
[51] In other words, the duties owed by a director to the company and enforceable by the company’s liquidator are not generally enforceable by creditors (even where the company has traded insolvently). But under the regime of s 301 of the Act the Court has the power to provide a specified remedy to one or more specified classes of persons there identified.
[52]Section 301(1) of the Act provides:
301 Power of court to require persons to repay money or return property
(1)If, in the course of the liquidation of a company, it appears to the court that a person who has taken part in the formation or promotion of the company, or a past or present director, manager, administrator, liquidator, or receiver of the company, has misapplied, or retained, or become liable or accountable for, money or property of the company, or been guilty of negligence, default, or breach of duty or trust in relation to the company, the court may, on the application of the liquidator or a creditor or shareholder, -
(a) inquire into the conduct of the promoter, director, manager, administrator, liquidator, or receiver; and
(b) order that person –
(i)to repay or restore the money or property or any part of it with interest at a rate the court thinks just; or
(ii)to contribute such sum to the assets of the company by way of compensation as the court thinks just; or
(c) where the application is made by a creditor, order that person to pay or transfer the money or property or any part of it with interest at a rate the court thinks just to the creditor.
…
17 Sojourner v Robb (HC), above n 12, at [108].
[53] Thus, s 301(1)(b) provides for payments to the company in liquidation while s 301(1)(c) allows for payments directly to the applicant-creditor. But the permitted payments are not identical.
[54] Under s 301(1)(b), the Court has power to order repayment or restoration of the money or property of the company to the company (in liquidation) or to order contribution of a sum to the assets of the company by way of compensation. There is no equivalent provision in s 301(1)(c) for an order of payment by way of compensation to a creditor – in the case of a creditor the Court is limited to ordering the payment or transfer of “the money or property [which had been removed from the company] or any part of it”.
Status of plaintiffs as creditors of Rocks
[55]Dunes was undoubtedly a creditor of Rocks by 2006 and has remained so.18
[56] Dunes then obtained the status of a judgment creditor of Rocks for the sums specified in the quantum judgment on 31 March 2010.19
[57] Mr Hampson personally was not a creditor of Rocks. There were aspects of the Rocks/Dunes contract which were for the benefit of Mr and Mrs Hampson, notably monthly living expenses and other costs while out of the premises. Mrs Hampson referred to a passage in the judgment of Williams J in the quantum judgment where his Honour referred to the underlying premise of the contract as being “to obligate Rocks to compensate Dunes and its proprietors for all the sums Dunes would have had to pay …”.20 While part of the intention of the contract was clearly to cover expenses of the Hampsons, the contract created obligations and debts only as between Rocks and Dunes. When it came time to sue on the contract it was appropriately Dunes which commenced the 2006 proceeding and subsequently obtained judgment for breaches of contract. Neither Mr nor Mrs Hampson became a creditor of Rocks.
18 Hampson v Registrar of Companies, above n 4, at [13].
19 The Dunes Café and Bar Ltd v 623 Rocks Road Ltd (In Liq), above n 3.
20 The Dunes Café and Bar Ltd v 623 Rocks Road Ltd (In Liq), above n 3, at [13](a).
[58] When the Hampsons subsequently had their solicitor draft the Deed of Assignment between Dunes and the Hampsons its purpose was expressly to assign an identified right which Dunes had against Rocks from Dunes to Mr Hampson. But the deed did not assign the judgment debt itself. Rather, it referred to a cause of action which might be pursued against Dr Donald for reckless trading and other personal liability he might have under the Act or another basis. Dunes accordingly assigned to Mr Hampson “a proportion of its cause of action against” Dr Donald. Mr Hampson was then, in terms of the deed, to be “able to join in the litigation against Dr Donald”. The reference to the “litigation” was clearly to this (intended) proceeding which was commenced the following year.
