Loktronic Industries Limited v Diver HC Auckland CIV-2008-404-4657
[2011] NZHC 531
•1 June 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2008-404-4657
BETWEEN LOKTRONIC INDUSTRIES LIMITED Plaintiff
ANDSTEPHEN JOHN DIVER First Defendant
ANDSDR LIMITED Second Defendant
ANDROY BOWYER Third Defendant
ANDTRIMEC TECHNOLOGY PTY LIMITED Fourth Defendant
ANDNEIL RICHARD HINGSTON Fifth Defendant
ANDNEIL HINGSTON ENGINEERING LIMITED
Sixth Defendant
ANDASSA ABLOY NEW ZEALAND LIMITED
Seventh Defendant
Hearing: 1 June 2011
Counsel: SA Grant and KJ Dawson for the Plaintiff
MHL Morrison and S Nicholson for the First and Second Defendants ZG Kennedy and PDM Johns for the Third, Fourth and Seventh Defendants
PL Rice for Fifth and Sixth Defendants
Judgment: 1 June 2011
ORAL JUDGMENT OF RODNEY HANSEN J
Solicitors: Baldwins, P O Box 5999, Wellesley Street, Auckland for Plaintiff
Lowndes Joran, P O Box 5966, Wellesley Street, Auckland for First and Second
Defendants
Minter Ellison Rudd Watts, P O Box 3798, Auckland for Third, Fourth and Seventh
DefendantsHaigh Lyon, P O Box 119, Auckland 1 for Fifth and Sixth Defendants
LOKTRONIC INDUSTRIES LIMITED V DIVER HC AK CIV-2008-404-4657 1 June 2011
[1] In a judgment delivered on 30 March 2011, Courtney J entered judgment against all defendants, except the second defendant (SDR), for the sum of
$1,420,721, with interest of 7.5 per cent payable on that sum from 23 July 2002 to
31 December 2008 ($686,327.43) and 5 per cent payable from 1 January 2009 to the date of judgment ($159,588.40). The total judgment debt is $2,266,636.83.
[2] Courtney J found that the fourth defendant (Trimec) and the sixth defendant (NHEL) had breached contracts with the plaintiff (Loktronic) and that all defendants, except SDR and NHEL, were liable in tort for inducing a breach of contract and/or interfering or conspiring to interfere with contractual relations by unlawful means.
[3] Loktronic has commenced or threatened to commence execution of the judgment. All defendants except SDR have filed appeals and seek a stay of execution pending determination of the appeals and a cross-appeal by Loktronic.
Approach to application
[4] The application is made under r 20.10(2)(b) of the High Court Rules. The approach to such applications is well established. The default position is that a party is entitled to enjoy the fruits of a judgment in its favour.[1] The onus is on the party seeking the stay to persuade the Court that it is in the overall justice of the case to grant the stay.[2]
[1] Duncan v Osborne Building Ltd (1992) 6 PRNZ 85 (CA).
[2] Philip Morris (New Zealand) Ltd v Liggett & Myers Tobacco Co (New Zealand) Ltd [1977] 2 NZLR 41 (CA).
[5] The Court of Appeal has, however, recognised the need to preserve the position in case the appeal is successful - see New Zealand Insulators Ltd v ABB Ltd[3] where the Court said:[4]
[3] New Zealand Insulators Ltd v ABB Ltd (2006) 18 PRNZ 459 (CA).
[4] Ibid, at [13].
The object, where it can be fairly achieved, must surely be so to arrange matters that, when the appeal comes to be heard, the appellate court may be able to do justice between the parties, whatever the outcome of the appeal
may be. ... If the defendant in good faith proposes to appeal, challenging either the trial judge’s findings or his law, and has a genuine chance of success on his appeal, the plaintiff’s entitlement to his remedy cannot be regarded as certain until the appeal has been disposed of.
[6] The general approach is to balance the competing rights of the successful party against the need to preserve the appellant’s position in the event the appeal succeeds. The factors to be taken into account in carrying out that balancing exercise, identified in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd,[5] have recently been restated by the Court of Appeal in Keung v GBR
[5] Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC).
Investment Ltd.[6] These may be listed as follows:
[6] Keung v GBR Investment Ltd [2010] NZCA 396.
Whether the appeal may be rendered nugatory by the lack of a stay; The bona fides of the applicant as to the prosecution of the appeal;
Whether the successful party will be injuriously affected by the stay; The effect on third parties;
The novelty and importance of questions involved;
The public interest in the proceeding, and
The overall balance of convenience.
[7] The strength or otherwise of the appeal may also be relevant.[7] However, it is not the task of the Court to embark on a premature determination of the appeal and an assessment of the strength of the appeal should not weigh significantly, if at all, in
the scales.[8]
[7] Ibid, at [11].
