Nellies v Mark

[2024] NZHC 1912

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE

CIV-2018-406-10

[2024] NZHC 1912

BETWEEN

IAIN ANDREW NELLIES as liquidator of PMT 2010 LIMITED (in liquidation)
Plaintiff

AND

PETER MARK and JEANETTE PATRICIA MARK

Defendants

CIV-2021-406-13

BETWEEN

PMT 2010 LIMITED (in liquidation) First Plaintiff

IAIN ANDREW NELLIES as liquidator of PMT 2010 Limited (in liquidation)
Second Plaintiff

AND

PETER MARK and JEANETTE PATRICIA MARK

First Defendants

WISHEART MACNAB & PARTNERS TRUSTEE COMPANY LIMITED and

DAVID JOHN PAUL as trustees of the Mark Family Trust

Second Defendants

Hearing:	Teleconference on 10 July 2024 at 3 pm
Counsel:	T J Shiels KC and D P MacKenzie for Plaintiffs P A Morten for Defendants
Judgment:	11 July 2024

JUDGMENT OF RADICH J

NELLIES v MARK [2024] NZHC 1912 [11 July 2024]

[1]        The defendants in both of these proceedings have applied to adjourn their trial which is set down to begin in just over two weeks, on 20 July 2024. The application is opposed by the plaintiffs.

[2]        At the end of the hearing of the application yesterday, I said that I had decided that the application was declined. These are my reasons for that decision.

Background

[3]        PMT 2010 Ltd was a flooring business. Peter Mark and Jeanette Mark were its directors.

[4]        In March 2015, a liquidator was appointed over the business on the application of judgment creditors. The 2018 proceeding relates to alleged dealings on the part of Mr and Mrs Mark with funds they received from the earlier sale of the business. It is claimed that distributions were made and assets transferred when PMT was not solvent. Relief, amounting to approximately $600,000, is sought under ss 300, 56 and 297 of the Companies Act 1993.

[5]        The proceeding was set down for a trial in July 2020 but was adjourned until May 2021. Based upon information received by the liquidator in June 2020, the company in liquidation brought the 2021 proceeding, alleging that the assignment to the Marks of a vendor finance loan on the sale of the business was invalid or was a disposition that defeated creditors. Relief exceeding $2.7 million is sought.

[6]        The scheduled trial of the proceeding was adjourned when the two proceedings were consolidated. A new trial date of 20 September 2021 was given. It was vacated in the wake of a range of interlocutory applications: a strike-out application and a defendants’ summary judgment application, a joinder application by the plaintiff and a Limitation Act application. The joinder was allowed, a finding was made that the claims were not statute-barred and the other applications did not proceed at that time.1

1      PMT 2010 Ltd & Anor v Mark & Ors [2022] NZHC 169.

[7]        Subsequently, a hearing that had been set down for 24 August 2022 was vacated following a joint application.

[8]        Further interlocutory applications followed in February and March 2023 – for further discovery by the defendants and to file an amended pleading by the plaintiffs. In a judgment of 22 March 2023, further discovery orders were made and the amended pleading was allowed.2 In that decision, Associate Judge Johnston made a set of timetabling orders. They remain current. They included orders requiring:

(a)the plaintiffs to serve their briefs of evidence together with a draft index for a trial bundle 50 working days prior to trial;

(b)the defendants to serve their briefs of evidence and any proposed additions or alterations to the index 25 working days prior to trial;

(c)the plaintiffs to file the trial bundle 15 working days prior to trial; and

(d)the plaintiffs to file and serve their opening submissions and chronology of events three working days prior to trial.

[9]        The plaintiffs served their evidence,  in  accordance with  the timetable, on  16 May 2024. At the same time, the contents of the proposed bundle were given to counsel for the defendants electronically. Included in the bundle were file notes from an accountant assisting the liquidator with his work, and a colleague of the accountant, to the effect that, when they had reviewed the server of PMT’s former accountant for relevant documents in the proceeding, the “recycle bin” had not been checked and attempts had not been made to recover “any other files”.3

[10]      As a result, on 14 June 2024, the defendants applied for further particular discovery of documents on the server.

