Sandfield Associates Limited v Monnery
[2021] NZHC 1003
•6 May 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-505
[2021] NZHC 1003
IN THE MATTER OF the liquidation of Convendium Limited BETWEEN
SANDFIELD ASSOCIATES LIMITED
First PlaintiffCONVENDIUM LIMITED (in liquidation) Second Plaintiff
AND
PAUL MARK MONNERY, JULIE ANN MONNERY and DAVID GRIFFITHS
Defendants
Cont/…
Hearing: 2 November 2020 Appearances:
CR Carruthers QC for Applicants/Defendants/ Judgment Debtors (Monnerys)
DJ Chisholm QC and JD Ryan for Respondents/Plaintiffs/ Judgment Creditor (Convendium)
Judgment:
6 May 2021
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 6 May 2021 at 2.00 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Oakley Moran, Wellington
Claymore Partners Ltd, Auckland
SANDFIELD ASSOCIATES LIMITED v MONNERY [2021] NZHC 1003 [6 May 2021]
CIV-2019-404-1906
IN THE MATTER OF the bankruptcy of JULIE ANN
MONNERY
BETWEEN CONVENDIUM LIMITED (in
liquidation) Judgment Creditor
AND JULIE ANN MONNERY
Judgment Debtor
CIV-2019-404-1907
IN THE MATTER OF the bankruptcy of PAUL MARK
MONNERY
BETWEEN CONVENDIUM LIMITED (in
liquidation) Judgment Creditor
AND PAUL MARK MONNERY
Judgment Debtor
Introduction
[1] Applications have been made by Mr and Mrs Paul and Julie Monnery in two proceedings:
(a)an application for a stay of execution of the summary judgment granted in the proceedings brought by Sandfield Associates Limited (“Sandfield”) and Convendium Limited (in liquidation) (“Convendium”) against Mr and Mrs Monnery and David Griffiths as the trustees of the P and J Monnery Family Trust (“Monnery Family Trust”) (“Summary Judgment Proceedings”);1 and
(b)applications to refuse or halt the application for adjudication of bankruptcy brought against Mr and Mrs Monnery by Convendium (“Bankruptcy Proceedings”).2
[2] Prior to the commencement of the Summary Judgment Proceedings (and the subsequent Bankruptcy Proceedings), the Monnerys commenced proceedings against the other shareholders in Convendium (“Wellington Proceedings”).
[3] In the Wellington Proceedings, Mr Monnery in his personal capacity and Mr and Mrs Monnery as trustees of the Monnery Family Trust allege a conspiracy to remove Mr Monnery from the management of Convendium and divide up the assets of the company between the other shareholders. The Monnerys allege that as a result of the actions of the other shareholders, income which would have been earned by Convendium was instead redirected, preventing the advances on account of salary, which had been made to Mr Monnery through the shareholder current account of the family trust, from being offset.
[4] The applications made by the Monnerys to stay execution of the summary judgment and to refuse or halt adjudication in the Bankruptcy Proceedings have been brought on two bases:
1 CIV-2019-404-505.
2 CIV-2019-404-1906 and CIV-2019-404-1907.
(a)it would cause the Monnerys’ new business to fail as bankruptcy would leave them unable to comply with the terms of their business loan; and
(b)that allowing execution and adjudication would prevent the Monnerys from continuing their claim in the Wellington Proceedings.
[5] Convendium, the successful plaintiff in the Summary Judgment Proceedings and the judgment creditor in the Bankruptcy Proceedings, opposes the applications on the basis that the Wellington Proceedings are a claim brought by the Monnerys, to which Convendium is not a party. Furthermore, Convendium submits the claim is weak and insufficiently particularised, despite the proceeding having been brought more than two years ago. Convendium says that if there is a bona fide claim then the Monnerys could continue that claim with the consent of the Official Assignee.
[6] The issue is whether the Wellington Proceedings or the potential failure of the Monnerys’ new business provide sufficient grounds for a stay of execution of the summary judgment or a stay of the adjudication process.
Factual and procedural background
[7] The factual and procedural background is relatively complex. I set out below a brief summary of the matters relevant to the applications being considered. This background is taken from documents filed in the Summary Judgment and Bankruptcy Proceedings as well as documents filed for the security for costs application in the Wellington Proceedings, upon which the parties also relied. Although unusual, I refer to the parties by their first as well as last names to minimise confusion.
