Memelink v Haines
[2023] NZHC 1711
•31 July 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-459
[2023] NZHC 1711
UNDER Part 15 High Court Rules 2016 IN THE MATTER OF
A Strike Out of a Statement of Claim
BETWEEN
HARRY MEMELINK AND CISCA
FORSTER as trustees of the LINK TRUST NO. 1.
PlaintiffsAND
QUENTIN STOBART HAINES
First Defendant
BPE TRUSTEES (NO. 1) LIMITED
Second Defendant
EASTLIGHT ASSET TRADING NO. 5 LIMITED
Third DefendantSTOBART HOLDINGS LIMITED
Fourth Defendant
Hearing: 3 July 2023 Appearances:
J D Haig for the Respondent/Plaintiff (in receivership) j d Dallas for the Applicants/Defendants
Mr Memelink in person for the trustees
Judgment:
31 July 2023
JUDGMENT OF GRICE J
This judgment was delivered by me on 31 July 2023 at 4.45 pm pursuant to R 11.5 of the High Court Rules
…………………..
Registrar/Deputy Registrar
MEMELINK v HAINES [2023] NZHC 1711 [31 July 2023]
Introduction
[1] The defendants in this matter have applied to strike out the proceedings on a number of bases, including that the claims contain no cause of action or causal link between the plaintiff and the first, second and fourth defendants, there is no case to answer in respect of any of the defendants and the plaintiff has failed to prosecute this claim for over a year.
[2] The Link No 1 Trust (the Trust) is currently in receivership, with receivers having been appointed to the Trust on 31 May 2022 by Churchman J.1 The orders appointing the receivers were varied in December 2022 to include a stay of proceedings by or against the Trust for the period of the receivership unless the receivers agree or the Court otherwise orders.2
[3] In the course of the hearing, a question arose as to the Court’s jurisdiction to strike out the proceedings, given the stay that is in effect. I allowed the parties to file further submissions on this matter following the hearing, which they did.
[4] While for the reasons submitted by Mr Haines and the receivers for the Trust the Court may have inherent jurisdiction to strike out the proceedings despite the receivership stay, I conclude that this is not an appropriate case in which to exercise that discretion.
Background
[5] These proceedings came before the High Court on 15 March 2022, when the Trust was seeking an order that a caveat not lapse. The caveat in question was over a property at Eastern Rise in Manakau. Relief was also sought by way of an interim order that the caveat not lapse if the substantive application could not be determined by a certain date. The application was dismissed by Churchman J on 23 March 2022.3
1 Body Corporate 81012 v Memelink [2022] NZHC 1244.
2 Body Corporate 81012 v Memelink [2022] NZHC 3307 [stay of proceedings decision]; and see Forster v Haines HC Te Whanganui-a-Tara | Wellington CIV-2021-485-459, 21 Māehe | March 2023 (minute of Grice J re general case management conference held 6 March 2023) [general case management conference minute] at [1] and [4].
3 Forster v Haines [2022] NZHC 549.
[6] In his judgment, Churchman J set out the background to the claim.4 In summary, it involved a series of dealings between Mr Memelink on behalf of the Trust and Mr Quentin Haines and entities related to him. They had previously been friends but had fallen out. Mr Haines was previously a solicitor and had provided litigation services to Mr Memelink.
[7] His Honour described the arrangement for Mr Haines’ professional services as having some “highly unorthodox components”, including the provision of professional services by Mr Haines in return for various financial accommodations by Mr Memelink or his interests.5
[8] By way of brief and simplified summary, the transaction in issue in these proceedings related to a loan secured by first mortgage registered against the Manakau property then owned by Mr Haines’ trust, the QSH Trust, the trustees of which were Mr Haines and the second respondent. The loans to the Haines interests secured by the mortgage were guaranteed by the Memelink interests. In a series of transactions, the property first went to mortgagee sale and was bought by Mr Haines or his interests. That sale, however, was cancelled, apparently due to Mr Memelink’s intervention. The first mortgagee then assigned its rights in respect of the mortgage to Eastlight, a company controlled by a friend of Mr Haines. The amount paid to redeem the mortgage by Eastlight’s lawyers was $764,225.45. Eastlight, exercising its mortgagee sale powers, sold the property to a third party (the legal purposes), called Solutions Group Investments Ltd (Solutions), for the sum of $813,000, settling on 20 May 2019. The sale was by way of private contract rather than auction. Mr Haines then rented the property from Solutions for 12 months with the right to purchase it at the conclusion of that period. Mr Haines’ father, Mr Haines (Snr), purchased the property through a company, the fourth respondent, Stobart Holdings Ltd. The property was then rented to Mr Haines.6
[9] Mr Memelink lodged a caveat over the property and sought an order that the caveat not lapse as well as orders restraining the fourth respondent from disposing of
