Masterton Investments Ltd v Watson
[2023] NZHC 1144
•12 May 2023
IN THE HIGH COURT OF NEW ZEALAND MASTERTON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKAORIORI ROHE
CIV-2020-435-19
[2023] NZHC 1144
BETWEEN MASTERTON INVESTMENTS LTD
Plaintiff
AND
DENIS ERIC WATSON
Defendant
Hearing: 10 May 2023 Counsel:
E St John and S P Moloney for Plaintiff (Respondent) K P Sullivan for Defendant (Applicant)
Judgment:
12 May 2023
JUDGMENT OF RADICH J
[1] In a judgment on 25 November 2022, Ellis J awarded the plaintiff (MIL) damages of $484,554.40 for a failure on the part of the defendant (Mr Watson) to settle the sale and purchase of a commercial property in Masterton, plus interest under the agreement for sale and purchase, together with interest on the judgment sum under the Interest on Money Claims Act 2016.
[2]Costs payable by Mr Watson following the judgment amounted to $94,226.
[3] Mr Watson has applied for an order staying further steps to enforce the judgment1 pending the outcome of his appeal to the Court of Appeal. The appeal is set down for hearing in the Court of Appeal on 26 September 2023.
1 MIL has, to date, obtained an order for the examination of Mr Watson, and a charging order over a property in which Mr Watson has an interest in Kumeū and, subsequently, it has obtained a sale order for that property – both under Part 17 of the High Court Rules.
MASTERTON INVESTMENTS LTD v WATSON [2023] NZHC 1144 [12 May 2023]
[4] The stay is sought “subject to Mr Watson procuring ManukaMed Limited Partnership to pay $100,000 per month into his solicitor’s trust account starting in June 2023 and providing a written undertaking from the solicitors that they are irrevocably instructed to pay the moneys out in accordance with the decision of the Court of Appeal or by earlier agreement of the parties”.
[5] Mr Watson says that the stay can safely be granted because he has put sufficient arrangements in place for MIL and for the Court to be confident that the judgment sum will be paid if the appeal is unsuccessful.
[6] MIL says that, without further undertakings or security for the judgment sum, there can be no such confidence and that, as a result, the grounds for a stay cannot be made out.
Legal principles
[7] The application is made pursuant to both r 17.29 of the High Court Rules and r 12(3) of the Court of Appeal (Civil) Rules.
[8] Rule 17.29 of the High Court Rules enables a party who is liable under a judgment to apply to the Court for a stay of enforcement or other relief against the judgment on the ground that “a substantial miscarriage of justice would be likely to result if the judgment were enforced”. The Court may “give relief on just terms”. Rule 12(3) of the Court of Appeal Rule has a broader application. Rather than being confined to a stay of enforcement (or other relief), under r 12(3), the Court appealed from or the Court of Appeal may order a stay of proceeding in which the decision was given, as a whole.
[9] The Court’s discretion under r 17.29 is wide. The Court in Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd identified six principles to which a Court might have regard in considering the application of r 17.29.2 The principles can be summarised in the following way:
2 Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd HC Napier CIV-2010-441-134, 8 June 2011 at [19]. The principles have been cited with approval in Mike Pero Mortgages Ltd v Pero [2018] NZHC 528 at [11].
(a)The onus is on an applicant for the stay to persuade the Court to exercise its discretion.
(b)The “substantial miscarriage of justice” that must be involved means something more than minor and it is not a substantial miscarriage of justice for a party that has had the use of another’s money to be required to repay or for a creditor to take such steps as it sees fit to pursue recovery.
(c)A substantial miscarriage of justice must be “likely to result”, rather than there being a prospect of miscarriage of justice.
(d)The Court must seek to do justice between the parties and exercise its discretion in a manner that will best serve the overall interests of justice. A balancing exercise is involved.
(e)A miscarriage of justice is unlikely to result if a payment must be made under a judgment while the liable party is free to pursue a counterclaim.
(f)Other relevant factors will include the apparent strength or weakness of the claim, the ability of the applicant for the stay to meet the judgment that is being enforced and the potential bankruptcy or liquidation of a party seeking to pursue an apparently strong claim.
[10] Equally, under r 12(3) of the Court of Appeal Rules, the Court is required to balance the competing rights of the party who obtained the judgment appealed from against the need to preserve an appellant’s position in the event of the appeal succeeding.3
[11]Factors to be taken into account under r 12(3) include:
(a)Whether the appeal may be rendered nugatory by the lack of a stay.
