Mainzeal Property and construction Limited (in liq) v Yan
[2018] NZHC 2470
•20 September 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2015-404-1094
[2018] NZHC 2470
BETWEEN MAINZEAL PROPERTY AND
CONSTRUCTION LIMITED (IN LIQ)
First PlaintiffAND
KING FAÇADE (PREVIOUSLY KNOWN AS RICHINA LAND LTD) (IN LIQ)
Second Plaintiff
AND
MAINZAL GROUP LIMITED (IN LIQ)
Third Plaintiff
AND
ANDREW JAMES BETHELL AND BRIAN MAYO-SMITH
Fourth Plaintiffs
AND
RICHARD CILIANG YAN
First Defendant
AND
PETER GOMM
Second Defendant
AND
RT HON JENNIFER MARY SHIPLEY
Third Defendant
AND
CLIVE WILLIAM CHARLES TILBY
Fourth Defendant
AND
PAUL DAVID COLLINS
Fifth Defendant
AND
SIEW MAY KWAN
Sixth Defendant
AND
RICHINA GLOBAL REAL ESTATE LIMITED (IN LIQ)
Seventh Defendant
AND
ISOLA VINEYARDS LIMITED (PREVIOUSLY KNOWN AS WAIHEKE VINEYARDS LIMITED) (IN LIQ)
Eighth Defendant
MAINZEAL & ORS v YAN & ORS [2018] NZHC 2470 [20 September 2018]
Hearing: 20 September 2018 Counsel:
M D O’Brien QC, Z G Kennedy and M D Pascariu and Y J Lee for the Plaintiffs
D J Chisholm QC, T P Mullins and C I Hadlee for the First Defendant
J E Hodder QC, M D Arthur and J Marcetic for the Second to Fifth Defendants
G P Blanchard QC and J Nolen for the Sixth DefendantJudgment:
20 September 2018
ORAL JUDGMENT OF COOKE J
(Admissibility of Mr Bethell’s evidence)
[1] These proceedings involve claims by the liquidators of Mainzeal Property and Construction Ltd (in liquidation) and associated companies, and by the companies themselves, against the former directors. A number of claims for breach of directors’ duties and obligations in connection with the ultimate failure of the companies are advanced. For the purpose of the present question I do not need to summarise the claims, but they include claims for breach of directors’ duties under ss 135 and 136 of the Companies Act 1993.
[2] The trial was set down for six weeks, with two weeks in reserve, commencing Monday 17 September. When I held the first pre-trial conference as the trial Judge on 29 August, counsel advised that they thought the case may not finish within eight weeks. At the commencement of the hearing this week they advised that eight weeks would be required, but they expected that the trial would be completed in that time.
[3] In the memoranda filed for the first pre-trial conference, counsel for some of the defendants indicated that an objection was taken to the evidence proposed to be given by Mr Andrew Bethell, who is one of the liquidators and the plaintiffs’ first witness. I timetabled the filing of written submissions on that issue the week before trial, and indicated I would deal with the matter after the plaintiffs had opened, and the defendants had delivered mini-openings. That course has been followed, and I now provide my decision on the objection.
First defendant’s submissions
[4] The argument objecting to the evidence was advanced by counsel for the first defendant, Mr Chisholm QC.
[5] He contended that Mr Bethell’s initial and supplementary/reply brief of evidence contain numerous examples of commentary and argument on documentation and events that are inadmissible as opinion evidence. Simply summarising documents is inconsistent with the requirement of r 9.7(4)(f) of the High Court Rules 2016, and the opinion evidence is inadmissible. He argued that the problem is not remedied by Mr Bethell’s statement, added to the supplementary brief, that to the extent that he is giving opinion evidence it was based on his expertise, and that he would comply with the Code of Conduct for expert witnesses. A number of requirements for such expert evidence had not been met, including the identification of the questions he has been asked to address, and the facts upon which his opinions are based.1 Neither was his evidence initially prepared on that basis as required. Reference to the Code was said to be a retrospective attempt to save evidence that is not properly admissible.