4 At [4]–[37].
5 At [5].
6 At [7]–[37]
the property or entering into any security arrangements in respect of it. Both the caveat application and the injunction application were unsuccessful.7
[10] Other proceedings filed in this court, under CIV 2020-485-497 (the 497 proceedings), also deal with the financial transactions between the Haines and Memelink interests. Those proceedings were commenced by way of summary judgment. In those proceedings, summary judgment for liability was granted in favour of the Trust and a hearing as to quantum has been set down in February 2024.8 The first and second defendants in those proceedings are also the first and second defendants in these proceedings.
[11] The 497 proceedings were due to go to hearing but were adjourned pending the outcome of the application to appoint receivers to the Trust. The judgment appointing the receivers was also the subject of a notice of appeal, which was ultimately dismissed, as well as various applications for stay, which were also dismissed.
[12] At the case management conference held on 6 March 2023, the receivers indicated their consent to the continuation of the 497 proceedings in order to quantify the amount of the claim that was the subject of that proceeding. Timetable orders were made by consent in relation to the 497 proceedings. As I noted, three days have been set for that hearing in February 2024.
[13] The receivers indicated at the case management conference that they did not consent to the lift of a stay in relation to this proceeding. The respondents indicated they would be applying for leave to bring an application for consolidation with the 497 proceeding. The 497 proceeding did not involve the third or fourth defendants in these proceedings. An application seeking an order for consolidation with the 497 proceedings was filed and set down for hearing on 8 June 2022.
[14] On the morning of the hearing, in the face of the opposition of the receivers to granting a waiver of the stay and also contesting the merits of the consolidation
7 At [112].
8 Forster v Haines [2021] NZHC 1992.
application, the respondents withdrew the application for consolidation. They indicated that they would instead bring a strike out application in relation to the present proceedings and an application for costs. At that time, it was unclear as to whether that application would be opposed. Therefore, the matter was set down for a one-hour hearing. However, Mr Memelink appeared for the trustees and indicated they opposed the strike out application.
[15] Mr Haig for the receivers indicated that he did not waive the stay and if the court considered it could proceed despite the stay or waive the stay, the receivers contested the costs sought by the defendants if the strike out was successful.
Strike out application
[16] As noted, the application for strike out was set down for a one-hour hearing on 3 July 2023 on the basis that it would be straightforward. No application for leave had been filed at the time of the strike out application.
[17] Mr Memelink appeared at the hearing to oppose this application and filed a memorandum by way of email opposing the strike out application.
[18] By way of introduction, Mr Haines, the first defendant, outlined the arguments that would be pursued in relation to the application to strike out. The first ground relates to an abuse of process, based on the argument that there is a duplication of the claim with the claims made by the same plaintiff in the 497 proceeding. The second ground is that the claim is frivolous and vexatious, in that it made unsubstantiated allegations of fraud which had been already dismissed by Churchman J in the caveat judgment. The third ground is that, given the receivers do not intend to pursue this claim, there is a stay in place and no steps have been taken on it for over a year, the proceedings should be struck out for want of prosecution.
[19] The respondents seek costs on a 2B basis with uplifts for discovery to a band 2C allocation and an uplift of 50 per cent because of the allegations of fraud, as well as an allocation for preparation for hearing “in recognition of the preparation performed over the last 20 months”.
[20] The respondents have already been awarded two sets of costs in this proceeding in connection with two interlocutory hearings. First in a judgment of Churchman J dated 6 May 2022, costs were awarded in favour of the Haines interests for the unsuccessful application to maintain the caveat, which included an uplift in relation to the fraud claims of 50 per cent.9 In addition, the respondents were awarded costs in a judgment issued by Churchman J on 26 June 2023 in relation to costs on a further interlocutory application made by the applicants seeking leave to appeal the earlier interlocutory application for injunction, and a stay to sustain the caveat.10 The costs awarded again included a 50 per cent uplift for the allegations of fraud. Therefore, the only costs not quantified, should the defendant be successful on the strike out application, are the general costs of the proceedings, which would usually await the outcome of the proceeding.
