Murren v Schaeffer
[2018] NZHC 2320
•4 September 2018
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2015-442-028
[2018] NZHC 2320
BETWEEN JAMES JOSEPH MURREN as trustee of the JAMES J. MURREN SPENDTHRIFT
TRUST and DANIEL LEE
Plaintiffs/RespondentAND
GLENN SCHAEFFER
Defendant/Applicant
Hearing: 3 September 2018 Counsel:
A J Horne and A E Simkiss for Plaintiffs/Respondent A R Shaw and C W Martin for Applicant/Defendant
Judgment:
4 September 2018
JUDGMENT OF CHURCHMAN J
Introduction
[1] The plaintiffs, Mr Murren and Mr Lee, and the defendant, Mr Schaeffer, are all American citizens. They have a mutual background in the casino industry in the United States. They were once friends.
[2] In 2000, Mr Schaeffer acquired an interest in a company now known as Woollaston Estates Holdings Ltd which owned and operated a vineyard and winery at Upper Moutere, Nelson.
[3] In 2002, Mr Schaeffer approached Mr Murren and Mr Lee about investing in the vineyard and winery enterprise. The parties entered into an agreement and the plaintiffs contributed capital to the enterprise.
MURREN & ANOR v SCHAEFFER [2018] NZHC 2320 [4 September 2018]
[4] In 2006, a further agreement was entered into and subsequent further capital contributions were made. It is alleged that Mr Murren paid US$1,600,813.92 to Mr Schaeffer between 2002 and 2008 and that Mr Lee paid US$700,406.96 during the same period.
The proceeding
[5] On 16 June 2015, the plaintiffs filed a statement of claim against the defendant alleging:
(a)breaches of the Fair Trading Act 1986;
(b)negligent misstatement;
(c)deceit;
(d)fraudulent misrepresentation; and
(e)violation of the Nevada Deceptive Trade Practices Act.
[6] The pleadings were refined in a first amended statement of claim dated 22 January 2018. However, the issues remained the same relating to Mr Schaeffer’s conduct in soliciting investment funds from Mr Murren and Mr Lee and the use to which the funds provided by Mr Murren and Mr Lee were put, together with the issue of whether he complied with promises allegedly made by him to the plaintiffs.
The mediation
[7] The parties, along with their various legal advisors, attended a mediation in Auckland before Warren Sowerby on 10 August 2017.
[8] It is alleged that Mr Lee made threats to Mr Schaeffer during the course of the mediation. There is a dispute as to exactly what was said. Mr Schaeffer’s recollection is that Mr Lee said if Mr Schaeffer did not give his money back, he would bury him in the desert like in the old days, would destroy his children’s lives, bankrupt his ex-wife and kill his three show dogs. Aspects of Mr Schaeffer’s recollection are
supported by affidavits of others, including an affidavit of Paul Donald Le Gros dated 4 April 2018.
[9] Mr Lee’s recollection is that he said that if a dispute such as the present one had arisen between Las Vegas gaming executives in the “old days”, Mr Schaeffer might have ended up buried in the Nevada desert. He said that after saying this he also said that things were done differently now and he had come to the mediation to settle the lawsuit. He confirmed that if it was not settled, he would obtain judgment against Mr Schaeffer and keep pursuing him even if it meant he would need to petition for bankruptcy. He denies threatening Mr Schaeffer’s family or show dogs. Mr Murren has filed an affidavit agreeing with Mr Lee’s recollection of what was said.
[10] The alleged statements were made early in the mediation, which then continued, although ultimately it proved unsuccessful.
[11] Mr Schaeffer has deposed that he discussed with his then lawyers the statements Mr Lee had made but was told that he could not do anything about them as they had nothing to do with the civil lawsuit. Nothing happened in relation to the statements for some six months.
Freezing orders
[12] After learning that the defendant had sold a number of valuable art works, the sales yielding more than a million dollars, learning that the wine business and land were being marketed and that Mr Schaeffer had bought a house in Nebraska in the United States, the plaintiffs became concerned that all of the defendant’s New Zealand assets which might otherwise have been available to satisfy a judgment of the New Zealand courts were being disposed of. Accordingly, they applied for freezing orders.
[13] In an affidavit supporting the application for freezing orders, Mr Schaeffer mentioned the statements in the mediation describing Mr Lee as having made “threats to ruin [him]” financially.
