M Yovich & Sons Limited v Peters t/a Wayne Peters Lawyers
[2016] NZHC 1572
•13 July 2016
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2013-488-393 [2016] NZHC 1572
BETWEEN M YOVICH & SONS LIMITED
First Plaintiff
DIANNE FULLER Second Plaintiff
AND
WAYNE WESLEY PETERS AND HAYLEY MACDONALD T/A WAYNE PETERS LAWYERS
First Defendants
WAYNE WESLEY PETERS Second Defendant
MICHAEL JEREMY BADHAM, ARTHUR BROOKS FAIRLEY,
GRAEME JOHN MATHIAS, VAUGHAN BEVAN SYERS and GRANT LINDSAY CURRIE t/a Thomson Wilson
Third Defendants
ASB BANK LIMITED Fourth Defendant
Hearing: 9 June 2016
At Auckland
Counsel:
DW Grove and SJ Moloney for plaintiffs/respondents
PM Fee and VS Wethey for third defendants/applicantsJudgment:
13 July 2016
JUDGMENT OF FAIRE J
This judgment was delivered by me on 13 July 2016 at 10 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Foy & Halse, Auckland (G Halse) Fee Langstone, Auckland
M Yovich & Sons Limited v Peters [2016] NZHC 1572 [13 July 2016]
Contents
Introduction .............................................................................................................. 2
Approach to review .................................................................................................. 3
Factual background .................................................................................................. 4
The parties 4 The borrowing and guarantors 5 Newco’s default 6 The plaintiffs’ proceeding 6 The commencement of settlement discussions 7 Non-service of proceedings 7 The applications to extend time to serve the proceedings 8 The settlement agreement 12 Service of the proceeding 13 Amended pleadings 14
The application ....................................................................................................... 14
The plaintiffs’ response .......................................................................................... 16
Associate Judge Christiansen’s decision ................................................................ 16
Approach under r 7.51............................................................................................ 18
Discretion 25
Result...................................................................................................................... 29
Introduction
[1] In a reserved decision delivered on 2 March 2016,1 Associate Judge Christiansen dismissed the third defendants’ (“Thomson Wilson”) application seeking orders rescinding any or all the orders made by Associate Judge Bell on
9 July 2014, 19 December 2014, 26 March 2015 and 26 May 2015 extending the
time for service of the proceeding.
1 M Yovich & Sons Ltd v Peters [2016] NZHC 330.
[2] The orders made by Associate Judge Bell were applied for on a without notice basis. The orders were made in reliance on rr 5.72 and 5.73 of the High Court Rules.
[3] Thomson Wilson now make an application for review of the decision of
Associate Judge Christiansen.
[4] Thomson Wilson’s application is made in reliance, principally, on r 7.51 and on the basis that the plaintiffs did not make full and complete disclosure to the Court when they applied for the orders on a without notice basis.
Approach to review
[5] Section 26P(1) of the Judicature Act 1908 provides jurisdiction for Thomson Wilson’s application to review the decision. Section 26P(1)(a) provides that the Court must review the decision in accordance with the High Court Rules.
[6] Rule 2.3(4) of the High Court Rules provides:
2.3 Review of decision
…
(4) If the order or decision being reviewed was made following a defended hearing and is supported by documented reasons,—
(a) the review proceeds as a rehearing; and
(b) the Judge may, if he or she thinks it is in the interests of justice, rehear the whole or part of the evidence or receive further evidence.
…
[7] The hearing is essentially appellate in character. The review applicant has the
burden of persuading the Court that the Associate Judge’s decision was wrong.2
[8] The Court is required to come to its own view on the merits. In reaching that view, no deference is required beyond the customary caution appropriate when
2 Wilson v Neva Holdings Ltd [1994] 1 NZLR 481 (HC).
seeing the witnesses provides an advantage because credibility is important.3
[9] Any challenge to the exercise of a judicial discretion will be considered on conventional appellate principles. The review applicant must show that the judge acted on a wrong principle or failed to take into account some relevant matter, or took account of some irrelevant matter, or was plainly wrong.4
Factual background
The parties
[10] The first plaintiff, M Yovich & Sons Ltd (“Yovich”), is a farming company
which owns a farm at Yovich Road, Mata.
[11] The second plaintiff, Ms Dianne Fuller, is the sole director and shareholder of Yovich. She obtained that position in her capacity as trustee of the estate of George Yovich. She has no beneficial interest in the shares in the first plaintiff company. The will of the late Mr Yovich requires the shares which, pursuant to the will are currently held in a farm trust, to be transferred to Mrs Fuller’s son when he attains the age of 40 years.
[12] In the meantime, Mrs Fuller’s son, who is approximately 30 years old is to work the farm, receive the profits, pay all costs as though he was a licensee, maintain and not encumber or otherwise mortgage his share during the term of the farm trust.
[13] The first defendants, are a firm of solicitors in Whangarei, trading as Wayne
Peters Lawyers.
[14] The second defendant, Mr Wayne Peters is a principal of the first defendant firm of solicitors. Mr Peters was also personally involved in business dealings with
clients, namely Barry Trass, Peter Fuller, Donna Logan and Peter Woods in
3 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141, at [13].
4 Alex Harvey Industries Ltd v Commissioner of Inland Revenue (2001) 15 PRNZ 361 (CA) at
[13] citing May v May [1982] 1 NZFLR 165 (CA) at 170
companies known as Wolfpack Properties Ltd, Newco 2007 Ltd (“Newco”), Wolf
2008 Ltd and McCann 2008 Ltd.
[15] The third defendants, Thomson Wilson, are a firm of solicitors in Whangarei. One of its principals, Mr GL Currie, accepted instructions from ASB Bank Ltd in or about August 2007 in respect of a funding transaction to Newco, which also involved the provision of guarantees by Wayne Peters, Barry Trass, Peter Fuller, Donna Logan, Peter Woods, Wolfpack Properties Ltd and Yovich.
[16] The fourth defendant, ASB Bank Ltd (“ASB”), is a trading bank which provided the funding to Newco.