[8] From shortly after its incorporation, Convendium’s business was the development, marketing and sale of cashless payment systems used in vending machines. Paul Monnery was a director from the company’s incorporation in June 2005 until October 2015.
[9] Convendium engaged Sandfield to develop the software necessary for its business. In 2009 after Convendium had accumulated a relatively large debt to Sandfield, Paul Monnery deposes that he agreed with Bruce Copeland, the director
and shareholder of Sandfield, that the money owing to Sandfield would be capitalised and Bruce Copeland would invest a further $75,000 of new capital which, when combined with the money owing, would represent a 10 per cent share in Convendium. This shareholding was held by Sandfield Ventures Limited (“Sandfield Ventures”). Bruce Copeland does not respond directly to this evidence in his affidavits.
[10] In 2011, Paul Monnery met Andrew “Andy” Parsons at a demonstration of the Convendium system. Andy Parsons was the sole director and shareholder of Push Developments Limited (“Push”) which was in business at that time as a provider of cash operated vending machines.
[11] Following their meeting, Paul Monnery and Andy Parsons agreed that Convendium and Push would work together.
[12] In 2013, Paul Monnery and Andy Parsons set up another company, Eftpos Vending Limited (“Eftpos”), a cashless vending machine business which was a licensee of Convendium’s payment system, Festival Payments. Paul Monnery and Andy Parsons each held 45 per cent of the shares in Eftpos, with PKB Investments Limited (“PKB”), the company owned by the sales director for Convendium, Kurt Bredenbeck, holding 5 per cent. Two further shareholders held 2.5 per cent each.
[13] Paul Monnery deposes that Andy Parson’s father, Murray Parsons, agreed to lend money to Eftpos, as well as to invest in Convendium, to acquire a 20 per cent shareholding. Paul Monnery alleges it was Murray Parsons’ failure to honour these agreements that led to Convendium’s difficulties. Murray Parsons denies this.
[14] The remaining shareholder in Convendium was Murray Creighton. Paul Monnery had previously worked for Murray Creighton and deposes that he supported Convendium financially and acted as a mentor. At the time Convendium was struck off the register, Murray Creighton was a trustee shareholder of approximately 20 per cent of the shares.
[15] Convendium continued to struggle financially. In March 2015 there was a meeting of shareholders. Murray Parsons, who was not a shareholder, was also
present. The statement of claim in the Wellington Proceedings alleges that the meeting concluded with Murray Creighton advising that he, Bruce Copeland, Andy and Murray Parsons and Paul Monnery were going to “stay behind to discuss Convendium and Eftpos and that Paul would have to ‘feel some pain on the chin’”.3 It is alleged that Paul Monnery was then told the financial difficulties of both Convendium and Eftpos were his responsibility. Paul Monnery left the meeting, saying that those present could put any proposals to move the company forward in writing for his consideration.
[16] Various proposals were put forward whereby new investors would come on board, but with the Monnerys’ shareholdings in both Eftpos and Convendium being reduced significantly, and Paul Monnery not having a management role. Paul Monnery did not agree to these proposals and appears not to have had any further involvement in the management of the company.
[17] Convendium was struck off the Companies Register after failing to file its annual return on 20 November 2017. At that date, the Monnery Family Trust held just under 50 per cent of the shares in Convendium.
[18] The Wellington Proceedings were commenced in July 2018. In those proceedings, Paul Monnery personally, and Paul and Julie Monnery as trustees of the Monnery Family Trust, plead two causes of action:
(a)intentionally causing economic harm by unlawful means; and
(b)conspiracy to injure economic interests.
[19]The proceedings are brought against:
(a)Andy Parsons and Push (first and sixth defendants);
(b)Murray Creighton (second defendant);
3 Statement of Claim, dated 4 July 2019 at [67].
(c)Bruce Copeland, Sandfield and Sandfield Ventures (third, seventh and eighth defendants);
(d)Kurt Bredenbeck and PKB (fourth and ninth defendants); and
(e)Murray Parsons (fifth defendant).
[20] Mr Carruthers QC, counsel for the Monnerys, described the essence of the Wellington Proceedings as being a claim that two groups of shareholders, the Parsons interests and the Creighton interests, together pushed the Monnerys out of Convendium with the assistance of Bruce Copeland and Sandfield in respect of the intellectual property.
