Robinson v Whangarei Heads Enterprises Limited
[2016] NZHC 891
•5 May 2016
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2013-488-223 [2016] NZHC 891
BETWEEN JOHN CLIFFORD WALTER ROBINSON
Plaintiff
AND
WHANGAREI HEADS ENTERPRISES LIMITED
First Defendant
VICTOR LEONARD FREAKLEY Second Defendant
OFFICIAL ASSIGNEE Third Defendant
Hearing: 27 April 2016 Appearances:
Plaintiff in person
G S G Erskine for DefendantsJudgment:
5 May 2016
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 5 May 2016 at 11:00am
pursuant to Rule 11.5 of the High Court Rules
…………………………………………………….
Registrar/Deputy Registrar
Solicitors:
Glaister Ennor (Grant Erskine), Auckland, for First and Second Defendants
Meredith Connell (Steve Shin), Auckland, for Official Assignee
ROBINSON v WHANGAREI HEADS ENTERPRISES LIMITED [2016] NZHC 891 [5 May 2016]
[1] Mr Robinson makes two interlocutory applications: (a) to review an order for security for costs; and (b) for further discovery.
The defendants oppose.
[2] This is one of two civil proceedings arising out of Mr Robinson and Mr Freakley falling out in 2012. This is the trespass proceeding. The other is the arrest proceeding, Robinson v Whangarei Heads Enterprises Ltd.1
Background
[3] In Robinson v Police,2 Allan J heard Mr Robinson’s appeal from a conviction in the District Court for trespass. His decision gives a brief factual background to the dispute between Mr Freakley and Mr Robinson including their shareholding and directorships of Whangarei Heads Enterprises Ltd; an agreement made in July 2011 in which Mr Robinson transferred his shares to Mr Freakley but remained a director; Mr Freakley’s resolution of 18 March 2012 to remove Mr Robinson as director and the service of a notice under the Trespass Act on Mr Robinson barring him from entering the company premises; and Mr Robinson’s entry onto the premises on
15 November 2012. That resulted in Mr Robinson being prosecuted for trespass. Allan J said:
[3] The business relationship between Mr Freakley and Mr Robinson is complicated. It has given rise to several separate sets of civil proceedings in this Court. For present purposes it is necessary to provide only a brief summary of certain aspects of Mr Robinson’s commercial dealings with Mr Freakley.
[4] Mr Robinson and Mr Freakley were each shareholders and directors of the company which was formed in 2009. From premises at Pataua South Road, Whangarei Heads, the company carried on a contracting business, hiring out machinery, dealing in building supplies, and also trading in stock
feed and related agricultural products. These are the premises which are the subject of the trespass notice.
[5] By July 2011, Mr Robinson was in serious financial difficulties. He agreed to transfer his 500 shares in the company to Mr Freakley. The share transfer was back dated to March 2011. Mr Robinson was to remain a director. By a resolution dated 18 March 2012, Mr Freakley, being the sole shareholder in the company, passed a resolution removing Mr Robinson as a director of the company.
[6] Mr Robinson’s case is that the shares were transferred to Mr Freakley for two quite separate reasons. The first is that because Mr Robinson was facing insolvency issues and was concerned about the possibility that the shares would vest in the Official Assignee, he considered that the shares would be better off in Mr Freakley’s ownership (I note that Mr Robinson was adjudicated bankrupt on 3 December 2012). Assuming that to be a reason for the transfer, Mr Robinson would appear to face difficulties in maintaining his contention that these shares by Mr Freakley are held on a resulting trust for him. That was noted by Associate Judge Bell in a recent judgment given in related civil proceedings.
[7] A transfer of assets in contemplation of bankruptcy will generally be considered to be absolute, in that it is not possible to assert a beneficial interest in assets which were transferred in order to put them out of the reach of creditors.
