Hoole and Pitfield in their capacity as the receivers and managers of Hillcrest Services Limited (in rec) v Darby HC Auckland CIV-2006-404-005235
[2007] NZHC 1760
•28 May 2007
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2006-404-005235
BETWEEN GARETH RUSSEL HOOLE AND KEVIN DAVID PITFIELD IN THEIR CAPACITY AS THE RECEIVERS AND MANAGERS OF HILLCREST SERVICES LIMITED
(IN RECEIVERSHIP)
HILLCREST SERVICES LIMITED (IN
RECEIVERSHIP) First Plaintiffs
AND PATRICK ANTONY DARBY First Defendant
AND BRONWYN ESTATE LIMITED Second Defendant
AND BARRYS CAR SALES LIMITED Third Defendant
Hearing: 24 May 2007
Appearances: Mr M D Arthur for plaintiffs
Mr P A Darby in person (granted leave for present purposes to appear for all defendants)
Judgment: 28 May 2007 at 3 pm
JUDGMENT OF LANG J
[on application by defendants for stay of execution of costs order]
This judgment was delivered by me on 28 May 2007 at 3 pm pursuant to Rule
540(4) of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Chapman Tripp, Auckland Mr R T Fenton, Auckland Mr P A Darby, Auckland
Date……………
HOOLE AND ANOR V DARBY AND ORS HC AK CIV-2006-404-005235 28 May 2007
[1] On 30 March 2007 Venning J issued a judgment in which he directed that the defendants were jointly and severally liable to pay to the plaintiffs indemnity costs totalling $62,404.77.
[2] The defendants have appealed to the Court of Appeal against the award of costs. They now seek a stay of execution of that order pending the hearing of the appeal. The plaintiffs opposed the application. They wish to be able to execute the order immediately.
The grounds advanced
[3] The defendants bring the application under r 12 of the Court of Appeal Rules. Of particular importance for present purposes are sub-rules 3 and 4, which provide:
(3) Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application,—
(a) order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or
(b) grant any interim relief.
(4) An order or a grant under subclause (3) may—
(a) relate to execution of the whole or part of the decision or to a particular form of execution:
(b) be subject to any conditions that the court appealed from or the Court thinks fit, including conditions relating to security for costs.
[4] The essential grounds that the defendants advance in support of the application are that they have filed a notice of appeal against the costs award, that it would be unfair to permit the plaintiffs to execute the costs award pending determination of the appeal and that a stay of execution is in the interests of justice.
[5] The only evidence filed in relation to the application is a brief affidavit filed on behalf of the plaintiffs. The affidavit exhibits a letter containing an offer by the plaintiffs to consent to the application provided the defendants pay the full amount of the costs order into the plaintiffs’ solicitor’s trust account pending determination of the appeal.
Relevant principles
[6] In considering an application for stay of execution the Court must balance the rights of the plaintiffs to the fruits of their judgment against the need to preserve the appellant’s position against the event of the appeal succeeding: Duncan v Osborne Building Ltd (1992) 6 PRNZ 85 (CA).
[7] Counsel for the plaintiffs also referred me to the judgment of Harrison J in Barge v Freeport Development Ltd HC AK CIV 2002-404-1771 6 December 2005 where he said at [4]:
Two competing rights must be balanced; a successful litigant’s entitlement to the fruits of his or her judgment against an unsuccessful litigant’s entitlement to pursue an appeal. I must strive to give appropriate weight to each. Importantly, though, the question is one primarily of rights, not of fairness (Farmers Meat Export Ltd v Waitaki (NZ) Refrigerating Ltd, A29/81, Christchurch Registry, unreported, 6 December 1985, Hardie- Boys J, affirmed in Patience & Nicholson (NZ) Ltd v Cyclone Hardware Pty Ltd (2000) 14 PRNZ 534 at para [3]).
[8] Counsel for the plaintiffs also referred me to Contributory Mortgage Nominees Ltd v Harris Rd No 10 Ltd HC AK CIV 2005-404-3078 31 January 2006. In that case Associate Judge Faire considered that the following factors are likely to be relevant in considering an application for stay:
a) Whether, if no stay is granted, the appellant’s right of appeal will be rendered nugatory;
b) Whether the successful party will be injuriously affected by the stay; c) The bona fides of the applicants as to the prosecution of the appeal; d) The effect on third parties;
e) The novelty and importance of questions involved;
f) The public interest in the proceeding;
g) The overall balance of convenience and the status quo; and
h) Whether the appellant has demonstrated a sufficiently arguable point to be considered on appeal.
Decision
[9] In support of his general submission that a stay should be granted in the interests of justice Mr Darby advanced several distinct propositions:
The plaintiffs already hold sufficient funds to meet any award of costs
[10] In their capacity as receivers and managers of Hillcrest Services Limited the first plaintiffs are charged with collecting loan advances outstanding to that company. They have already begun that task and Mr Darby anticipates that they will be able to realise loans having a book value of approximately $4 million. Given that the secured creditor, Capital + Merchant Finance Limited, is only owed the sum of $1.5 million, Mr Darby submits that the receivers will shortly hold more funds than will be required to repay the secured creditor.
[11] The essential issue to be determined at the substantive hearing of this proceeding is the claim by the second defendant, Bronwyn Estate Limited, that it is beneficially entitled to a proportion of the funds that the first plaintiffs will collect. If this claim succeeds, Bronwyn Estate Limited will be entitled to share in the funds collected by the plaintiffs and these funds will be available to meet the award of costs in the event that it is upheld on appeal. For this reason Mr Darby submitted that the first plaintiffs already effectively hold security for their costs, and that it would therefore be unjust to allow them to execute the judgment at this stage.
