Land Trust Limited v WAM Property Limited
[2019] NZCA 573
•20 November 2019 at 12.30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA425/2019 [2019] NZCA 573 |
| BETWEEN | LAND TRUST LIMITED |
| AND | WAM PROPERTY LIMITED |
| Hearing: | 8 October 2019 |
Court: | Brown, Simon France, Hinton JJ |
Counsel: | M G Locke for Appellants |
Judgment: | 20 November 2019 at 12.30 pm |
JUDGMENT OF THE COURT
AThe appeal is allowed.
BThe order made in the High Court refusing to reinstate the appellants’ claim is quashed; the claim is reinstated and the orders of Whata J are also quashed, subject to the conditions set out below.
(i) The appellants are to pay security for costs to the Registrar of the High Court at Auckland in the sum already ordered of $35,000, within one week of the date of this judgment.
(ii)The appellants are to pay further security for costs into the High Court in the sum of $35,000 within three weeks of the date of this judgment, unless they confirm in writing before then that their claim is limited to return of the deposit, interest and costs. In that event, the further security is reduced to $20,000, inter alia to reflect a reduction in estimated hearing time from four to two days.
(iii)The appellants must ensure that the trust has validly appointed trustees within four months of this judgment, obtaining an order from the High Court if necessary.
C If any of these conditions is breached, the claim is dismissed and the orders of Whata J reinstated.
D Costs on the appeal are to lie where they fall.
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REASONS OF THE COURT
(Given by Hinton J)
The appellants breached an unless order, resulting in dismissal of their claim. In a Minute dated 23 August 2019 Associate Judge Bell refused their interlocutory application for reinstatement.[1] The appellants appeal against that refusal.
Background
[1]Land Trust Ltd v WAM Property Ltd HC Auckland CIV-2017-404-1014, 23 August 2019 [Reinstatement decision]. We use “appellants” throughout this judgment to refer principally to the first and second appellants, who were involved in this litigation from the beginning.
The first appellant agreed to purchase the respondent’s Eden Terrace commercial property at a price of just over $6 million. It then nominated the second appellants, the trustees of The 44 Kempthorne Trust, as purchasers. A deposit of $600,000 was paid and several extensions of time for settlement agreed.
On 8 June 2016 the appellants gave notice to cancel the agreement on the basis of an alleged misrepresentation by the respondent’s agent that the property had 46 carparks when only eight had legal access.
On 23 June 2016 the respondent gave notice to cancel the agreement on the basis of the appellants’ non-compliance with its settlement notice. The respondent says that the first appellant bought with knowledge of the carparking issue and the appellants’ notice to cancel was invalid.
To enable the respondent to on-sell, its solicitors undertook to hold the sum of $600,000 in trust “pending determination of the substantive claim” and the appellants lifted a caveat lodged by them.
The appellants issued this proceeding in May 2017, claiming return of the deposit, wasted expenditure and loss of development profit. The respondent counter‑claimed for forfeiture of the deposit and damages for loss on re-sale.
Mr Kelly was the sole shareholder of the first appellant and a trustee/beneficiary of the trust. On 31 October 2017 Mr Kelly was adjudged bankrupt. A few weeks later, Associate Judge Bell issued a Minute in which the appellants were given until 28 February 2018 to organise themselves and appoint fresh directors and trustees.[2] At a further case management conference, they were given more time to obtain representation.[3]
[2]Land Trust Ltd v WAM Property Ltd HC Auckland CIV-2017-404-1014, 24 November 2017.
[3]Land Trust Ltd v WAM Property Ltd HC Auckland CIV-2017-404-1014, 10 April 2018 per Associate Judge Smith.
A hearing to fix security for costs was scheduled for 29 October 2018. However, counsel filed a consent memorandum agreeing security in the sum of $35,000. Somewhat surprisingly that was not to be paid into Court until the close of pleadings date, which was 17 June 2019. The parties also agreed directions through to trial. Venning J made orders accordingly. The trial was ultimately scheduled for four days from 9 to 12 September 2019.
Security was not paid by 17 June 2019. Lang J issued a Minute extending time to 31 July 2019.[4] He directed that if security was not paid by that date, the appellants’ claim would be dismissed and the matter would proceed to trial on the respondent’s counter-claim only. The unless order was made following the appellants’ first breach of the security order, but the appellants had been given a long time to pay and the payment deadline was very close to the hearing.
[4]Land Trust Ltd v WAM Property Ltd HC Auckland CIV-2017-404-1014, 4 July 2019.
