Lali Media Group Limited v Moala
[2013] NZHC 2612
•9 October 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-2856 [2013] NZHC 2612
BETWEEN LALI MEDIA GROUP LIMITED Plaintiff
ANDKALAFI MOALA and SULIANA MOALA
Defendants
Hearing: 4 October 2013
Counsel: CC Mansell for plaintiff
BL Martelli for defendants
Judgment: 9 October 2013
JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for summary judgment]
Solicitors: Martelli McKegg, Auckland (AJ Steele) Heaney Partners, Auckland
LALI MEDIA GROUP LIMITED v MOALA [2013] NZHC 2612 [9 October 2013]
The application
[1] The plaintiff seeks summary judgment against the defendants. It seeks judgment for $256,009.09 plus interest and costs. It alleges that such sum is an overdrawn shareholders’ current account. In counsel’s submissions, the claim was reduced to $227,771.02 for reasons which I will explain later in this judgment.
The opposition
[2] The defendants deny that any sum is owed by them to the company. They allege that they have a defence which should be considered at trial and not in a summary way.
The court’s approach to a summary judgment application
[3] Part 12 of the High Court Rules deals with applications for summary judgment. Rule 12.16 provides that rr 12.1 to 12.15 apply with all necessary modifications to counterclaims.
[4] Rule 12.2 of the High Court Rules requires that a plaintiff satisfy the Court that a defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action. The obligations imposed by the rule have been examined by a number of authorities.
[5] The correct approach to an application for summary judgment by a plaintiff was recently summarised in Krukziener v Hanover Finance Ltd where the Court said:1
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11
PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[6] In Pemberton v Chappell the Court also commented on the position where a
defence is not evident on a plaintiff’s pleading and said:2
If a defence is not evident on the plaintiff’s pleading I am of opinion that if the defendant wishes to resist summary judgment he must file an affidavit raising an issue of fact or law and give reasonable particulars of the matters which he claims ought to be put in issue. In this way a fair and just balance will be struck between a plaintiff’s right to have his case proceed to judgment without tendentious delay and a defendant’s right to put forward a real defence.
[7] That position was further reinforced in Australian Guarantee Corporation
(New Zealand) Ltd v McBeth where the Court said:3
Although the onus is upon the plaintiff there is upon the defendant a need to provide some evidential foundation for the defences which are raised. If not, the plaintiff’s verification stands unchallenged and ought to be accepted unless it is patently wrong.
[8] Hypothetical possibilities in vague terms, unsupported by any positive assertion or corroborative documents will not frustrate the obligation on a plaintiff to discharge the onus of proof: SH Lock (NZ) Ltd v Oremland.4
In Middleditch v New Zealand Hotel Investments Ltd, the Court raised a caution and said:5
[9] The courts must of course be alert to the possibility of injustice in cases in which some material facts to establish a defence are not capable of proof without interlocutory procedures such as discovery and interrogatories. That does not mean that defendants are to be allowed to speculate on possible defences which might
emerge but for which no realistic evidential basis is put forward.
2 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.
3 Australian Guarantee Corporation (New Zealand) Ltd v McBeth [1992] 3 NZLR 54 (CA) at 59.
4 SH Lock (NZ) Ltd v Oremland HC Auckland CP641/86, 19 August 1986.
5 Middleditch v New Zealand Hotel Investments Ltd (1992) 5 PRNZ 392 (CA) at 395.
[10] A court is not required to accept uncritically any or every disputed fact: Eng Mee Yong v Letchumanan.6 However, the Court will not reject even dubious affidavit evidence, even if there is suspicion as to the good faith of the deponent, if there is an essential core of complaint that supports a defence. In essence, the inquiry is whether or not the person’s assertion passes the threshold of credibility: Pemberton v Chappell;7 Orrell v Midas Interior Design Group Ltd.8
[11] In Tilialo v Contractors Bonding Ltd it was observed:9
Drawing the line between mere assertions of possible defences and material which sufficiently raises an arguable defence so that the defendant should not be denied the opportunity to employ interlocutory procedures and have a trial is a matter of judgment. Views may well differ.
Background
[12] The plaintiff company was incorporated on 19 September 1995. It traded as a newspaper and sale and marketing business. The defendants are the sole directors and shareholders of the plaintiff company.
[13] On 17 December 2008, the plaintiff company was placed into liquidation by order of the High Court.
[14] Following liquidation, the liquidators investigated the company’s affairs and, in particular, whether there had been any overdrawing of the shareholders’ current accounts. They have produced evidence, being the latest financial statements prepared by the company, dated 31 March 2006. Those accounts recorded that the defendants had an overdrawn shareholders’ current account of $157,936.98. The defendants do not dispute this.
