RFD Finance Limited v Thorn
[2019] NZHC 2157
•30 August 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2016-409-000522
[2019] NZHC 2157
BETWEEN RFD FINANCE LIMITED
First Plaintiff
AND
FTG SECURITIES LIMITED
Second Plaintiff
AND
SIMON JOHN THORN, DAVID IAN RUSCOE and TIMOTHY WILSON DOWNES
Defendants
Hearing: 16 August 2019 Counsel:
D J Ballantyne for Plaintiffs S Caradus for Defendant
Judgment:
30 August 2019
JUDGMENT OF OSBORNE J
[1]The plaintiffs make two applications:
(a)for review of discovery orders made by Associate Judge Matthews on 27 June 2019; and
(b)a related application for leave to file a fourth amended statement of claim (after close of pleadings).
[2] There are two plaintiffs, namely RFD Finance Ltd (RFD) and FTG Securities Ltd (FTG). For convenience in this judgment, I will generally refer only to RFD (the first plaintiff) being the assignee of the debt which I come to discuss at [5] – [7] below.
RFD FINANCE LIMITED v FTG SECURITIES LIMITED [2019] NZHC 2157 [30 August 2019]
The substantive proceeding
[3] The substantive proceeding relates to the actions of the defendants as receivers of Livingspace Properties Ltd (in rec and in liq) (Livingspace).
[4] FTG pleads that the receivers were appointed on 18 June 2010 by FM Custodians Ltd (FMC) pursuant to a security agreement (“the FMC security”).
[5] RFD pleads that by deed of assignment of debt and security dated 13 September 2010, two other creditors of Livingspace assigned to RFD a first ranking general security interest (“the RFD security”). The RFD security was over Livingspace’s business and a specific security over the chattels used by Livingspace Invercargill and Livingspace Dunedin being accommodation businesses operated by Livingspace (“the first assignment”)
[6] RFD alleges (by its statement of claim) that the defendants (as receivers) acted outside the scope of their powers which were created by the FMC security. It asserts that the receivers’ actions trespassed on the rights under the RFD (a first ranking) security over Livingspace’s business and chattels (by virtue of the assignment).
[7]The present statement of claim contains the following allegation:
8. As at 9 December 2013, the redemption calculation for LPL’s [Living Space’s] liability to RFD secured by the [assigned securities] totalled (not less than) $493,058.67 plus additional interest which continues to accrue at the contractual rate payable to RFD …
(“paragraph 8”)
Discovery in relation to the paragraph 8 allegations
[8] The receivers wanted through discovery to establish the true financial position between RFD and Livingspace and that RFD was not owed any money secured by the RFD security.
[9] To support that argument, the receivers by memorandum sought discovery of documents related to the indebtedness secured by the assigned securities held on the file in another current proceeding, CIV-2010-409-2323 (“the Walker proceeding”). In
his memorandum, counsel for the receivers described the Walker proceeding as being brought by the liquidator of Livingspace, Robert Walker. Mr Walker sought to investigate possible overpayments received by RFD from Livingspace while Livingspace was mortgagee in possession. Mr Walker in the Walker proceeding asserts that Livingspace is likely to be a creditor rather than a debtor of RFD, that being the opposite of what RFD alleges in the present proceedings.
[10]The receivers, in their memorandum seeking the discovery, advised that:
7.The defendants have recently learned that Ms Buxton, Mr Henderson, RFD and FTG Securities Limited (FTG) are parties to related proceedings (Commissioner of Inland Revenue v Livingspace) brought by Livingspace’s liquidator, Robert Walker …
[11] The receivers, having denied the paragraph 8 allegations (as to a level of secured debt) in this present proceeding, submitted to Associate Judge Matthews that documents in the Walker proceeding pertaining to the level of RFD’s indebtedness were relevant to a fact in issue in the present proceeding. Paragraph 8 would be deleted if leave were given to the plaintiffs to file a fourth amended statement of claim.
[12] The close of pleadings date in this proceeding was 17 September 2018. Thus the informal application for further discovery required leave.1 The close of pleadings date was set at a time when the fixture was likely to commence on 18 February 2019. That fixture date was abandoned. Notwithstanding the abandonment of the fixture date, the close of pleadings date was not amended. A new trial date has not been set. It is not expected that there will be a hearing date until well into 2020.
[13] Counsel for RFD by memorandum opposed the defendants seeking discovery informally and referred to the close of pleadings date.