[8] The second reason for the share transfer, according to Mr Robinson, was that it occurred pursuant to a somewhat complicated arrangement between himself and Mr Freakley, under which Mr Freakley was entitled to maintain full control of the company for a period of one year, ending in about October 2012, during which time Mr Freakley was to have an option to buy Mr Robinson out. If the option was not exercised by Mr Freakley, then positions would be reversed. Mr Robinson would become entitled to run the company for a year and he would have an option to buy Mr Freakley out. This somewhat complex and unusual arrangement is not the subject of any formal legal agreement, but it is recorded in legal correspondence from Mr Robinson’s solicitors, and is the subject of certain notes made by him, some of which were initialled by Mr Freakley. Mr Robinson says there was a contract between the two, partly written (being Mr Robinson’s notes) but mostly oral. In October 2012. he was entitled to have all of the shares transferred to him because Mr Freakley had not exercised his option.
[9] Although the share transfer specified a consideration of $250,000, that sum was never paid either in cash or by way of set off, on Mr Robinson’s argument. The transfer, which on its face was absolute, was subject to the arrangements between the parties and to the equitable and contractual rights which stemmed from their agreement.
[10] Mr Freakley’s position is quite different. He says he did give consideration for the shares, and that the transfer was absolute. He accepts that Mr Robinson remained a director of the company after the date of the share sale, but that he removed Mr Robinson as a director after the parties had seriously fallen out in March 2012. Interestingly, Mr Robinson wrote to Mr Freakley giving notice of his intention to resign as a director in a letter dated 20 March 2012, presumably in the context of their disagreement. At
that stage Mr Robinson had been unaware of the fact that Mr Freakley had already taken steps to remove him as a director. In any event, Mr Robinson seems not to have actually given notice of resignation.
[11] It is common ground that a trespass notice was duly served on Mr Robinson on 13 November 2012. Prior to that, he had apparently evinced an intention to return to the company’s premises, he having stayed away for a significant period because, he says, Mr Freakley was entitled to have control of the company for a one year period. Two days later, on 15
November 2012, Mr Robinson walked into the offices of the company. Mr Freakley was there. Mr Freakley said that Mr Robinson had come onto
the property because he wanted to test the validity of the trespass notice in
court. There was no confrontation. Mr Robinson was polite. Indeed, Mr Freakley said he was “smug”. The police were called. Mr Robinson was
arrested and charged with wilful trespass.
[4] Gilbert J also set out additional background in his judgment in the arrest proceeding at [6]-[18].3
[5] On 3 December 2012, Mr Robinson was adjudicated bankrupt. He began this proceeding in April 2013. On 7 May 2013, I ordered Mr Robinson to provide security for costs for both the arrest proceeding and the trespass proceeding. I fixed security at $20,000 and stayed both proceedings until the security was paid. Mr Robinson successfully applied to review my decision. Heath J set aside the order for security for costs for the arrest proceeding. In the trespass proceeding he reduced the security from $20,000 to $15,000. Mr Robinson put up the security to allow the trespass proceeding to continue.
[6] While the trespass and the arrest proceedings had been case-managed together, Gilbert J heard the arrest proceeding but not the trespass proceeding. Mr Robinson has obtained his automatic discharge from bankruptcy. His bankruptcy has not, however, been annulled. A question arose whether some of the causes of action in Mr Robinson’s amended pleading vested in the Official Assignee on his
bankruptcy. In my judgment of 24 November 2015,4 I held that some causes of
action were personal to Mr Robinson and had not vested. Others were hybrid. Although the Official Assignee was not willing to run the hybrid causes of action, Mr Robinson could seek relief. Insofar as he was personally affected (as opposed to
making claims in respect of any property rights), he could make a claim by joining the Official Assignee as a defendant.
[7] Mr Robinson’s current statement of claim, dated 12 February 2016, has three causes of action. The first is for abuse of process. It alleges abuse in the issue and service of trespass notices, instigating his arrest, giving false testimony in court leading to his conviction, and spreading false rumours about him. Mr Robinson claims a declaration, general damages of $20,000, exemplary damages and costs.