The liquidators of the plaintiff company carried out a reconstruction of the shareholders’ current account from 1 April 2006 to the date of liquidation. The
liquidators say that the company advanced funds to the defendants for non-business
6 Eng Mee Yong v Letchumanan [1980] AC 331 (PC).
7 Pemberton v Chappell, above n 2.
8 Orrell v Midas Interior Design Group Ltd (1991) 4 PRNZ 608 (CA) at 613.
9 Tilialo v Contractors Bonding Ltd CA50/93, 15 April 1994 at [6].
purposes. In a letter dated 15 February 2013, the solicitor for the liquidators wrote tothe defendants demanding payment of $881,068.08 “being the total sum outstanding on a shareholder’s current account loan” made to the defendants by the company. Correspondence followed, which I need not detail. By the time the liquidators determined that they wished to issue proceedings, namely 24 May 2013, the claim was reduced to $256,009.09. That was further reduced to $227,701.02, as I will shortly refer to.
The liquidators’ current assessment of the defendants’ current account with the
company
[15] After considering the defendants’ opposition affidavit, the liquidators revised
the claim and now contend that the additional sums advanced by the company to the defendants for non-business purposes are as follows:
$
(1) Credit card payments 22,054.00 (2) Property maintenance payments 14,265,00 (3) Payments made directly to the defendant,
K Moala 10,800.00
(4) Payments made directly to S Moala 40,350.00 (5) Payments for personal expenses 1,294.05 (6) Payment for communications 9,502.34 (7) International transfers 15,363.00
(8) Payments to Ocean Star Enterprises
and Olympic World Group 25,181.00
(9) Payments made to Dorchester Finance
on K Moala’s behalf 8,761.00
(10) Payments towards the defendants’ personal
tax obligations 120,855.00 [16] The liquidators give credit for the following sums, namely:
$ (a) Net income paid by the company to the
defendants as per the statement of financial
affairs dated 31 March 2006; 57,511.35 and
(b) Payments made to the company by the
defendants from 1 April 2006. 141,080.00
[17] When the 2006 shareholders’ current account figure is added to the payments allegedly advanced by the company to the defendants, and after giving credit for the two matters just referred to, the liquidators say that there is an outstanding sum due under the current account to the plaintiff company of $227,771.02.
The defendants’ position
[18] The defendants claim that a number of payments or adjustments need to be made to reflect the true position of the current account. In short, the defendants say that the current acount should reflect and take account of the following:
(a) Payment of a liability that arose out of a defamation claim of a total of
$180,000 and broken down into $70,000 for costs and $110,000 to settle the case;
(b)The allowance for property maintenance is overstated and should be no more than $4,265;
(c) The payment received by S Moala of $40,350 was for the company’s rent of premises from which the business was operating. It should not be a debit in the defendants’ current account;
(d)The payment for communications claimed of $9,502.34 is too high and apportions too much to personal telephone calls as opposed to business telephone calls. A proper allowance for this should be no more $3,302.34;
(e) The claim in respect of international transfers should not be a debit to the current account because this was incurred for company business purposes.
[19] When these adjustments are made the defendants’ position is that the current account would in fact be in credit, not in debit, by at least $23,971.98. That figure is arrived at by making the adjustments referred to in [18], which produce a total credit of $251,743, and subtracting from that sum the revised claim made by the liquidators of $227,771.02 to give a credit figure of $23,971.98.
[20] From the defendants’ perspective it is said that that is not the end of the position, however, because in respect of some of the other claims, counsel for the defendants submits that it would not be proper to proceed on the evidence in its current form and that further time should be allowed for the defendants to obtain the source documents. That might well involve utilising the non-party discovery provisions of the High Court Rules.
[21] The defendants’ primary submission is that as the case against them has been put on the basis that they have a current account in deficit with the company, they have a defence that shows an arguable basis for the proposition that when proper accounting is carried out there is, in fact, no sum due and owing on the basis of an overdrawn current account by the defendants to the company.
The issue raised by this application
[22] The inquiry in this case is largely factual. The most significant matter, the defamation claim, could easily be resolved by access to the appropriate source documents which are not all before the court at this stage. One can readily understand the frustration of the liquidators in a case such as this, where defendants as directors have provided insufficient source documents to justify some of the claims made. That said, however, for reasons which I shortly explain, the failure to disclose all relevant documents is not entirely a complaint that can be levelled at the defendants. Some of the relevant material has been in the hands of the liquidators.
[23] I shall now look at the significant parts of the defendants’ defence in analysing whether the defendants have gone far enough for the court to conclude that the plaintiff has not satisfied the appropriate onus of proof before summary judgment can be entered.
The defamation claim payment
[24] The documents produced by the liquidators disclose a statement of claim having been filed in the District Court of New South Wales, Australia, in which AK Amone sued the plaintiff company and Tavita Moeke Moala in defamation. The case bears a court number, 5224 of 05. The first-named defendant says that the proceeding was settled on the basis that the company was required to pay $110,000 to the plaintiff and, further, that a sum of $70,000 was required to be paid to the Sydney lawyers who acted on the case. Unfortunately, the defendants’ solicitors were not able to get information from the New South Wales courts. At the time they made their inquiry, however, they did not have the benefit of the court number, which obviously the liquidators did have. Another complication is that, when attempts were made to reach the solicitors who acted on the case, advice was received that they were no longer in existence.
