Huljich v Huljich
[2018] NZHC 1987
•7 August 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-000721
[2018] NZHC 1987
BETWEEN PAUL HULJICH
Plaintiff
AND
CHRISTOPHER HULJICH
First Defendant
AND
MICHAEL HULJICH
Second Defendant
AND
PETER HULJICH
Third Defendant
Hearing: 30 May 2018 Appearances:
Davey Salmon and Samuel Humphrey for the Plaintiff
David McLellan QC and Jenny Cooper QC for the Defendants
Judgment:
7 August 2018
JUDGMENT OF MOORE J
This judgment was delivered by me on 7 August 2018 at 11:30 am pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar Date:
HULJICH v HULJICH & ORS [2018] NZHC 1987 [7 August 2018]
Introduction
[1] These proceedings have their origin in the breakdown of the filial and commercial relationship between Paul Huljich and his two brothers Christopher and Michael Huljich. They are the plaintiff and first and second defendants respectively.
[2] Paul Huljich claims that over the past 50 or so years the three brothers have operated a legal partnership or partnerships in respect of a number of businesses, only some of which were legally owned by all three brothers. The third defendant is Christopher’s son Peter Huljich, who Paul claims joined the partnership at some point.
[3] The defendants say there was never any legal partnership between them. Their joint investments were undertaken using a variety of commercial and legal vehicles which never included a partnership.
[4] The defendants seek various interlocutory orders including a staged trial so that the issue of whether such a partnership or partnerships existed can first be determined before an inquiry into whether the defendants breached their fiduciary and other duties by using assets belonging to the partnership/s to acquire personal assets is conducted at the second stage. Relatedly, they ask that the plaintiff’s application for particular discovery be deferred until resolution of the first stage issues, and in the interim seek further and better particulars in statement of claim. And finally they seek an order for security for costs.
Factual background and the substantive proceedings
[5] The Huljich family is a high net-worth Auckland family with various substantial business interests.
[6] Since 1969 the three brothers have owned and operated a number of businesses and made various investments together. The most successful of these was Best Corporation Ltd (“Best”), a food and small goods business which was sold in 1995 for a significant profit. The parties also operated a joint bank account which held some of the proceeds of the sale of Best until around 2009 by which time it was overdrawn by approximately $1 million.
[7] The parties appear to have fallen out some time after 1997 when Christopher assumed responsibility for the businesses in 1997. This was after Paul suffered a mental breakdown. Paul claims that the partnership lost millions of dollars in assets during this period and that his two brothers and nephew Peter breached various duties by using partnership money, assets and connections to amass personal fortunes to Paul’s exclusion. He says that when he complained about this conduct he was effectively stonewalled.
[8] The central issue in the substantive proceedings is whether the relationship between the brothers over the last five or so decades ever constituted a legal partnership and, if so, what the scope and terms of the partnership/s were. Paul says there were three partnerships which operated from the early 1970s to the present. It was only the third which included his nephew, Peter. He says all three partnerships were subject to the same terms; among them that all property held by any of the partners would be partnership property and no partner would pursue an investment opportunity for private gain outside the rubric of the partnership. Paul seeks orders that the partnerships account for all investments made by any of the parties whether jointly or individually in breach of the terms of the partnership/s, particularly subsequent to Peter joining the alleged third partnership. Paul’s claims are based on the common law principles of partnership and the Partnership Act 1908.
[9] The defendants deny the existence of any legal partnership. They say that joint investments were undertaken using a variety of commercial entities, mainly companies in which they held individual shareholdings. They accept that Christopher and Michael, but not Peter, had an interest in the funds in the joint account but say this did not give rise to any partnership.
[10]I turn now to consider each of the applications.
Staged trial application
[11] What the defendants seek is a staged or split trial so that the issue of whether the alleged partnership/s existed (“the first stage issues”) can be determined before commencing an inquiry into whether the defendants breached any duties in using
assets belonging to the alleged partnership/s to acquire personal assets (“the second stage issues”).
[12] Relatedly, they ask that discovery on the second stage issues be deferred until after the trial and determination of the first stage issues.