By letter to the High Court dated Saturday 3 August 2019, not received until Wednesday 7 August, Mr Nguy of Jesse & Associates provided an undertaking that security of $35,000 was held in trust.[5] The letter was not forwarded to the respondent. It was brought to the attention of Associate Judge Bell, but as an unless order takes effect immediately on breach, he issued a Minute recording that the claim had been dismissed.[6]
[5]Inquiries of the Registry subsequent to the hearing reveal the later date of receipt. Jesse & Associates had apparently acted for Mr Kelly, although they were not solicitors on the record in this proceeding.
[6]Land Trust Ltd v WAM Property Ltd HC Auckland CIV-2017-404-1014, 9 August 2019.
On 15 August 2019 Associate Judge Bell issued a further Minute giving timetabling directions for an application for reinstatement. The appellants filed an application within time, which was heard on 23 August 2019. By this stage the hearing date was looming.
Associate Judge Bell refused the application to reinstate.[7] The 9 September hearing was to proceed in respect of the respondent’s counter-claim only, essentially by way of formal proof. The appellants enquired of Associate Judge Bell whether they were therefore precluded from defending the counter-claim. He responded to the effect that they were.
[7]Reinstatement decision, above n 1.
On 12 September 2019, Whata J made declarations that the respondent had validly cancelled the agreement and was entitled to forfeit the deposit of $600,000.[8] The appellants appeared at the hearing, but took no part.
[8]Land Trust Ltd v WAM Property Ltd [2019] NZHC 2292.
In the course of a telephone conference before Brown J a few days before the 9 September hearing, the parties agreed that the $600,000 sum was not to be disbursed pending determination of this appeal.
The decision refusing to reinstate
Associate Judge Bell began by considering Mr Kelly’s position as an adjudicated bankrupt and the fact that Citilofts (Trustee) Ltd, one of the trustee appellants, had been removed from the Companies Register. He then observed that if he were to reinstate the proceeding, he was not confident that a fair trial would be possible on 9 September 2019. The earliest available alternative date he had been provided with was October 2020. The Associate Judge said “a worrying factor over all this is Mr Kelly’s bankruptcy” and that Mr Kelly was acting in breach of the restrictions under s 149 of the Insolvency Act 2006.[9] He referred to the public interest in ensuring that justice is administered without unnecessary delay and the hardship to the injured party in terms of delay and wasted costs. The Associate Judge made passing reference to the appellants’ submission that it is a strong call to deny a party a hearing on the merits, and then concluded that he was not satisfied it was an appropriate case for reinstatement.[10]
The relevant law
[9]Reinstatement decision, above n 1, at [13].
[10]At [14]–[15].
Relevant principles can be drawn from this Court’s decision in SM v LFDB:[11]
[11]SM v LFDB [2014] NZCA 326, [2014] 3 NZLR 494.
[31] …
(d)Justice may require that the party in default be relieved of the consequences of the unless order where the Court is satisfied that the breach resulted from something for which that party should not be held responsible. The party should not assume that belated compliance will suffice.
(e)Where the unless order has been deliberately breached – that is, flouted – it is difficult to conceive of any situation where the interests of justice would require granting the flouter relief from the sanction imposed, notwithstanding belated compliance with the order.
(f)In deciding whether or not to excuse breach of an unless order the question for the Judge is: what does justice demand in the circumstances of this case? Considerations in answering that question include:
(i)The public interest in ensuring that justice is administered without unnecessary delays and costs.
(ii)The interests of the injured party, in particular in terms of delay and wasted cost.
(iii)Any injustice to the defaulting party, although that consideration is likely to carry much less weight in the circumstances than considerations (i) and (ii).
Analysis
SM v LFDB was a different category of case to this one. It involved a deliberate flouting of an unless order to pay costs, in the context of a history of failure to comply with earlier orders. The High Court had erred in treating belated payment of costs in those circumstances as purging the contempt.The Judge had also erred in taking into account the potential procedural difficulties of a trial without the respondent’s participation.
In this case there was some history of failure to comply with earlier orders, but not in the league of SM v LFDB. While time has clearly been lost as a result of delays, this litigation (which has been on foot since May 2017) has not been unduly protracted.
This is also not a case of a deliberate flouting of the unless order. To some extent the breach is explained by serious health concerns of people close to Mr Kelly and to the solicitor formerly acting for the appellants. The extent of the excuse is limited, given that these circumstances seem to have prevailed or been reasonably known at the time of the default in payment in June 2019. The predominant reason for non‑compliance seems to have been ineptitude and delay on the part of Mr Kelly, and no doubt great difficulty in raising funds, which is understandable in the circumstances.
We note that when the breach was remedied, the appellants purported to do so in different terms to the order. This was unimpressive. However, the breach was remedied, at least in substance, within about a week of the deadline. We have to presume Mr Nguy’s undertaking was sound.