2      PMT Ltd & Anor v Mark & Ors [2023] NZHC 584.

3      Privilege had been claimed over these file notes previously under s 56 of the Evidence Act as preparatory materials for proceedings but of that privilege was waived as a result of the reference that was made to the documents in a footnote in a brief of evidence for the plaintiff.

[11]      The discovery application was heard by La Hood J on 18 June. In his decision that day he accepted that information of the type sought may indicate the creation dates of crucial documents that are relevant to trial issues.4 La Hood J referred to the plaintiff’s submission that all relevant material had been provided. He said that, if the defendants wanted a further search of the server to be conducted, there is nothing stopping them from undertaking it but that the burden should not fall on them at this stage of the process and so orders were made that the plaintiffs were to provide particular discovery of:

(a)any Word or Excel document served on the former accountant’s server relating to documents the former accountant prepared to enable him to complete PMT’s financial statement for the year ending 31 March 2012; and

(b)electronically stored information and/or metadata relating to the documents.

[12]      The plaintiffs were to serve an affidavit of documents and make the documents available for inspection by 4 July 2024.

[13]      On 3 July, the plaintiffs filed an affidavit from the accountant assisting the liquidator. He described the further search that was made of the server of PMT’s former accountant, which had been delivered to his office for that purpose. He described the way in which he could confirm that no further searches had been made of information on the server since he had last searched it in August 2022. He described the searches he then made, his review of the recycle bin which was found to be empty, his examination of generic folders and his search of Microsoft Outlook folders. Twenty-three further documents were found and disclosed together with screen shots of nine MYOB files that were located. Documents from those files were disclosed. The accountant confirmed in his affidavit that, through this work, the further discovery required of the plaintiffs by La Hood J had been completed.

[14]The defendants disagree. As a result, they applied on 5 July to adjourn the trial.

4      PMT 2010 Ltd & Anor v Mark & Ors, minute of La Hood J 18 June 2024.

The defendants’ position

[15]      A primary point for the defendants on the adjournment application is that one of the important factual issues at trial will be the date on which the former accountant of PMT created the company’s 2012 financial statements, a solvency certificate, an AGM resolution and dividend statements in support of various distributions made by PMT. The defendants want to know whether the former accountant created the documents on the dates that appear on their face or at a different time, which might be at odds with the plaintiffs’ allegations in the proceeding. They anticipate that the electronically stored information and/or metadata relating to the documents will assist.

[16]      The defendants say that the affidavit referred to in [13] above fails to comply with the directions of La Hood J. They have filed an affidavit from a computer forensic analyst and private investigator in which it is said that a proper forensic search of the server requires significantly more analysis than the analysis that has been carried out for the plaintiffs. The methodology that is said to be needed is described and it is said that, in order to provide a complete report about the information the defendants seek, more time is needed than that which is available before trial.

[17]      Mr Morten has said that, in addition, legal issues arise in the context of the further information that is sought over whether causes of action in the 2021 proceeding are statute-barred now under the Limitation Act 2010 or whether the longstop provisions in s 48 of the Act apply.

Principles

[18]      Under r 10.2 of the High Court Rules 2016, the Court may, if it is in the interests of justice, postpone or adjourn a trial for any time and upon any terms it thinks just.

[19]      In Huritu v Attorney-General, Isac J summarised the principles that are relevant to the exercise of the Court’s broad discretion under the rule in the following way:5

5      Huritu v Attorney-General [2022] NZHC 1500 at [16].

(a)The interests of justice require consideration of not only the interests of the parties before the Court, but also of those awaiting a hearing who will suffer delay to their own cases should an adjournment be granted. This reflects the public interest in the efficient use of court resources.

(b)As between the parties, the decision to grant or decline an adjournment is essentially a balancing exercise. It involves a consideration of the prejudice that will accrue to the applicant as well as the harm to the respondent if an adjournment is granted or denied.

(c)A further relevant factor is whether the applicant has acted reasonably and done everything practical to avoid the need for an adjournment.

(d)The strength of the reasons in support of the application, and the prejudice said to follow from continuing with the trial, is a material factor.