Legal principles on the ordering of a staged trial
[13] Rules 10.4 and 10.15 of the High Court Rules 2016 (“the Rules”) are both potentially relevant to this application. Rule 10.4 relates to the ordering of separate trials for different causes of action, providing:
“10.4 Court may order separate trials
When justice requires, the court may order separate trials of causes of action and it may also direct the sequence of the separate trials and make any supplementary order that is just.”
[14] Meanwhile r 10.15 provides for the hearing of separate elements within a cause of action:
“10.15 Orders for decision
The court may, whether or not the decision will dispose of the proceeding, make orders for—
(a)the decision of any question separately from any other question, before, at, or after any trial or further trial in the proceeding; and
(b)the formulation of the question for decision and, if thought necessary, the statement of a case.”
[15] For the sake of clarity, in my view this is best considered an application under r 10.15. The first cause of action, a claim to partnership assets following dissolution, requires both proof of a partnership and an enquiry into assets. In that regard the defendants seek separate trials on different elements of the same cause of action.
[16] Sensibly however, the parties are agreed that whichever rule is applied, the principles are similar in that both rules provide a broad discretion to the Court, which must be exercised in accordance with the overriding objective at r 1.2 that “the just, speedy, and inexpensive determination of any proceeding or interlocutory application”
is secured. The applicable principles were set out by White J in Turners & Growers Ltd v Zespri Group Ltd:1
“There is no dispute that the Court has a broad discretion under both rules to decide whether justice requires a split trial for a cause of action or a separate question of law. In exercising the broad discretion, however, the Court will take into account not only the interests of the parties immediately affected but also the interests of other parties to other cases awaiting hearing before the Court.
The starting point therefore is the assumption that all matters in issue are to be determined in one trial because that would normally be the most expeditious and efficient manner for dealing with a proceeding ... Consequently the burden of displacing the presumption rests on the party contending for split trials. The burden has been described as “heavy” or “not insignificant” …”
[17] White J went on to identify the following criteria which have been taken into account in deciding whether to order a split trial, a list whose breadth and character reflects the risks involved in order split trials:2
“a) The likelihood of delay in finally resolving the proceeding.
b)The probable length of the hearings if there is a split trial.
c)Whether a decision one way or the other on the separate questions would end the litigation.
d)The impact on the length of any subsequent hearing.
e)A balancing of the advantages to the parties and the public interest in shortening litigation as against any disadvantages asserted by parties opposing a split trial.
f)Demarcation difficulties in defining issues to be addressed at the first trial.
g)Resulting difficulties of issues estoppel.
h)Inadvertent disqualification of a Judge who has expressed views at the first trial on matters for decision at the second trial.
i)Inadvertent findings at the first trial upon matters that are for full evidence and argument at the second hearing.
j)The need to recall some witnesses at the second hearing.
1 Turners & Growers Ltd v Zespri Group Ltd HC Auckland CIV-2009-404-4392, 5 May 2010 at [9]-[10], citing Clear Communications Ltd v Telecom Corporation of New Zealand Ltd (1998) 12 PRNZ 333 (HC) at 334-335 and KPMG New Zealand v Gemmell HC Auckland CIV-2008-404- 4288, 27 March 2009 at [20].
2 At [11]-[12].
k)The duplication of time involved in the Court and counsel “coming up to speed” again for the second hearing.
l)The prospect of multiple appeals.
m)A second round of discovery or other interlocutories and amended pleadings following the first trial.
n)Rostering difficulties in ensuring that the same Judge is available for the second hearing.”
[18] But against those criteria, as Fisher J stated in Clear Communications Ltd v Telecom Corporation of New Zealand Ltd:3
“In the end, however, every case must be considered individually and the possibility of a split trial should never be dismissed out of hand. The most important single question is usually the interaction between the issues intended to be traversed at the first hearing and those for the second.”