[6] He accepted that a liquidator could be properly qualified to give expert evidence about the affairs of the company. The decision in FAF Holdings Ltd v Bethune is an example.2 But he referred to the importance of the liquidator’s duty of impartiality recognised by many decisions including Re Allebart Pty Ltd (in liq).3 The expert should not act as an advocate, engage in legal submission,4 or speculate on possibilities not supported by evidence.5 He referred to the following observation by Toogood J in Glenvar Property Holdings Ltd (in liq) v Terra3 Ltd:6
… It is an unusual feature of the case that the only evidence for the plaintiff was Mr Reynolds’s opinion of events of which he had no direct knowledge, based on assumptions and inferences he drew from the documents he obtained. While it is not uncommon for a liquidator to reconstruct the pre-liquidation activities of a company, it is for the Court and not the liquidator to decide the facts. The liquidator’s opinion will not often meet the test of substantial helpfulness required for admissibility under the Evidence Act. Mr Reynolds
1 See R v Turner [1975] 1 QB 834 (CA); and s 25(3) of the Evidence Act 2006.
2 FAF Holdings Ltd (in liq) v Bethune [2017] NZHC 2796.
3 Re Allebart Pty Ltd [1971] 1 NSWLR 24 at 28. See also Re Contract Corporation; Gooch’s Case
(1872) 7 Ch App 207.
4 Penny v Commissioner of Inland Revenue [2011] NZSC 95, [2012] 1 NZLR 433 at [32].
5 Robinson v R [2014] NZCA 249 at [20]–[30].
6 Glenvar Property Holdings Ltd (in liq) v Terra3 Ltd [2017] NZHC 2463 at [4] (footnote omitted).
did not explain why no evidence was called from persons who were actually involved in the transactions on which he relied to found the claims against the defendants.
[7] Furthermore Mr Chisholm contends that Mr Bethell’s position is compromised by the litigation funding agreement that he has entered. The agreement contains a number of terms that are said to prejudice Mr Bethell’s obligation to act impartially as liquidator, including cl 14.1 which is a positive duty owed to the funder that requires the liquidators to “use their reasonable endeavours to maximise settlement or judgment proceeds (net of costs) in an appropriate expeditious manner” and cl 14.2 which prevents the liquidators settling the litigation without the funder’s consent.
[8] As an example of the agreement so prejudicing the liquidators’ approach, he identified the change in stance regarding the liquidators’ treatment of a certain liability to Mainzeal for the purposes of the liquidator obtaining “pooling” orders, which he says is no longer adopted in this proceeding in order to maximise the potential claim for the benefit of the funder.
[9] He relied on the observation of the Chief Justice in PricewaterhouseCoopers v Walker concerning the appropriateness of the funding agreement in that case, which he said was essentially the same as the funding agreement in this one.7 He also relied on similar observations by Justice Anderson in Re Nautilus Developments Ltd, in which His Honour emphasised the importance of litigation funding agreements not compromising the liquidator’s independence.8
[10] Mr Chisholm contrasted the position with the views of creditors in a creditors committee under s 258 of the Companies Act noting that s 258(4) records that the liquidator retains his or her discretion to conduct the litigation. Consultation is permissible but the clauses in the funding agreement here go further. Further, a liquidator may be able to assign litigation but if pursuing it in his or her own name he or she needed to retain control as the Court of Appeal noted in ALF No 9 Pty Ltd v Ellis.9
7 PricewaterhouseCoopers v Walker [2017] NZSC 151, [2018] 1 NZLR 735 at [123]–[131].
8 Re Nautilus Developments Ltd (in liq) [2000] 2 NZLR 505 (HC) at [22] and [24]. Approved by the Court of Appeal in ALF No 9 Pty Ltd v Ellis [2010] NZCA 529.
9 ALF No 9 Pty Ltd v Ellis, above n 8, at [55].
[11] Mr Chisholm also relied on the decision of the Court of Appeal in Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd where the Court held that a principal from the litigation funder itself should not have been allowed to give expert evidence as an exercise in advocacy rather than true expert evidence.10 Such evidence was not substantially helpful in accordance with s 25 of the Evidence Act 2006. Mr Chisholm also stresses that the perception of independence is as significant as actual independence in relation to the position of a liquidator.