[12] In my view this argument is defeated by the practical realities of the situation. Mr Darby accepts that the receivers have only been able to collect approximately
$48,000 to date. Those monies are held in a suspense account, and are not available to be used to meet the costs of the receivership. Those costs have been met to date by the secured creditor.
[13] A debt collection agency, Stellar Collections Limited, has collected further funds during the period of the receivership but Mr Arthur advised me during the hearing that the costs incurred by the agency had completely exhausted all funds collected to date. Although the agency expects that situation to change at some
point in the future, the prospect of a surplus is unlikely, at least in the short to medium term.
[14] I am prepared to accept for present purposes that Bronwyn Estate Limited may eventually prove that it is entitled to receive some of the funds that are collected in the future. The obvious uncertainty regarding the amount that is likely to be collected in the future means, however, that I am able to give little or no weight to Mr Darby’s submission that the plaintiffs are effectively secured for their costs.
The appeal will be rendered nugatory
[15] Mr Darby also submitted that, in the event that the plaintiffs are permitted to execute the judgment, the appeal will be rendered nugatory. He pointed out that the plaintiffs are likely to resort to bankruptcy and liquidation proceedings in order to recover the debt owing by the three defendants. He said that, if he is declared bankrupt and the corporate defendants are placed in liquidation, they will not be able to pursue the appeal.
[16] During the hearing I pointed out to Mr Darby that this Court regularly defers the final disposition of bankruptcy and liquidation proceedings in circumstances where the debt that has given rise to the proceeding is the subject of an appeal or an application to set the judgment aside. The Court will only do so, however, where it is satisfied that the appeal or application is bona fide and where the debtor is actively pursuing it.
[17] In addition, the trial of this proceeding is scheduled to commence on 13
August 2007. Provided a judgment can be produced shortly after trial, the defendants will know relatively quickly whether or not the second defendant is entitled to share in the funds collected by the receivers. This, too, may give rise to another ground upon which they can resist the determination of bankruptcy or liquidation proceedings.
[18] For these reasons I do not consider that the appeal will necessarily be rendered nugatory in the event that a stay of execution of the judgment is not granted.
Merits of the appeal
[19] It is obviously difficult, given my limited knowledge of the background to the award of costs, to accurately assess the merits of the defendants’ appeal to the Court of Appeal.
[20] The appeal is, however, against the exercise of a judicial discretion. An appellate court will only interfere with the exercise of such a power in the event that it is satisfied that the discretion was exercised in accordance with an erroneous principle or that the decision was plainly wrong. This means that an appellant in circumstances such as the present will often assume a relatively heavy burden.
[21] In the present case Venning J heard oral evidence on the application for costs. He based his decision that the defendants should pay indemnity costs on a factual finding that Mr Darby had deliberately sought to frustrate the receivers in carrying out their functions. The Judge provided detailed reasons in support of that conclusion. Provided the Judge’s ultimate conclusion was reasonably open to him on the evidence, Mr Darby may find it difficult to persuade an appellate court to disturb the orders that Venning J made.
[22] Although indemnity costs are not commonly awarded, I take the view that the confidence with which Mr Darby approaches the appeal may prove to be displaced. I do not accept his submission that it is highly likely that the appeal will succeed.
The interests of justice
[23] There is no element of public interest in this dispute and it raises no issue of a novel or important nature. The dispute relates solely to the contractual rights and obligations of the respective parties to the proceeding. The present application
therefore falls to be determined solely on the basis of the balance to be drawn between the rights of those parties.
[24] Mr Darby submits that it would be contrary to the overall interests of justice to allow the costs award to be executed in circumstances where that award is subject to an undetermined appeal.
[25] That submission must be measured against the fact that the plaintiffs have incurred significant costs to date as a result of their dealings with Mr Darby and the other defendants. They have obtained an order for costs in their favour and they would ordinarily be entitled as of right to execute that order so as to be able to obtain access to the fruits of their judgment. Moreover, they have no security and Mr Darby has made it plain that neither he nor the other defendants have the means to pay even part of the sum awarded by Venning J. Mr Darby advised me during the hearing, in fact, that the defendants will not pursue the appeal if the Registrar of the Court of Appeal declines to waive security for costs because they cannot provide the sum of $4,700 by way of security.
[26] Mr Darby seeks to protect the right of the defendants to pursue the appeal so that they can challenge the order for costs. As I have already indicated, there is nothing to prevent the defendants from exercising their right to pursue the appeal whilst the execution process continues at the same time. Provided Mr Darby can persuade the Court that he is pursuing the appeal with vigour, it is likely that the final disposition of any bankruptcy or liquidation proceedings would be deferred to await the outcome of the appeal. The present proceeding can likewise continue notwithstanding the concurrent existence of bankruptcy or liquidation proceedings.
[27] In those circumstances I consider that the right of the defendants to pursue the appeal can be adequately protected without impinging upon the right of the plaintiffs to execute their judgment. The interests of justice therefore do not require a stay of execution to be granted in the present case. If the plaintiffs elect to institute bankruptcy or liquidation proceedings, Mr Darby must take such steps as he can to ensure that the status of the defendants, and hence their ability to pursue the appeal, is not irreparably altered prior to the determination of the appeal.
Result
[28] The application for stay of execution is dismissed.
Costs
[29] The plaintiffs are entitled to an award of costs jointly and severally against the defendants in relation to the present application. Those costs are to be calculated on a Category 2B basis. The plaintiffs are also entitled to any disbursements that they may have incurred in defending the application.
Lang J
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