Mike Pero Mortgages Limited v Pero
[2016] NZHC 651
•11 April 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-2193 [2016] NZHC 651
UNDER the Companies Act 1993 IN THE MATTER
of MPRE Limited
BETWEEN
MIKE PERO MORTGAGES LIMITED
Plaintiff
AND
MIKE PERO First Defendant
MIKE PERO MARKETING LIMITED
Second Defendant
Hearing: 11 April 2016 Counsel:
G P Blanchard and J P Nolen for plaintiff
D Bigio and A Malone for defendantsJudgment:
11 April 2016
ORAL JUDGMENT OF KATZ J
Solicitors: Lowndes, Auckland
Duncan Cotterill
Counsel: G Blanchard, Barrister, Auckland
D Bigio, Shortland Chambers, Auckland
MIKE PERO MORTAGES LIMITED v PERO & MIKE PERO MARKETING LIMITED [2016] NZHC 651 [11 April 2016]
Introduction
[1] Mike Pero Mortgages Limited (“MP Mortgages”) sues Mike Pero and Mike Pero Marketing Limited (“MP Marketing”), of which Mr Pero is the sole director,1 alleging breach of a shareholders’ agreement and the company constitution, shareholder oppression, and breaches of certain provisions of the Companies Act
1993 (“Act”). Mr Pero and MP Marketing have counterclaimed, alleging
shareholder oppression by MP Mortgages.
[2] The substantive trial commenced before me this morning, with an estimated hearing time of two weeks. Last Thursday, however, MP Mortgages filed an application for leave to file a second amended statement of claim. That application is opposed. In addition, the defendants challenge a number of aspects of MP Mortgages reply evidence, on the basis that it is not strictly in reply.
[3] I will deal first with the application for leave to amend the pleadings, before turning to consider the various evidence issues.
Should leave be granted to MP Mortgages to amend the current pleading?
[4] MP Mortgages have provided a draft second amended statement of claim with the proposed changes marked up.
[5] A number of the proposed amendments are uncontroversial and are not objected to. The defendants, however, object to three particular proposed amendments. They are set out at [23](h), [23](j) and [27.2] of the draft second amended statement of claim. Those amendments relate to an allegation that the defendants have failed to provide full details of payments they have received from MPRE Ltd2 and/or MP Real Estate Limited,3 despite requests to provide such information. MP Mortgages alleges that the defendants have deliberately concealed
the exact amount that they and/or their related parties have received in excess of a
1 The shares in MP Marketing are owned as to half by Mr Pero and as to half by a trust of which he is one trustee.
2 A joint venture between MP Mortgages and MP Marketing.
3 A wholly owned subsidiary of MPRE Limited.
sum of $200,000 per annum remuneration for Mr Pero that has been agreed in a
shareholders’ agreement between the parties.
[6] The genesis of this particular allegation appears to lie in a misunderstanding between the parties. The relief sought in relation to the first cause of action in the original statement of claim (breaches of shareholders’ agreement/constitution) included:
(a) a declaration that all purported resolutions of MPRE signed only by
Mr Pero are void and of no effect; and
(b)consequential orders requiring MP Marketing and Mr Pero to repay to MPRE all monies received pursuant to such resolutions declared to be void.
[7] MP Mortgages intended that issues of both liability and quantum would be determined at trial. The defendants, however, understood from the reference to “consequential orders” that the intent was that, in the event that a breach of the shareholders’ agreement and/or constitution was proven, they would then be required to account for any overpayments to MP Mortgages. Only in the event that the dispute arose at that stage would any intervention by the Court on quantum issues be necessary.
[8] The parties conducted discovery in accordance with their respective understandings of the pleadings. It was only during the expert briefing process that MP Mortgages appears to have realised, somewhat belatedly, that it had not obtained the documentation it required from the defendants to enable a proper assessment of quantum to be undertaken. MP Mortgages did not raise the issue at the time, however, but proceeded to finalise and serve its evidence, including its quantum evidence. That evidence was served on 3 February 2016. It appears that MP Mortgages expected the defendants to then serve their own evidence on quantum, which would hopefully fill in any gaps. MP Mortgages would then have a right of reply on quantum issues. The defendants did not, however, serve any quantum evidence. This left MP Mortgages in the somewhat unenviable position of
possibly being unable to prove the quantum of its claims. Accordingly, on 11 March
2016, after evidence had closed, MP Mortgages wrote to the defendants seeking further discovery of documents relating to quantum.
[9] After an exchange of correspondence, it finally became apparent that the parties had different views as to whether quantum was to be determined at trial. Nevertheless some of the requested documentation was provided. MP Mortgages’ position, however, is that the defendants were unnecessarily difficult and evasive in the provision of such information. The defendants’ position, on the other hand, is that they endeavoured to be of assistance, despite failing to see the relevance of the information requested to the current Court proceedings.