3 Duncan v Osborne Buildings Ltd [1992] 6PRNZ 85 (CA) at [87].
(b)The bona fides of the applicant as to the prosecution of the appeal.
(c)Whether the successful party will be injuriously affected by the stay.
(d)The effect on third parties.
(e)The novelty and importance of the questions involved and the public interest in the proceeding.
(f)The overall balance of convenience; and
(g)The apparent strength of the appeal.4
[12] However, in the case of money judgments, the approach that the courts have taken, generally, is that so long there is an appropriate assurance of repayment if the appeal is successful, then the party at first instance should receive immediate payment of the judgment sum.5
[13] As a result, in the case of a money judgment, relevant considerations on a stay application will turn upon consideration by the court of whether there can be suitable assurance or security for the judgment sum as a condition of the stay. And that is, essentially, what this case boils down to.
Analysis of relevant factors
[14] I consider the respective positions of the parties in the context of an amalgam of the relevant considerations under the rules discussed above.
Whether the appeal may be rendered nugatory by the lack of a stay
[15] This is not a factor that comes into play on this application. The appeal would not be rendered nugatory if a stay was not ordered.
4 Keung v GBR Investment Ltd [2010] NZCA 396 at [11]; Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC) at [9].
5 Contributory Mortgage Nominees Ltd v Harris Road No. 10 Ltd (2006) 22 NZTC 19,752 (HC) at [13]–[14].
The bona fides of the applicant in the prosecution of the appeal
[16] Mr St John has referred to the case on appeal being filed on the last day possible under the Court of Appeal Rules in support of a submission under this head that there should be some doubt over Mr Watson’s bona fides. Mr Sullivan, in response, explained that the substantial number of documents involved in the case on appeal and the time that was needed for the hyperlinking processes for the electronic case were such that, despite his best endeavours, the case could not filed earlier in time. He referred to the process as being an administrative task for counsel and as something over which Mr Watson was not involved.
[17] For better or for worse, it is not unusual for things to come down to the wire when filing a case on appeal and I do not see this as being something that could be used to impugn the bona fides of Mr Watson.
[18] Mr St John referred also to Mr Watson not having signed the notes taken at his VMR-based post-judgment examination. That is not something on which the Court has sufficient information so I take that point no further.
Whether the successful party would be injuriously affected by the stay
[19] This is where the central question in this case – the sufficiency of the arrangements or assurances or surety for the judgment sum – falls for consideration. I address this point below finding, on balance, that the overall justice favours the position advanced for Mr Watson.
Novelty and importance of the questions involved and the public interest in the proceeding
[20] The issues in this case are not novel and important or of public interest. The case turns largely on its facts through the application of established legal principles.
Apparent strength of the appeal
[21] The appellant’s case on appeal is similar to the grounds advanced in defence of the claim in this Court. It is said that the finding that Mr Watson had failed to settle
the sale and purchase of the commercial property involved was an error in light of subsequent “lease to buy” arrangements that were put in place immediately before the property was sold to a third party – and that the subsequent sale to the third party was at a level that was below market value.
[22] This is not a point that was argued on the stay application but, on its face, there is a bona fide case on appeal. However, in the absence of argument, I am not in a position to assess its strength.
The balance of convenience and the overall interests of justice
[23] This factor goes hand in hand with a consideration of the extent to which MIL would be injuriously affected by the stay which, in turn, involves a consideration of the arrangements proposed by Mr Watson as conditions for the stay. Again, I analyse those points in the next substantive section of this decision.
Whether there would be a substantial miscarriage of justice if the judgment was enforced
[24] Mr Sullivan has referred to the fact that no notice was given of the charging order obtained by MIL following the decision and to the fact that, having been obtained, the chagrining order was not served. Accordingly, it is said that, not only could Mr Watson not apply to discharge or vary it but his partner – with whom he owns the Kumeū property jointly – had no knowledge of the charging order.
[25] A sale order was issued under Part 17 of the High Court Rules to MIL following the charging order. Again, Mr Watson takes issue with the fact that no notice of the sale order was given, both generally and in light of the joint interest of his partner in the property. The bailiff’s attendance at the property for an assessment of the sale order was said to be the cause of some distress.