The borrowing and guarantors
[17] In mid 2007, Mrs Fuller’s husband, Peter Fuller, had discussions with her about a property development that he wished to pursue. Mr Fuller together with the other investors, including Mr Peters and Mr Trass, were seeking to settle the purchase of a property at Ruakaka.
[18] Mrs Fuller was asked to provide security and a guarantee to enable Newco to settle the purchase of the property. The guarantee was unlimited and $4,185,000 was borrowed to purchase the property. Mrs Fuller says she was advised by her husband and Mr Peters that there would be no risk involved as the guarantee was only in respect of her husband’s share in the investment. Prior to the signing of the guarantee she received an email from Wayne Peters as follows:
Please advise whether you require independent advice on this from another
Solicitor other than Grant Currie who is acting on the matter generally.
[19] As recorded, Mr Currie is a partner of Thomson Wilson. On 16 August 2007, Mrs Fuller attended Mr Peters’ office for what was known as the signing ceremony. Mr Currie was present. The guarantee was signed and witnessed by Mr Currie. Mrs Fuller says that Mr Currie did not explain anything to her about the guarantee or what it entailed. He did not say that it was for an unlimited sum. She says she was given no advice at all by Mr Currie. This account is not accepted by Thomson Wilson.
[20] It is appropriate to record that the instructions Mr Currie received from the mortgagee, ASB, contained the following:
13. Guarantor
(a) If there is a Guarantor, it is your responsibility to advise each of them that they should seek independent legal advice. However, if a Guarantor chooses not to exercise this right, then you are required to advise them of the full effect and implications of the Guarantee and have them sign an acknowledgement that they have been advised to seek independent legal advice and they have waived that right.
(b) Please advise us immediately if you believe there is conflict or likely conflict of interest and you are unable to advise the Guarantors.
The guarantee was duly signed by Mrs Fuller and her signature was witnessed by
Mr Currie.
Newco’s default
[21] Newco was unable to develop the property being purchased and, in particular, onsell it. It fell into default with its loan to ASB. ASB sent letters of demand and Property Law Act notices to the borrower Newco, and the guarantors, including Yovich.
The plaintiffs’ proceeding
[22] The plaintiffs filed this proceeding on the last day before the expiry of the limitation period for causes of action in negligence, namely 16 August 2013. They, however, did not serve the proceedings as required by r 5.72. The pleadings asserted that Wayne Peters, Wayne Peters Lawyers, and Thomson Wilson ought to have been aware that it was imprudent for Yovich and Mrs Fuller to enter into the unlimited guarantee. No proper indemnity was provided by Newco or its related entities and its shareholders. No security was provided. The causes of action pleaded were negligence, breach of fiduciary duty, lack of good faith and facilitation of a breach of trust. The plaintiffs pleaded that ASB knew that Mrs Fuller was holding the shares and was acting as a director of Yovich in her capacity as trustee and that the execution of the guarantee would not benefit Yovich and would be a breach of trust. It was further pleaded that it had facilitated a breach of trust and should not be able to recover under the guarantee. The proceeding was filed by Foy & Halse, who had
been the plaintiffs’ solicitors. The purpose of the proceedings was to protect the plaintiffs’ position in relation to the plaintiffs’ contingent liability to ASB. It was anticipated by the plaintiffs that if Newco continued in its default, ASB would have moved to sell the Yovich farm.
[23] In December 2013, ASB called up the mortgage. The amount sought was
$3,626,215.82.
The commencement of settlement discussions
[24] In late 2013, Grove Darlow, a firm of barristers and solicitors, was appointed as counsel for the plaintiffs. They wrote to Mr Trass and Mr Peters seeking an indemnity in the event that ASB should take action under its securities. From early
2014, discussions took place between Mr Peters, Mr Fuller and Grove Darlow on behalf of Yovich, with regard to resolving issues arising out of the ASB demand. From at least November 2014, Mr Trass was also involved in the settlement discussions. Thomson Wilson were not involved in the settlement negotiations as a party, but were acting for Mr Trass and his related trusts.
Non-service of proceedings
[25] The proceedings were not served as soon as possible or within 12 months of the date of filing as required by r 5.72.
[26] Rule 5.72(2) provides:
5.72 Prompt service required
…
(2) Unless service is effected within 12 months after the day on which the statement of claim and notice of proceeding are filed or within such further time as the court may allow, the proceeding must be treated as having been discontinued by the plaintiff against any defendant or other person directed to be served who has not been served.
[27] Rule 5.73 provides:
5.73 Extension of time for service
(1) The plaintiff may, before or after the expiration of the period referred to in rule 5.72, apply to the court for an order extending that period in respect of any person (being a defendant or other person directed to be served) who has not been served.
(2) The court, if satisfied that reasonable efforts have been made to effect service on that defendant or person, or for other good reason, may extend the period of service for 6 months from the date of the order and so on from time to time while the proceeding has not been disposed of.
The applications to extend time to serve the proceedings
[28] There followed a series of applications for extension of time to serve. The
position is recorded in Associate Judge Christiansen’s judgment as follows:5
Extension request application 7 July 2014 (the first application)
[20] The first application was filed about 11 months after the proceeding was filed.
[21] That application noted the proceeding was concerned with an allegation that a breach of fiduciary duty or common law duty caused or permitted trust property to be used as security in circumstances where everyone concerned knew the property was trust property. The application then noted:
(e) The plaintiffs chose not to serve the proceeding while endeavouring to obtain a resolution of the issues. While the proceeding, remains “not served”, the parties have, through their respective advisors, nevertheless engaged in settlement discussions.
(f) While issues which are the subject of this proceeding have not
yet settled, that prospect is considered “close”.
(g) Service of the proceedings will now or will more likely than not unnecessarily inflame the parties’ positions or cause them to become entrenched and thereby be counterproductive to a resolution of the present discussions.
[22] In her affidavit filed in support Mrs Fuller deposed:
6.A deliberate strategic decision was made to not serve the proceeding (and not advise the defendants of the existence of the proceeding) in order to facilitate an environment in which settlement discussions would occur without the threat of the parties entrenching themselves in ‘positions’.