[14] Counsel for RFD in this present proceeding is also counsel involved for Ms Buxton (and others) in the Walker proceeding.2
1 High Court Rules 2016, r 7.7(1).
2 But Mr Ballantyne did not act as counsel for RFD in filing the memorandum referred to at [13] above.
[15] Regrettably, in the memorandum opposing the informal discovery application counsel did not bring to the Court’s attention that RFD and FTG were not in fact parties to the Walker proceeding (as asserted by the defendants in their memorandum seeking discovery).
[16] Now, in RFD’s application for review, a principal ground advanced is that the discovery orders made amounted to orders for non-party discovery without notice to the parties involved in the Walker proceeding. As Mr Ballantyne put it in his written submissions:
…[The] substantive decision to grant the orders did not recognise, or consider, that RFD was not a party in proceeding CIV-2010-409-2323,… RFD could not comply with, or compel compliance by Ms Buxton, with orders…. …[t]he defendants’ memorandum was seeking third party [sic] discovery orders against Ms Buxton.
[17] In other words, discovery had been ordered against a non-party without that person being given notice.
[18] As I have indicated, this issue arises now having not been identified for RFD when RFD filed its memorandum opposing the original discovery request.
[19] At that earlier point, Mr Caradus, counsel for the receivers, had understandably relied upon a judgment of this Court in the Walker proceeding on 5 April 2019. In it reference was made to both RFD and FTG (together with others) as being “applicants” in the Walker proceeding.3 That situation had in turn been contributed to by FTG and RFD.
[20] Against this background, I called for the Court’s file in the Walker proceeding. RFD and FTG are still not parties to the Walker proceeding at this point. They are in fact the subject of an application for joinder which has not yet been dealt with.
[21] Given that the subject-matter of the discovery orders which were made was the pleadings, submissions and affidavits filed in the Walker proceedings, it is clear that Associate Judge Matthews would not have, at least without further evidence, made an
3 Commissioner of Inland Revenue v Livingspace Properties Ltd (in liq and in rec) [2019] NZHC 711.
order that RFD and FTG provide copies of those documents from the Walker proceeding.
[22] Now that it is known that RFD and FTG are not parties in the Walker proceeding, Mr Caradus has put the justification for the discovery orders (ex post facto) upon the basis that RFD and FTG should be taken to have control of the documents in question. That control or power was indicated, in Mr Caradus’s submission, by the fact that RFD and FTG have produced in this proceeding copies of some documents from the Walker proceeding. For instance, Ms Buxton’s husband, David Henderson (on the authorisation of Ms Buxton), filed an affidavit in support of this review application, attaching Mr Walker’s interlocutory application from the Walker proceeding. Shortly before that, the solicitor for RFD and FTG in this proceeding attached an affidavit (of Kerryn Downey) from the Walker proceeding.
[23] Mr Caradus invites the Court here to draw the inference that RFD and FTG (through the directorship of Ms Buxton) have sufficient control or power over documents in the Walker proceeding to enable them to comply with the discovery order.
[24] Mr Ballantyne submits that it would be inappropriate for the Court to draw such inference on the limited evidence referred to for the receivers. Mr Ballantyne submitted that the receivers have not established a proper basis for cutting across the separate legal entities involved. Control of documents in relation to Ms Buxton’s application, in his submission, is to be treated as lying with Ms Buxton. The fact that she may be a director of parties in this proceeding does not make it appropriate to treat those companies as having control or possession of Ms Buxton’s documents. In Mr Ballantyne’s submission nor does the fact that the various entities associated with Ms Buxton are commonly represented by one set of solicitors alter the legally separate nature of the entities.
[25] Mr Ballantyne noted that this Court has, in the context of discovery and how the costs of discovery should be borne, respected the separate identity of the company from its officers and shareholders. The headnote to the reported decision in New
Zealand Apple & Pear Marketing Board v Devondale Orchards Ltd accurately summarises the conclusions of Master Venning in that case, including:4
(6) The company against whom the order for discovery was made was a third party [sic] and its costs should be paid by the party seeking discovery, regardless of the common identity of directors and officers between the company and one of the parties to the proceeding.
Although Master Venning referred to “a third party”, the company in question was in fact a non-party.
Discussion
[26] I am satisfied that Associate Judge Matthews would not have made the discovery orders in the summary way they were made had the true position in relation to the parties in the Walker proceeding been before him. If the receivers had been relying not upon RFD and FTG being parties in the Walker proceeding (and therefore having control of the documents) but rather on RFD and FTG having some form of effective control, some evidence would have been called for.
