Mayo-Smith v Rosenberg
[2013] NZHC 2741
•21 October 2013
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2013-485-470 [2013] NZHC 2741
UNDER the Companies Act 1993
IN THE MATTER OF the liquidation of JOHNSONVILLE LIMITED (in liquidation) and JOHNSONVILLE 2000 LIMITED (in liquidation)
BETWEEN BRIAN MAYO-SMITH AND STEPHEN JOHN TUBBS
Plaintiffs
ANDRONALD PETER ROSENBERG First Defendant
SYDNEY LIO HUNT Second Defendant
GRAEME HOWARD MANDER Third Defendant
..../cont
Hearing: 17 July 2013
Counsel: R C Laurenson for First Defendant (Applicant)
B A Scott and N S Wood for the Plaintiffs (Respondents) Judgment: 21 October 2013
JUDGMENT OF GODDARD J
This judgment was delivered by me on 21 October 2013 at 3.30 pm, pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Chapman Tripp, Wellington for Plaintiffs
Johnston Lawrence Ltd, Wellington for First Defendant
MAYO-SMITH v ROSENBERG [2013] NZHC 2741 [21 October 2013]
RAYMOND GEORGE WOLKEN Fourth Defendant
R P ROSENBERG & ORS Fifth Defendants
ASSET SECURITIES LIMITED & ORS Sixth Defendants
Introduction
[1] The plaintiffs are the liquidators of Johnsonville Limited and Johnsonville
2000 Limited, formerly E-Gas Limited and E-Gas 2000 Limited. Those companies were involved in the retail supply of gas to customers. The first and second defendants, Messrs Rosenberg and Hunt, were respectively the Managing Director and Chief Executive, and the General Manager of E-Gas Limited and E-Gas 2000. They are jointly charged with 41 counts of dishonestly using a document under s 228(b) of the Crimes Act 1961. The charges span the period April 2005 to October
2008 and are denied.
[2] Committal for trial was on 28 November 2012 and trial is due to commence on 17 February 2014. It is set down for four weeks.
[3] The plaintiffs are suing for the same actions that form the basis of the criminal charges against Messrs Rosenberg and Hunt. Mr Rosenberg is seeking a stay of those civil proceedings pending final determination of the criminal charges.
[4] The first-named sixth defendant, Asset Securities Limited, filed a memorandum advising that it supports the application for a stay but did not intend to appear or make a submission.
[5] It is not in dispute that the civil proceeding will not be heard until after the criminal trial takes place.
Background
[6] Under the Gas Act 1992 and related Regulations, suppliers have to estimate how much gas they will use. If they use less, they must pay for what they estimated. If they use more, they must pay for 10 times the cost of gas for the excess. Suppliers are required to report their monthly gas usage to an Allocation Agent (known as submissions). It is alleged Messrs Rosenberg and Hunt made false submissions of their gas use (by underreporting their use) to the Allocation Agent.
[7] As noted, the civil proceeding against Messrs Rosenberg and Hunt relates directly to the same allegations of deliberate underreporting of gas use, although they span a longer time period (31 March 2001 to 31 March 2010). Mr Rosenberg is alleged to have breached his director’s duties and fiduciary duties; to have conspired by unlawful means; and to have acted dishonestly.
[8] The Serious Fraud Office alleges the criminal offending has resulted in an advantage of $17.41 million. The civil proceeding alleges an amount of over
$20 million arising from the alleged underreporting. The allegations in the civil proceeding are similarly denied by Mr Rosenberg.
Legal framework
[9] The High Court in its inherent jurisdiction can stay civil proceedings where criminal proceedings involving the same events are pending and may be affected by determination of the civil proceedings.1 This stems from the inherent power of the Court to prevent an abuse of its processes. Overlaying this is s 405 of the Crimes Act 1961, which provides that no civil remedy shall be suspended on the ground that it relates to an act or omission that is a criminal offence. Thus there is a presumption
against a stay.2
1 Wells v Lewis (1990) 3 PRNZ 454 (HC) where the comparable rule to r 15.1 of the High Court Rules, that allows for strike out and stay, was acknowledged by counsel to be inapplicable to the situation.