5 M Yovich & Sons Ltd v Peters, above n 1, at [20] – [34].
7.In the case of those defendants that are lawyers, service of the proceeding would have meant decision making without settlement and avenues for settlement would have been taken out of their hands. This was a material factor in the strategic decision not to serve the defendants or advise them of the existence of this proceeding.
8. That strategic decision has proved justified.
9.Since filing the statement of claim on 16 August 2013, the parties (excluding Thomson Wilson and ASB Bank Limited) have engaged extensively in discussion. The discussions have moved steadily forward, navigating some difficult issues, to the point that a settlement agreement in form has been written up but not signed and effected. The last step or stage has proved difficult for reasons outside of the control of the parties negotiating a settlement.
10. …I remain positive about settlement as does the parties with
whom we are negotiating.
[23] In his memorandum filed in support Mr Allan as counsel referred to
Rule 5.73 as to good reasons being required. He stated:
10.…the plaintiffs… made a deliberate decision not to serve the defendants because of an anticipated adverse reaction to settlement discussions.
11. ‘Good reason’ was discussed in Hibbs v Toll…
12.Good reason will be assessed by reference to all the circumstances of the case, and the Court may have regard to the balance of hardship between the parties as a result. In Hibbs the Court referred to the consideration given to the words “for good reason in this context by Lord Brandon in Kleinwrot Benson Ltd v Barbrak Limited…, particularly at pages 622 –
623:
The question then arises as to what kind of matters can properly be regarded as amounting to ‘good reason’. The answer is, I think, that it is not good reason in any particular case must depend on all the circumstances of that case, and must therefore be left to the judgment of the Judge who deals either with an ex parte application by a plaintiff for grant of an extension, or with an inter parte’s application by a defendant to set aside an extension previously granted ex parte.
Good reason is necessary for an extension in both Category (2) cases and Category (3) cases. But in Category (3) cases the applicant for an extension has an extra difficulty to overcome, in that he must also give a satisfactory explanation for his failure to apply for an extension before validity of the writ expired.
The decision whether an extension should be allowed or disallowed is a discretionary one for the judge who deals
with the relevant application. Jones v Jones shows that in exercising the discretion, the judge is entitled to have regard to the balance of hardship. In doing so, he may well need to consider whether allowing an extension will cause prejudice to the defendant in all the circumstances of the case. Once a judge has exercised his discretion, it is only on very limited grounds, to well known for it to be necessary for me to set them out here, that an appellant court will be justified in interfering with his decision.
[24] In his minute approving an extension of time Judge Bell noted:
[1] They [the plaintiffs] have deliberately held off service so
that they can explore settlement…
[2] I accept the plaintiffs’ explanation for holding off service…
[3] I am satisfied that this is a proper case to allow an extension of time for service.
[25] The extension of time was granted for six months.
The second application for extension of time (the second application)
[26] This was filed on 12 December 2014. It noted:
(c) The proceeding is concerned with an allegation that a breach of fiduciary duty or common law duty caused or permitted trust property to be used as security in circumstances where everyone concerned knew the property was trust property.
(e) The plaintiffs chose not to serve the proceeding while endeavouring to obtain a resolution of the issues. While the proceeding, remains “not served”, the parties have, through their respective advisors, nevertheless engaged in settlement discussions.
(f) The parties have in effect agreed to settlement. This is to the extent of a settlement agreement having been drafted and one set of the parties having executed the agreement. There are however some issues which will need to be ironed out before the agreement is finally executed…
(g) Service of the proceedings now will or will more likely than not unnecessarily inflame the parties’ positions or cause them to become entrenched and thereby be counterproductive to resolution of the present discussions.
[27] In Mr Allan’s affidavit in support he states:
3.…A Settlement Agreement has been signed by the first and second plaintiffs… I believe that the settlement agreement has been signed by one material defendant and party to the settlement agreement. The other defendants are not parties to the settlement agreement but it resolves all rights inter se, if concluded. There are issues still to be resolved and the
settlement effected. Nevertheless, all parties to the settlement agreement appear to me to be intent on concluding the settlement agreement. I am unable to provide copies of the exchanges.
[28] In her memorandum filed in support Ms Lethbridge as counsel referred again to Rules 5.72 and 5.73. She reiterated the explanation of principles given by the memorandum filed in support of the first application for extension. She noted further:
17 . …both parties have been involved in settlement discussions
with only some issues left to be resolved.
…
19.The parties have chosen to continue to withhold service because they believe the parties would navigate their way towards a settlement. That belief has been justified. The parties appear very close to settling this matter.
…
23.Proximity of the settlement is a ‘good reason’ since it will ultimately obviate the need for the court’s assistance at all if the present situation be permitted to run its full course.
24.Obviously it is difficult to say it is a certainty that allowing the present decisions to run their full course will definitely result in a settlement within the two month extension sought. However, the plaintiffs remain confident and a draft settlement agreement has been drafted and executed by one side as a result of the dialogue todate.
[29] The minute of Judge Bell granting a second extension records:
[2] The plaintiffs say that there is good reason under r 5.73(2) because the parties have been actively pursuing settlement. They say that agreement in principal has been reached, although some modifications may still be made.
[3] I grant the extension sought. I am satisfied that there is good reason. The situation in this case is commonly found in leaky schools litigation. The Ministry of Education will issue proceedings, to ensure that they are within the time under s 393 of the Building Act 2004 and will then enter into settlement negotiations with the defendants. Directions are commonly given for stay of the proceeding pending settlement negotiations. I apply a similar approach here.
[30] Judge Bell granted an extension of time to serve until the end of
March 2015.
Third application for extension (the third application)
[31] The third application seeking an extension was filed on 24 March
2015.
[32] In Ms Lethbridge’s memorandum filed in support counsel notes:
3.As advised when the application was filed settlement negotiations have been ongoing and are in their final stages. Service of the proceedings at this stage would seem to jettison in the prospects of settlement. The plaintiffs instruct that settlement is imminent although it is yet to be finally documented and fully implemented.
5.The plaintiffs of course will attend to filing discontinuances as soon as the settlement has been confirmed.
Fourth application for extension of time
[33] The fourth application seeking an extension was filed on 22 May
2015.