[27] It is not appropriate to leave the discovery orders in place. That said, and notwithstanding the fact that pleadings have closed, it is appropriate to reserve leave to the receivers to make a formal application for discovery (whether against Ms Buxton as a non-party) or against the plaintiffs here, supported by affidavit evidence.
[28] That leave is reserved without any pre-judgement as to whether such an application would succeed either on grounds of relevance or need. The focus of the receivers appears in part to obtain information as to what Mr Walker or Mr Gower may have said and might say. The receivers and their counsel are entitled to approach those people regarding their giving evidence. Equally, they are entitled to make an application for access to the file relating to the Walker proceeding under the Senior Courts (Access to Court Documents) Rules 2017. Non-party discovery will generally be considered only when it is necessary in the sense that the applicant cannot reasonably obtain the information in question by simpler means.
4 New Zealand Apple & Pear Marketing Board v Devondale Orchards Ltd (1995) 9 PRNZ 422 (HC) at 423.
[29] Whether the pursuit of such documentary evidence remains necessary for the receivers is a matter for their counsel to advise them upon. By reason of the decision I have reached above, it has been unnecessary for me to consider whether the categories of documents which were the subject of the discovery orders were all strictly relevant in this proceeding on the pleadings as they stood. The issue of relevance is all the more heightened by reason of the decision which I will now turn to in relation to the application for leave to file an amended claim.
The application for leave to file an amended claim
[30] RFD seeks leave to file an amended statement of claim, the only substantive amendment being to delete paragraph 8 as (set out in [7] above). It may be inferred that the deletion is calculated to cut across the need to revisit the discovery issues.
[31] The receivers, when they made their informal application for discovery in June 2019, submitted that there was no prejudice to RFD. That was in part because no trial date had yet been set. Notwithstanding that, the receivers now assert that leave to amend should be declined.
[32] The proposition is developed in the defendants’ notice of opposition, that if the application is granted, it is not clear what RFD’s case is.
[33] Assuming RFD and FTG can establish the alleged breaches by the receivers, they must also show that they have been prejudiced by those breaches. In this context, that will require the plaintiffs to show they were creditors of Livingspace who (under the charges they held) would have received funds paid by the receivers to their appointors or expended in the receivership.
[34]Mr Ballantyne for RFD submits:
8.RFD can establish its status as a creditor in reliance on the Equitable Property Holding Limited (Equitable) debt and securities assigned to it by deed dated 14 February 2014 (pleaded in paragraphs [9] – [11]). [Livingspace’s] indebtedness under the Equitable securities as at 2014 (and updated to 2019) has been acknowledged by the defendants in their Receiver’s reports.
[35] The Equitable securities referred to are second-ranking general security interests over the businesses of Livingspace Dunedin and Livingspace Invercargill, and a general security agreement dated 18 March 2010.
[36] RFD says that it therefore does not need to rely on paragraph 8 to establish its status as creditor. It is content to abandon that pleading. It relies instead on its otherwise existing pleading.
[37] The receivers assert in their notice of opposition that it is likely that the proposed amendment will substantially alter the nature of the present proceedings. That point was raised prior to the plaintiffs tabling the proposed fourth amended statement of claim. The marked-up copy shows only the deletion of paragraph 8 (I nevertheless recognise if paragraph 8 is deleted it may have a consequential effect on other paragraph references as set out in the receivers’ submissions at paragraph 34). If it has leave to file its amended statement of claim, thereby abandoning its paragraph 8 allegations, it will not be permitted at trial to advance these (by then former) allegations in support of its case that it was a creditor of FMC.
[38] By their notice of opposition the receivers assert that RFD’s reliance on the Equitable debt security goes beyond a minor amendment. They assert that such a claim would be statute-barred and cannot survive the fact that RFD has already pleaded the assignment of the Equitable charges.
[39] Through the proposed amendment (by deletion) of paragraph 8, the receivers would move from facing two existing pleadings upon which RFD says it has standing as a creditor to bring its claim on a single basis. A major purpose of pleadings is to identify the assertions which each party wishes to pursue to trial and to thereby identify the issues. To hold a party to an earlier version of its pleadings which it no longer wishes to pursue would be a very unusual course. The justice of any leave must partly lie in the weighing of fairness issues between the parties. I can identify no significant prejudice through the receivers in having to face the (narrower) set of allegations which RFD now wishes to pursue.