2 General Distributors Ltd v Hilliard HC Auckland CIV-2008-404-1057, 16 July 2008.
[10] The two regularly cited cases in this area are Jefferson Ltd v Bhetcha,3 a decision of the English Court of Appeal; and McMahon v Gould,4 a decision of the Supreme Court of New South Wales.5
[11] In Jefferson Ltd v Bhetcha, the plaintiff brought an application for summary judgment against Mrs Bhetcha for the value of cheques in respect of which she was also facing theft proceedings. Mrs Bhetcha was concerned about the perceived unjustifiable encroachment on her right to silence. The Court of Appeal in its civil jurisdiction held there was no principle of law that a plaintiff in a civil action is to be debarred from pursuing that action in accordance with the normal rules for the conduct of civil actions, merely because to do so might result in the defendant having to disclose his or her defence with the result that this might give an indication of their likely defence in the contemporaneous criminal proceedings. On this issue
Megaw LJ held as follows:6
The protection which is at present given to one facing a criminal charge (the so-called ‘right of silence’) does not extend to give the defendant as a matter of right the same protection in contemporaneous civil proceedings. Counsel for the defendant, though he submitted that there was such a general principle, accepted that it was not a principle of absolute and invariable application, but that there was a measure of discretion in the Court. He submitted, however, that in this case there ought here to be a stay of the proceedings in the civil action until such time as the criminal proceedings have come to a conclusion. In my judgment, while each case must be judged on its own facts, the burden is on the defendant in the civil action to show that it is just and convenient that the plaintiff's ordinary rights of having his claim processed and heard and decided should be interfered with. Of course, one factor to be taken into account, and it may well be a very important factor, is whether there is a real danger of the causing of injustice in the criminal proceedings. There may be cases (no doubt there are) where that discretion should be exercised. In my view it would be wrong and undesirable to attempt to define in the abstract what are the relevant factors. By way of example, a relevant factor telling in favour of a defendant might well be the fact that the civil action, or some step in it, would be likely to obtain such publicity as might sensibly be expected or reach, and to influence, persons who would or might be jurors in criminal proceedings. It may be that, if the criminal proceeding were likely to be heard in a very short time (such as was the fact in the Wonder Heat case [1960] VR 489 in the Victoria Supreme Court) it would be fair and sensible to postpone the
3 Jefferson Ltd v Bhetcha [1979] 1 WLR 898; [1979] 2 All ER 1108 (CA).
4 McMahon v Gould (1982) 1 ACLC 98.
5 For example in ADT Securitas Ltd v Geange (1992) 6 PRNZ 100 (HC); General Distributors Ltd v Hilliard, above n 2; and Nathans Finance Ltd (in Rec) v Doolan HC Auckland CIV-2010-404-
2360, 15 October 2010.
6 Jefferson Ltd v Bhetcha, above n 3, at 905.
hearing of the civil action. It might be that it could be shown, or inferred, that there was some real, not merely notional, danger that the disclosure of the defence in the civil action would, or might, lead to a potential miscarriage of justice in the criminal proceedings by, for example, enabling prosecution witnesses to prepare a fabrication of evidence or by leading to interference with witnesses or in some other way.
[12] In McMahon v Gould, Wootten J reviewed the existing authorities in Australia and elsewhere and set out a number of guidelines for the Court on an application for stay.7 Applying the principles in Jefferson Ltd v Bhetcha, the Judge observed that prima facie a plaintiff is entitled to have his or her action tried in the ordinary course of the procedure and business of the Court. The focus is on whether there is a real and not a merely notional danger of injustice in the criminal
proceedings. Some relevant factors would be the possibility of publicity that might reach and influence jurors; the proximity of the criminal hearing; the possibility of miscarriage of justice, for example by disclosure of a defence enabling the fabrication of evidence by prosecution witnesses or interference with defence witnesses; the burden on the defendant of preparing for both sets of proceedings concurrently; whether the defendant has already disclosed his defence to the allegations; and the conduct of the defendant, including his own prior invocation of civil process when it suited him.
[13] A number of relevant New Zealand authorities have cited or applied the principles and guidelines in McMahon v Gould.
The competing arguments
[14] On behalf of Mr Rosenberg, Mr Laurenson submitted that Jefferson Ltd v Bhetcha and McMahon v Gould should not be followed in this case, advancing several reasons in support. The primary reason and central thrust of his argument was that the right to silence is of such fundamental importance that the burden should be on the plaintiffs to show that a stay should not be granted. In essence, Mr Laurenson was arguing that this Court should reverse the established burden on defendants in civil actions to show that it is just and convenient for a plaintiff’s ordinary rights to be interfered with; and should find instead that an accused should
be entitled as of right to have a civil proceeding stayed because of a pending criminal
7 McMahon v Gould, above n 4, at 101.
prosecution. Mr Laurenson’s submission was that this Court should prefer the ratio at first instance in Jefferson Ltd v Bhetcha, as per Forbes J, that:8
The defendant is entitled to keep silent. That seems to me to be fundamental and that right is not to be eroded by a side wind.
[15] For the Court to take the step advocated by Mr Laurenson would, however, require a radical departure from the decision in Jefferson Ltd v Bhetcha, which overturned Forbes J in the Court below, and the guideline principles set out in McMahon v Gould, which have been consistently cited or applied in the New Zealand jurisprudence.
[16] Mr Laurenson also referred to the decision of this Court in Thompson v Commission of Inquiry into Administration of District Court at Wellington as a case in which the constitutional right to silence had been fully appreciated by the High Court and which he said ought to be preferred to the approach in Jefferson Ltd
v Bhetcha and McMahon v Gould.9
[17] Applying this primary argument to Mr Rosenberg’s situation, Mr Laurenson submitted that to proceed with preparation for the civil proceeding would be an encroachment on Mr Rosenberg’s fundamental right to silence. On a practical level, it would compel him to complete a substantive statement of defence and to undertake discovery and thereby effectively disclose and signal his defence in the criminal trial. An apparently complicating matter was said to be the fact that there are multiple defendants in the civil proceeding, who fall into different classes. A potential difficulty arising from this was adverted to by Mr Laurenson, albeit rather obliquely. The difficulty seemed to be that the filing of a statement of defence and the issue of cross party notices would not only signal Mr Rosenberg’s defence to the criminal charges but might also incriminate defendants who are not presently charged with those offences.
