Muse on Allen Limited v Szekely

[2016] NZHC 1131

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2015-085-326 [2016] NZHC 1131

UNDER	the Companies Act 1993
BETWEEN	MUSE ON ALLEN LIMITED Plaintiff
AND	JOZSEF GABOR SZEKELY Defendant

Hearing:	24 May 2016
Counsel:	J B Orpin (on instructions from Mr A Isac) for Plaintiff Q S Haines for Defendant
Judgment:	27 May 2016

JUDGMENT OF BROWN J

Introduction

[1]      The statement of claim in this proceeding was filed in the District Court in May 2015 and a statement of defence was filed on 22 June 2015.  The proceeding was transferred on the defendant’s application to the High Court by the order of District Court Judge A I M Tompkins on 18 September 2015.

[2]      On 21 March 2016 the defendant filed an application for an order striking out the proceeding on two grounds:

(a)       that  there  was  no  possibility  of  the  proceeding  being  successful relying on r 15.1 of the High Court Rules;

(b)the proceeding was not filed by a solicitor, nor was there a solicitor on the record to progress and prosecute the proceeding.

MUSE ON ALLEN LTD v JOZSEF GABOR SZEKELY [2016] NZHC 1131 [27 May 2016]

The  defendant  sought  costs  on  a  solicitor  and  client  basis  against  a  non-party, Mr Malcolm North, who had signed the statement of claim and filed it in the District Court.

[3]      On 23 May 2016 a memorandum was filed by Mr Isac in which he advised that he no longer acted for the plaintiff and he sought leave to withdraw.   The memorandum also stated that, should the Court require it, an application would be made under r 5.41 for leave for Hoggard Law to withdraw as solicitors on the record. Because  he  was  appearing  in  a  trial  in  Palmerston North,  Mr Isac  instructed Mr Orpin to appear on his behalf.  After hearing briefly from Mr Orpin I made an order granting leave for Mr Isac to withdraw as counsel.

[4]      Mr Malcolm North was  present in Court together with Mr Samuel North. They  are  both  defendants  in  the  proceeding  brought  by  Mr Szekely  being CIV-2013-485-9825.     That  proceeding  was  not  before  me  at  the  hearing  on

24 May 2016.   I heard briefly from Mr Malcolm North as to the circumstances in which Mr Isac had ceased to appear as counsel.

A reasonably arguable cause of action?

[5]      The statement of claim is brief.   It commences by identifying the parties, describing the plaintiff as an incorporated company carrying on business trading as the Muse on Allen Restaurant and Bar.

[6]      I set out the balance of the claim in full:

3.The defendant was the founding majority shareholder and one of two founding directors of the Defendant Company when the company was incorporated in July 2012.

4.The defendant is a chef and together with Samuel North operated a restaurant operated by the plaintiff company.

5.        The defendant worked as a chef.

6.        The plaintiff and the defendant entered into a partnership agreement

“Partnership   Agreement”   signed   by   contributing   partners   on
13 August 2012.

7.        Agreement as attached.

8.The  defendant  has  failed  to  honour  the  agreement  and  pay  the percentage losses experienced by the Company.

Financial returns 2012/2013 (Loss)                   77,144

Financial returns 2013/2014 (Loss)                   49,675

TOTAL LOSSES   $126,819

Application for relief

a)   The  plaintiff  to   be   reimbursed   losses  experienced  during financial  periods  2012/2013  and  2013/2014.  Total  losses

$126,819.00 Shareholding of plaintiff 63.2% = $80,530.00

b)   Damages for having to operate with insufficient capital. c)   Costs.

[7]      The  document  was  dated  and  signed  by  Mr Malcolm North  above  the statement:

This document is filed by the plaintiff in person.

[8]      Although the statement of claim on the High Court file did not have attached to it the Agreement referred to in para 7, it was apparent, and Mr Haines confirmed, that the Agreement referred to was the document shown below:

[9]      It was Mr Haines’ submission that there was no basis upon which the plaintiff company had any claim directly against the defendant.   He recognised that on a strike out application the pleaded facts, whether or not admitted, are assumed to be true.   He made the point however that that does not extend to pleaded allegations which are entirely speculative and without foundation.

[10]     Hence, while para 6 stated that the plaintiff and the defendant entered into a partnership agreement being the document signed by the contributing partners on

13 August 2012, in his submission it was apparent from the signed agreement that the plaintiff company was not a party to that agreement.

[11]     In particular he drew attention to the following matters:

(a)      the  document  does  not  purport  to  be  an  agreement  between  the company Muse on Allen Ltd and Mr Szekely;

(b)      the document makes no reference to Muse on Allen Ltd;

(c)      the    document    refers    to    Mr Szekely,    Mr    Samuel    North, Ms Annabelle Torrejos,  and  Mr Malcolm  and  Ms Debbie  North  as being partners in the partnership;

(d)      there is no reference to the partnership being a shareholder in Muse on

Allen Ltd.

[12]     I accept that paras 6 and 7 of the statement of claim should be read together. I also accept that it is apparent by reference to the terms of the written agreement that only the five individuals, whose signatures appear on that document, were the members of the partnership.

[13]     Mr Haines provided to the Court a copy of a document which he had received the previous evening from Mr Samuel North.  The document was in the form of a notice of interlocutory application for stay and/or strike out entituled in this proceeding and was unsigned.

[14]     The document included the following statement:

3.The partnership agreement is with Joszef Szekely, Samuel North, Annabelle Torrejos, Debbie North and Malcolm North and not with Muse  on  Allen  Limited  and  Mr Szekely  insisted  that  this  was completed before opening the doors of Muse on Allen restaurant & bar.