[40] Mr Caradus’s submissions for the receivers contained a detailed critique of the merits of the plaintiffs’ claim in the event paragraph 8 is deleted. Those points of critique of the substantive merits and potential outcomes at trial may find favour with the trial judge. On the merits of those points it would be inappropriate for me to comment in the context of this interlocutory hearing. If Mr Caradus’s points are correct and the claim as it is left following amendment has no merit, then the amendment does not prejudice the defendants. The merit assessment here is on the identification and narrowing of issues. The proposed amendment serves that purpose.
[41] Mr Caradus also submitted that a consideration against granting leave to RFD to amend the statement of claim is that some 12 paragraphs of the existing pleading may be said to be insufficiently clear or particularised. The thrust of Mr Caradus’s submission in this regard is that, had the existing pleading not contained the paragraph 8 allegations, the receivers would have pursued further particularisation of other paragraphs in the pleading.
[42] This latter submission is not reason in itself to justify refusing a plaintiff leave to narrow its case. What it does indicate is that, if the plaintiff has leave to narrow its case, the defendant must fairly be given the opportunity to then seek further and better particulars of matters that it did not pursue upon the basis that it was prepared to meet the case as previously pleaded.
The leave regime
[43] FTG and RFD recognises that they require leave to amend under r 7.7(1) High Court Rules.
[44] Counsel referred me to cases discussing the principles which apply to an application under r 7.7(1). The short point is that r 7.7(1) involves the exercise of a direction in the interests of justice. The well-established and continuing authority on the subject is the Court of Appeal judgment in Elders Pastoral Ltd v Marr.5 There the Court held that the trial Judge had correctly stated the test for an amendment as being
5 Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA).
whether it is necessary to determine the real controversy between the parties and does not result in injustice to the other parties or cause significant delay.
[45] On my assessment, I consider the removal of a disputed issue to leave RFD relying on an existing pleaded ground meets these requirements. A trial date has not been allocated. The receivers were granted an extension (to 12 September 2019) to file their evidence. That extension was to allow them time to consider the documents they wanted to obtain under the discovery order. The receivers’ evidence will now be narrowed (in relation to debt securities) to dealing with the assigned Equitable security, that being a pleading that was denied by the defendants.
[46] Ultimately, as expressly indicated by Mr Ballantyne, RFD and FTG have made a tactical decision to rely on the alleged Equitable debt. They have not sought leave, and leave is not granted to them, to supplement the evidence they have already served and in which they were obliged to meet the receivers’ pleaded case in relation to the Equitable debt.
[47] I record this in relation to the state of evidence. Mr Caradus in the course of his submissions expressed a concern that, as the plaintiffs’ case is narrowed down, it may expose the receivers to finding at trial that the plaintiffs seeks to introduce supplementary evidence that is material and goes beyond the briefs which have now been served. It is not for the Court in this interlocutory proceeding to fetter the trial judge’s discretion at trial. But it is appropriate to record Mr Ballantyne’s confirmation in the course of evidence that the plaintiffs’ evidence, as contained in the briefs already served, is the evidence the plaintiffs intend to rely on in relation to the statement of claim as proposed to be amended. The leave which I grant below to amend the statement of claim takes into account that confirmation.
[48] I consider it just to grant leave to the plaintiffs to file a fourth amended statement of claim, subject to the provisions contained in the order below as to further particulars.
Orders
[49]I order:
(a)The discovery orders contained in paragraph [14](a) of the Court’s Minute dated 27 June 2019 are rescinded.
(b)The receivers have leave to file and serve any application for further and better discovery or non-party discovery within ten working days.
(c)The plaintiffs have leave to file their fourth amended statement of claim, subject to the following directions:
(i)The defendants shall within three working days give notice to the plaintiffs of any further and better particulars they require of any pleading in the proposed fourth amended statement of claim.
(ii)In the event the defendants give notice requiring further particulars, the plaintiffs are to file and serve their fourth amended statement of claim incorporating the further and better particulars which they accept they should provide within eight working days from the date of this judgment.
(iii)The defendants are to file and serve any amended pleading (but without a requirement to file and serve any amended pleading) within 18 working days.
(d)The close of pleadings date remains unamended.
[50] In the event that, after the filing of the fourth amended statement of claim, there remain for the defendants issues as to the particulars contained in that pleading, leave is reserved to the defendants to request by memorandum on three days’ notice a telephone conference to timetable any requirements in relation to further and better particulars.
[51]I reserve costs.
Osborne J
Solicitors:
Canterbury Legal, Christchurch Duncan Cotterill, Christchurch
This judgment was delivered by me on 30 August 2019 at 11.30 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
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