[34] The memorandum of Ms Lethbridge filed in support noted:
Since… a Settlement Agreement was finally concluded and executed on
or about 27 March 2015.
3.A last minute issue has arisen in effecting the settlement such that the second defendant who is also a party to the Settlement Agreement was unable to contribute the sum of $200,000 (the Shortfall Sum) in order to achieve an obligation required in the Settlement Agreement.
…
5.It is also a term of the Settlement Agreement that if proceedings are issued the first and second defendants be removed. The plaintiffs are concerned that should they serve the proceedings before the Shortfall Sum is paid the Settlement Agreement may not be complied with.
6.For that reason a further extension of time is necessary but given a Settlement Agreement has been executed and part performed there is certainty that this will be the last request for an extension.
The settlement agreement
[29] A settlement agreement was executed on or about 24 March 2015. Completion could not be immediately achieved. The settlement agreement provides, inter alia, that:
1. In consideration of the payment by the Fuller Trust in the sum
of $492,000.00 to Newco… in satisfaction of Yovich’s
obligations under the Yovich Guarantee and Fuller’s obligations under the Fuller Guarantee and the capitalization of the Fuller Trust’s shareholder current account balance including the sum of $492,000.00:
1.1The Trusts, Peters and Trass will contemporaneously: (a) Procure and provide to Yovich and Fuller a
discharge of Yovich’s Guarantee and a
discharge of Fuller’s Guarantee from any lending associated with Newco’s property; and written confirmation from the ASB Bank that
there is no reliance on the Yovich mortgage
with respect to any monies advanced to Newco by the ASB Bank.
…
6.1 In consideration of the payment by Trass of the sum of
$250,000.00 to G Yovich Estate on the Settlement Date
in satisfaction of Trass’ obligations under the Advance
3T Guarantee and Advance Developments 3T Limited’s obligations under the Advance 3T Mortgage, Dianne and the G Yovich Estate will
contemporaneously procure and provide a discharge of
and unconditional release of:
(i) Trass’ obligations under the Advance 3T
Guarantee;
(ii) The Advance 3T Mortgage as to land identifier
147611 (North Auckland Registry); and
(iii)T he personal covenants of Advance 3T Developments Limited and Trass under the Advance 3T Mortgage;
reserving only the personal covenant of Fuller.
[30] In the settlement agreement ‘Fuller’ refers to Mr Fuller rather than Mrs Fuller. The agreement also provides, by cl 3, that the plaintiffs had no further claim against Wayne Peters or Wayne Peters Lawyers. Thomson Wilson is not referred to in the settlement agreement, nor is ASB.
Service of the proceedings
[31] On 31 July 2015, Thomson Wilson received a letter from barristers and solicitors, Foy & Halse, acting for the plaintiffs advising that they had issued proceedings against Thomson Wilson in the Whangarei High Court. On 3 August
2015, Thomson Wilson were formally served by email with a notice of proceeding
dated 16 August 2013, statement of claim dated 15 August 2013 and minutes of
Associate Judge Bell dated 9 July and 19 December 2014 and 26 March and 26 May
2015 extending the date for service of the proceedings.
Amended pleadings
[32] On 5 October 2015, the plaintiffs filed an amended statement of claim which is dated 1 October 2015. The amended statement of claim pleads only one cause of action, which is a claim against Thomson Wilson in negligence. The plaintiffs no longer plead breach of fiduciary duty against Thomson Wilson nor do they plead any cause of action against the first, second, or fourth defendants.
[33] Thomson Wilson filed a statement of defence on 22 March 2016. They deny the plaintiffs’ claim and raise two affirmative defences, contributory negligence and estoppel.
The application
[34] The application to rescind the orders made by Associate Judge Bell relies principally on r 7.51. Rule 7.51 provides:
7.51 Order may be rescinded if fraudulently or improperly obtained
(1) A Judge may rescind any order that has been fraudulently or improperly obtained.
(2) The Judge may grant any further relief by way of costs that the interests of justice require.
(3) This rule does not limit any other remedies of a party who has been adversely affected by an order that has been fraudulently or improperly obtained.
[35] In the application Thomson Wilson claim that the various applications for extension of time for service contained representations by the plaintiffs that the settlement negotiations were intended to resolve the litigation and, if settled, the litigation would not proceed or, alternatively, the material put before the Court invited the Court to infer that the settlement negotiations were intended by the plaintiffs to resolve the litigation as against all defendants.
[36] Thomson Wilson then particularise the areas where it is pleaded that the plaintiffs failed to make full and frank disclosure to the Court as follows:
14.1At no time did the plaintiffs involve Thomson Wilson in the settlement negotiations in their own capacity, but dealt with Thomson Wilson during the negotiations as solicitors for Newco Limited and the Trass interests.
14.2In May 2014 the plaintiffs remained silent when Thomson Wilson sent an email to all parties involved in the negotiations as to whether any party considered Thomson Wilson to have a conflict of interest in representing Newco and the Trass interests …
14.3In or about 17 June 2014 the second defendant included an amendment to clause 3 of the draft settlement agreement which included Thomson Wilson as a party in respect of whom no party to the agreement has an further claim. On or about 19 to 20 June 2014
Thomson Wilson’s name was proposed to be removed by (in all likelihood) the plaintiffs’ lawyers without disclosing to Thomson Wilson that there were extant proceedings against them. By reason of this amendment the plaintiffs preserved their ability to sue Thomson Wilson notwithstanding the settlement agreement …
14.4At a time unknown to Thomson Wilson the plaintiffs knew that the settlement agreement would not resolve all issues between the parties to the litigation, as the plaintiffs had decided to sue Thomson Wilson.
14.5The settlement negotiation was not undertaken or continued to put an end to the litigation, but to crystallise a loss which the plaintiffs (as some time unknown to the third defendant) intended to seek to recover from Thomson Wilson.