[15]     Mr Haines observed that that statement was consistent with the submission which he made as to the identity of the parties to the partnership agreement. I agree with Mr Haines that reading the statement of claim together with the partnership agreement discloses that the plaintiff company was not a party to the agreement upon which the claim is based.

[16]     However I drew to Mr Haines’ attention the fact that the notice of opposition

filed on 6 April 2016 stated:

The  partnership  agreement  confers  a  benefit  on  the  [plaintiff]  that  is enforceable by the [plaintiff] under s 4 of the Contracts (Privity) Act 1982.

[17]     Section 4 provides:

4        Deeds or contracts for the benefit of third parties

Where a promise contained in a deed or contract confers, or purports to confer, a benefit on a person, designated by name, description, or reference to a class, who is not  a party to the deed  or  contract

(whether or not the person is in existence at the time when the deed or  contract is  made),  the promisor  shall  be  under an  obligation,

enforceable at the suit of that person, to perform that promise: provided that this section shall not apply to a promise which, on the proper construction of the deed or contract, is not intended to create,

in respect of the benefit, an obligation enforceable at the suit of that person.

[18]   Mr Haines sought further time to consider that point and provided a memorandum to the Court dated 25 May 2016.  In that memorandum he noted that in order for s 4 to apply it must designate the company Muse on Allen Ltd either by name, description or by reference to a class.

[19]     Mr Haines submitted that the company is not referred to in the partnership agreement and there is no description of any entity which could be considered to be the company.  The partnership agreement is vague and does not state what business,

if any, the partnership has engaged in and while there is specific reference to profit or losses being paid according to the percentage held in the partnership, there is no connection to Muse on Allen Ltd.

[20]     For the reasons advanced by Mr Haines I agree that s 4 does not avail the plaintiff in sustaining the present proceeding against the defendant.   Consequently the defendant succeeds in his contention that the statement of claim does not disclose a reasonably arguable cause of action against him.

Was the proceeding validly commenced by the plaintiff without a solicitor?

[21]     The general rule that a company has no right to be represented in the conduct of a case in Court except by a barrister or by a solicitor in courts or proceedings where solicitors have the right of audience was recently reiterated by the Court of Appeal  in  Commissioner  of  Inland  Revenue  v  Chesterfields  Preschools  Ltd.1

However the argument advanced by Mr Haines concerns the act of commencement

of the proceeding itself.  He contends that the statement of claim ought not to have been accepted by the Court in circumstances  where it was signed and filed by Mr Malcolm North who is not a solicitor.

[22]     In support of his contention Mr Haines draws attention to the statement of

Cooke J in Re G J Mannix Ltd:2

There is a cognate rule that, apart from statutory exceptions, a corporation has no right to bring or carry on proceedings in a Court except by a solicitor. This refers to the filing of documents – writs, statements of defence, notices of appeal, etc.   It is this rule which is now contained in England in RSC Ord 5, r 6(2).  There is no express New Zealand equivalent in the Code of Civil Procedure in the High Court, but the general understanding is that the English rule embodies the former practice and that the New Zealand practice is the same.  Arguably there might perhaps be more ground for relaxing this practice  at  the  present  day;  but  the  present  case  does  not  involve  that question and no opinion on it is called for.

1      Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2

NZLR 679.

2      Re G J Mannix Ltd [1984] 1 NZLR 309 (CA) at 311.

[23]     Mr Haines also drew attention to the decision of Master Venning in Time Ticket International Ltd v Broughton which addressed the scenario where a proceeding was filed on behalf of a company by a barrister:3

In summary, civil proceedings must either be issued by a litigant in person or through the agency of a solicitor. It is not enough that the person issuing the proceedings is enrolled as a barrister and solicitor of this Court, he/she must also practise as a solicitor and must satisfy the additional requirements of R 41.

The fact that Mr Waldron is a practising barrister does not affect the position and cannot derogate from the requirement that a solicitor should issue the proceeding and be on record as the address for service.

There are two practical reasons for that.  The first is that as a company is a creature of statute, a Court cannot exercise its disciplinary powers over the company and it must therefore have a solicitor (who is an officer of the Court) on the record.  Whilst the Court can control and exercise its authority over counsel appearing before it there may be situations where a Court would  wish  to  sanction  the  solicitor  personally,  for  example  failure  to comply with Court Orders.  They are matters which a solicitor has ultimate responsibility for, not counsel.

Second, the ethical rules under which barristers operate including RR 11.03 and 11.04 of the rules of professional conduct make it clear that a barrister must  accept  instructions  only  from  a  solicitor  and  may  not  accept instructions direct from a client except in certain specific situations.  None of those exceptions apply to the present case.

Having regard to the above, I find that a company, not being a litigant in person, is not entitled to issue proceedings itself and it must employ the services of a solicitor to do so.  A barrister and solicitor of this Court who is not practising as a solicitor may not issue the proceedings as agent for the company.

[24]     Those authorities are on point and I accept Mr Haines’ submission that the proceeding in this case was not validly commenced.

Orders

[25]     I make an order that the statement of claim is struck out on the dual grounds explained above.

3      Time Ticket International Ltd v Broughton [1996] 2 NZLR 176 (HC) at 179-180.

[26]     Mr Haines seeks costs against Mr North as a non-party.  Having regard to the second basis on which the proceeding is struck out I accept that it is appropriate that an order for costs be made against Mr North being the person who signed and filed the statement of claim.  However I do not consider that the case is one warranting costs  on  a  solicitor  and  client  basis.    Rather  I  make  an  order  for  costs  on  a

schedule 2B basis.

Brown J