Krtolica v Westpac Banking Corporation HC Auckland CIV 2006-404-3999
[2007] NZHC 2060
•28 August 2007
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2006-404-3999
BETWEEN BRANKA KRTOLICA Plaintiff
ANDWESTPAC BANKING CORPORATION Defendant
Hearing: 20 August 2007
Appearances: M C Black and D A Wood for plaintiff
S C Gollin and Mr Pascari for defendant
Judgment: 28 August 2007
JUDGMENT OF ALLAN J
In accordance with r 540(4) I direct that the Registrar endorse this judgment with the delivery time of 4.30 pm on Tuesday 28 August 2007
Solicitors/Counsel [email protected] [email protected]:
Craig Griffin & Lord,[email protected]
Minter Ellison:[email protected]
KRTOLICA V WESTPAC HC AK CIV 2006-404-3999 28 August 2007
[1] Before the court for determination are:
a) An application by the plaintiff for leave to file and serve an amended statement of claim;
b)An application by the defendant for an amendment to the current pre- trial timetable arising from delays on the part of the plaintiff in serving its briefs.
[2] In this proceeding the plaintiff makes a number of claims against the defendant arising out of the execution by her of guarantees in the defendant’s favour of various obligations of the Seamart group of companies. It is convenient to reproduce various passages in a judgment of Potter J given on 27 November 2006, in respect of earlier interlocutory matters. These passages helpfully summarise the issues in the proceeding.
[4] The plaintiff’s claims against the Bank are formulated in six causes of action in the statement of claim dated 12 July 2006:
a) Breach by the Bank of express or implied conditions of the Banking Facility
Terms to which the guarantee applied;
b) Breach of fiduciary relationship;
c) Breach of the duty of care owed by the Bank to the plaintiff;
d) Duress, unconscionability and/or undue influence;
e) Liability of the Bank as a shadow director of the Seamart Group of
Companies;
f) Misleading and deceptive conduct under s 9 Fair Trading Act 1986.
[5] The plaintiff’s claims relate to a guarantee executed by the plaintiff on 27
July 2002 in favour of the Bank limited to the amount of $1,950,000. In support of the guarantee the plaintiff provided security by way of registered first mortgages over a property at 26 Churchill Close, Murrays Bay and fishing quota.
[6] The guarantee provided that the guaranteed amount would reduce to
$1,815,000 on the finalisation of a lease and supply agreement between Seamart
Properties Limited and Progressive Enterprises Limited in respect of a property at 5
Autumn Place, Penrose (“the Penrose property”).
[7] The Penrose property was sold in June 2005. The proceeds of sale were applied by the Bank in reduction of the overdraft of Seamart (Wholesale) Limited which then stood at $5.3m.
[8] On 21 March 2006 receivers were appointed to the Seamart Group.
[9] On 4 April 2006 the Bank made demand under the plaintiff’s guarantee.
[10] On 18 May 2006 the Bank issued Property Law Act notices on the plaintiff under the mortgage securities.
[11] The plaintiff claims that Westpac is not entitled to enforce the guarantee or its securities under the terms of the guarantee.
[12] The Bank has counterclaimed against the plaintiff for the amount demanded under the guarantee being $1,842,016.14 as at 18 May 2006, plus interest.
[13] Essentially the same factual background underlies all six causes of action. The key issues at trial, as defined by the defendant, are likely to be:
a)Whether or not the Bank was obliged to apply the proceeds of sale of the Penrose property to the Wholesale Term Loan, such that failure to do so released the plaintiff from her guarantee.
b)Whether or not the Bank was obliged to inform or seek the consent of the plaintiff to the increases of the Seamart (Wholesale) Limited overdraft.
If so, whether the plaintiff was aware of the increases in any event and thereby expressly or impliedly consented to those increases.
c)Whether the plaintiff’s position under her guarantee was prejudiced in any way by the increases in the Seamart (Wholesale) Limited overdraft.
Leave to file amended pleading
[3] The proceeding has an eight day fixture, to commence on 24 September
2007. On 6 August 2007, the plaintiff filed an amended statement of claim accompanied by an application for leave as required by the rules. The application is opposed, although not in its entirety. To the extent that the amended pleading simply provides further particulars of existing allegations, Mr Gollin raises no
objection, but he says that leave ought to be granted where, as he says has occurred here:
a) The plaintiff in effect seeks to introduce a fresh cause of action; and
b)The amended pleading contains new allegations of fraud which are not properly particularised.