[37] The application then pleads that there were four specific consequences, namely:
(a) The plaintiffs have avoided the consequences of the Limitation Act by filing proceedings against four defendants, but not serving them for two years;
(b)During that period of time, the plaintiffs procured a settlement agreement which discharged a significant debt owed by the first plaintiff to ASB in part as a consequence of significant contributions from Wayne Peters, Wayne Peters Lawyers, and the Trass interests who were a client of Thomson Wilson;
(c) Kept Thomson Wilson ignorant of the plaintiffs’ intention to sue Thomson Wilson while they were acting for a party to the settlement negotiation; and
(d)Crystallised a loss as a consequence of the settlement negotiations which they now seek to recover from only one of the defendants who, arguably, have no right of contribution from any other defendant as a consequence of the settlement agreement.
It pleads that, having regard to the above matters, the orders extending the time for service of the proceedings were improperly obtained and should accordingly be rescinded.
The plaintiffs’ response
[38] The plaintiffs deny that the Court was misled and state that because the negotiations were without prejudice, they were unable to explain the full picture. They further say that the hope was that the settlement negotiations would resolve all issues, however, this, in the end, was not the case.
[39] The plaintiffs further submit that Thomson Wilson have suffered no hardship as a result of the orders being made.
Associate Judge Christiansen’s decision
[40] On 23 February 2016, Associate Judge Christiansen heard the application by the plaintiffs to rescind the orders under r 7.51. The Judge concluded that:6
Regarding the disclosure made on the first application the Court considers that an inference may be drawn from the information supplied in support of the applications, that not all relevant details affecting the requests of an extension were disclosed. However it seems to the Court essential elements were. Settlement discussions were under way but issues were not settled; that service of the proceeding would likely be counterproductive to a resolution.
[41] The Judge further stated:
6 M Yovich & Sons Ltd v Peters, above n 1, at [94].
[103] In this Court’s view and even if it did consider the plaintiff’s had misrepresented the position by their applications for extension, based on the full explanation now available this Court believes the decision to grant the extensions of time was not influenced by the alleged misrepresentations.
[104] Even if the Court did consider there was a material misrepresentation the Court believes the merits of the case dictate that the orders should stand.
[42] The Judge held that rescission of an order was not automatic following misleading conduct and that, save clear cases, the Court will review the matter and, if necessary, conduct a de novo hearing.7 In coming to this conclusion he referred to
Love v Wensley Developments The Marina Limited,8 and Wagner v Gill.9
[43] The Judge found that Thomson Wilson’s submission that they lost the opportunity to participate in settlement negotiations or to seek a right of contribution was ‘questionable’.10 He also noted that the delay in time was unlikely to impact on
the memories of those likely to give evidence.11
[44] Overall Associate Judge Christiansen summarised his decision in the following way:
[115] The current practice of Court is to adopt a liberal approach in determining reviews of ex parte applications.
[116] The merits of the proceeding and the applications for extensions of time are relevant not only to the application to rescind those orders but also in considering those applications on a de novo basis. Perceptions of misinformation appear adequately addressed by an understanding of the complex commercial underlay of the negotiations that took place over a longer period of time.
[117] The Court does not agree it was misled by the extension applications; that whilst it would have been preferable if further information was provided at the time of the applications, the Court accepts the plaintiffs had proper reason not to do so because that disclosure would lead to a disclosure of confidential and privileged information and would prejudice the position of the plaintiffs. At the same time the Court does not accept a significant degree of prejudice occurred to the applicant.
7 At [109].
8 Love v Wensley Developments The Marina Ltd HC Invercargill CIV-2009-425-100, 4 August
2009.
9 Wagner v Gill HC Auckland CIV-2011-404-3509, 3 October 2011.
10 At [113].
11 At [114].
Approach under r 7.51
[45] Rule 7.51 provides that a Judge “… may rescind any order that has been fraudulently or improperly obtained.” In this case, Thomson Wilson do not allege fraud, rather they focus on showing that the orders were ‘improperly obtained’.
[46] There are some well settled, but not exhaustive, principles that apply to applications under the rule. Yang v Ko12 was decided under r 261, which was the predecessor to the current r 7.51. In that case, Associate Judge Abbott set out the following principles:13
a) The rule exists to prevent intentional or innocent misuse of the
Court's processes;
b)The focus of the enquiry is the knowledge and conduct of the party that obtained the order in question: orders are fraudulently obtained when there is intentional misuse of Court processes but improperly obtained when there is innocent misuse;
c)A key factor in an enquiry into whether the order was improper obtained is whether the party obtaining it knowingly ignored a legal obligation, so that it would be contrary to the interests of justice to allow the order to stand;
d)The conduct of the party seeking to rescind the order is relevant only insofar as it affects the knowledge of the party who obtained the order;
e)The fact that the order would not have been granted had the alleged impropriety not occurred is a relevant fact in the exercise of the discretion.
[47] In Elvidge v ASB Bank Ltd, Associate Judge Bell adopted those principles and made further comments. Of relevance to this case, he stated:14
Without setting out everything that might be said, I give some further comments:
…
[e] Applications under r 7.51 seem to be rare and successful ones even more so. Examples of cases where they have succeeded include applications to set aside without notice orders where the applicant
12 Yang v Ko HC Auckland CIV-2005-404-4583, 31 July 2007.
13 At [24].
14 Elvidge v ASB Bank Ltd [2015] NZHC 44 at [134].
has not made full disclosure. There is no reason to believe that r 7.51 has been underused or to encourage applications under the rule.
[f] As an exception to the finality principle, judgments and final orders may be set aside because they were fraudulently obtained. [74] Rule
7.51 extends that exception by providing for interlocutory orders also to be rescinded if they were obtained improperly. Principles developed in proceedings to set aside judgments obtained
fraudulently may also have a place in applications under the rule.
[g] When a case reaches its substantive hearing, the parties will have completed all interlocutory steps and will be expected to have assembled all the evidence required to prove their respective cases. In an interlocutory application on the other hand, the parties may not have prepared their cases fully; further steps may be required, such as discovery. They may not have all the information which would be available by the time of the substantive hearing. Unlike final decisions, which are to be permanent, interlocutory orders may apply only for a limited time, until the final hearing. These characteristics of interlocutory orders, less information available to the parties and temporary effect, go to allowing a wider ground for setting aside interlocutory orders.