[8] New Zealand Insulators, above n 3, at [19]
[8] The likely effect of execution of the judgment varies significantly between defendants. The first defendant (Mr Diver) deposes that he would be unable to pay the judgment debt and would be made bankrupt. He says he would then be unable to pursue the appeal. His reputation would be seriously damaged and his ability to carry on his business as a merger and acquisitions consultant seriously compromised. He is also concerned about the impact of bankruptcy on his position as Honorary Consulate for Austria.
[9] The third defendant (Mr Bowyer) also deposes that execution against him “would very likely”, to use his words, result in his bankruptcy, rendering him unable to pursue his appeal.
[10] The fourth defendant (Trimec) is a dormant company without significant assets. Enforcement proceedings against it could or would bring about its liquidation. It is acknowledged, however, that the seventh defendant (Assa Abloy), which is an associated company, is in a position to pay the judgment sum. Although I have not been provided with up-to-date details of its financial position, its accounts for the 2009 financial year suggest that it is highly profitable and has substantial net assets. A director asserts, however, that it has insufficient cash reserves to satisfy the full amount of the judgment.
[11] The fifth defendant (Mr Hingston), who has also been served with bankruptcy proceedings, claims also to have insufficient means to meet the judgment and says that it is most likely that he would be made bankrupt. The sixth defendant (NHEL) (whose shares are owned by the trustees of a family trust associated with Mr Hingston) has also said to be unable to meet the judgment. Both NHEL and Mr Hingston are said to have been obliged to borrow from the trust in order to fund the litigation and Mr Rice informs me that neither is in a position to meet the costs of the appeal.
[12] Mrs Grant is critical of the evidence of Messrs Diver, Bowyer and Hingston. She complains that they have not made full disclosure of their financial position.
She points out that Mr Diver appears to have been in occupation for some time of a house which last changed hands at $1.9m which, she speculates, may be owned by the trustees of the family trust. She points out that he has not disclosed details of his assets and liabilities, his income or his interest in the family trust.
[13] Mrs Grant notes that Mr Bowyer has acknowledged assets amounting to almost $2m but has not disclosed what has happened to the AUS$4.5m proceeds of the sale of shares in Trimec to Assa Abloy. I note, however, Mr Kennedy’s submission that Mr Bowyer, who resides in Australia, has not had an opportunity to respond to the late filed affidavit of Mr Calvert for Loktronic which took issue with this aspect of his disclosure.
[14] Mrs Grant is also critical of the extent of Mr Hingston’s disclosure. His family trust owns two properties which appear to have a combined value of some
$2m. Mrs Grant asks me to infer that there is substantial equity in those properties which Mr Hingston, as a discretionary beneficiary and trustee of the family trust, could call on in order to contribute to satisfaction of the judgment.
[15] The applicants express concern that if the judgment were to be enforced, any funds paid to Loktronic may not be recoverable in the event of a successful appeal. It is common ground that Loktronic has not traded since 2002 and has no assets. The proposal made by Mr Calvert, its sole director, is to provide a general security agreement charging its shares and an undertaking not to deplete any sum paid without securing it over other property. The applicants complain that this provides inadequate security. The risk to the applicants is magnified by Mr Calvert’s stated intention to employ the funds to reactivate Loktronic’s business.
[16] Without conceding the point, Mrs Grant acknowledges that a security over shares in these circumstances may be insufficient. She accepts that if I were to grant a stay on terms which required the applicants to satisfy the judgment, it would be appropriate to stipulate that the funds not be disbursed pending the disposition of the appeal or direction of the Court. This could be achieved either by payment into a trust account against suitable undertakings or by the provision of a bank bond.
[17] On the basis of the information before me, there is no reason to doubt the bona fides of the applicants. There is some suggestion that the filing of appeals was unnecessarily delayed but, given the comprehensive terms in which notices of appeal have been drafted, I would not be prepared to conclude that there has been any unnecessary delay. Security for costs has been obtained. The Court of Appeal Registry has advised that a hearing is available between 25 and 27 October 2011. Counsel have confirmed their availability on those dates and have filed a joint memorandum seeking allocation of a fixture on those days.
Whether the successful party will be injuriously affected by the stay
[18] Loktronic, through Mr Calvert, claims it will be “greatly prejudiced” if the
stay is granted. Mr Calvert points out that the wrongs were done to Loktronic in
2002 and a stay would lead to further delays.
[19] Against that, the applicants point out that Loktronic waited until the last day of the six-year limitation period before commencing proceedings. To the extent that overall delay is a factor, the greater part of the delay to date must be laid at Loktronic’s door and any prejudice arising from its being kept out of its money, is reduced accordingly.