We note also that when we discussed with counsel the feasibility of an increase in security, if ordered, and dates for payment, Mr Locke candidly advised that Jesse & Associates were no longer holding funds. While permissible given the claim had been dismissed, this was an unwise step in a context where the appellants are seeking an indulgence.
By the time the application for reinstatement was heard, it was reasonable for the Associate Judge to conclude that reinstatement would lead to an adjournment of the hearing. Certainly the appellants’ then proposed timetable, which gave the respondents three days to file briefs in reply, was unrealistic and unacceptable.
However, in the above circumstances, we consider the Associate Judge placed too much weight on the likely adjournment and on Mr Kelly’s history with the courts, and gave insufficient weight to the overall justice of the case.
There is no significant prejudice to the respondent from the delay. The respondent was able to on-sell the property for $5.5 million, within a year after both parties gave notice to cancel, by virtue of the agreement reached with the appellants, which included holding the $600,000 deposit in trust. That sum is on interest‑bearing deposit, admittedly at a low rate. The prejudice to the respondent however would be substantially remediable by payment of additional costs, which could be protected to at least some extent by payment of additional security.
On the other hand, the appellants appear to have an arguable claim with respect to the deposit paid by them, and stand to lose a substantial sum if their case remains dismissed. Whata J in his judgment noted that the appellants may have had a defence if they were able to submit evidence to support it:[12]
As it was entitled to do, WPL elected to cancel the agreement and to forfeit and retain the deposit for its own benefit. LTL’s foreshadowed defence is based on an alleged misrepresentation about the car parks. Vendor’s misrepresentation provides a proper basis for avoiding a vendor’s cl 10.1 remedy. But there is no evidence to support either the existence of a representation or the failure to meet it.
[12]Land Trust Ltd v WAM Property Ltd, above n 8, at [20] (footnotes omitted).
Mr Kelly’s history with the courts, his bankruptcy, and the unsatisfactory position with the second appellant trust clearly strongly influenced the Associate Judge. We understand his concerns. It would seem fairly clear that for all practical purposes, it is Mr Kelly who is effectively running this proceeding and acting as trustee of the trust while a bankrupt. Mr Locke advises that the third appellant has been appointed as sole trustee of the trust. If so, that would seem to have involved Mr Kelly exercising his sole power of appointment while a bankrupt. There are real question marks over the legality of some of Mr Kelly’s actions.
Nonetheless, there are beneficiaries of the trust other than Mr Kelly, and even if the trust fails, there may still be claims on the part of Mr Kelly’s creditors to be weighed up against those of the respondent. We consider the Associate Judge placed too much weight on issues regarding the status of the trust, a matter that can be addressed by suitable conditions. Also, the legality of Mr Kelly’s actions can be dealt with in another forum.
Weighing all of these matters, we consider this was a case where reinstatement should have been allowed, albeit on strict conditions to offset the prejudice to the respondent and ensure proper representation of the appellants.
Result
The appeal is allowed.
The order made in the High Court refusing to reinstate the appellants’ claim is quashed; the claim is reinstated and the orders of Whata J are also quashed, subject to the conditions set out in [31]–[33] below.
The appellants are to pay security for costs to the Registrar of the High Court at Auckland in the sum already ordered of $35,000, within one week of the date of this judgment.
The appellants are to pay further security for costs into the High Court in the sum of $35,000 within three weeks of the date of this judgment, unless they confirm in writing before then that their claim is limited to return of the deposit, interest and costs. In that event, the further security is reduced to $20,000, inter alia to reflect a reduction in estimated hearing time from four to two days.
The appellants must ensure that the trust has validly appointed trustees within four months of this judgment, obtaining an order from the High Court if necessary.
If any of these conditions is breached, the claim is dismissed and the orders of Whata J reinstated.
Costs on the appeal are to lie where they fall. The appellants have succeeded, but this is one of those situations where they have been granted an indulgence and costs are not appropriate.[13] Further, we consider the respondent has acted responsibly throughout.
[13]Court of Appeal (Civil) Rules 2005, r 53F(g); Holdgate v Holdgate HC Auckland CP303/96, 24 September 1996 at 3; Roberts v A Professional Conduct Committee of the Nursing Council of New Zealand [2014] NZCA 141, (2014) 21 PRNZ 753 at [24]; and Cunningham v Butterfield [2014] NZCA 213, (2014) 22 PRNZ 521 at [52].
Solicitors:
Ponsonby Law Ltd, Auckland for Appellants
Whaley Garnett, Auckland for Respondent
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