[21] During the course of the hearing, in view of the receivers’ lack of consent to lifting the stay and there being no application for waiver of the stay before the court, I indicated to Mr Haines that there was some difficulty with the defendants pursuing a strike out application. Mr Haines sought the opportunity to file further submissions on whether the application for stay and costs application could proceed in the face of the stay. Mr Haig did not oppose that course. Accordingly, I granted leave for the parties to file further submissions limited to whether or not the stay of the proceedings extends to strike out and consequential costs applications. The parties duly filed memoranda on the question as to whether the court can strike out proceedings when the matter is stayed.
Submissions of the parties
[22] Mr Haines submits there is no legal impediment to the Court striking out proceedings that are subject to a stay. He points out that a stay does not conclude a proceeding and that while a stay prevents the substantive matter from being progressed, there is a clear exception for strike out applications11 and that matters which are subject to a stay are frequently subsequently struck out. Moreover, he says the Court has inherent jurisdiction to strike out proceedings and does not require a
9 Trustees of the Link Trust No 1v Haines [2022] NZHC 957.
10 Trustees of the Link Trust No 1 v Haines [2023] NZHC 1594.
11 And unless orders.
formal application to do so. Mr Haines submits the Court could strike out these proceedings based on the grounds and submissions already canvassed in submissions at the hearing, and there would be no prejudice to the trustees in doing so, given that once the trust exits receivership, there may be a possible path for the trustees to file these proceedings again, as long as the trustees take various appropriate steps to comply with the current grounds for the strike out.
[23] The receivers accept the Court has inherent jurisdiction to strike out proceedings and it may, if it is so minded, exercise its power to do so without an application.12 The receivers say the circumstances in this case are unusual, given that the orders staying proceedings were “bespoke” and imported from s 248(1)(c) of the Companies Act 1993, which in this context in fact means that proceedings brought by the Trust are also stayed, with the effect that defendants to proceedings brought by the trustees before the receivership remain exposed to those claims when the receivership comes to an end. The receivers suggest it is therefore possible that the circumstances in this case are sufficiently rare, and that the effect on the defendants of the stay could be categorised as an “abuse of the processes of the court”, so that the Court could exercise its inherent jurisdiction to strike out the proceedings.
[24] Mr Memelink, however, opposes the application to strike out the claim.13 He says the trustees can continue with their claims and have the means to continue these proceedings when allowed to do so (that is, when the Trust is no longer in receivership). He refutes all the points made in the submissions on this aspect both of Mr Haines and those of the receivers. He submits the trustees have standing to oppose this strike out application and he is affected by any decision regarding a strike out, as he is a Trust beneficiary.
Legal position
[25] The principles relating to strike out of proceedings are well-established. Under r 15.1(1) of the High Court Rules, the Court may strike out all or part of a claim if it
(a) discloses no reasonably arguable cause of action, (b) is likely to cause prejudice or
12 Siemer v Stiassny [2011] NZCA 1.
13 Again, much of Mr Memelink’s submissions on this narrow issue was misdirected and repeated substantive matters which were not relevant to the specific question at issue.
delay, (c) is frivolous or vexatious, or (d) is otherwise an abuse of the process of the court. The established criteria for striking out a claim are the following:14
(a)Pleaded facts, whether admitted or not, are assumed to be true (apart from allegations which are entirely speculative and without foundation).
(b)The cause of action or defence must be clearly untenable — the Court must be certain that it cannot succeed.
(c)The jurisdiction is to be exercised sparingly, and only in clear cases.
(d)The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.
(e)The Court should be particularly slow to strike out a claim in any developing area of the law.
[26] In considering whether to strike out a claim, in particular considering whether the proceeding is an abuse of process, it is important to preserve freedom of access to the courts, but equally the court must be alert to misuse of its processes, and be prepared to strike out a proceeding where the interests of justice demand it.15 An application to strike out may be made at any stage of the proceeding.16
[27] The Court’s authority to strike out a claim derives from the court’s inherent jurisdiction, and under r 15.1(4) the Court expressly retains inherent jurisdiction to strike out a claim, although given the express power to do so under the High Court Rules, resort to the inherent jurisdiction ought to be rare.17 Nevertheless, the Court of
14 Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267, endorsed in Couch v Attorney- General [2008] NZSC 45, [2008] 3 NZLR 725 at [33] per Elias CJ and Anderson J.