[10] MP Mortgages now seeks to amend its pleading to plead that the defendants failed to provide full details of the payments they have received and “continue to conceal” the exact amounts received. Such allegations are relied on in support of alleged breaches of the Act and also in support of allegations of breaches of the defendants’ obligations under the shareholders’ agreement and constitution.
[11] The legal principles relating to leave to file amended pleadings are well established. Rule 7.7 of the High Court Rules provides that no amended pleading may be filed after the close of pleadings date without the leave of the Court. The paramount consideration is that the parties should have every opportunity to ensure that the real controversy goes to trial, so as to secure the just determination of the proceeding. Due regard must also be had to whether the proposed amendment will cause significant delay or prejudice to another party. Another factor to consider is the merit, or absence thereof, of a proposed amended pleading. The timing of an application for leave to amend is also relevant. This is in part because amended pleadings very close to the trial date, after evidence has closed, will often be significantly more prejudicial than amendments to the pleadings that are made well in advance of trial.
[12] In this case I am not satisfied that leave should be granted to make the proposed amendments. In particular I am not satisfied that they are necessary to ensure that the real controversy goes to trial. On the contrary, their relevance
appears to be somewhat peripheral to the core issues that are before the Court for determination.
[13] Further, the claim that the defendants have engaged in an ongoing course of conduct of deliberately concealing information from MP Mortgages does not appear to be a particularly strong one in all the circumstances of the case. I note that the relevant material was only sought, for the first time, on 11 March 2016. That was one month before trial, many months after discovery had been completed, over two months since the pleadings had closed, and after briefs of evidence had been exchanged.
[14] I also note that Mr Bigio, the defendants’ counsel, has advised that at all times prior to 11 March 2016 he had understood that quantum was not an issue for determination at this hearing. I accept that assurance. This undermines, however, any assertion that the defendants were deliberately concealing relevant and discoverable documents over an extended period. Rather, the defendants’ understanding was that it was only if MP Mortgages was successful at trial that an account in respect of any over payments would be sought from the defendants, in accordance with parameters to be set by the Court.
[15] I am further concerned that allowing the proposed amendments would be prejudicial to the defendants at this very late stage. They would likely need to give evidence regarding their original approach to discovery, as well as events following the MP Mortgages request of 11 March 2016. At least some of this evidence would probably need to traverse areas that are legally privileged. The preparation of such evidence during trial is likely to be a distraction which is simply not warranted by the peripheral relevance of the evidence to the core issues.
The defendants’ challenges to MP Mortgages’ reply evidence
[16] I now turn to consider the defendants’ challenges to MP Mortgages’ reply
evidence.
[17] The defendants challenge aspects of the reply evidence of three of MP Mortgages’ witnesses, Messrs Goodall, Collins and Ma. I will deal with each in turn.
[18] The defendants challenge the admissibility of [11] to [21] of Mr Goodall’s evidence. They say that MP Mortgages is, in reality, attempting to “backfill” their evidence in chief. The defendants rely on Houghton v Saunders, in which it was observed that reply briefs are intended to address matters in the defendants’ briefs that could not reasonably be anticipated in the plaintiff’s original brief.4 They also
rely on the decision of Muir J in Body Corporate 330324 v Auckland Council ,5 to
similar effect.
[19] Both parties have made claims of shareholder oppression against each other, pursuant to s 174 of the Act. Mr Goodall’s evidence addresses, among other things, whether the actions of Mr Pero, in passing the challenged resolutions, was prejudicial to the interests of MP Mortgages. The defendants say that this evidence should have formed part of MP Mortgages’ evidence in chief, which was served on
3 February 2016.
[20] The defendants submit that these passages of Mr Goodall’s evidence are simply aimed at bolstering the evidence of MP Mortgages’ primary witness, Mr Collins, whose evidence on this particular issue appears to be somewhat thin. The defendants say that the relevant paragraphs of Mr Goodall’s brief are not in reply to the expert evidence that the defendants have provided from Mr John Hagen. They further submit that Mr Goodall’s brief contains evidence that is not in the nature of expert evidence and that it is unlikely to provide substantial assistance to
the Court.6
[21] MP Mortgages, on the other hand, says that Mr Pero’s evidence at trial will
deal in some detail with his explanation as to why he passed the challenged resolutions and his justification for them. In the section of his evidence dealing with
4 Houghton v Saunders [2014] NZHC 423, (2014) 21 PRNZ 721 at [3].
5 Body Corporate 330324 v Auckland Council [2015] NZHC 1232.
6 See Evidence Act 2006, s 25(1); O’Loughlin v Tower Insurance Limited [2013] NZHC 438, (2012) 21 PRNZ 490 at [9] and [10]; and McDonald v Tower Insurance Limited [2014] NZHC
2876, (2014) 22 PRNZ 490 at [9] – [14].
his own counterclaim, Mr Pero will apparently say that MP Mortgages’ failure to perform certain obligations (such as appointing a director or having the appointed director available) was oppressive to the defendants and that forced them to take actions not strictly in accordance with the shareholders’ agreement and constitution. The challenged evidence is said to be relevant to the explanations provided by Mr Pero.