[8] The second cause of action is for “malicious trespass, arrest and prosecution”. This is a claim for malicious civil prosecution without reasonable and proper cause. Again, Mr Robinson seeks a declaration, general damages of $20,000, exemplary damages and costs.
[9] These claims are personal to Mr Robinson and did not vest in the Official
Assignee on his bankruptcy.
[10] The third cause of action is for breach of contract. That is a hybrid claim – both personal and property. The statement of claim pleads an agreement of August/September 2011 under which Mr Robinson and Mr Freakley agreed that Mr Robinson would transfer his 500 shares in Whangarei Heads Enterprises Ltd to Mr Freakley, but that Mr Freakley would hold the shares on trust for Mr Robinson and Mr Robinson would remain a director. Both of them would continue to have equal governance and management roles in Whangarei Heads Enterprises Ltd. Mr Freakley would record that Mr Robinson’s debt to him secured over Mr Robinson’s Opua quarry would be reduced by $250,000 and Mr Robinson would continue to pay Mr Freakley interest.
[11] Mr Robinson also pleads an agreement in October 2011 under which Mr Robinson and Mr Freakley agreed that each would have the option of buying out the other on particular terms. If Mr Freakley bought Mr Robinson’s share of the company, Mr Freakley would pay Mr Robinson $360,940 plus an office block to Mr Robinson. If Mr Robinson bought Mr Freakley’s share, Mr Robinson would pay Mr Freakley $450,000. Pending the exercise of the option, Mr Freakley would take
over the management and operate Whangarei Heads Enterprises until October 2011 for 12 months and he would pay Mr Robinson $1,056.47 each month in lieu of interest from Mr Robinson’s share of Whangarei Heads Enterprises Ltd. In addition, Mr Robinson would live in the office block and Whangarei Heads Enterprises Ltd. would pay him particular hourly rates for digger work/contract work and work at the premises. If Mr Freakley did not exercise the option to buy out Mr Robinson by
12 November 2012, Mr Robinson would take over the management and operate the company for a further 12 month period and would pay Mr Freakley $1,500 per month. If the options were not exercised, the company would revert to joint management and operations.
[12] Mr Robinson pleads that Mr Freakley breached the agreement by: (a) not paying Mr Robinson for work he was carrying out;
(b) removing Mr Robinson as director from 19 March 2012;
(c) by serving Trespass Act notices on Mr Robinson and thereby preventing Mr Robinson from working for the company; and
(d)failing to allow Mr Robinson to share in the joint management of the company.
His losses were embarrassment and damage to his reputation, loss of use of the office block and that Mr Freakley obtained certain benefits. Again for relief he seeks declarations, general damages of $20,000, exemplary damages and costs.
Mr Robinson as a litigant in person
[13] Mr Robinson had legal representation at the hearing of the arrest proceeding. For most of the trespass proceeding he has not had legal representation. I accept his explanation that he does not have the funds to pay for a lawyer. As a layman without legal qualifications, Mr Robinson does not have the same skill as a lawyer to comply with the High Court Rules and the practice of this court. In many ways, his documents are rough and ready. In managing this proceeding, I have given him
some leeway. As an example, both his applications for further discovery and for review of the security for costs are in irregular form. He was late with his submissions. But Mr Robinson is not a total novice in litigation. He started the arrest proceeding in 2012. He appreciated that his applications had to be supported by evidence and he accordingly filed and served affidavits. Legally represented or not, he was required to make out his case in support of his applications.
Review of security for costs
Jurisdiction
[14] Neither Heath J nor I reserved leave to review security for costs. The defendants accept that there is jurisdiction to review an order for security for costs on the application of a plaintiff. They cited Gordano Building Contractors Ltd v Burgess5 and Lawrence v Glynbrook 2001 Ltd where Venning J said:6
[10] … The Court has inherent jurisdiction to review, set aside or vary an order for security where there has been a significant change in material circumstances or where the interests of justice so require: … The need for a significant change in material circumstances is particularly relevant where the application is effectively to review the existing order rather than for further security.