Argument on the question of a staged trial
[19] Mr McLellan QC, who carried the defendants’ argument on this aspect of the applications, submitted that a staged trial is likely to be the most efficient procedure given the pleadings cover a 50 year period and purport to encompass the entire personal and business assets and financial dealings of the brothers over that period as well as those of Peter since 2003. By way of example, Mr McLellan submitted that even if a partnership was found to have existed there is a high likelihood the Court will find Peter was never a member of such a partnership. This, he said, illustrates that the scope of any second stage trial and any discovery required will be significantly affected by the determination of the first stage issues. If Paul’s claims are rejected no second stage trial will be required. If they are upheld, the findings may well significantly reduce the scope of the material which will need to be discovered at the second stage and may mean Peter is no longer a party.
[20] Furthermore, Mr McLellan submits that Paul’s claim is so broad that measures must be taken to ensure the process of discovery, brief preparation and the trial itself
3 Clear Communications Ltd v Telecom Corporation of New Zealand Ltd, above n 1, at 335.
is manageable. He submits that the discovery required for the first stage is likely to be relatively confined because:
(a)there are no written partnership agreements; and
(b)Paul’s initial disclosure included few contemporaneous documents and no contemporaneous communications between him and his brothers or Peter that might reasonably be expected in a partnership setting.
[21] Accordingly, he submits whether or not there was a partnership will be largely resolved on the basis of oral evidence from the parties themselves; what they did or did not agree, supported by any relevant contemporary correspondence or documentation which might exist.
[22] In this regard, Mr McLellan argued that subsequent events, including the incorporation of further companies, purchases of land and the establishment of trusts which the plaintiff alleges are either part of the partnership or were formed from partnership funds cannot be relied on to establish the existence of a partnership. He submitted one efficiency gain of a staged trial is discovery on the full asset base of the parties and their transactions over the 50 year period could be left to a second stage, to the extent that remains necessary.
[23] Mr Salmon, for Paul Huljich, responded that the defendants have failed to shift the presumption in favour of a single trial because the proposed stage one issues are framed too narrowly and the balance of convenience favours a single trial. He added the defendants’ primary concern regarding the unwieldy scope of stage two matters relates to particulars, which will be provided following discovery.
[24] More specifically, he submitted two forms of inefficiency would be created by a staged trial. First, the proposed stage one issues, limited to whether there was a partnership and what its terms were, do not include considerations of the partnership’s assets and business connections, how these were actually applied, whether the assets owned by the defendants were obtained in breach of statutory and fiduciary duties, and issues of valuation. He said these are the fundamental matters in dispute, and a
staged trial would leave too many key issues to be determined at stage two: it is reasonably apparent that there was some form of partnership and the main opposition raised by the defendants relies on technical arguments which are not determinative of the central issue of whether or not there was a partnership.
[25] Secondly, he submitted many of the issues reserved for stage two are so closely linked to the stage one issues that any attempt to separate will be impractical, specifically because any consideration or identification of partnership assets is linked to the question of the terms of the partnership.
[26] Mr Salmon submitted that if the orders sought were made the Court and the parties would inevitably be subjected to a very substantial and avoidable waste of time and money. Alternatively, in the event I considered a staged trial was appropriate, he argued the second stage should be reserved strictly for the issue of quantum. Mr Salmon identified various valuation exercises which could be undertaken by forensic accountants nominated to carry out inquiries under Part 16 of the Rules were that course followed.
[27] Related to this application is the defendants’ request for further and better particulars. In short, they argue the lack of particulars means they are not adequately informed of the case against them. They claim that this deficiency is particularly acute in relation to the second cause of action (breach of partnership duties), which is a factor supporting the ordering of a staged trial. The question of whether further and better particulars are required is discussed more fully later in this judgment.
Analysis – should a staged trial be ordered?
[28] As even Mr Salmon acknowledged, there is a superficial attraction to the defendants’ application for a staged trial. The defendants say that unless the plaintiff proves the partnership/s existed there will be no need for the Court and the parties to be burdened by the extensive discovery necessary in relation to the transactions and the finances of each party. They say the findings at the first stage will allow for a more targeted approach to discovery at the second stage.