[22] MP Mortgages further notes that the case concerns competing claims under s 174 of the Act. It submits that the Court’s broad powers to make “such order as it thinks fit” means that it must take account of any and all oppressive, unfairly discriminatory, or unfairly prejudicial conduct when determining what orders are appropriate. MP Mortgages submits that, even if the Court finds there has been oppressive conduct against the defendants, the Court must still consider whether there has also been oppressive conduct against MP Mortgages before determining what orders to make. Mr Goodall’s opinion that MP Mortgages has suffered oppression is therefore said to be relevant to not only the evidence put forward by Mr Pero in support of his oppression counterclaim but also issues of relief.
[23] MP Mortgages further submits that the defendants will suffer no prejudice from Mr Goodall being able to read his full brief because the defendants’ own expert, Mr Hagen, has read all the material relevant to the conclusion Mr Goodall has reached regarding oppression against MP Mortgages. Mr Hagen will be cross-examined about Mr Goodall’s opinion and will also have the time to prepare further examination in chief dealing with this issue if the defendants so wish.
[24] I have found this issue to be a difficult one. The defendants make some strong arguments in favour of excluding the evidence. In my view, however, it cannot be definitively concluded at this preliminary stage that the evidence is not relevant to an overall assessment of the defendants’ counterclaim or to issues of relief. Further, the cross claims of shareholder oppression appear, at this stage at least, to be interlinked. I would be loath to exclude evidence at a preliminary stage which may ultimately prove to be relevant and of assistance to the Court.
[25] I am also of the view that the prejudice to the defendants of admitting the evidence on a provisional basis will be minimal. The evidence is of limited scope. Any supplementary evidence from the defendants’ expert, Mr Hagen, could be adduced orally at the conclusion of his evidence in chief, if necessary.
[26] I have therefore concluded that the challenged portions of Mr Goodall’s reply brief should be provisionally admitted. The final decision as to the relevance and admissibility of that evidence is reserved for determination post trial, concurrently with determination of the substantive issues. The parties should accordingly proceed at this stage on the basis that that evidence is provisionally before the Court.
[27] I now turn to consider Mr Collins’ evidence. On the basis that issues of quantum are not now before the Court in this hearing, Mr Blanchard agreed that [36] to [38] of Mr Collins’ brief should be deleted.
[28] Finally, I turn to Mr Ma’s evidence. Paragraphs [69] to [78] of his brief relate to quantum issues. By the close of this morning’s hearing Mr Bigio’s position was that, if the challenged amendments to the pleading were disallowed, as they have been, the defendants’ objections to this evidence could be met if [69] to [78] of Mr Ma’s reply brief were amended to be expressed in a more neutral fashion.
[29] By way of background, although quantum is not an issue to be determined at this hearing, MP Mortgages’ position is that it would be helpful to the Court to have a broad understanding of the likely quantum involved. This may inform the Court’s view as to the appropriate relief under s 174. I accept that submission. On that basis a schedule setting out MP Mortgages’ current estimate of the quantum involved, together with some supporting evidence from Mr Ma, is likely to be of assistance to the Court. For the avoidance of doubt, the relevant calculations will not be binding on either party in the future but are simply intended to give the Court a broad understanding of the possible sums involved, from MP Mortgages’ perspective at least.
Result
[30] Against this background, and for the reasons I have outlined, I direct as follows:
(a) Leave is granted to make the proposed amendments marked up in the draft second amended statement of claim annexed to the first affidavit of Charlotte Claire Kirk, save for the amendments set out at [23](h), [23](j), and [27.2] of that document.
(b)The defendants are to file a defence to the second amended statement of claim by Friday, 15 April 2016.
(c) MP Mortgages’ reply (if any) is to be filed by Monday, 18 April
2016.
(d)Paragraphs [11] to [21] of Mr Goodall’s reply brief of evidence are provisionally admitted. The decision as to the final admissibility of that evidence is reserved.
(e) Leave is granted to the defendants to reply to paragraphs [11] to [21] of Mr Goodall’s brief, either by way of supplementary brief of evidence or through evidence produced orally by Mr Hagen (or any other relevant witness) at trial.
(f) Paragraphs [36] to [38] of Mr Collins’ reply brief of evidence are
excluded.
(g)Paragraphs [69] to [78] of Mr Ma’s reply brief of evidence will be admitted, provided that they are redrafted in more neutral terms, with the sole purpose of explaining MP Mortgages’ calculation of the likely quantum involved in this case from MP Mortgages’ perspective.
(h) Costs are reserved.
Katz J
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