[12] Mr Chisholm also made a number of particular objections to Mr Bethell’s evidence, in relation to hearsay statements, and its reliance on email communication between people who are not to be called as witnesses. He focussed on the latter in submissions he filed in reply.
Plaintiffs’ response
[13] Mr O’Brien QC for the plaintiffs contended that Mr Bethell’s evidence was properly admitted as evidence of fact given his role as liquidator, and he was able to give opinions associated with those facts under s 24 of the Evidence Act, and that he was also properly qualified as an expert to give expert evidence in accordance with s 25.
[14] He argued that the reliance on the Chief Justice in PricewaterhouseCoopers v Walker did not justify the criticism of the litigation funding agreement here.11 This was a single judgment, which was not the result of argument and was not joined by other members of the Court. The agreement here was the same kind as had been allowed by the Court of Appeal in that case, and also approved in Strathboss Kiwifruit Ltd v Attorney-General.12 Its terms were consistent with the liquidators’ obligation to maximise the assets of the company, so there was nothing objectionable about cl 14.1 of the agreement or the other terms. He distinguished the position of Mr Keys in Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd given the findings of fact made about Mr Keys’ position in that case.13
10 Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67, [2016] NZLR 750 at [97]–[104].
11 PricewaterhouseCoopers v Walker, above n 7.
12 Strathboss Kiwifruit Ltd v Attorney-General [2015] NZHC 1596.
13 Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd, above n 10.
[15] Mr O’Brien emphasised that the liquidators are witnesses of fact, that the business records of the company are admissible under s 19(1)(b) of the Evidence Act, and that the formal role of the liquidator with respect to reports under ss 255 and 258A(1) of the Companies Act mean that Mr Bethell can properly provide evidence of fact in relation to those matters. Mr O’Brien noted that the High Court had allowed evidence of that kind in not only FAF Holdings Ltd (in liq) v Bethune,14 but also in Blanchett v Keshvara.15
[16] In both cases the Court took a realistic approach. This approach is recognised by s 24 of the Evidence Act as well as s 25, and s 24 allows evidence of opinion to enable the witness to communicate their factual evidence. Mr O’Brien pointed out that the observations of Justice Toogood in Glenvar Property Holdings Ltd (in liq) v Terra3 Ltd involved a case where the evidence did not meet the substantial helpfulness test as the liquidator was engaged in what was described as an “artificial reconstruction”.16
Analysis
[17] I begin by observing that Mr Bethell is a witness of fact in relation to the state of the companies, and his inquiries and investigations. He also has recognised expertise in relation to corporate activities associated with the liquidation of companies, and can give opinion evidence on such matters in accordance with the rules for the giving expert evidence.
[18] Expert evidence can be given by a liquidator even though he or she is a party to the proceeding. The liquidators are not in a unique position in this respect. Complete independence is not required for an expert giving expert evidence. That is not a requirement set out in the Code of Conduct for expert witnesses, and the touchstone for admissibility set out in s 25 of the Evidence Act does not depend on impartiality, but ultimately on whether the opinion evidence will be of “substantial help”.
14 FAF Holdings Ltd (in liq) v Bethune, above n 2.
15 Blanchett v Keshvara [2011] NZCCLR 34 (HC), upheld on appeal in Keshvara v Blanchett [2012] NZCA 553, [2013] NZCCLR 13.
16 Glenvar Property Holdings Ltd (in liq) v Terra3 Ltd, above n 6, at [44].
[19] A consideration of the type of matters that can come before the Court illustrates why this is so. Sometimes the very nature of the subject matter of litigation makes opinion evidence inevitable, including from the protagonists. In Geddes v New Zealand Dairy Board, for example, the plaintiffs were attacking a sophisticated model that was being used for assessing the breeding worth of dairy animals.17 A number of witnesses were called in response to that challenge, including a number of employees who had developed or implemented the model for use. The High Court held they could give expert evidence notwithstanding they were obviously directly interested. It would have been unrealistic to deal with the facts of the case without dealing with the questions of opinion.