[29] While a single trial will necessarily involve a significant undertaking, in my view the balance of convenience favours a single trial.
[30] As Mr Salmon emphasises, a finer grained assessment of the claim reveals that there is a relatively substantial cross over between the issues of the scope of the partnership and its terms and many of the matters which the defendants submit should be left until the second stage. An inquiry into whether a partnership/s in fact existed will necessarily turn on how the parties acted relative to each other within the various commercial entities, how the funds within those entities were treated by the parties and how the various assets were managed. Inevitably this will require forensic accounting evidence. To a considerable extent, the exercise of determining whether, in fact, the claimed partnerships existed will be duplicated by an assessment of quantum. In other words, many of the factual issues necessary to establish liability would also need to be considered at the second stage.
[31] Furthermore, I agree with Mr Salmon when he points out that breach is, in fact, an aspect of establishing liability. This is not a classic liability/quantum case. The resolution of the question of liability requires the Court to resolve whether there was a partnership, and its terms, and whether they were breached. This will require consideration of the various commercial vehicles through which the partnership/s operated and whether its terms were breached by use of partnership funds to advance other commercial interests not involving the plaintiff.
[32] Mr Salmon also took me to the affidavit evidence of the defendants in which they acknowledged some form of joint enterprise between the brothers straddling “various investment vehicles”.
[33] I agree with Mr Salmon that it is an artificial abstraction and over simplification of the central issues in these proceedings to say that the question of liability simply turns on whether or not there was an oral partnership agreement. On the contrary, the key question appears to be what investments fell within the terms of any partnership and what those funds were used to enable.
[34] This reflects the relevant aspects of the Partnership Act 1908 on which the plaintiff’s claim is based. The essence of the claim is that between 1997 and 2007 Paul’s wealth, which was once held in partnership with his brothers, dissipated. At the same time his brothers’ wealth accumulated. He says they unlawfully used funds held by the partnership/s to promote their own private business interests. The defendants disagree. They claim:
(a)the plaintiff’s own financial mismanagement led to the dissipation of his fortune; and
(b)any wealth accumulation by them was not the product of the use of partnership funds.
[35] How the various investments vehicles were the subject of an agreement between the brothers, if any, as well as the terms dictating the use of those funds, will be key issues at trial. In my view it would be unrealistic to expect a Judge at the first stage to resolve the question of the scope of any partnership/s without reference to the various companies, properties and trusts said to be subject to the partnership/s. For that reason, I am of the view that if the split trial proposal advanced by the defendants was ordered the Judge at the first trial would be improperly constrained in his or her findings to such an extent the likely result would be either a miscarriage of justice or the introduction of great inefficiency.
[36] For these reasons I am of the view there is no clear or bright lined demarcation which would permit the segregation of liability and quantum in the manner proposed by the defendants.4
[37]For completeness, I consider the following factors also support this conclusion:
(a)there will be disadvantages in terms of costs and use of time not just to the parties, but also to the public generally;
4 Goodship v Minister of Fisheries (2000) 15 PRNZ 256 (HC) at [13](a) and see generally Haden v Attorney-General (2011) 22 PRNZ 1 (HC).
(b)there is a risk of inadvertent findings at the first trial bearing upon matters that are for full evidence and argument at the second hearing, namely any speculation by the Judge at the first trial about the assets subject to the terms of any partnership;
(c)there is likely to be a need to recall some witnesses at the second hearing;
(d)duplication of time involved in the Court and counsel “coming up to speed” again for the second hearing is likely;
(e)the prospect of multiple appeals cannot be ruled out;
(f)a second round of discovery or other interlocutories and amended pleadings following the first trial is almost inevitable; and
(g)there may be rostering difficulties in ensuring that the same Judge is available for the second hearing.
[38] Finally, to the extent some staging is required to ensure the trial is not overtaken by complex questions better put to a forensic accountant, I accept Mr Salmon’s submission that those matters can properly be the subject of an inquiry into accounts under Part 16 of the Rules. Indeed, that is the relief sought. This should provide counsel with some reassurance as to the scope of the matters to be addressed at trial.