[14] The High Court refused to grant the freezing orders but the plaintiffs appealed to the Court of Appeal, which in the written judgment dated 23 August 2018 granted the orders.
[15] In the Court of Appeal proceeding, Mr Schaeffer sought leave to adduce further evidence. That evidence related to the alleged threats made at the mediation. The relevant paragraph of the Court of Appeal’s decision dealing with that application said:1
If admitted, the evidence, and the topic generally, affords no tenable basis on which to deny an otherwise appropriate freezing order. The comments were made a year ago and bear little or no relevance to the trial issues. Accordingly, the application to adduce further evidence is declined on the basis that it is of insufficient relevance to the matters in issue.
The interlocutory application
[16] On 29 August 2018, Mr Schaeffer filed an interlocutory application for the following orders:
(a)granting leave to bring an application after close of pleadings;
(b)to strike-out all permanently stay proceedings;
(c)to cross-examine witnesses; and
(d)for leave for witnesses to appear by audio visual link.
[17] In addition to the four matters specified in the application, Mr Shaw, on behalf of Mr Schaeffer, filed an affidavit from witness “X”. That affidavit contained the statement:
I further make this affidavit on the understanding that I am providing this evidence for the Court’s eyes only and this affidavit will not be provided to the plaintiffs or their solicitors …
1 Murren v Schaeffer [2018] NZCA 318 at [37]
[18] The filing of this affidavit raised the further issue of whether or not the Court could have regard to it.
[19] During the course of the hearing, I indicated to counsel that I did not believe that there was any basis for an affidavit to be filed in civil proceedings of this nature on the basis that it would not be disclosed to the other parties to the proceedings, or even their legal advisors.
[20] It is a fundamental principle of justice in New Zealand that justice is dispensed in public and that there are no such things as secret witnesses whose evidence is disclosed only to the Judge. To the extent that there are modifications of that principle, they are limited and specific and relate to matters such as the national security, or issues such as witness safety in criminal cases.2
[21] In the case of R v Hines,3 the Court of Appeal held that the balancing of competing interests of open justice and enabling protection of identity for witnesses who fear for their safety should be a task performed by Parliament rather than by the Courts. This led to an amendment to the Evidence Act.4 The amendments apply only to criminal proceedings. Section 87 of the Evidence Act puts certain restrictions on disclosing the address of witnesses in civil proceedings without permission of the Judge.
[22] Even in criminal proceedings, if ss110-118 of the Evidence Act are applied, what is suppressed in the identity of the witness rather than their evidence itself.
[23] In the circumstances of this case, I can identify no basis, either at common law or under statute, which would allow the Court to receive an affidavit in civil proceedings, the contents of which were not disclosed to the other side.
[24] During the course of the hearing, I indicated to Mr Shaw that I regarded the affidavit from witness X as being inadmissible, and he seemed to concede that was
2 For example, s 29AB, Passports Act 1992
3 R v Hines [1997] 3 NZLR 529 (CA).
4 Sections 110-118, Evidence Act 2006.
correct, although submitted that the Court could have some regard to it as supporting the concerns raised by Mr Schaeffer in his affidavit.
[25] For the reasons set out above, the affidavit from witness X is admissible, and it is not appropriate for the Court to have any regard to it.
[26] Collins J had a telephone conference with the parties on 30 August 2018 which set down Mr Schaeffer’s applications for hearing on 3 September 2018.
[27] Following that teleconference, counsel conferred and agreed that a pragmatic approach, given the constraints of time, would be that:
(a)for the purposes of the 3 September hearing, the threats alleged by Mr Schaeffer, Mr Le Gros and Ms Maslin-Caradus were to be treated as having been made;
(b)determine whether the threats are such that the Court should exercise its inherent jurisdiction to either a strike-out or permanently stay these proceedings;
(c)if the Court does conclude that a strike-out or permanent stay is appropriate, it may be necessary to set down a further fixture for the witnesses to be cross-examined to determine findings of fact with regard to the alleged threats should the plaintiffs/respondents so require.
[28]This course seems sensible and I will follow it.
The law
[29] Mr Shaw acknowledged that there is no express statutory power to strike-out or permanently stay proceedings on the grounds that he advanced and, to the extent that such a power exists, it arises from the Court’s inherent jurisdiction to control its own processes.
