NZ Natural Therapy Ltd (in liquidation) v Little

[2016] NZHC 1939

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-4866 [2016] NZHC 1939

BETWEEN

NZ NATURAL THERAPY LTD (IN

LIQUIDATION) First Plaintiff

VIVIEN JUDITH MADSEN-RIES and HENRY DAVID LEVIN as liquidators of NZ NATURAL THERAPY LIMITED (IN LIQUIDATION)

Second Plaintiff

AND

JOHN LAWSON LITTLE Defendant

Hearing:	19 August 2016
Counsel:	K Morrison and G Campbell for Plaintiffs P J Dale and S Moore for Defendants
Judgment:	19 August 2016

(ORAL) JUDGMENT OF HEATH J

Solicitors:

Meredith Connell, Auckland
Saunders Robinson Brown, Christchurch
Counsel:

P J Dale, Auckland

NZ NATURAL THERAPY LTD (IN LIQUIDATION) v LITTLE [2016] NZHC 1939 [19 August 2016]

[1]      NZ Natural Therapy Ltd (the company) was placed in liquidation by order of this court on 10 August 2012.  Mr Levin and Ms Madsen-Ries were appointed as its liquidators.   In the time since liquidation, the liquidators have investigated the financial position of the company.

[2]      In 2013, they launched a claim against a director of the company, Mr Little, in  which  various  claims  were  made.    In  its  present  iteration,  a  third  amended statement of claim dated 23 June 2015, seven causes of action are pleaded:

(a)      That Mr Little owes a debt to the company in liquidation in the sum of just over $1 million.

(b)An inquiry into the amount that Mr Little may owe to the company as a beneficiary of two trusts, under an alleged current account.

(c)      A claim for recovery of a distribution paid to a shareholder under s 56 of  the  Companies  Act  1993.    The  total  of  those  claims  exceed

$1 million.

(d)A claim  that  dispositions  prejudicing  creditors  under s 348  of the Property Law Act 2007 be set aside.   Compensation of $632,800 is sought.

(e)      Breach of a director’s duty under s 301 of the Companies Act 1993 in respect of which declarations are sought together with an order for contribution by way of compensation in an un-liquidated amount.

(f)      A claim based on failure to keep proper accounting records in respect of which contributions are sought under s 300 of the Companies Act.

(g)      A claim under s 284 of the Companies Act 1993.

[3]      The proceeding is set down for trial over five days, commencing on  29

August 2016.  On 2 August 2016, counsel for the company and the liquidators filed a memorandum in which complaints were made about Mr Little relying at trial on

documents that he had not discovered, or introducing evidence based on a new and un-pleaded ground of defence. The plaintiffs signalled a need to adjourn the trial.

[4]      I heard from counsel at a case management conference on 11 August 2016 to ascertain what could be done to deal with these issues.   In the meantime, I had received a memorandum from Mr Dale, for Mr Little.

[5]      As a result of the conference on 11 August 2016, a meeting was to be held between an investigating accountant instructed by Mr Little, Mr Parsons, and Mr Levin,  one  of  the  liquidators  of  the  company.    The  purpose  was  to  review information obtained by Mr Parsons and to ascertain whether agreement could be reached on a number of issues raised by him.  A meeting did take place, but nothing of substance was  agreed.   Accordingly,  a further conference  was  held  today to determine what steps should be taken in relation to the proposed trial.

[6]      Ms Morrison, for the company and its liquidators, initially raised two issues of concern.  The plaintiffs are concerned that they will be prejudiced at trial if they do not have the opportunity to obtain full discovery of information currently within the possession of Mr Little or others who are assisting him to defend the proceeding. Further, they consider that they may be prejudiced in seeking to test evidence proposed to be given by witnesses for Mr Little whose briefs have been exchanged.

[7]      It is important to note that no application has been made by Mr Little for leave to amend the existing statement of defence.  That means that the trial, if it were to proceed, goes ahead based upon the existing pleading.