[59] Accordingly, Mr Hampson is not a creditor of Rocks. He does not have the required status to make an application under s 301 of the Act. Only Dunes would have that status (if restored to the Register).
[60] In these circumstances, it would be inappropriate to give further consideration to the lifting of the stay insofar as it affects Mr Hampson’s claim. It is appropriate that that claim be stayed, not only on the grounds identified in the strike out judgment, but also by reason of the additional finding above that Mr Hampson is not a creditor of Rocks.
Dunes’ application under s 301 Companies Act
[61] Dunes has status (as a creditor of Rocks) to pursue its application under s 301 of the Act.
[62] Unless the stay of proceedings is lifted, Dunes will be unable to pursue that cause of action.
Factors militating against lifting a stay
[63] For Dr Donald, Mr Holmes invoked the principles that govern the staying of a proceeding for want of prosecution. He referred to the judgment of Sir Thomas
Eichelbaum CJ in Lovie v Medical Assurance Society NZ Ltd, which I adopt as a correct statement of the Court’s approach:21
[T]he applicant must show that the plaintiff has been guilty of inordinate delay, that such delay is inexcusable, and that it has seriously prejudiced the defendant. Although these considerations are not necessarily exclusive, and at the end one must always stand back and have regard to the interests of justice, in this country, ever since New Zealand Industrial Gases Ltd v Andersons Ltd [1970] NZLR 58 it has been accepted that if the application is to be successful, the applicant must commence by proving the three factors listed.
[64] In his submissions, Mr Holmes elaborated upon Dr Donald’s grounds of opposition (as set out at [44] above). He emphasised matters of inordinate delay, with six years having elapsed since the proceeding was commenced and four years since the proceeding was stayed. He also emphasised the issues of prejudice citing particularly the 12 years that have elapsed since the material events took place, the liquidators’ statutory destruction of Rocks’ records, and Dr Donald’s intervening medical condition with the impact it will have on his memory.
[65]I recognise all those as powerful reasons why a stay might be left in place.
[66] Against those factors are the difficulties that have confronted Mr and Mrs Hampson in their pursuit of what they view as holding Dr Donald justly accountable. Dunes’ viability was destroyed through its dealings with Rocks and Dr Donald. The Hampsons’ personal finances were employed to a significant extent in what turned out to be the vain endeavour to hold Rocks accountable. I am satisfied that their subsequent struggles to work through the significant legal complexities involved in a claim against Dr Donald personally have been severely complicated by their consequently limited financial means.
[67] In his submissions, Mr Holmes suggested the Hampsons’ delays have been inexcusable because as a matter of choice, they have pursued remedies other than through this proceeding. Mr Holmes referred in particular to Master Hansen’s findings in Stewart v Grey River Gold Mining Ltd, in which his Honour found that the plaintiff’s
21 Lovie v Medical Assurance Society NZ Ltd [1992] 2 NZLR 244, at 248.
delay was not excusable when he had chosen to pursue other remedies.22 His Honour observed:23
It is quite clear that the plaintiff made a conscious decision to pursue the alternative remedies in preference to prosecuting this claim. It seems [to] me in circumstances where a plaintiff chooses to prosecute other remedies and to allow a High Court proceeding to go to sleep in circumstances where he makes no efforts to obtain the acquiescence of defendants it cannot be said that the delay is excusable.
[68] Here, the evidence establishes that Mr and Mrs Hampson in the period since the strike-out judgment (of 2013) have elected to pursue other remedies. Mr Falloon (as the initial liquidator of Rocks) reported to the Court in 2016 that the Hampsons had requested that his investigations be put on hold pending responses from Crown Law and the Attorney-General, to whom Mrs Hampson had turned as her “first avenue of redress”. In 2016, Mrs Hampson was reporting to the Court that the Attorney-General had suggested that a complaint be laid with the New Zealand Police at Nelson which Mrs Hampson proceeded with. She also reported that she had given Mr Falloon (as liquidator of Rocks) the go-ahead to file complaints with the Companies Office. The Court issued a Minute in this proceeding on 16 February 2017 referring to the various complaints which Mr and Mrs Hampson had made to various authorities and observing that this proceeding could no longer remain in Court if it was not to be progressed. Associate Judge Matthews recorded that Mr and Mrs Hampson at previous conferences had repeatedly referred to their other complaints and had also requested adjournments so that the liquidator of Rocks could take proceedings against Dr Donald.