[18] A further argument advanced by Mr Laurenson was that to have to engage in concurrent preparation for the civil proceeding would place an unjust burden on
8 Jefferson Ltd v Bhetcha, above n 3, at 904, quoting Forbes J in the lower Court.
9 Thompson v Commission of Inquiry into Administration of District Court at Wellington [1983] NZLR 98 (HC).
Mr Rosenberg, who needs to concentrate his efforts on the criminal trial at this stage. Mr Laurenson suggested it would not be an injustice to the plaintiffs if their case were to be suspended until February 2014, as the companies are in any event already in liquidation.
[19] In response, Mr Scott for the plaintiff submitted that the invitation to disregard the decision in Jefferson Ltd v Bhetcha and the established line of jurisprudence should be declined, as the line of authority is well-established. The decision in Thompson, he said, is distinguishable on its facts, as it involved a criminal trial in process at the same time as an investigation by a Commission of Inquiry with public hearings. Further, Thompson was not concerned with concurrent civil proceedings and a criminal trial.
[20] Mr Scott emphasised that the onus is on Mr Rosenberg to satisfy the Court that the right of the plaintiffs to have their civil action tried in the ordinary course of procedure should be interfered with. He said Mr Rosenberg had not discharged that onus. As it is, the civil hearing will not take place until well after the criminal hearing, so any issues raised will relate only to the pre-hearing process. In relation to the right to silence, Mr Scott pointed out that this has already been compromised in Mr Rosenberg’s case, as he was required to make statements explaining his
conduct to the liquidators and to the Serious Fraud Office.10 In this regard the
plaintiffs as liquidators had required Mr Rosenberg, pursuant to their powers under s 261 of the Companies Act 1993, to be examined on oath on various matters relating to the business, accounts and affairs of the two E-Gas companies. That examination included questions on (amongst other things) reasons for the E-Gas underreporting alleged in the statement of claim.
[21] In terms of any burden on Mr Rosenberg in having to simultaneously prepare for both a criminal trial and a civil hearing, Mr Scott said Mr Rosenberg has provided no evidence that he cannot undertake both. The burden of discovery is in any event on the liquidators and most documentation has already been supplied by
the Serious Fraud Office. The bulk of the interlocutory work will be done by
10 Under the Serious Fraud Office Act 1990, s 27.
Mr Rosenberg’s legal representatives and not by him personally and any potential prejudice can be met by the staging of the interlocutory steps.
[22] Mr Scott said the liquidators have a duty to get on and liquidate the claims and it is important they not be prevented from doing so.
Analysis
[23] As the civil hearing will not take place until the criminal trial is completed, the issues Mr Rosenberg raises only relate to his preparation for the civil hearing. While it is correct that he will need to file a statement of defence if he wishes to defend the civil proceeding, any interference with his right to silence will be minimal or non-existent because, as noted above, he has already been examined on oath at the request of the plaintiff liquidators. The effect of s 267 of the Companies Act meant that Mr Rosenberg was not excused from answering any question on the ground that it may incriminate or tend to incriminate him. The answers he gave to the liquidators’ questions are admissible in the civil proceeding. His testimony in the examination will not be admissible as evidence at his criminal trial except on a charge of perjury in relation to that testimony. In summary, Mr Rosenberg’s defence is already known to the plaintiffs and there is no suggestion that filing a statement of defence and providing information through civil discovery will further encroach on his right to silence in any significant way. Nor is there any reason to suppose that his defence in the civil case will be disclosed in advance of the criminal trial. The position of other defendants in the civil proceeding who are not active participants in this application cannot be determinative.
[24] Given the manner in which all relevant documentation has apparently been secured and concisely recorded by the Serious Fraud Office and already made available to the defence, there should be no major resourcing issues or burden involved in Mr Rosenberg having to concurrently undertake an exercise in civil discovery while also preparing for a criminal trial.
[25] It is neither necessary nor at all appropriate for this Court to revisit and attempt to reverse the clear and well-established jurisprudence in relation to the
principles of stay, as Mr Laurenson has requested. Further, the circumstances of this case do not merit the undertaking of such an exercise.
Conclusion
[26] Mr Rosenberg has not shifted the onus on him to satisfy the Court that there ought to be a stay of proceedings ordered in this case and his application is dismissed. As is clear, the application is in any event largely redundant, as he has already disclosed his position through his answers to the matters he was required to traverse in his Companies Act examination, including the E-Gas underreporting. There is no real, as opposed to merely notional danger, of any injustice to Mr Rosenberg in the criminal proceedings.
[27] The liquidators are entitled to progress their claim in the ordinary course of the procedure and business of the Court by at least progressing through the interlocutory stages.
[28] Costs are reserved.
Goddard J
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