[4] The grant of leave to amend at this late stage is essentially discretionary, but leave will be granted where it is necessary to do so in order to do justice between the parties: Papps v Mahon [1966] NZLR 288, 290-292. The Court in determining an application for leave will be guided by the cardinal principle of ensuring that so far as is possible, the real question in controversy between the parties, is determined: G L Baker Ltd v Medway Building & Supplies Ltd [1958] 1 WLR 126, 131 and Thornton Hall Manufacturing Ltd v Shanton Apparel Ltd [1989] 3 NZLR 304.
[5] It will often be relevant to take into account also the entitlement of a party to commence separate proceedings where leave is refused. In such circumstances leave to amend may be preferable: Lights American Sportscopter Inc v Ultra Helicopters Inc (NZ) Ltd HC AK CP 413/00 12 February 2002.
[6] In determining where the justice of the case lies, the Court must take into account the extent (if any) to which the opposing party may be prejudiced by the amendment, and the significance of any consequential delay.
[7] The plaintiff’s present pleading is itself a comprehensive document. It runs to some 37 pages, and as is recited by Potter J, comprises some six separate causes of action. The proposed amended statement of claim runs to some 44 pages. While it does not on its face formally introduce any new cause of action, it seeks to expand the fifth cause of action which alleges shadow director liability on the part of the defendant by providing extensive additional particulars, and by introducing for the first time an explicit claim for relief under ss 135, 136 and 301 of the Companies Act
1993. The earlier statement of claim contains an allegation to the effect that the defendant had acted as a shadow director, and pleads that as a result of certain
alleged breaches by the defendant of its claimed obligations as a director, it was precluded from enforcing its guarantee against the plaintiff.
[8] From the outset the plaintiff has sought, as part of its prayer for relief, that there be an account or inquiry pursuant to r 384, in order to ascertain the extent to which equitable compensation should be ordered to be paid to the plaintiff. Mr Black confirmed at the hearing that the plaintiff’s allegation is that she is entitled to be treated as a creditor of the Seamart Group, by reason of her being subrogated to the defendant’s rights against Seamart, consequent on the plaintiff’s discharge of her obligations as a guarantor.
[9] Mr Gollin argues that the proposed amendment introduces a claim very different in nature and scope from a claim by a guarantor that a guarantee is unenforceable, or that she be released from liability by reason of the defendant’s actions. There is force in his submission that, properly analysed, the amendment seeks to introduce a fresh cause of action, in which the plaintiff sues as a creditor not as guarantor, and seeks statutory relief not hitherto claimed in the proceeding. He says that the claim is novel and unusual insofar as claims of this sort are usually brought by the liquidator. Moreover, he argues, the plaintiff was not a creditor of the Seamart Group during the trading period. Rather she became a creditor only following liquidation, when she became obliged to meet her obligations as guarantor of Seamart’s liabilities to the defendant. He suggests therefore that the plaintiff is not entitled to rely on s 301.
[10] However, the point was taken somewhat tentatively, and with good reason in my view. The term “creditor” in the Companies Act 1993 includes a future or contingent creditor: s 240(1) and s 303(1). It must at least be arguable that someone in the plaintiff’s position has a right to apply under s 301.
[11] Mr Gollin also submits that to permit the amendment would be significantly to enlarge the scope of the inquiry at trial, because the focus would move from the relationship between the plaintiff and the defendant (and the defendant’s conduct vis a vis the plaintiff as guarantor), to a much broader consideration of the role of the defendant in the affairs of the Seamart Group as a whole during the relevant period.
[12] I do not regard the introduction of specific claims under ss 135, 236 and 301, as raising issues materially different from those which must necessarily require determination in respect of the fifth cause of action as it stands. There, the plaintiff currently pleads an allegation that the defendant acted as a shadow director, and was accordingly a director pursuant to ss 126 and 127 of the Companies Act 1993; that it knew by September 2003 that Seamart was insolvent and that it directed the on- going conduct of Seamart’s business with the result that the plaintiff’s position as guarantor deteriorated. I accept of course, that her claim as presently constituted is conceptually different from that now sought to be pleaded, but the key point is that the factual inquiry will be much the same under both the fifth cause of action as it stands, and in its amended form.
[13] Mr Black says that the amendments contained in the new pleading arise from the plaintiff’s inspection of documents discovered by the defendant, and there can be no question of the Bank being required to engage in a wide ranging inspection of documents not currently available to it.