[20] Section 24 of the Evidence Act also allows a witness to give opinion evidence “if that opinion is necessary to enable the witness to communicate, or the fact-finder to understand, what the witness saw, heard, or otherwise perceived”. The cases under that section tend to be criminal cases where the subject matter may make it easier to distinguish between fact and opinion, and where this exception may have limited operation.18 The position may be different with a complex commercial case. The dividing line between fact and opinion is more subtle. Ultimately this case turns on the opinions that were formed by the directors at the time given the circumstances they were confronted with. When they give their evidence, the evidence as to the opinions they formed at the time will, technically, be a question of fact. But it will be very difficult for them not to also venture opinions about those matters as, in the words of the section, it is necessary to do so to enable the witness to communicate, or the fact- finder to understand, what the witness perceived.
[21] A similar situation may be said to arise when a liquidator is giving evidence in support of a claim against the former director. The liquidator can be expected to give evidence of fact concerning the position of the companies, and the results of the liquidators’ inquiries and investigations. He or she would be expected to introduce the business records of the companies and explain what they show. I note r 9.7(4)(f) of the High Court Rules, but the position may be different here where the liquidator
17 Geddes v New Zealand Dairy Board HC Wellington CP52/97, 27 August 2003 at [71]–[74].
18 See Elisabeth McDonald and Scott Optican (eds) Mahoney on Evidence: Act and Analysis
(Thompson Reuters, Wellington, 2018) at [EV24.01]–[EV24.02].
places the business records before the Court so that the factual position can be understood. In doing so it may be difficult not to provide some expressions of opinion. The dividing line between fact and opinion again becomes less clear the more complex or sophisticated the underlying matters of fact are.
[22] Ultimately, however, it is a matter of degree. That is so both for admissibility under s 24, and admissibility under s 25. The principal of the litigation funder who purported to give expert evidence in Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd was too closely financially interested in the outcome of the litigation to provide expert evidence of any assistance.19 Equally the evidence that was involved in Commissioner of Inland Revenue v BNZ Investments was a jumble of expert opinion, submission and argument.20
[23] I do not think that the terms of the litigation funding agreement entered into by the liquidators’ compromise Mr Bethell’s ability to give expert evidence in such a way that would render it inadmissible under s 25. The metes and bounds of what permissible litigation funding agreements actually are is not subject to a clear set of rules. I note the observations that have been made in the authorities referred to by Mr Chisholm, including those in relation to litigation funding agreements involving liquidators, and the possible risk to the independence of the liquidators. On the other hand it needs to be recognised just how expensive large scale commercial litigation has become in New Zealand, and why recourse to litigation funding agreements is necessary if such cases are to be argued at all.
[24] I accept that there are some points that can be made about the litigation funding agreement here. But cl 14.1 is not problematic. It involves a promise to maximise the settlement or judgment proceeds. That promise is consistent with the liquidators’ duties – the liquidator has a duty to maximise the assets of the company in liquidation, and the litigation is such an asset. The liquidator has maximised that asset, in his view, by entering the litigation funding agreement, which allows that asset to be maximised. Part of the price of that arrangement is the liquidators’ promise that they will maximise
19 Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd, above n 10.
20 Commissioner of Inland Revenue v BNZ Investments Ltd [2009] NZCA 47, (2009) 19 PRNZ 553.
the settlement or judgment for the benefit of the funder, as well as the company. Those are not inconsistent obligations.
[25] Similarly I do not regard cl 14.2, which requires the funders consent to any settlement, to be clearly objectionable. It recognises the funder’s legitimate interest in the outcome of the case. It’s consent cannot be exercised unreasonably given that any dispute about settlement is subject to a dispute resolution procedure in cls 14.4–
14.6 where ultimately an independent expert makes the decision. I do not think these clauses result in the liquidator yielding control of the litigation in the manner contemplated by Re Allebart Pty Ltd (in liq), at least as that case should be applied in today’s litigation environment.21 I have no doubt that it is the liquidators and not the funder that are bringing this claim. Indeed what this argument is about is the extent to which the liquidator may give evidence in support of it.