[69] In March 2017, Mr Falloon filed a memorandum in which he recorded his intention to issue his own proceeding against Dr Donald by 31 March 2017. As Mr and Mrs Hampson agreed with that course, the Court at that point did not issue further timetable directions in relation to this proceeding. The liquidator subsequently took steps to file a proceeding in the name of Rocks against Dr Donald but procedural errors held up any progress on that proceeding through 2017.
22 Stewart v Grey River Gold Mining Ltd HC Christchurch A517/78, 19 December 1991.
23 At 8.
[70] On a case management review of this proceeding in February 2018, the existence of the liquidator’s proceeding and the procedural issues that have arisen with it were identified. Mr Holmes at that point submitted that the point had now been reached where Dunes’ claim in this proceeding should be struck out. The statement of claim issued by the liquidator was, in essence, a duplication of the claims made by Dunes as creditor in the present proceeding. The same relief (under s 301 of the Act) was sought.
Discussion
[71] The Court recognises the financial difficulties that beset Mr and Mrs Hampson and Dunes through the conduct of Rocks in 2006 and through the defence which was then mounted to Dunes’ litigation up to the point that Dr Donald put Rocks into liquidation in 2009.
[72] Those financial difficulties and the practical difficulties they caused for the Hampsons are central to considerations of justice. But, in this case, the choices which Mr and Mrs Hampson have since made, their delays and the prejudice flowing from those delays are such that it can no longer be seen as just to allow Dunes to proceed any further with this claim. While the relevance of the passage of years will differ markedly from case to case, the passage of 12 years since the events on which this proceeding is based is a strong indicator that a trial of the issues still pursued by Dunes could not be just, even if it were to occur in the very near future. As it is, there remain extensive passages of the plaintiffs’ current pleading which would require excision or amendment before the proceeding could be set down for trial. There would also be significant requirements of discovery. If the proceeding continued, Dr Donald’s adjourned application for security for costs would remain to be dealt with.
[73] On the particular facts of this case, as Master Hansen similarly found on the facts in Stewart v Grey River Gold Mining Ltd, I am satisfied that when the Court finally came to consider the oral evidence which would be required in this case, justice would not be able to be done.
[74] It is appropriate that Dunes’ claim be permanently stayed. Had there been a formal application by Dr Donald for an order striking out the plaintiffs’ claims, such
an order would almost inevitably have been granted. In the event, Dr Donald did not make a formal application for an order striking out the claims. Given that the plaintiffs are not legally represented, I do not adjudge it appropriate to consider the making of an order striking out the claims.
[75] The consequence is that there will be an order permanently staying the plaintiffs’ claims in this proceeding.
Mrs Hampson’s application to represent the plaintiffs
[76] Mrs Hampson’s application to represent the plaintiffs is rendered otiose by the orders to be made in this judgment. That application will therefore be formally dismissed.
Dr Donald’s application for security for costs
[77] Dr Donald’s application for security for costs is similarly rendered otiose, and will be dismissed.
Orders
[78]I order:
(a)The plaintiffs’ claims in this proceeding are permanently stayed;
(b)The application by Mrs D L Hampson to represent the plaintiffs is dismissed;
(c)The application of the defendant for security for costs is dismissed; and
(d)The costs of each application are reserved.
Associate Judge Osborne
Solicitors:
Spencer Legal (David Spencer), Auckland Counsel:
A J B Holmes, Auckland Also: S K Hampton, Nelson
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