[30] Mr Horne, for the plaintiffs, did not challenge that proposition although he thought that possibly High Court Rule 15.1(1)(d) could apply on the basis that the application was to dismiss or stay proceedings which were otherwise an abuse of the process of the Court.
[31] Given that it is not the proceedings themselves that are said to be an abuse of process, but the conduct of one of the parties in relation to an attempt to settle the proceedings by way of private mediation, I think that the matter most appropriately falls to be dealt with pursuant to the Court’s inherent jurisdiction.
[32] Mr Shaw advanced what was essentially a public policy argument. He submitted that the making of threats of the type complained of by one party to litigation to another struck at the heart of the administration of justice, and that public confidence in the justice system would be affected if the conduct went unsanctioned.
[33]Mr Shaw’s written submissions contained the allegation that:
… the threats amount to blackmail in terms of s 237 of the Crimes Act 1961 and that the denials of the respondents are a conspiracy to defeat the course of justice in terms of s 116.
[34] The allegation that, many months after the events, the fact that Mr Murren filed an affidavit saying that his recollection of the events accords with Mr Lee’s recollection, amounts to a conspiracy to defeat the course of justice is untenable. Given the lapse of time and lack of any notes, it is hardly surprising that the various parties differ in their recollection of the detail of what was said.
[35] There was no suggestion that Mr Murren made any threats yet Mr Schaeffer wants his claim struck out or stayed as well as Mr Lee’s. His claim is twice the size of Mr Lee’s claim. There is no basis for sanctioning him for Mr Lee’s conduct.
[36] In response to a suggestion that the criminal justice system was the appropriate way to deal with such matters, Mr Shaw’s submission was that the plaintiffs were resident in the United States and apparently could not be extradited and he thought that their presence in New Zealand to give evidence at the substantive hearing of these proceedings would be insufficient to facilitate a prosecution.
[37] Mr Shaw also submitted that remedies of costs and/or a contempt finding, would be an inadequate response.
[38] Mr Shaw emphasised what he said was the psychological effect of the threats on Mr Schaeffer and the fact that Mr Schaeffer had felt duty-bound to inform potential witnesses of the fact that threats had been made against him, and that this either had, or was likely to, affect the willingness of potential witnesses to give evidence on Mr Schaeffer’s behalf. He argued that Mr Schaeffer could not adequately defend the civil proceedings and was unfairly constrained for fear of repercussions should the threats be carried out.
[39] In relation to the delay of a year between the threats and the application in relation to them, Mr Shaw said the explanation for that was the advice that Mr Schaeffer had received from his previous counsel to the effect that the allegations were a separate matter to the proceedings and, as they were unrelated to the proceedings, there were no steps he could take. Mr Shaw also pointed to the fact that Mr Schaeffer did make some reference to the threats in support of the freezing order application although he acknowledged that the aspects of the threats there relied on was the threat to ruin him financially. He also submitted that the nature of the threats were such that the gravity did not abate with the passage of time.
[40] Mr Shaw also submitted that the situation had changed since the Court of Appeal had considered the matter and had concluded that the threats bore little or no relevance to the trial issues. He said that this Court now had the benefit of the affidavit filed by Mr Schaeffer and in particular the information about the effect that the threats have had on Mr Schaeffer’s health and wellbeing and that of a family member such as his 90-year-old mother who lives with him and whom he has shared details about the threats with.
[41] Mr Horne stressed upon the Court the length of time that had passed since the threats had made, the fact that at the time, the parties did not see them as being important enough to make any notes about, or to correspond about following the mediation. He also noted that the initial claim was a threat as to financial ruin and that initially there was no claim that Mr Schaeffer felt threatened.
[42] Mr Horne relied on the observations in the Court of Appeal judgment to support an argument that the threats, even if the account of Mr Schaeffer and his witnesses was accepted, did not relate to the central issues to these proceedings and that it was appropriate that what he described as the “real controversy” should go to trial.
[43] He noted that Mr Shaw had raised the spectre of issuing subpoenas to him and Ms Simkiss, and he said that this, and the application itself, were simply an attempt by the defendant to avoid having to continue with the substantive proceedings in the face of an imminent hearing.
[44] Mr Horne submitted that the real controversy in this case had no connection with the threats and that the interests of justice required the real controversy to be decided by the Court.