The effect on third parties
[20] Messrs Diver and Bowyer make reference to the disruption to their family lives and the flow-on effects to family members if they are required to realise assets as part of the enforcement process or are made bankrupt.
Novelty and importance of questions involved
[21] The appeals largely concern Courtney J’s application of the law as to
intentional economic torts. One of the issues is whether the New Zealand courts
should follow the House of Lords’ approach in the recent case of OBG Ltd v Allan[9] to the torts of inducing breach of contracts and interference with contractual relations by unlawful means.
[9] OBG Ltd v Allan [2007] UKHL 21, [2008] 1 AC 1.
[22] The conditions required to satisfy the knowledge requirement are put squarely in issue in circumstances where one of the breaches relied on is of an implied term of an oral contract. The issues include the question of whether constructive knowledge (Nelsonian blindness) is sufficient. Also in issue, are the conditions necessary to establish liability on the part of directors for the tortious conduct of their companies and whether they can conspire with the companies to bring about a breach of contract. I do not overlook also that some of the applicants complain of crucial errors of fact leading to findings of liability. The basis on which damages have been calculated is also challenged.
[23] I accept that these are important and arguable questions capable of impacting decisively on the liability of each of the appellants and on the quantum of the judgment. I decline to take up the invitation issued by some counsel to make an assessment of the merits of the appeal. It is sufficient for the purpose of this application that I express my satisfaction that the issues raised are capable of serious argument.
Public interest
[24] Mr Morrison and Mr Kennedy submit that the questions of law raised by the appeal have important implications for the commercial community. That may be so but this consideration does not add significantly to the other factors already discussed.
Balance of convenience
[25] I turn now to consider the balance of convenience and the overall interests of justice. The starting point must be, as previously noted, that the successful plaintiff
is entitled to the fruits of its judgment and, associated with that principle, the general
rule that in appeals against money judgments, the usual approach will be to grant a stay only upon payment to the plaintiff of the amount of the judgment, subject to satisfactory security being given.
[26] I accept that the prejudice to Loktronic, if it is required to wait for its money, is not significant. It will entail some further postponement of its plans to reactivate the business but the delay is inconsequential by comparison to the delay of its own making, flowing from the late issue of proceedings. It would, of course, also be compensated by the payment of interest. However, the minimal prejudice to Loktronic is not a decisive consideration. The critical question is whether the applicants have been able to establish that the prejudice to them is such that the interests of justice require a stay.
[27] A consideration of the applicant’s position is complicated by two factors. The first is that each is, on the face of it, jointly and severally liable for the judgment debt and there is presently no way of knowing how their respective contributions will ultimately be determined. The second and related point is that the ability of the respective applicants to satisfy all or part of the judgment differ, and differ significantly. Assa Abloy is in a position to satisfy the judgment although not, I accept, by recourse to cash reserves. Some defendants, Trimec and NHEL for example, are not in a position from their own resources to contribute anything towards satisfaction of the judgment. The remaining defendants claim to be unable to pay the full amount, although it is clear that – admittedly, to varying degrees – all could contribute.
[28] I do not accept that the appeal rights of any of the defendants would be rendered nugatory if a stay were to be refused. There is force in the submission made by Mrs Grant that those defendants threatened with bankruptcy proceedings could expect sympathetic consideration from the Court to relief from bankruptcy while their appeals were being conscientiously pursued. On this issue I endorse the
comments of Lang J in Hoole and Pitfield v Darby,[10] who observed:[11]
[10] Hoole and Pitfield v Darby HC Auckland CIV-2006-404-5235, 28 May 2007 at [16].
[11] Ibid n 10, at [16].
... 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 appeal or an application to set the judgment aside.
[29] There is potential injustice to Assa Abloy if a stay is refused. It may find itself in the position of having to fund the other appellants to meet the amount of the judgment. However, this is a situation of the defendants’ own making. They elected not to issue the cross-claims which would have permitted issues of contribution to be decided at trial. I do not think that the uncertainty and the potential inequity between defendants should be a decisive factor.
[30] There is, however, a solution which largely avoids the potential adverse effects to the applicants while securing to Loktronic the proceeds of judgment in the event the appeals are unsuccessful. That is to direct the applicants to provide a bank bond for the judgment sum. While this will not permit Loktronic access to the funds, it will provide the applicants the security to which they are entitled against eventual success in their appeals. As earlier noted, it is a solution which Loktronic accepts as reasonable in the circumstances.
Result
[31] I make an order staying the proceedings on condition that within 15 working days the applicants provide a bank bond in favour of the Court for the judgment sum (including interest to the date of judgment).
[32] I reserve leave to the parties to apply for further directions arising out of this judgment.
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