(Citations omitted)
The original security for costs order
[15]
Mr Ro
At
binso
the hearing of the original application for security for costs,
n’s statement of claim had six causes of action:
(a)
A so-called estoppel under which the defendants could not remove
Mr Robinson as director;
(b)
malicious prosecution for instigating the police prosecution;
(c)
giving false evidence in the prosecution;
5 Gordano Building Contractors Ltd v Burgess [1988] 1 WLR 890 (CA) at 894.
(d) wrongfully depriving him of access to the company’s premises and
taking part in the management of the company; (e) slander;
(f) unjust enrichment.
[16] In my security for costs decision I said:7
[30] Under proceeding 223, the real thrust of Mr Robinson’s allegations centre around the matter of trespass including the prosecution. Mr Freakley can again point to his position as sole shareholder, his exercise of his powers as shareholder to remove Mr Robinson as a director as then entitling him to exercise the powers of the company to exclude Mr Robinson from the company premises. Mr Robinson’s statement of claim includes an allegation of malicious prosecution. A claim for malicious prosecution is available when there is a criminal prosecution. But in a claim for malicious prosecution it has to be established that there was not a reasonable cause for the prosecution, the prosecution was brought maliciously, and that the prosecution was unsuccessful.
[31] Leaving aside the question of motive, the prosecution resulted in a conviction. Mr Robinson would point out that he has appealed and on the appeal he may be vindicated. But the fact that a District Court Judge heard the charge and found it proved might be some support for Mr Freakley and Whangarei Heads Enterprises Ltd that there was a reasonable basis for the prosecution. Again, I regard Mr Robinson’s chances of success in proceeding 223 as likewise being very much an uphill task for him.
[17] In his review decision, Heath J assessed the merits of the trespass proceeding:8
[56] Given that the prosecution brought as a result of Mr Freakley’s complaint of trespass was ultimately successful (notwithstanding that Mr Robinson was discharged without conviction on appeal), I do not consider that it can be said that the trespass proceeding has any realistic prospect of success when one applies the principles relating to the torts of abuse of process and malicious prosecution laid down by the Privy Council in Crawford Adjusters.
[57] I agree with Judge Bell’s assessment that Mr Robinson has “very much an uphill task” in prosecuting his claim. I agree also with his view that the claims for exemplary damages are grossly exaggerated and may be intended to intimidate. I assess the prospects of success as “slim”.
7 Robinson v Whangarei Heads Enterprises Ltd HC Whangarei CIV 2012-488-185 and CIV 2013-
[58] I consider that an order for security is justified in relation to the trespass claim, given the very limited prospects of success. I consider that a sum of $15,000 is appropriate, at this juncture.
Mr Robinson’s grounds for review
[18] In his affidavit in support of his application, Mr Robinson says that he has no legal training and he requires $50,000 to pay an existing debt of $3,700 for legal advice and to pay for further legal assistance. The grounds in his application are that he is no longer bankrupt, having been discharged on 12 December 2015. The statement of claim has been re-written and, given the evidence by Mr Freakley in the arrest proceeding, he now has good prospects of success. It is no longer the case that he spends time out of New Zealand. The defendants do not know his present asset position, and he requires funds to pursue the matter.
[19] Notwithstanding the wide-ranging matters in his application, the review comes down to two aspects:
(a) Has there been a significant change in Mr Robinson’s financial position so that there can no longer be proper concern as to his ability to pay an order for costs?
(b) Have the merits of his case improved?
[20] As Venning J emphasised in Lawrence v Glynbrook,9 any change must be significant.
Financial position
[21] While Mr Robinson is now discharged from bankruptcy, he has not provided any evidence to show a significant improvement in his financial position. Apart from saying that his family trust can no longer provide funds to assist him, he says nothing about his financial position. The fact that he has outstanding legal bills from his earlier proceedings shows an ongoing inability to pay his debts. The original
basis for imposing security was his inability to pay debts because of his bankruptcy.