[26] For these reasons, I do not view the existence of the litigation funding agreement, or its terms and conditions, as such that the evidence from Mr Bethell is not substantially helpful.
[27] There is an issue with the actual form of the evidence Mr Bethell proposes to give if it is to be admitted under s 25. As Mr Chisholm rightly said, the original brief of evidence was prepared without the discipline in terms of the requirements for giving expert evidence. The introduction of the Code in the supplementary brief appears to have been an afterthought.
[28] The briefs are accordingly not structured in terms of questions of expert evidence the liquidator is addressing, and the factual assumptions that are made for the purposes of providing that opinion under s 25. Rather they are in the form of commentary on the factual events that, in the liquidator’s opinion, were taking place and (essentially) his criticism of the defendants for those events. They may nevertheless be admissible as still meeting the substantially helpful test under s 25, and under s 24 if such opinions are necessary for the liquidator to communicate, and for the Court to understand, the factual issues.
21 Re Allebart Pty Ltd (in liq), above n 3.
[29] At times passages of the proposed evidence appear to be rightly characterised as submission and argument rather than duly admissible opinion. I think it likely that much of this evidence could have been given with less advocacy involved by the use of more neutral language. Given these circumstances the question is to decide how best to deal with this situation as it currently presents itself. I am ultimately guided by the question whether the opinions expressed by Mr Bethell are necessary to understand the evidence of fact, and whether they are of substantial help.
[30] The approach followed by Justice Venning in Blanchett v Keshvara22 and by Justice Woodhouse in FAF Holdings Ltd (in liq) v Bethune23 recognise the practicalities involved in a liquidator giving evidence in relation to complex company affairs. Their approach suggest application of ss 24 and 25 in a realistic way given the subject matter.
[31] Mr Bethell is duly qualified to give expert opinion evidence, and the matters on which he expresses his opinion are within his expertise. He is the liquidator, and entitled to provide evidence of fact as to the records of the companies, and his reports. It is very difficult for me to decide at the outset of this case, when I only have a very preliminary understanding of the underlying key issues, to make a final determination that certain views of the liquidator are admissible or not. For similar reasons, the Court of Appeal was not able to rule out perhaps more obviously objectionable evidence in advance of trial in Commissioner of Inland Revenue v BNZ Investments.24 I suspect many of the passages objected to will fall away in terms of their significance when the underlying facts are more closely addressed. At the moment, however, I do not propose to rule on each of the passages objected on by the defendants. I will receive the evidence de bene esse, and I will make subsequent rulings on them in the ultimate judgment if that truly proves necessary. I expect it may not in the end. I will adopt the same approach to the five listed documents that the defendants object to on the basis that they are not admissible business records, although I am prepared to consider that matter further when we come to those documents as Mr O’Brien effectively accepted.
22 Blanchett v Keshvara, above n 15.
23 FAF Holdings Ltd (in liq) v Bethune, above n 2.
24 Commissioner of Inland Revenue v BNZ Investments, above n 20.
[32] I appreciate that this approach may cause some degree of perceived disadvantage for the defendants, particularly in relation to cross-examination. There is a risk that it will extend cross-examination because of a perceived need to confront Mr Bethell on the challenged passages. I should make it plain, however, that I will not adopt the view that Mr Bethell’s opinions that are objected to will be accepted by the Court simply because they are not challenged. Cross-examining counsel can also be expected to have the confidence in their own views about the lack of substantial help that I will ultimately derive from those expressions of opinion, especially given my observations above.
[33] Accordingly, I decline to uphold the first defendant’s objection at this stage. That determination is without prejudice to a subsequent review of the extent to which Mr Bethell’s evidence is substantially helpful, or necessary to understand the issues of fact at the close of this case.
Cooke J
Solicitors:
MinterEllisonRuddWatts, Auckland for the Plaintiffs LeeSalmonLong, Auckland for the First Defendant
Chapman Tripp, Auckland for the Second to Fifth Defendants K3 Legal Ltd, Auckland for Sixth Defendant
Copy to:
Mark O’Brien QC Greg Blanchard QC Jack Hodder QC David Chisholm QC
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