…
[i] The rule contemplates a connection between the alleged fraudulent or improper conduct and the court's order. “Obtained” shows the required linkage. Conduct which does not influence the court's decision is outside the rule.
[j] The rule is silent as to all the consequences of a rescission order.
While the rule allows the court to grant relief by way of costs, it does not state whether the court's powers are limited to rescission without further order, or extend to ordering a rehearing or reassessing the original application. A flexible, discretionary response to meet the circumstances of the particular case seems open. Rescission sets aside only the order, not the application on which it was made. A fresh order may be made on the original application. It may therefore be open to order a rehearing or on the rescission application to make a new decision on the original application. After all, justice may be satisfied by some adjustment of the original order. On the other hand, there may be cases where the misconduct of the party obtaining the order is so serious that the court considers that the appropriate remedy is to rescind the order, but not to grant any relief under the original application, even if it might otherwise have been granted but for the impropriety.
[48] Considering the rule and the principles set out above, the first step in determining an application under r 7.51 is to determine whether there has been improper conduct and whether the order was ‘obtained’ as a consequence of this improper conduct.
[49] The duty owed to the Court in a without notice application is well settled. For example, in Hughes v Williams, Clifford J cited McGechan on Procedure stating:15
The applicant for a without notice order owes the Court a duty of utmost good faith (uberrima fides) to make the fullest disclosure to the Court of all facts relevant to the application. This duty extends to all matters relevant to the application, whether or not the applicant considers them important. In particular, the applicant has a duty to disclose to the Court any known defence to the application, together with the facts on which it is based. This duty is firmly established on the authorities …
The duty is to make full disclosure of all relevant information in the applicant’s possession, including that which does not assist the application… (authorities omitted)
[50] In Jeffreys v Morgenstern, Associate Judge Doogue stated that “[i]nadvertently misleading material placed before the Court will be sufficient to justify discharge”16 and further that:17
An application which inadvertently misleads has the same practical potential to create prejudice to a respondent who knows nothing about the application as does an application which is knowingly misleading. That is not to say that there is no difference between inadvertent and deliberate misleading of the Court. For other purposes, such as disciplining of legal practitioners and perhaps the ordering and scale of costs, it may be vitally affected by the distinction between the two. But for the purposes of the Court deciding whether or not to rescind an order obtained as a result of supplying materially incorrect information to the Court, the outcome will be the same.
[51] Ms Fee, for Thomson Wilson, argues that the plaintiffs presented an incomplete story to the Court because the Court was not made aware that:
(a) Thomson Wilson were not aware that the plaintiffs had any dispute with them;
(b)Thomson Wilson were not involved in settlement discussions in their own capacity;
(c) The plaintiffs did not advise Thomson Wilson of a potential conflict of interest despite Thomson Wilson raising a query;
15 Hughes v Williams HC Auckland CIV-2009-404-7443, 3 December 2009 at [19].
16 Jeffreys v Morgenstern [2014] NZHC 2847 at [40].
17 At [40].
(d)The plaintiffs requested alteration to the settlement agreement to preserve their right to sue Thomson Wilson;
(e) The plaintiffs’ strategy was to obtain contributions from the shareholders and then sue Thomson Wilson for their contribution to the settlement;
(f) The settlement agreement would not resolve all issues between the parties to the litigation;
(g)The claim would turn on the recollection of witnesses as to the advice given by Thomson Wilson and so the passing of time was prejudicial to Thomson Wilson; and
(h)The settlement negotiation was not undertaken (or continued) to put an end to the litigation but rather to crystallise a loss which the plaintiffs intended to seek to recover from Thomson Wilson.
[52] The plaintiffs take issue with the assertions that their intentions were always to pursue the claim with Thomson Wilson rather than discontinue the proceeding. The plaintiffs say that their intentions were to pursue litigation as a last resort with the more desirable outcome being to settle the matter. On this matter, Mrs Fuller, in her affidavit stated:
The settlement discussions were fluid in that there were numerous versions of the settlement agreement drafted. I would have been prepared to cut my losses if settlement had been achieved whereby the loss was limited to
$492,000. However those losses increased due to demands by the Trass interests who were represented by Mr Syers of Thomson Wilson during the
negotiations.
[53] Mr Grove, for the plaintiffs, states that the settlement negotiations were on a without prejudice basis and so were legally privileged and further that despite the duty of full disclosure, an applicant does not need to provide the Court with confidential information.
[54] The first extension was granted on 9 July 2014 by Associate Judge Bell. I recognise that the Court was informed in relation to that extension that Thomson Wilson and ASB were not involved in the settlement discussions. In that application, Mr Allan for the plaintiffs submitted that “[p]roximity of a settlement is a ‘good reason’ [for an extension] since it will ultimately obviate the need for the Court’s assistance at all if the present situation be permitted to run its full course.”
[55] At this point, the draft settlement agreement under discussion involved Yovich paying the sum of $492,000 to Mr Peters. Mrs Fuller in her affidavit states that if this was the extent of her liability, she would not have taken any further action against Thomson Wilson. However, this is contradicted by the actions of Grove Darlow on 18 June 2014 requesting a change to cl 3 of the draft agreement. Clause 3, at that stage, stated that the settlement agreement resolved all issues between the parties and Thomson Wilson. Further, an email was sent by Chris Allan of Grove Darlow to Graeme Halse and Jason Goodall (counsel for Mr Fuller) on 19 June 2014 in which he states “I have advised Wayne that Thomson Wilson remain firmly in Yovich’s sights.”
[56] A second application was made on 12 December 2014, supported by an affidavit by Mr Allan of Grove Darlow. He stated that the plaintiffs had signed a settlement agreement and that he believed “…that the Settlement Agreement has been signed by one material defendant and party to the Settlement Agreement.” He further stated “[t]he other defendants are not parties to the Settlement Agreement but it resolves all rights inter se, if concluded.” The supporting memorandum from Grove Darlow for the plaintiffs stated “The issues, if litigated, turn on conveyancing records and practice, not individual’s memory.”
[57] The settlement agreement which had been signed by the plaintiffs at that point included the payment of $492,000 by the Fuller Trust and stated that Dianne Fulller and the G Yovich Estate would discharge the mortgage over the Advance Land.