9 Lawrence v Glynbrook 2001 Ltd, above n 6.
His emergence from bankruptcy has not seemingly caused any improvement in his financial position. He remains a credit risk.
Reassessment of merits
[22] Mr Robinson has amended his statement of claim, now running only three causes of action. The first two causes of action are broadly similar to causes of action I considered in my original security for costs decision. Mr Robinson’s conviction for trespass is evidence that he did trespass.10 His conviction prevents him from running a claim based on malicious prosecution or abuse of process. His failure to have the finding of trespass upset on appeal only reinforces that. His prospects on these causes of action are no better today than they were in 2013.
[23] Against that, Mr Robinson submitted that Mr Freakley had given perjured evidence in the District Court. He claimed that there were inconsistencies between the evidence Mr Freakley gave in the District Court in the trespass prosecution and the evidence he gave in the arrest proceeding in this court. Mr Robinson did not, however, have any evidence to support these allegations. He apparently expected me to know the evidence given in the District Court and the evidence given in the High Court, without producing any transcripts of evidence in either proceeding. I invited him to show me where in Gilbert J’s judgment in the arrest proceeding there is any foundation for his allegations against Mr Freakley, but he was unable to do so. I can see no basis for his allegations of perjured evidence. If anything, where his evidence
and Mr Freakley’s have diverged, judges have preferred Mr Freakley’s evidence.11 I
place little weight on Mr Robinson’s assertions that his evidence is likely to be
preferred.
[24] The cause of action for breach of contract is new. Mr Robinson claims personal losses alleged to have arisen from breaches of contract by Mr Freakley. The contracts pleaded are commercial. In favour of Mr Robinson I assume that, at trial, he may be able to show that while actions by Mr Freakley may have been
effective, they were nevertheless in breach of contract. For example, if he proves
10 Evidence Act 2006, s 47.
11 As an example, see Gilbert J’s judgment, above n 1, at [8].
that there was an agreement that he was to remain a director of Whangarei Heads Enterprises Ltd, then while his removal from office by Mr Freakley as sole shareholder was effective, it was still in breach of contract. Similarly, while the agreement allowed him a licence to use the office block for accommodation, the termination of that licence, while effective, was in breach of contract.12
[25] Assuming that Mr Robinson may have causes of action for breach of contract, the question is what damage did Mr Robinson suffer? It is of course well established that Mr Robinson can have no claim for exemplary damages for breach of contract.13 As to compensatory damages, Mr Robinson alleged general loss of reputation, including being ostracised at his golf club. He attributed that to defamatory statements made by Mr Freakley. But that is not a loss arising from the breaches of contract he has pleaded. He might have had a claim in defamation, but he has not pleaded it and he is now out of time.14
[26] Mr Robinson might have been out of pocket because of his loss of accommodation by having to pay for accommodation elsewhere, but that is a pecuniary loss. For that loss the cause of action vested in the Official Assignee on Mr Robinson’s bankruptcy.
[27] For the defendants, Mr Erskine referred to awards in tort proceedings for hurt feelings and the like, which are generally in the order of $20,000-$25,000. That is in turn reflected in Mr Robinson’s claim for general damages of $20,000.
[28] Essentially, Mr Robinson is running a claim for damages for hurt feelings and disappointment arising from breaches of a commercial contract. His claim is necessarily restricted to that because those are the only personal losses he can claim arising from the alleged breaches.
[29] He lost all claims for pecuniary losses when he was adjudicated bankrupt. His pleading recognises that. Paragraph 51 of his statement of claim says:
12 For example, in a building contract context see Mayfield Holdings Ltd v Moana Reef Ltd [1973]
1 NZLR 309 (SC).
13 Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA).
14 Limitation Act 2010, s 15. The period is two years.
51. The plaintiff retains the right to pursue the cause of action in relation to personal rights. The third defendant has renounced any claim in relation to the property right elements of the third cause of action.
That plea of disclaimer by the Official Assignee does not, of course, mean that those rights have passed to Mr Robinson. He has not obtained any vesting orders under s 119 of the Insolvency Act 2006.