15 Although in reference to a permanent stay, as opposed to strike out, see Air National Corporate Ltd v Aiveo Holdings Ltd [2012] NZHC 602 at [31], citing Williams v Spautz (1992) 174 CLR 509 (HCA) at 519.
16 A-G v London & North Western Railway [1892] 3 Ch 274 (CA).
17 Robert Osborne and others McGechan on Procedure (online looseleaf ed, ThomsonReuters) at [HR15.1.11], citing CED Distributors (1988) Ltd v Computer Logic Ltd (in rec) (1991) 4 PRNZ 35 (CA), where it was held (in relation to the High Court Rules as at that time): “Now that r 186 of the High Court Rules provides expressly for striking out of pleadings which disclose no
Appeal in Siemer v Stiassny was unequivocal that the Court’s inherent jurisdiction may be exercised irrespective of any application.18
[28] Thus, it appears that the Court has jurisdiction, both under r 15.1 and under its inherent jurisdiction, to strike out a claim, if it is minded to do so, notwithstanding the existence of a stay of the proceedings.
[29] Neither does the absence of an application preclude the Court from exercising its r 15.1 power.19
Discussion
[30] As noted, all proceedings by and against the Trust are currently stayed unless the receivers agree or otherwise ordered by the Court.20 The orders staying the proceedings involving the Trust were made by Churchman J by way of importing s 248(1)(c) of the Companies Act 1993 to apply to the receivership of the Trust.21 In making this order, his Honour considered that the rationale for the rule in s 248(1)(c) of the Companies Act, namely to prevent wasteful expenditure of assets in a liquidation through litigation, applied to the Trust in this case, “as an applicable risk in the receivership of the Trust, which is to be managed as if it were a company in liquidation.”22 His Honour was not satisfied that the prospect of further litigation in the matter improving the position of the Trust had “any rational basis” and agreed with the receivers that a stay of proceedings involving the Trust would increase the likelihood of Trust assets being realised for the benefit of creditors.23
[31] The proceedings are currently stayed and there is no application to waive the stay. I do not consider there is any reason for the Court to now lift the stay on its own motion. The Court’s inherent jurisdiction must be exercised on appropriate principles. Generally, where there is a court-ordered stay in existence, there is no reason why the
reasonable cause of action there is no need to rely upon the inherent jurisdiction in the absence of special circumstances.”
18 Siemer v Stiassny, above n 12, at [15].
19 At [14].
20 Order [1(q)] of the sealed order dated 19 December 2022, pursuant to the stay of proceedings decision, above n 2, at [35].
21 At [31].
22 At [31].
23 At [31]–[32].
considerations that would apply to the lifting of the stay in any proceeding to which the receivership applied should not be considered. An important reason for the stay is so that the receivers are not diverted, that further costs in the receivership are not incurred as the result of one creditor, nor that any creditors obtain an undue advantage in the receivership. On the material before the Court, I am unable to be satisfied on that score. Significantly, the merits of the underlying application do not support a waiver being granted.
[32] In this case the strike out application is made based on claims of an abuse of process and delay. The delay involved, at least over the last 12 months, is largely due to the receivership. Therefore, this proceeding, in common with a number of others, has been the subject of delay because of the appointment of the receivers. That is not to say that in due course the delay will be such that it is unfair to allow the proceedings to continue. However, at present these proceedings are no different than other proceedings by or against the Trust.
[33] In addition, it was clear from the submissions made by Mr Haines that the abuse of process ground is not straightforward. While it may be that some of the substantive allegations concerning transactions between the Haines and the Memelink interests are the same as those to be considered in the 497 proceedings, the additional allegations in this claim relate to the role of Eastlight and Stobart Holdings Ltd. Churchman J analysed the transactions in light of the application to sustain the caveat. He dismissed the application to sustain the caveat but indicated that it would be a matter of evidence as to whether there was a sale at an undervalue involving Eastlight. That is a matter that would not normally be determined on a strike out application. From Churchman J’s comments the amount involved is unlikely to be great if anything. However, the relevant parties are not involved in the 497 proceedings, and in the face of Churchman J’s comments it would not be appropriate to strike out that particular claim without a proper hearing, or at least a fuller consideration of the evidence.