[14] Mr Gollin argues that additional discovery and inspection will be needed. He says there will be a need for the records of each of the Seamart Group of Companies to be discovered, and an application for non-party discovery would be required. He says that a reckless trading claim requires consideration of such matters as causation and culpability, and that the matter cannot be ready for trial by 24 September, given the introduction of these new factors. Mr Black assures the Court that the Bank already has immediate access to all relevant documents and that few, if any, additional documents will require consideration as the result of the grant of leave. Further, he points out, all of the plaintiff’s briefs will have been served by 31 August so that the defendant will know precisely what evidence is said by the plaintiff to support a claim for compensation.
[15] Mr Gollin says that it will be necessary for the defendant to file an amended statement of defence if leave is granted, and possibly to seek yet further particulars from the plaintiff. I do not however, see those considerations as weighing heavily in the balance against the grant of leave.
[16] Mr Black points out that the plaintiff would be entitled to commence fresh proceedings under s 301 against the defendant if leave is refused. Such proceedings would necessarily traverse much the same ground as would be considered in the present proceeding. Such an outcome is undesirable unless the defendant is unacceptably prejudiced by an amendment. I do not think such prejudice arises here. In my opinion, the amendment ought to be allowed. The issues between the parties ought to be determined in one proceeding, not two. Prejudice to the defendant is limited, and outweighed by countervailing considerations.
[17] Mr Gollin also objects to the proposed amendments, insofar as they newly introduce allegations of fraud, which as Mr Black accepts, require a high standard of particularity: Connell v NZI Securities (Asia) Ltd (1985) 9 PRNZ 36, and the cases cited therein.
[18] Newly introduced particulars, particularly in the first and fifth causes of action, variously allege “connivance” and the involvement by the defendant in what is alleged to have been a fraud on the general body of creditors. Long established policy considerations underpin the principle that a party pleading fraud must provide detailed particulars. That is because no party ought to face a serious allegation of that sort unless the party making the allegation is able to support it by providing credible detail.
[19] Here a certain amount of detail is provided in the amended pleading, but in addition, the plaintiffs have over the course of the preceding few days, served most (if not all) of their briefs. Those briefs will serve to provide particulars to the defendant (in much greater detail than any pleading), of precisely what is alleged against the defendant, that is said to amount to a fraud on the creditors.
[20] Mr Gollin says if the amendment is granted, the trial will have to be adjourned because the plaintiff will need to be much more specific in its pleading as to the exact date and time of the alleged fraud, the place where various acts or omissions occurred and the documents, persons and companies allegedly preferred.
[21] The answer to that is, I think, that the plaintiff’s briefs ought to contain that information. If they do not then Mr Gollin will be within his rights to ask the trial Judge to strike out that part of the pleading which alleges fraud. I observe that what is alleged by the plaintiff is not common law fraud or outright dishonesty, but rather a fraud on the creditors arising from the conduct of the business of the Seamart Group of Companies. In Connell Master Gambrill was dealing with a case of alleged common law fraud.
[22] For these reasons I have concluded that leave to file the amended pleading should be granted, and leave is given accordingly.
Timetable issues
[23] Trial directions were given by Potter J on 16 February 2007. The plaintiff was to provide all her witness statements to the defendant not later than five weeks prior to 24 September 2007, that is by 20 August 2007. The witness statements are late. Mr Black says that all statements will have been filed by 24 August 2007, save for the relatively short briefs of two peripheral lay witnesses which will be served by
30 August 2007.
[24] Mr Gollin says that the defendant must have similar leeway, and accordingly the time for serving the defendant’s briefs ought to be extended from 3 September to
14 September 2007, which is just 10 days prior to the commencement of the trial, and three days before the common bundle of documents is to be filed. He says such a timetable is unworkable and for that reason leave ought not to be granted.
[25] The fact of the matter of course, is the plaintiff’s briefs are all now served or about to be served. The plaintiff is not seriously in default. There is no utility in refusing leave. On the other hand, the defendant is plainly entitled to an equivalent extension, and it will have until 14 September 2007 to serve its briefs as requested by Mr Gollin. That leaves 10 days before trial, and three days before the preparation of the common bundle must be completed.
[26] Both parties are represented by counsel of considerable experience. I do not see why the new timetable for the filing of briefs ought to impede the preparation of the common bundle, which should be under way now in any event.
[27] I extend the date for service of the plaintiff’s briefs to 31 August 2007, and for the service of the defendant’s briefs to 14 September 2007.
Costs
[28] Costs are reserved. The parties may file memoranda if they are unable to agree. The attention of counsel is drawn to r 187(8),
C J Allan J
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