[21] The loss claimed by Paul Monnery as first plaintiff is for in excess of $1 million and by the second plaintiff trustees in excess of $5 million.
[22] The defendants in the Wellington Proceedings have filed statements of defence denying the allegations.
[23] Following an application by the defendants and a hearing in November 2018, Associate Judge Johnston ordered security for costs of $50,000 to be paid in two tranches.4 The first tranche of security was paid as ordered. The second tranche is due to be paid three months before the hearing.
[24] Also in November 2018, Sandfield took steps to restore Convendium to the Companies Register and then served a statutory demand for a debt of $339,576 alleged to be owing to Sandfield by Convendium. After Convendium failed to comply with that demand, Sandfield applied to liquidate Convendium, with liquidators, Chris McCullagh and Stephen Lawrence, appointed on 22 February 2019.
4 Monnery v Parsons [2018] NZHC 3414.
[25] In March 2019 Sandfield filed a claim under s 301 of the Companies Act against Paul and Julie Monnery and David Griffiths as trustees, seeking recovery of
$560,243 advanced against the Monnery Family Trust’s shareholder current account in Convendium.
[26] In June 2019 an amended claim was filed adding Convendium as a second plaintiff, the liquidators of Convendium having agreed to Convendium being added.
[27] When the summary judgment application was heard there was no opposition to Convendium being added, and so Associate Judge Bell made an order adding Convendium as a second plaintiff. Associate Judge Bell then focussed on the claim brought by Convendium, rather than Sandfield, because, in his view, there was a question whether Sandfield could bring a summary judgment claim against the trustees of the Monnery Family Trust pursuant to s 301 of the Companies Act.5
[28] On 30 August 2019 summary judgment was entered for Convendium but for a reduced amount of $512,346.6
[29] On 16 September 2019 bankruptcy notices for the judgment sum were issued, with the Monnerys served on 25 September 2019.
[30] On 20 September 2019 the Monnerys appealed to the Court of Appeal, Convendium filing a cross appeal on 30 September 2019.
[31] On 10 October 2019, the ten working day period within which the Monnerys were required to comply with the bankruptcy notices expired, meaning the Monnerys had committed an act of bankruptcy in terms of the Insolvency Act.
[32] On 18 October 2019, the Monnerys filed an application to stay the bankruptcy notices pending their appeal of the summary judgment decision. The stay application was opposed by Convendium and on 13 December 2019 Convendium filed bankruptcy proceedings.
5 Sandfield Associates Ltd v Monnery [2019] NZHC 2151.
6 At [31].
[33] There appears then to have been some confusion as to whether the first appearance in the Bankruptcy Proceedings was deferred as a result of the imminent hearing of the stay application.
[34] As a result of the confusion, there was no appearance for the Monnerys at the first call of the bankruptcy applications on 12 March 2020, and bankruptcy orders were made in their absence.
[35] The bankruptcy orders were then annulled on 29 April 20207 and the Monnerys filed and served appearances in the Bankruptcy Proceedings.
[36] On 19 May 2020 the application to stay the bankruptcy notices was withdrawn by consent on condition that no future steps would be taken to enforce the summary judgment pending the decision of the Court of Appeal, other than setting the bankruptcy applications down for a fixture.
[37] The Court of Appeal upheld the High Court summary judgment decision on 13 August 2020, increasing the quantum to the full amount claimed.8
[38] On 31 August 2020, the Monnerys applied to the High Court to stay the execution of the summary judgment and on 15 September 2020 to stay the Bankruptcy Proceedings.
Relevant Legal Principles
Rule 17.29
[39] Rule 17.29 of the High Court Rules provides that the court may order a stay of execution of a judgment where a substantial miscarriage of justice would be likely to result if the judgment were enforced.
7 Convendium Ltd (in liq) v Monnery [2020] NZHC 838.
8 Monnery v Convendium Ltd (in liq) [2020] NZCA 345.
[40] Rule 17.29 does not set out the criteria for the exercise of the court's discretion. The principles are however relatively settled, as summarised in Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd:9
(a)The onus is on an applicant to persuade the Court to exercise its discretion.