(e)Also relevant is the right of the parties to a fair trial and the need for resolution of the proceedings, including the likely impact of further delay on the quality of the evidence and the difficulties of reorganising witnesses for a later trial date.

Consideration of the principles

The interests of the parties before the Court and of those awaiting a hearing

[20]      Unless circumstances change, it is unlikely, if adjourned, that the proceeding would be able to be heard before the last quarter in 2025. An adjournment would mean the resulting gap in the Court’s schedule would likely not be able to be filled efficiently and sought-after hearing time in the last quarter of 2025 will be taken instead. This is not an efficient use of the Court’s resources. But, while this is a relevant consideration, it is by no means a defining one. As Mr Morten observes, with reference to a comment made by Kós J in Stephenson v Jones, in a choice between an unfair trial now and a fair trial later, the latter option should prevail.6

Balancing the prejudice to the appellant against the harm to the respondent

[21]      I am drawn to conclude that, on balance, the plaintiffs have complied sufficiently with the terms of La Hood J’s 18 June 2024 orders. On the basis described in the affidavit I have referred to in [13], the deponent identified the documents sought in their native forms and provided them in a discovery affidavit.

6      Stephenson v Jones [2015] NZHC 1455 at [49(e)].

[22]      The documents now provided and documents produced previously enable the trial to be conducted properly. Documents produced previously address directly the allegations about removal of assets. For example, reference is made by the liquidator, in an affidavit for this application, to PMT’s balance sheets, tax returns and journal entries and to IRD records.

[23]      The defendants, as I say, want their forensic expert to undertake further analysis of the server of PMT’s former accountant. The server is with Mr Morten at the moment. That can certainly be done and, in the event that further information is obtained that the defendants wish to bring before the Court, then the trial Judge can look to accept supplementary evidence at the time of trial.

[24]      Moreover, I do not see that further expert evidence is able readily to assist with a limitation defence but, again, if the issue arises from the further work the defendants wish to undertake, it can be brought before the trial Judge.

[25]      Accordingly, the result of the balancing exercise that needs to be undertaken under this head favours, in my view, the plaintiffs. It is not, as I see it, a choice between an unfair trial now and a fair trial later. The trial may proceed fairly, on the basis I have discussed.

Reasonableness of the applicants’ actions

[26]      It is said for the plaintiffs that the defendants have been on notice of the case they need to respond to for nearly two years and have had ample time to prepare any expert evidence necessary to refute the claim. It is said that the location of the former accountant’s server was disclosed to the defendants in October 2022, together with details of the material located on the server and its significance. They say that it was clear from correspondence at that time there was no proposal to have the server analysed by a specialist computer forensic expert.

[27]      I do not see these arguments as advancing matters one way or the other. What may or may not, or should or should not, have happened at this earlier point in time or subsequently is overridden by the file notes that were discovered – as discussed in [9] above – which caused the defendants to bring the discovery application expeditiously.

Accordingly, it is not a matter of determining whether the actions of any party were unreasonable. Rather, at this juncture, it is a matter of taking stock of where matters stand and of what can be done in a practical sense.

The strength of the reasons for the application

[28]      For the reasons already given, on balance I see the reasons in support of the fixture being maintained as outweighing the reasons given in support of the application. I do not see any prejudice to the defendants from continuing with the trial as outweighing the importance of having the proceedings determined.

The right to a fair trial and the need for resolution of proceedings

[29]      The resolution of these proceedings is long overdue. Again, for the reasons I have given, I see the right of the parties to a fair trial as being preserved.

Timetabling

[30]      As directed at the conclusion of the hearing of the application yesterday, the parties are to liaise purposefully with a view to agreeing upon an adjusted timetable to trial. A joint memorandum is to be filled by midday on Friday. In the event that agreement cannot be reached over timetabling, separate memoranda may be filed on Friday afternoon and arrangements can be made for a teleconference early next week.

Result

[31]The defendants’ application to adjourn the 20 July 2024 fixture is declined.

[32]      Costs on the defendants’ application are reserved. Given the limited time available, they will best be determined following trial.

Radich J

Solicitors:

Clark Boyce, Christchurch for Plaintiffs

Wisheart Macnab & Partners, Blenheim for Defendants