[39]I am satisfied that there should be no order for a staged trial.
Further particulars and discovery
[40] Paul Huljich applies for particular or tailored discovery. The defendants seek further particulars. These issues may be dealt with together and in reasonably short order.
[41] Attached to his submissions Paul Huljich has included a draft amended statement of claim (“draft ASOC”) which he says provides the particulars sought by
the defendants, namely what he says were the partnership assets, and the various investments he says were pursued on behalf of the partnership, to the extent he is aware of these matters. For convenience, in respect of the notice for further particulars, I refer to the paragraphs in the statement of claim.
[42] In respect of [47], [52] and [56], I agree analogy may be drawn with Carter Holt Harvey Ltd v Paper Reclaim Ltd.5 In that case Associate Judge Abbott concluded:6
“I accept [the] submission that this is a case where particulars should follow discovery because the particulars being sought essentially relate to or depend on information that was or ought to have been provided by Paper Reclaim which is more within the knowledge of Paper Claim than of Fullcircle.
In coming to these views I do not reject the possibility that there could be some further, limited, particulars that Fullcircle could provide at this point (in relation to matters which are within the knowledge of its executives or agents), or, if Fullcircle has no such information; that fact could of itself be relevant. I have considered whether there is any merit in directing Fullcircle to provide those particulars at this time. Accepting as I do that in the circumstances of this case (information relative to the particulars is more within the knowledge of Paper Reclaim than Fullcircle) particulars should follow discovery, I see no merit in ordering at this time that Fullcircle provide what are likely to be relatively limited particulars (if any) of what is currently within its knowledge.”
[43] These aspects of the pleadings, and their equivalents in the draft ASOC, relate to how partnership funds were allegedly misappropriated by the defendants. Logically, the documentation which relates to this claim will be in the possession of the defendants and not Paul Huljich. As in Carter Holt Harvey Ltd, there may be some further, limited particulars Paul Huljich could provide at this point, but there is no merit at this stage in directing them, given a more complete picture will be available following discovery.
[44] Similar considerations largely apply in respect of [26], except I agree with Mr McLellan’s submission that the plaintiff should be able to provide further details, namely dates, amounts and sources of funds relating to the investments he pursued. In the draft ASOC only names of the investments Paul Huljich pursued have been
5 Carter Holt Harvey Ltd v Paper Reclaim Ltd HC Auckland CIV-2004-404-5739, 23 May 2005.
6 At [38]-[39].
provided. The other information concerning investments by the defendants should be able to be particularised following discovery.
[45] Finally, there is [55], specifically [55](b), which Mr Salmon concedes is potentially ambiguous, to the extent it suggests the partners were never permitted to treat partnership property, including funds from the ANZ joint account, as drawings to be used for lifestyle expenses. Mr Salmon advised he will amend the draft ASOC before it is filed to clarify that this paragraph was intended to capture the defendants’ treatment of assets which Paul Huljich says were partnership assets, including the shares in entities associated with the Huljich Wealth Management and other businesses, but which he says have been treated as personal investments and to fund lifestyle expenses without accounting to the partnership.
[46] Similarly, in respect of [55](a) and (c), I also accept Mr McLellan’s submission that some further specificity was provided in the plaintiff’s response to the notice seeking further particulars. In that response, it was stated that the partnership property referred to included money taken from the joint account and all shares or other interests, whether legal or beneficial, in partnership undertakings, which included shares in Diligent Corporation, Huljich Wealth Management entities, and Christopher & Banks entities and associated intellectual property. I cannot see a reason why that cannot be included in the draft ASOC when it is filed.
[47] It is trite that the function of particulars is to inform defendants of the case they have to meet, limit the scope of matters the plaintiff may put in issue, enable the defendants to know what witnesses they will need to retain and enable them to start preparing evidence, and provide an opportunity for the defendant to seek summary determination.7 Taking a step back and adopting a common sense approach, I consider except for the further amendments to [26] and [55](a)-(c), in their current state the pleadings broadly satisfy these functions. By their nature the pleadings are broad, and any lack of detail does not alter the fact that the key witnesses are likely to be the parties themselves. Likewise they do not affect the prospect of a summary
7 Platt v Porirua City Council [2012] NZHC 2445 at [19]. See also Price Waterhouse v Fortex Group Ltd CA179/98, 30 November 1998 at 17-19.
determination being sought which, if indeed sought following discovery, is likely to consider to the antecedent issue of whether the partnerships exist, not the use of funds.