[8]      The plaintiffs are entitled to run their case, as pleaded.   Mr Dale, for Mr Little, is entitled to cross-examine as he sees fit in respect of pleaded causes of action, and on the basis of Mr Little’s pleaded defence.

[9]      There may be situations that arise during a trial when a document might be put to a witness that has not been discovered and is not proved in any other way.  As with  any  trial,  it  will  be  open  to  counsel  for  the  opposing  party  to  object  to

introduction of that document.   The Judge’s decision whether to admit such a document will be informed by the interests of justice generally.

[10]     Similarly,  if  the  defendant  seeks  to  call  witnesses  whose  evidence  goes beyond the scope of the current pleading, or introduces documents that have not been discovered, it will be open to the plaintiffs to object to such evidence being called.  The fact that briefs of evidence have been prepared and exchanged does not make them evidence at trial.  The evidence is only given when the briefs are either read or confirmed at trial by a witness called for that purpose.  No party is under an obligation  to  call  all  witnesses  from  whom  briefs  of  evidence  may  have  been obtained and exchanged.

[11]     A number of permutations may arise in relation to any decision that a Judge may need to make about whether it is in the interests of justice for the trial to proceed.  Sometimes, the Judge may reject admission of evidence that a party wishes to introduce.  Sometimes, it will be ruled that a witness is giving evidence outside a pleading which should not be permitted.  Rulings can be made that the trial should be adjourned, usually on terms as to wasted costs, if a party is prejudiced in such a way that it cannot reasonably run its trial even though the interests of justice justify introduction of the late information.

[12]     All  of those  are factors  that  a trial Judge must  determine,  based  on  the evidence that he or she has heard up to that point and having regard to the dynamics of the trial process.  It is impossible for me, sitting in a conference in advance of the proceeding, to determine what steps should be taken by a trial Judge.

[13]     In those circumstances, I take the view that the proceeding should continue to trial based on the existing pleading.  The plaintiffs were always ready to run their proceeding based on the way in which they have pleaded and the content of the briefs of evidence they exchanged.  Any issues of prejudice would arise in the first instance out of cross-examination of the plaintiffs’ witnesses.  Later, questions could arise over any evidence from witnesses that the defendant wishes to adduce.   No prejudice is caused to the plaintiffs if they were to run their case on the basis

contemplated with the right to object to any prejudicial material that goes outside of the pleadings.

[14]     The full extent of the Court’s ability to control its processes and to ensure no party is ambushed at trial can be seen from a range of decisions which deal with consequences to parties who raise issues that cause material prejudice.  An example of a severe order as to wasted costs made in a similar type of proceeding can be found in my reasons for judgment in EBR Holdings Ltd (in liq) v van Duyn.1    The liquidators in this case were parties to that proceeding also, as plaintiffs.  No doubt Mr Dale will consider that decision on behalf of Mr Little.

[15]     For present purposes, I am not prepared to make any further interlocutory orders in relation to discovery or the like.   I direct that the proceeding go to trial during the week of 29 August 2016 as currently allocated.

[16]     Mr Dale has raised some issues involving timetabling directions.  As a result of the conferences held last week and today, there has been some slippage in final preparation. That is through no fault of the plaintiffs.

[17]     The relevant trial directions that have been made to date are vacated and replaced with the following:

(a)      Following consultation with counsel for the defendant, the plaintiffs shall file and serve the bundle of documents required for the hearing by 4pm on 24 August 2016.

(b)The plaintiffs shall file and serve a written opening and a chronology by 4pm on 25 August 2016.

(c)       The  defendant  shall  file  and  serve  a  response  to  the  plaintiffs’

chronology by 2pm on 26 August 2016.

1      EBR Holdings Ltd (in liq) v van Duyn [2016] NZHC 1169.

[18]     All questions of costs are reserved for the decision of the trial Judge, given the nature of the issues with which I have been dealing both on 11 August 2016 and

today.

P R Heath J