[30] The cause of action is strange: a claim for hurt feelings and disappointment arising from loss of office as a director, loss of opportunity to take part in the management of the company, being barred from the company premises, including using it for accommodation. There is little authority to support a claim for hurt feelings for losing office as a director.
[31] During submissions, Mr Robinson recognised the limitations and contended that he could have a more expanded claim so as to now seek compensation for pecuniary losses. Those assertions were misconceived.
[32] In the end, Mr Robinson wants to continue running a claim in this court where his damages are not likely to be for more than $20,000, even if he is successful. I suggested to Mr Robinson during the hearing that he might deal efficiently with the security for costs matter by having his proceeding transferred to the Disputes Tribunal and reducing his claim there to the maximum amount recoverable in the tribunal – $15,000. Mr Robinson rejected that. For him the proceeding could continue only in this court.
[33] In my judgment, there is a continuing need for the defendants to be protected by the current order for security for costs by reason of the following:
1 Mr Robinson is insolvent and remains a credit risk.
2 His prospects of success on his first two causes of action remain slim.
3His discharge from bankruptcy has not resulted in a significant improvement in his financial position.
4His new (third) cause of action is unconventional, should properly be determined in a lower court or tribunal, and stands to expose the defendants to significant costs in defending the proceeding in this court.
5The addition of the cause of action for breach of contract is not such a significant change that the court can take a more optimistic view of Mr Robinson’s prospects.
[34] Mr Robinson has not shown any clear basis for cancelling or reducing the security he has provided. The application for a review of the security for costs order is accordingly dismissed.
Discovery application
[35] Mr Robinson’s discovery application seeks the following:
(a) “All borrowings by Whangarei Heads Enterprises Ltd be disclosed, if any.
(b) Proof of the interest paid on the quarry loan. The amounts and where it was declared be disclosed.
(c) Mr Freakley’s present negotiations re the sale of the quarry property and his stated requirements and status of his own loan account to the Robinson Group Ltd be disclosed.
(d) Due to the substantial drop in profit margins in the accounts of Whangarei Heads Enterprises Ltd compared to the previous year, a list of all cash taken by the Respondent for personal use or use to pay cash debts such as wages etc.”
[36] While the application seems to require information to be provided, it can be considered as directed at disclosure of the documents containing that information. In my minute of 6 October 2015 I gave directions for affidavits of documents to be filed and served by 20 November 2015. At that time, Mr Robinson did not seek any particular directions as to documents to be disclosed by the defendants.
I did, however, give more detailed directions as to disclosure of documents that had been used in other proceedings. There were no directions for disclosure of documents now referred to in Mr Robinson’s application
[37] I tried to establish the relevance of the documents Mr Robinson is now seeking. It became apparent during the hearing that Mr Robinson does not require these documents for the causes of action in his current statement of claim. He has in mind suing Mr Freakley for other matters, unrelated to this proceeding. Those other claims will include claims for financial relief. Mr Robinson did not accept that any such claims remain vested in the Official Assignee. After having listened carefully to him, I was unable to understand how any of the documents were relevant to the causes of action in his present pleading. Pleadings determine the relevance of
documents for disclosure.15 As I cannot see the relevance of the documents to this
proceeding, I decline to make any order for their discovery.
Outcome
[38] I dismiss both Mr Robinson’s applications. The defendants are entitled to costs on the applications. They should file and serve a memorandum as to the costs they seek. Mr Robinson is to reply to that memorandum within five working days. I will then decide costs on the papers.
[39] There will be a further telephone case management conference where further directions will be given on 25 May 2016 at 3.30 pm.
[40] Mr Robinson should file his memorandum as to proposed directions five working days before the conference. The defendants are to file theirs two working days before the conference.
………………………............
Associate Judge R M Bell
15 New Zealand Rail Ltd v Port Marlborough New Zealand Ltd [1993] 2 NZLR 641 (CA) at 644.
0
0
1