[58] The content of the settlement agreement and the negotiating strategy of the plaintiffs at the time that the second application for extension was made was inconsistent with the picture that was presented to the Court.
[59] The plaintiffs then made a third application for extension on 24 March 2015 which was granted on 26 March 2015. At this time the plaintiffs advised that settlement was imminent but was yet to be fully implemented. The memorandum of counsel stated “The plaintiff of course will attend to filing discontinuance as soon as the settlement has been confirmed.”
[60] The plaintiffs made a final application on 22 May 2015 which was granted on
26 May 2015. At that time counsel stated that a last minute issue had arisen with the settlement and so the plaintiffs again sought an extension noting that “if the second defendant is still in default [at the date the proposed extension expired], the proceedings will need to be served and progressed.”
[61] Throughout the period in which the extensions were granted, the plaintiffs indicated to the Court that Thomson Wilson were not party to the settlement agreement; however, at no time did the plaintiffs inform the Court that Thomson Wilson were involved in the settlement discussions as representatives for another party. Additionally, the plaintiffs made positive statements to the effect that settlement, if effected, would resolve all disputes between the parties to the litigation.
[62] I do not accept that the confidential nature of the negotiations prevented the plaintiffs from disclosing the necessary information to the Court. The essential problem is that the plaintiffs represented to the Court, whether directly or indirectly, that the settlement would resolve all issues. This was not the case. The plaintiffs have not demonstrated to the Court that they were unable to explain to the Court that settlement would settle all issues against the first and second defendants but not the third defendant.
[63] As stated above, when making a without notice application, the applicant
must present all of the facts, whether they support the applicant’s case or not. In this
case, the plaintiffs did not present the true nature of the situation. While I recognise that the plaintiffs perceived that it was vital that the settlement negotiations continued so that the Yovich farm was not lost, this is no reason to provide the Court with an incomplete picture of the situation. The plaintiffs have not given any compelling or even mildly convincing explanation as to why the Court was misled. In particular, I consider that the plaintiffs had a duty to inform the Court that:
(a) Thomson Wilson were acting in the settlement negotiations for another set of interests;
(b)Settlement would not necessarily resolve all issues between the parties to the litigation; and
(c) The litigation would require witnesses to give evidence based on memory.
[64] The next issue to be determined is whether the plaintiffs ‘obtained’ the orders through this improper behaviour. That is, whether there is a sufficient linkage between the failure by the plaintiffs to provide a complete picture of the circumstances and the orders made by Associate Judge Bell. In my view, the threshold is not whether the order would have been obtained but for the improper
conduct, as that goes to the exercise of the discretion.18 The threshold at this point is
whether the improper conduct influenced the Court’s decision to make the orders. In my view, the answer is yes. The orders made by Associate Judge Bell show that he was under the impression that there were two possible outcomes; either the parties would settle and the litigation would be discontinued, or the settlement negotiations would fail and the ligation would go ahead. In my view, this is the basis on which the
orders were made. Accordingly, I consider that r 7.51 applies.
18 Yang v Ko, above n 12, at [24].
Discretion
[65] Once an order is found to have been improperly obtained, the Court has a discretion as to whether or not to rescind it. This is clear from the wording of the rule which provides that a Judge may rescind the order.
[66] The parties to this case disagree as to the position of the authorities on this point. In my view, Associate Judge Christiansen was correct when he stated:19
Recent case law appears to accept that rescission of an order is not automatic if there has been some misleading conduct.
[67] Ms Fee for Thomson Wilson submits that the liberal line of authority relied upon by Associate Judge Christiansen stems from cases decided under r 7.49 rather than r 7.51. I understand her point to be that as r 7.51 requires some improper or fraudulent conduct, the Court should take a stricter approach under that rule than r 7.49. The authority cited for this point is Elvidge v ASB Bank Limited. In that case Associate Judge Bell stated:20
The court has a vital interest in ensuring that those who give evidence in its proceedings do so honestly, not on the basis of half-truths given in the hope of avoiding detection. Something stronger than tweaking is required to show that misleading the court cannot be worthwhile.
[68] I do not take the dictum of Associate Judge Bell to mean that the Court must rescind an order that has been improperly obtained. This would be contrary to the express wording of the rule. However, the Court will, of course, look unfavourably on any party who has misled the Court. The steps that the Court will take in response to the improper conduct will depend on all of the circumstances. Rule 7.51 can be applied to any interlocutory order. The types of interlocutory orders that can be made are vast. To require the same response in every situation would be to fetter the Court’s discretion.
[69] I agree with Ms Fee that a consideration of the application de novo is not strictly possible here, unlike cases considering injunctions and security for costs. The
reason is that the damage claimed by Thomson Wilson is said to have already
19 M Yovich & Sons v Peters, above n 1, at [109].
20 At [189].
occurred. Accordingly, I accept that the position of the parties has fundamentally changed. I consider, therefore, that the correct approach is to undertake the balancing exercise as is required under r 5.73 in light of the current situation. The balance which must be weighed is that between the effects on the plaintiffs if the orders be rescinded and the effects that the granting of the orders has had on Thomson
Wilson’s ability to defend the proceeding.21 Of course, the balancing exercise must
be viewed against the backdrop of the improper conduct.
[70] The consequences of a rescission order on the plaintiffs in this case would be severe. The proceedings were filed one day before the end of the limitation period. Under r 5.72 if service is not effected within 12 months after the day on which the statement of claim and notice of proceeding were filed, the proceeding is treated as having been discontinued. This means that should the orders be rescinded, the plaintiffs would, in effect, lose their claim.
[71] Thomson Wilson submit that they have been disadvantaged in the following ways:
(a) The passage of time has been prejudicial as the matter will turn on
recollections of the ‘signing ceremony’ in 2007;
(b) They were unwittingly permitted to act in a conflict of interest; and
(c) They have lost the right of contribution from the other parties.