[48] At the end of his oral submissions Mr Salmon suggested that it may be premature to make the orders sought until the Court has determined whether the trial should be split. He expressed confidence that the parties should be able to agree on the extent and focus of discovery and the provision of particulars. The Court’s findings on the staged trial application will give the parties guidance on what the issues at trial will be as well as:
(a)what particulars are necessary; and
(b)inform the parties as to how discovery should be approached.
[49] He recommended that counsel be provided with the opportunity to confer following the determination of the split trial application as to the appropriate terms of a tailored discovery order.
[50] I agree. For the same reasons advanced by Mr Salmon I do not propose to make formal orders in respect of the plaintiff’s application for tailored discovery or the defendants’ application for further particulars at this stage. It was apparent from Ms Cooper QC’s submissions that while the defendants have concerns about the scope of a potential discovery order, there is broad agreement over the type of documents which will need to be discovered. Mr Salmon’s submissions at the hearing provide some confidence that the defendants’ concerns will able to be accommodated.
[51] Leave will be reserved for the parties to pursue further orders if that course is still considered necessary following release of this decision.
Security for costs
[52]The final matter is the defendants’ application for security for costs.
[53] The focus of Mr McLellan’s written submissions and oral argument were what he claimed to be the fundamental weaknesses of the plaintiff’s case and the risk the
plaintiff may be unable to meet an adverse costs order. Mr McLellan submitted that the balance of convenience sits with the granting of an order for security in the sum of
$108,000. He says there is little prospect of the plaintiff’s case succeeding at trial, observing that the impression at this stage is that it lacks plausibility, evidential support and a credible answer to the pleaded defences. Even if aspects of the plaintiff’s claim are arguable, Mr McLellan submits that it is not a sufficiently strong case to justify denying security for the defendants’ costs.
[54] Much of Mr Salmon’s energies were invested in contradicting Mr McLellan’s claims. He was, in part, successful. However, given the complexity of the issues engaged and the period over which it is alleged any partnership/s operated, it is premature to attempt to come to any reasoned and informed assessment of the relative strength of the parties’ cases.
[55] Mr Salmon’s submissions on the question of Paul’s ability to meet an adverse costs award were economical. Certainly, there is little evidence to reassure the Court that in the event of an adverse costs order being made against Paul, he would have the means to meet it. Furthermore, nothing in the submissions made to me would suggest that if an order for security for costs was made, Paul’s ability to prosecute his claim would be adversely affected. Finally, while there may be some causative link between the defendants’ alleged conduct and Paul’s apparent impecuniosity, it is not so compelling that a security for costs order should not be made or that such a course would be unjust.
[56] For these reasons I am satisfied that an order for security of costs is appropriate. The sum sought by Mr McLellan appears to be reasonable and for these reasons I order security for costs in the sum of $108,000.
[57] I can also see no principled reason why I should depart from the usual course of staying proceedings until the security has been paid.
Result
[58]The defendants’ application for a staged trial is dismissed.
[59] The plaintiff’s application for tailored discovery and the defendants’ application for further particulars are adjourned, with leave reserved to either party to pursue further orders if that is required following the release of this judgment.
[60] Security for costs is ordered to be paid into the Court in the sum of $108,000. This proceeding is stayed until the security has been paid.
Costs
[61] In the event that the parties are unable to agree I direct that memoranda as to costs are to be filed and served within 20 working days of the date of this judgment. No memorandum (excluding appendices) may exceed five pages in length.
Moore J
Solicitors/Counsel: LeeSalmonLong, Auckland Mr McLellan QC, Auckland Ms Cooper QC, Auckland
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