(b)A “substantial miscarriage of justice” must be involved bearing in mind that “substantial miscarriage” means “something more than minor or insubstantial” and that it is not a substantial miscarriage of justice for a party that has had the use of another’s money to be required to repay that money or for a creditor to be able to take whatever steps it sees fit to pursue recovery.
(c)A substantial miscarriage of justice must be “likely to result” if the judgment were enforced. It is not sufficient that a miscarriage of justice “might” result; it must be “likely to result”, i.e. probably result.
(d)The Court must seek to recognise and reconcile the conflicting interests of both parties in such manner as will best serve the overall interests of justice…A balancing exercise is involved.
(e)A miscarriage of justice is unlikely to result where a party is required to pay to another an amount that is owing to it and the paying party is free to pursue its claim against the other party in the normal way.
(f)Other factors that may be relevant include: the apparent strength or weakness of the claim; the ability of the applicant for the stay to meet the judgment that is being enforced; and the potential bankruptcy or liquidation of a party seeking to pursue an apparently strong claim.
(citations omitted)
Sections 37 and 38
[41] The application to refuse or halt the adjudication proceedings relies on ss 37 and 38 of the Insolvency Act 2006.
Section 37
[42]Section 37 provides:
37 Court may refuse adjudication
The court may, at its discretion, refuse to adjudicate the debtor bankrupt if—
(a)the applicant creditor has not established the requirements set out in section 13; or
9 Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd HC Napier CIV-2010-441-134, 8 June 2011 at [19].
(b)the debtor is able to pay his or her debts; or
(c)it is just and equitable that the court does not make an order of adjudication; or
(d)for any other reason an order of adjudication should not be made.
[43] Sections 37(a) and (b) do not apply as the requirements of s 13 of the Insolvency Act have been met (except if execution of the summary judgment were stayed) and the Monnerys accept that they are currently unable to pay their debts.
[44] The Monnerys, therefore, rely on subs (c) and (d): that it is just and equitable for the Court not to make an order for adjudication or for another reason the order should not be made.
[45] The Court’s general discretion under s 37(c) and (d) was described by the Court of Appeal in Baker v Westpac Banking Corporation:10
It is proper for the court to consider not only the interests of those directly concerned – the petitioner, other creditors, the debtor – but also the wider public interest. A creditor who establishes the jurisdictional facts as set out in [the equivalent of s 13 of the Insolvency Act] is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made. The court will give proper weight to the commercial judgment of the petitioner, but the oppressive use of the bankruptcy process may be a ground for refusing an order. Another ground may be the undoubted absence of assets but that will not necessarily preclude an order given the range of interests involved including the public interest in the continuing oversight of a bankrupt’s affairs and the disqualifications that go with bankruptcy. In the end the court must balance the various considerations relevant to the case and determine whether the debtor has succeeded in showing that an order ought not to be made.
[46] In Re Tootell, ex parte Rabobank Australia Ltd,11 Associate Judge Osborne (as he then was) referred with approval to the factors listed in Re Epirosa, ex parte Diner’s Club NZ Ltd.12 These factors include the circumstances in which the debt was incurred and whether those circumstances suggest the creditor was acting unreasonably in pursuing adjudication.
10 Baker v Westpac Banking Corporation CA 212/92, 13 July 1993 at 4 per Richardson J.
11 Re Tootell, ex parte Rabobank Australia Limited [2013] NZHC 2975 at [7] and [8].
12 Re Epirosa, ex parte Diner’s Club NZ Ltd HC Wellington B498/91, 6 March 1992.
Section 38
[47] Section 38 provides that a Court may at any time halt a creditor’s application for adjudication and may do so on any terms and conditions the Court thinks appropriate.
[48] The cases considering s 38 again emphasise that the final decision is designed to balance all of the relevant factors to achieve a just outcome. Associate Judge Bell held in Bank of New Zealand v Koroniadis13 that the lack of any particular matters that the Court must take into account makes it clear that Parliament intended the discretion to be flexible, allowing the Courts to take into account varying circumstances which may be afforded differing weight according to each case.
Balancing exercise
[49] The parties accept that a balancing exercise is necessary for both applications pursuant to r 17.29 and ss 37 and 38 of the Insolvency Act, requiring the Court to seek to recognise and reconcile the conflicting interests of the parties, but with the onus on the Monnerys to persuade the Court that orders should be made.