[26] As Mr St John observes, many of the enforcement steps available under Part 17 of the High Court Rules can be taken as of right. The interests of parties on the receiving end of those processes can be accommodated through rights in the rules to apply to the Court for relief.
[27] MIL has every right to enforce its judgment debt and, as I view matters, the steps it has taken under Part 17 of the rules have been available to it. The more relevant question under this head is whether, if subsequent steps are taken under the sale order
– which would involve the High Court Sheriff taking steps (through an agent) to establish chattels at the property that could be sold and, if the debt is not satisfied that way, to take steps to sell the property – that would result in a substantial miscarriage of justice having regard to financial arrangements proposed by Mr Watson, as discussed below.
The prospects of repayment by the judgment creditor in the event that the appeal is successful
[28] As mentioned earlier, there is a presumption in a money judgment case that the successful party at first instance should have its money right away, so long as there is an appropriate assurance of repayment if the appeal is successful. An assurance of that sort is not given here. It is accepted all round that MIL is not trading and that its only asset is the judgment in this proceeding. Its shareholders are in Australia. Mr Watson fairly holds a concern that, if the funds are paid to MIL directly, there is a real risk that, following distribution to shareholders, the funds will not be returned in the event that the appeal succeeds.
[29] But the primary position for MIL is that, rather than seeking payment directly and giving an assurance, it looks to Mr Watson to provide security for the funds.
Analysis of payment arrangements
[30] Mr Watson had the costs and disbursements for which he is liable following Ellis J’s decision paid into his solicitors’ trust account on interest bearing deposit. It is described in submissions as being held pursuant to an undertaking from the solicitors to pay MIL in accordance with the appeal decision, or as otherwise agreed between the parties. In fact, Mr Watson has signed a document in which he “irrevocably instructs” his solicitors to apply the $94,225.96 to MIL in accordance to the judgment of the Court of Appeal as to costs – or any binding settlement deed between him and MIL – and his solicitors have then gone on to confirm in writing that they hold the funds on that basis. While I understand the intention of the arrangement
to have been the provision of a form of undertaking on the part of the solicitors, in my view, a further step is required. The solicitors, based upon the irrevocable instruction, need to undertake to apply the funds in accordance with Mr Watson’s instructions. I do not understand that there would be an issue on Mr Watson’s part in making arrangements of that type.
[31] In relation to the judgment sum itself, Mr Watson has made arrangements for monthly payments of $100,000 to be paid into trust with his solicitors such that, by the time the appeal is heard at the end of September and then determined, there will be at least $500,000 in the solicitors’ trust account to be released in the event the appeal is unsuccessful.
[32] The monthly payments that are proposed would come from ManukaMed Limited Partnership (ManukaMed), a limited liability partnership in which Mr Watson and Meryl Joy Watson (Meryl Watson) are joint directors and shareholders. As both Mr Watson and Meryl Watson have explained in affidavit evidence, while ManukaMed is not liable for the judgment, it is expecting to stand behind Mr Watson to ensure that the judgment can be met if the appeal is unsuccessful.
[33] ManukaMed has funded the costs order and, as Meryl Watson has put it, ManukaMed is wanting to avoid Mr Watson’s bankruptcy. Meryl Watson has said:6
I can confirm that [ManukaMed] will ensure that MIL is paid by [Mr Watson] in full forthwith upon the judgment of the Court of Appeal being delivered.
[34] Meryl Watson has gone on to provide information about the financial strength of the company in support of her evidence that the monthly payments of $100,000 are realistic based upon a careful analysis of the cash flow.
[35] ManukaMed’s accountant, Roger Shackelford, has given evidence confirming the cash flow projection referred to in (and attached to) Meryl Watson’s affidavit. Mr Shackelford has said:7
6 Affidavit of Meryl Joy Watson of 3 May 2023 at [10].
7 Affidavit of Roger Shackelford of 5 May 2023 at [5.2].
[ManukaMed’s] cash flow and in particular the proposal to pay $100,000 per month into trust starting in June 2023 until the judgment debt is paid in full, on an appropriate undertaking that the funds are released to [MIL] in accordance with the appeal judgment, is realistic and achievable and I have no reason to believe that the payments will not be made each month.