[72] Thomson Wilson acted for the Trass interests in the settlement negotiations. It is, in effect, as a result of their efforts in the settlement negotiations that they are being sued now. In other words, Thomson Wilson unwittingly acted in negotiations in which they had an interest. However, they were unaware of that interest at the time. In my view, there can be no suggestion that Thomson Wilson acted improperly by representing the Trass interests in the negotiations as they were unaware of the conflict. At one stage they believed that there may have been an issue and they took
steps to confirm with all parties that there was no issue of conflict. While this
21 Hibbs v Towle CA60/78, 21 July 1988.
situation should not have occurred, Thomson Wilson have not been able to point to any disadvantage that they will face in defending the claim as a consequence.
[73] Thomson Wilson submit that they have been disadvantaged as a result of the orders as the evidence they will need to rely on at trial is based on the memory of people present at the signing ceremony on 16 August 2007. When the proceedings were filed, six years had passed since the signing ceremony. By the time that the proceedings were served on 3 August 2015, almost eight years had passed. I consider that there has been some detriment to Thomson Wilson in this regard, however, in my view it is limited as even if the proceedings had been served immediately, the memories of those involved would already have faded somewhat.
[74] Thomson Wilson also submit that they have lost the opportunity to participate in the settlement negotiations to their potential benefit and that they were not given the opportunity to resolve the dispute which was afforded to other parties and that there is now no opportunity to attempt to resolve the issues with the involvement of all parties. The difficulty here is that there is no right that Thomson Wilson has lost, even had they been served, they would not have necessarily been involved in the negotiations.
[75] Thomson Wilson submit that they arguably now have no right of contribution from the other defendants. In Ms Fee’s submissions she states that “… as a result of the settlement Thomson Wilson lost its right to seek a contribution from the first and second defendants because, as a result of the settlement agreement, the first and second defendants were discharged from all liability and so are no longer joint tortfeasors.” Ms Fee notes that under the Law Reform Act 1936, s 17(1)(c) the other tortfeasor must have been liable for the same damage. It is further submitted that it is not clear whether the right of contribution will survive the settlement agreement.
Although Thomson Wilson recognise that Re Securitibank22 is authority to support
the view that a settlement between a plaintiff and a defendant does not prevent a contribution claim between the defendant and another defendant, it is submitted that
the loss being sought in this case has become complicated as a result of the
22 Re Securitibank [1986] 2 NZLR 28 (HC).
settlement and a contribution claim has become more complex. Accordingly, it is submitted, they have been exposed to significant uncertainty.
[76] Thomson Wilson also states that as the loss pleaded has fundamentally changed, from the sum owed under the guarantee to the losses resulting from the settlement agreement, there will be no determination of the enforceability of the guarantee. This, they argue, is a fundamentally different and more difficult case to defend. They say that the only option would be to argue failure to mitigate or contributory negligence, in which case the onus would be on Thomson Wilson to prove that the plaintiffs should have disputed the enforceability of the guarantee. Thomson Wilson submit that had they been aware of the proceedings at the time that they were filed, the issue would have been ‘out in the open’ and they would have been able to raise the enforceability of the guarantee as an issue.
[77] I do not overlook the fact that Yovich’s exposure to a claim by the ASB was as guarantor. The debtor under the ASB loan was Newco. Newco had provided the ASB with a mortgage over real property. The mortgage was a first mortgage. The settlement agreement involved the parties who were the shareholders of Newco as well as being co-guarantors. There is no evidence before the Court to disclose what the value of the mortgage security held by the ASB was in respect of the Newco land. It is not possible for me, on the material before me, to ascertain what the application of ss 84 to 86 of the Judicature Act 1908 might have been in this case. These provisions at least provide a basis for inviting the shareholders of Newco and the co-guarantors to make a significant contribution, if not satisfy the debt, to ASB.
[78] I accept Ms Fee’s submission that the settlement agreement and the heads of damage now sought by the plaintiffs call for a more complicated inquiry to determine what, if any, loss is attributable to the alleged negligence on the part of Thomson Wilson.However, I am not satisfied that Thomson Wilson cannot have these issues properly placed before the Court.
[79] Additionally, I have considered Ms Fee’s submission on the question of whether an injustice might be caused by determining what is essentially a professional negligence case without requiring the position of the principal debtor
and the co-guarantors to be addressed. Ms Fee relied on the judgments of the
Supreme Court in Marlborough District Council v Altimarloch Joint Venture Ltd.23
Justice McGrath, in that case, said:24
McGregor on Damages suggests that later authorities demonstrate a greater readiness on the part of the courts in professional negligence cases to require litigation against third parties where failure to proceed in the first instance against a particular defendant may create injustice. However, in the present case the purchaser has sued both wrongdoers in the same action. In such a case the courts can avoid situations of injustice arising. Questions of recovery and contribution from those found liable can be addressed on principles applicable to those aspects of the law of remedies. …
[80] I consider that that issue may still be examined if these proceedings continue, and therefore the issue is not a decisive factor that would support the refusal of the application to extend time for service in this case.
[81] When balancing these opposing interests what is clear is that any detriment suffered by Thomson Wilson is speculative, additionally, it is very likely that the later issues they raise could well have occurred whether or not the extensions were granted. However, the effect of a rescission on the plaintiffs would be to prevent the Court from hearing and determining the claim. It would, in effect, be a final determination of the rights of the parties. This differs from the position in cases such as Elvidge v ASB Bank Ltd. Accordingly, although I find that the plaintiffs engaged in improper conduct, I would exercise the discretion afforded under the rules and refuse to rescind the orders made by Associate Judge Bell extending the time for service.
Result
[82] While I consider that the extensions were improperly obtained, when I look at the matter with the benefit of the material currently placed before the Court, I am not satisfied that an extension is inappropriate. The consequences, as I have recorded, are more serious to the plaintiffs, than are the consequences to the defendant if the matter proceeds to trial. Accordingly, the application to review the decision of
Associate Judge Christiansen is dismissed, save for the question of costs.
23 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] NZLR
726.
24 At [202] (footnotes omitted).
[83] The usual position is that costs go to the successful party. In this case, although the plaintiffs have been successful, I have found that the plaintiffs acted improperly. Accordingly, I vacate the order for costs made by Associate Judge
Christiansen and I make no order for costs on this review hearing.
JA Faire J
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