Relevant factors in this case
[50] The applicants rely on the impacts bankruptcy would have on Mr Monnery’s current business and the denial of the opportunity to pursue the Wellington Proceedings to support both their applications.
Current business
[51] Paul Monnery deposes that he has established a new vending business that competes with Push and the Parsons’ interests and that this business has been partially financed through a loan from the ANZ Bank, which includes terms that it would be withdrawn on the making of a bankruptcy order.
13 Bank of New Zealand v Koroniadis [2013] NZHC 2865 at [12].
[52] Paul Monnery deposes that the withdrawal of the ANZ loan would bring that business to an end.
Wellington Proceedings
[53] Counsel for the Monnerys relied on New Zealand Apple and Pear Marketing Board v Wallis14 where the Court held that the execution of a summary judgment should be stayed if the defendant is bringing a counterclaim and its execution, “perhaps even bringing about his bankruptcy”,15 might prevent that counterclaim from reaching a hearing. In that case “having reviewed the financial circumstances on the evidence as it is” the Court held if no stay was ordered, there was “every chance of a substantial miscarriage of justice occurring”.16
[54] Counsel for Convendium submitted that the above case was distinguishable because it concerned a counterclaim, rather than a third party claim as is the case here. For third party claims, Mr Chisholm QC relied on Body Corporate 207650 v Singh17 where Hinton J held:
Staying a bankruptcy because of claims against third parties is technically possible, but if it has happened in practice, it is rare.
[55] In Downtown House (No.2) Ltd v Ensom,18 Associate Judge Bell was prepared to order a stay of execution of a summary judgment where the judgment debtor had joined a third party to the claim by the judgment creditor. Following entry of summary judgment, the judgment creditors’ ordinary proceeding continued, seeking to recover a larger amount than was the subject of the summary judgment application. The third party in that case was a co-developer with the judgment debtor who the judgment debtor said should share in the losses in the same way it shared in the profits. The third party was also the husband of one of three shareholders of the judgment creditor, Downtown House (No.2) Ltd. Associate Judge Bell held:
Given the relationship between Downtown House and Mr MacDonald, I accept that there is some point to Mr Ensom’s complaint that a squeeze is being put on him; the effect is that if he is made bankrupt he may be unable to
14 New Zealand Apple and Pear Marketing Board v Wallis (1990) 4 PRNZ 713.
15 At 717.
16 At 717.
17 Body Corporate 207650 v Singh [2019] NZHC 1547.
18 Downtown House (No.2) Ltd v Ensom [2019] NZHC 2566.
pursue Mr MacDonald; and the Olsen family may receive some advantage if the husband of one of its shareholders is not exposed to liability. That has the flavour of a substantial miscarriage of justice.
[56] It is correct that the Wellington Proceedings is not a counterclaim by the Monnerys as Convendium is not a party to those proceedings. Nor are they proceedings to which Convendium has been joined as a third party (as in Downtown). However, similarly to Downtown, the defendants in the Wellington Proceedings will receive an advantage if the Monnerys are prevented from bringing their claim.
[57] Nor are the proceedings a separate unrelated claim as was the case in Singh. Here the “third party claim” is a claim against the shareholders and associated parties of Convendium, including the creditor Sandfield, who is (or whose associated interests are) funding the liquidators.19
[58] More importantly, one of the issues for determination in the Wellington Proceedings is the terms of the agreement between the shareholders and Paul Monnery in relation to remuneration, as that is a necessary precursor to his loss of income claim.
[59] In both the High Court and the Court of Appeal counsel for the Monnerys submitted that the Court should exercise its discretion not to enter summary judgment, on the basis that it had been agreed between the shareholders that the advances against the Monnery Family Trust current account were in lieu of salary for Paul Monnery and there was never an intention that they would be repaid.
[60] The Court of Appeal did not consider and dismiss this argument. In fact, the Court held that it was plain the funds were in the nature of remuneration for services provided.20 The Court held, however, that any such agreement was irrelevant to the question of whether summary judgment should be entered. It did not otherwise make any findings in relation to whether there was such an agreement.21
19 Liquidators’ Fourth Report to Creditors and Shareholders, dated 18 September 2020.
20 Monnery v Convendium Ltd (in liq) [2020] NZCA 345, (2020) 25 PRNZ 417 at [29].
21 At [43].
[61] The question of whether there was such an agreement is due for determination in the Wellington Proceedings. If those proceedings are unlikely to proceed if a stay is not granted, then that needs to be taken into consideration in the balancing exercise.