[36] MIL says that this does not go far enough. Payment out of cash flow of a business with which Mr Watson is associated over time and without offering security falls short, it is said, of the commitment that is needed to secure a stay. It says that an undertaking is needed from both directors on behalf of the entity to indemnify Mr Watson in full and to make the payments as described. And it is said that the first
$100,000 payment would need to be made immediately, rather than in June.
[37] As Mr St John has put it, it is the difference between a stay which is conditional upon funding that is properly secured – through undertakings or security – and the conditions that are offered, i.e. commitments given in evidence by Mr Watson and Meryl Watson to make the payments with support for the financial ability of ManukaMed to do so from their accountant. The undertaking offered from the solicitors is to pay the money out – but not from Mr Watson and Meryl Watson to pay the money in.
[38] Further assurances are given by Mr Watson. He has listed his house in Mikimiki Road in Masterton for sale. He has said in evidence that he will credit the net proceeds from the sale towards paying the judgment debt if it becomes necessary to do so.
[39] Meryl Watson has said in evidence that another option is that, if for any unforeseen reason, ManukaMed’s sales were to reduce significantly over the next few months such as to impact the monthly payments of $100,000, she and Mr Watson would look to sell the entity’s stock at an undervalue. The stock levels, as recorded in the evidence, are valued at approximately $1.56 million as at 31 March. Mr Shackelford has referred to this as being a viable option if needed – but as being “the least attractive option given the potential negative impact on the business of [ManukaMed]”.
[40] Moreover, MIL has obtained a charging order over the property jointly owned by Mr Watson and his partner at 11 Len Ireland Drive in Kumeū. The charging order provides a certain level of security but, as Mr St John says, the available equity in the property is not known.
[41] MIL’s point, in the face of this information, is that Mr Watson has the ability to pay – whether through stocks of honey or the sale of the family home – but he just will not do so.
[42] While the points made by MIL are well understood, when I stand back and consider the solution that will best serve the overall interests – which will best do justice between the parties – I come to the view that the conditions offered for the stay are, with some supplements, acceptable and that the stay should be granted.
[43] Mr Watson and his business partner, Meryl Watson, have committed in evidence to ensure that ManukaMed will make the payments in full. Accounting evidence supports ManukaMed’s ability to do so. Commitments have been given in evidence to sell ManukaMed’s stock if that is needed and to use proceeds from the sale of Mr Watson’s Masterton house, which is now on the market. to meet the debt. An undertaking from the solicitors to pay to MIL the moneys received can be given. And leave can be reserved to MIL to return to the Court in the event that the conditions of the stay are not met.
Orders
[44]The following orders are made:
(a)The judgment of Ellis J in Masterton Investments Ltd v Watson [2022] NZHC 3113 (the judgment) is stayed pending the outcome of the applicant’s appeal from the judgment to the Court of Appeal and up until the time of the Court of Appeal’s decision.
(b)The order staying the proceeding is subject to:
(i)Mr Watson procuring ManukaMed Limited Partnership to pay
$100,000 per month into his solicitors’ trust account with the first payment to be made by 20 June 2023 and with subsequent
payments to be made on the 20th day of each following month until the trust account holds sufficient funds to meet the terms of paragraphs [96] to [100] of the judgment;
(ii)The solicitors for Mr Watson confirming in writing to counsel for MIL, within two working days of the monthly payments referred to in paragraph (i) above being due, that those payments have been made and received.
(iii)Receipt of a written undertaking from Mr Watson’s solicitors to pay the moneys received by them in accordance with subparagraph (i) to MIL in the event that the appeal from the judgment is declined by the Court of Appeal or by earlier agreement of the parties;
(iv)The provision by Mr Watson of an undertaking from his solicitors that the $94,225.96 held by them on interest bearing deposit for Mr Watson will be paid to MIL in the event that the appeal from the judgment of Ellis J is dismissed.
[45] Leave is reserved to the parties to return to the Court to have the stay or the conditions of the stay reconsidered in the event that the payments referred to in subparagraph (b) are not made.
[46] Costs on this application are reserved. If costs for the interlocutory application are to be pursued, then memoranda, limited to five pages in length, can be submitted at the point in time at which such payments have been made into the solicitors’ trust account as would satisfy the judgment debt, or at the time the decision of the Court of Appeal is delivered, whichever first occurs.
Radich J
Solicitors:
Upper Hutt Law Limited, Upper Hutt for Plaintiff (Respondent) Avid Legal, Wellington for Defendant (Applicant)
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