Analysis
[45] The outcome of these applications is determined by the relevance of the behaviour complained of. The Court will not lightly strike-out or stay proceedings on the basis of the conduct of the parties to such proceedings. The Court in the case of Reid v New Zealand Trotting Conference said:5
The public interest in the due administration of justice necessarily extends to ensuring that the Court’s processes are fairly used and that they do not lend themselves to oppression and injustices. The justification for the extreme step of staying a prosecution or striking out a statement of claim is that the Court is obliged to do so in order to prevent the abuse of its processes.
[46] The Court is also influenced by the fact that what is alleged amounts of serious criminal offending. The primary sanction for such offending is a prosecution. The appropriate body to investigate a complaint of serious criminal wrongdoing is the police. It appears that no complaint has been lodged by Mr Schaeffer with the police.
[47] This Court is also guided by the observations of the Court of Appeal on this topic.6 Their view was that the allegations were of little or no relevance to the trial
5 Reid v New Zealand Trotting Conference [1984] 1 NZLR 8 at 8 per Richardson P.
6 Murren and Lee v Schaeffer [2018] NZCA 318 at [37].
issues. I accept that I have information before me that the Court of Appeal did not have. However, there does not appear to be anything material in that new information. There is nothing in it that could be said to have any direct relevance to the trial issues or the “real controversy” in the substantive proceedings.
[48] I am not convinced that Mr Schaeffer will be constrained in presenting his defence in this matter as a result of the threats. To the extent that any potential witnesses he might call have learnt of the threats, it would seem that is because he has chosen to tell them. Mr Shaw indicated that, at the moment, it had not been determined exactly who the witnesses would be. There was no admissible evidence before the Court as to the views of any potential witness on the threats. I note that there is no suggestion that threats were made against witnesses.
[49] Even when all that is being sought is a limited stay of civil proceedings pending disposal of criminal proceedings, the Courts have said that the applicant has the burden of showing that it is just and convenient that the plaintiff’s ordinary rights of having his claim processed and heard should be interfered with. Even assuming that the plaintiff can establish that the precise detail of what is said is exactly in accordance with his recollection, there would be no basis for taking the extreme step of staying or striking out the proceedings.7 There is no basis at all for striking out Mr Murren’s claim as he did not engage in the conduct complained of.
[50] Neither is there any basis for the defendant issuing subpoenas to the plaintiffs’ legal advisors.
[51] The plaintiffs ask that the Court exercise its inherent jurisdiction to direct that a subpoena shall not be issued against the plaintiffs’ counsel under HCR 9.52. I give such a direction and do so on the following basis:
(a)I have determined that the issue of the threats is not relevant to the real controversy in the issues pleaded in this matter;
7 See for example Skinner v Harris HC Hamilton CIV-2003-419-317, 7 July 2005.
(b)depriving the plaintiffs of the counsel that have represented them throughout in these proceedings would be a very serious consequence of the issue of a subpoena and would be unjustified;8
(c)there were some 12 people at the mediation, several of whom have already provided affidavit evidence as to what was said. In the circumstances, the evidence of the plaintiffs’ counsel is unlikely to add anything of significance to what is already before the Court;
(d)even if the counsel were subpoenaed, it is unlikely that their evidence would assist with credibility. Given the passage of time since the events in question, and the fact that no notes were made by anyone, it is unsurprising that recollections might differ;
(e)the threat to issues subpoenas and the demand that the counsel withdraw from the proceeding appears to be a tactic designed to frustrate the plaintiffs’ ability to properly conduct the proceedings, and could be said to be an abuse of the process of the Court.
Outcome
[52] The defendant is granted leave under HCR 7.7 to file the application dated 29 August 2018.
[53] The application to strike-out or permanently stay the substantive proceedings is dismissed.
[54] Given the view that I have come to that threats are irrelevant to the real controversy, there is no basis to cross-examine Daniel Lee and James Murren on their affidavits of 26 February 2018.
[55]I direct that no subpoenas be issued against Mr Horne or Ms Simkiss.
8 See Re Golightly [1974] 2 NZLR 297.
Costs
[56] The plaintiffs sought costs on an indemnity or increased basis. The defendant/applicant did not address that costs application either and written or oral submissions.
[57] In the circumstances, costs are reserved and will be dealt with by the trial Judge along with the other costs issues at the conclusion of this case.
Churchman J
Solicitors:
C & F Legal for Applicant
Minter Ellison Rudd Watts for Respondents