[34] I say that not having heard the full submissions by the parties. However, I had the benefit of the written submissions by the defendants in this matter and oral submissions by Mr Haines on his own behalf. In those circumstances in a strike out
application in the usual course, detailed consideration would be given to the allegations made in each of the proceedings and whether there was an abuse of process due to the duplication of the proceedings if the two proceedings covered the same ground. It may well be that the analysis would indicate that an option was available for the plaintiff to be given the opportunity to amend the pleadings to remove the claims which were to be dealt with in the 497 proceedings. That would still leave the claims in relation to the sale by Eastlight, which are not covered in the 497 proceedings. In addition, Eastlight and Stobart Holdings Ltd are not parties in the 497 proceedings and the defendants have abandoned their application for consolidation.
[35] In summary, there are matters at issue in these proceedings which indicate that the strike out application at this stage is not straightforward and may be premature. In particular, summary judgment for liability has been granted in the 497 proceedings but not for quantum, and these proceedings involve parties not included in the 497 proceedings as well as allegations regarding the sale and failure to account in relation to them which are not canvassed in the 497 proceedings.
[36] It would be inappropriate to divert the receivers from their task of realising the assets without distraction by requiring them to participate in the strike out application on behalf of the Trust. It would not be a straightforward application and there may be some difficulties in relation to the Eastlight position. It would also put the defendants in the position where they could quantify the costs on the strike out when other creditors with extant proceedings cannot quantify their costs. I also bear in mind that the Haines interests have received substantial costs awards in relation to the interlocutory hearings in this matter. It is merely the general proceedings for which they would seek costs in any event. Allowing the strike out application to proceed would not be in the interests of justice. It would not be fair to the other creditors and would divert the receivers from the primary task of realising the assets of the trust and also incur further costs in the receivership.
[37] Therefore, I make no determination on the merits of the application for strike out, but the application cannot proceed due to the stay of this proceeding. There is no application to waive the stay but even if there was, I would have declined it in the
circumstances as outlined, and I decline to exercise any inherent jurisdiction to strike out the proceeding.
[38] The more efficacious method of dealing with this would be to await the outcome of the 497 proceeding. That may be a more appropriate stage to make a strike out application, which Mr Haines had in any event sought to be amended to include a further ground of failure to pay costs, although I declined to make that amendment on his oral application. The quantum issues would then have been determined in the 497 proceedings. At that stage it would also be clearer as to the position of the Trust and its solvency.
[39] At present I would be reluctant to say that the trustees have no interests beyond the receivership. Indeed, they do have an interest, as the stay only lasts for the duration of the receivership. Whether the Trust is solvent or not will therefore be an important factor in determining the outcome of proceedings in which the Trust is involved at the end of the receivership. Mr Memelink, representing the residual interests of the trustees, has indicated his strong opposition to the strike out and referred to his beneficial interest as a beneficiary of the Trust. It is important not to strike out the claim without, among other things, a consideration of his (and other beneficiaries’) positions as well as that of other creditors in the receivership.
Conclusion
[40] As Churchman J noted in granting the variations to the receivers’ orders in December 2022, the receivership of the Trust is for the benefit of the creditors.24 The stay does not affect Mr Haines unfairly. He is in the same position as all other creditors. He has received judgments which he can prove in relation to applications in which he has succeeded in this proceeding.
[41] In any event, leave to waive the stay has not been applied for, and in the circumstances I do not consider it appropriate to waive the stay. The application for strike out as presently formulated is not straightforward and the application may be premature. To waive the stay under the court’s inherent jurisdiction is inappropriate,
24 Stay of proceedings decision, above n 2, at [31].
for the reasons set out above. I am not satisfied it is in the interests of justice and fairness to the creditors and the receivership to waive the stay in order to determine the application for strike out at this stage.
[42] Accordingly, the application for strike out and costs is dismissed, there being an order for stay of proceedings in place and no waiver of that application has been granted.
[43] If costs are sought an application should be made within five days together with supporting submissions by way of memoranda, any response is to be filed and served within a further five days and any reply within a further three days. I note the hearing took approximately one half-day.
Grice J
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