[25] There is some support, however, in the documentary evidence for the fact that moneys were paid both in settlement of the case and in payment of solicitors’ fees, because the liquidators discovered in the company’s documents, receipts for these payments. The receipts, however, evidence that payments were made to the solicitors by the co-defendant, although the receipts acknowledge that the funds were received on behalf of the co-defendant and the company. Those documents disclose the receipt for payment to the solicitors by the co-defendant of $33,585 towards legal fees, and $90,233.50 for verdict moneys. The first-named defendant, as I have said, claims that he forwarded the payments that were made to the solicitors to his brother, the co-defendant, to make the payments to the solicitors. There is also evidence of the first-named defendant having paid $30,000 from his own bank account to his brother.
[26] Ms Mansell is critical of the position of the defendants in relation to this matter. She observed that the defendants could quite easily, had they wished, have produced an affidavit from the co-defendant. They might also have produced all their own bank statements to evidence the payments that were made if, in fact, there was a documentary foundation for the allegations they are making. The response from the defendants’ counsel is that they were not able to complete these matters in the time available and that they had concentrated on using the first defendant’s brother’s position in Sydney to endeavour to obtain documents from the court.
[27] Although the defendants might well have done more, it seems to me that I cannot dismiss as out of hand that a significant sum of money was paid by the defendants in respect of the defamation proceeding and that that sum should properly have been taken into account in any reconstruction of the current account. The answer cannot be established one way or the other without further discovery and, possibly, non-party discovery. I am satisfied that the defendants have gone far enough for the court to conclude that the plaintiff has not satisfied the onus of proof and that it is appropriate that the case go to trial and that the interlocutory procedures, particularly discovery and non-party discovery, be utilised before a final determination of the current cause of action is reached.
The allowance for property maintenance
[28] As referred to in [18], the defendants say that the claim made here is overstated by the liquidators. The liquidators simply carried out an assessment of the facts as they knew them and reached a conclusion as to the percentage that should be allowed for personal purposes. The argument is, what is the appropriate percentage?
[29] There is insufficient material before me to conclude whether one side of the argument is right and the other wrong. The position is arguable and should be determined at trial.
The $40,350 payment received by S Moala
[30] The defendant asserts that the payment was made on account of rent that the company owed the defendants, having regard to its use of premises owned by the defendants.
[31] The liquidators’ position is that the defendants signed a questionnaire, indicating that no rent had been paid for approximately two years prior to liquidation with the result that the moneys that the liquidators identified as having been paid by the company to S Moala could not therefore have been applied and discharged in respect of the company’s rent obligation. The liquidators also point to the fact that the payments that were made are not of a universally similar sum.
[32] What is apparent with this argument is that the company was occupying part of the premises concerned. There seems to have been an acceptance that there was an obligation to pay some rent. The amount that the defendants say was due for rent, in fact, is more than the payment that was actually received. Weighing all of this up, it seems to me that there is, here, the foundation for a defence such that the plaintiff cannot be said to have satisfied the onus that there is no defence.
Communications payments and international transfers
[33] The claims made in respect of communications and the international transfers are certainly arguable. The real problem is that documentary evidence that could provide a clear answer on these issues was not produced by either side.
[34] Weighing the above analysis up, however, the conclusion I reach is that this is a case where the defendants should have the benefit of interlocutory procedures, in particular discovery and certainly non-party discovery and that to deny that opportunity could lead to a miscarriage of justice. I am satisfied, therefore, that in terms of the onus which a plaintiff is required to meet that the appropriate onus has not been discharged.
Conclusion
[35] My conclusion is that summary judgment should not be entered in this case and that the matter should proceed to trial. I was able to discuss a number of possibilities with counsel at the conclusion of the hearing. Based on that discussion I now order as follows:
(a) The application for summary judgment is refused;
(b)An amended statement of claim shall be filed and served within four weeks of the release of this judgment;
(c) A statement of defence to the amended statement of claim shall be filed and served within nine weeks of the release of this judgment;
(d)Both parties shall provide initial disclosure with the filing of the amended statement of claim and statement of defence;
(e) In terms of r 8.11, counsel shall confer for the purpose of agreeing on the appropriate discovery order, not less than 11 weeks after the release of this judgment. On the understanding that counsel can agree on the scope of discovery, affidavits of documents shall be filed and served not later than 15 weeks following the release of this judgment;
(f) Any party seeking a non-party discovery order shall file and serve the application not less than 15 working weeks after the release of this judgment;
(g)The Case Officer who has responsibility for this file shall convene a case management conference by telephone with counsel which should be as soon as possible after the expiration of 19 working weeks after the issue of this judgment. The matters that will be discussed at that conference are:
(i) the issues requiring resolution at trial;
(ii)disposal of, or allocation of a fixture for, any outstanding interlocutory application;
(iii) setting a trial date and fixing the time required for trial.
Counsel must have available the number of witnesses to be called and the matters to be covered by those witnesses.
Memoranda for the conference shall be filed on a sequential basis so that the plaintiff’s memorandum is filed and served eight working days before the conference, and the defendants’ memorandum is filed
and served four working days before the conference.
Costs
[36] Both counsel agreed that should I refuse the application for summary judgment I should reserve costs in line with the Court of Appeal in NZI Bank Ltd v
Philpott.10 I order accordingly.
JA Faire
Associate Judge
10 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).
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