[62] Furthermore, through the Summary Judgment Proceedings, Sandfield is seeking to recover a debt for $390,512.40. The terms on which Sandfield agreed to be paid, however, is also a live issue in the Wellington Proceedings.
[63] Those terms of payment will determine ownership of the key asset of Convendium, the software developed by Sandfield. This issue is captured in the pleading of intention in the statement of claim, a necessary element for both causes of action:22
84.The Defendants have utilised the assets of Convendium and Eftpos not for the benefit of those companies and their shareholders but for their own personal benefit so as to constitute a misuse of the confidential information of Convendium and Eftpos.
85.Such conduct was intended to and did cause loss to the plaintiffs, and the other minority shareholders of Convendium.
Particulars of paragraphs 84 and 85
85.1To achieve such end, Murray C wrongfully asserted a right for Monitor Business Machines Limited (Creighton Investments Ltd) to use the software developed by Sandfield for Convendium.
85.2Contrary to the acknowledgement given by Sandfield on 23 September 2009 that Convendium was the owner of the software and associated intellectual property Sandfield had developed for Convendium, Sandfield, supported by the other Defendants, asserted ownership of that software and associated intellectual property;
85.3Andy, Kurt and Murray P conspired to obtain a copy of the source code and associated intellectual property owned by Convendium to enable Eftpos to change the Pin Pads on the vending machines operated by Eftpos and Push so as to divert the share of the revenues to which Convendium was entitled to Eftpos, Push and/or such other entities as they may have established and further diverted such revenues from Eftpos to deny any benefit to the Plaintiffs;
85.4Eftpos, Push and/or such other entities as Andy, Kurt and Murray P may have established published and distributed under the name “Carnival Payments” brochures and promotional material, website and telephone number identical in all but name to that used by Convendium and copied from Convendium’s Festival Payments promotional material, website and telephone number;
22 Statement of Claim, dated 4 July 2019.
85.5Eftpos, Push and/or such other entities as Andy, Kurt and Murray P may have established copied a cashless laundry solution developed jointly by Convendium and Speed Queen and, without the permission of either Convendium or Speed Queen, promoted and operated it through Gooder Equipment in Auckland and Christchurch;
85.6From April 2016, Murray C diverted the revenues due to Convendium from Speed Queen and persons using the Speed Queen system to Creighton IT, an entity he controls and owns.
[64] The reference in para 85.2 above to the acknowledgement given by Sandfield on 23 September 2009, is a reference to a letter signed by Bruce Copeland on Sandfield’s letterhead confirming that Convendium “is the owner of the Festival system. This includes the Design, Intellectual Property and the Source Code”. Bruce Copeland, in his affidavit sworn in support of the security for costs application, deposed that he agreed to provide this “acknowledgement” because of “Convendium’s strained financial position and the fact that it owed [Sandfield] in excess of $17,000 at the time”. Bruce Copeland deposed, however, that it was on condition that Convendium would apply the proceeds of the capital raised to pay all outstanding charges due to Sandfield.
[65] In the security for costs decision, Associate Judge Johnston summarised the Monnerys’ case in the Wellington Proceedings on the basis of the particulars set out above. I adopt his Honour’s summary here:23
(a)Convendium was the owner of the software necessary for the operation of the cashless vending machine system it was marketing, that software having been developed for it by the third, seventh and eighth defendants;
(b)each of the defendants, individually, and in combination, formed an intention to cause economic harm to the plaintiffs, presumably in their capacities as shareholders in the case of the second plaintiffs (loss of share value), and in his capacity as a director and employee in the case of the first plaintiff (loss of income); and
(c)in order to inflict that economic harm, the defendants denied Convendium’s ownership of the software, asserting that the third, seventh or eighth defendants owned the same and unlawfully involved themselves in usurping that software and employing it other than for Convendium’s benefit.
23 Monnery v Parsons, above n 4 at [22].
[66] Associate Judge Johnston acknowledged this was an oversimplification of the plaintiffs’ case but considered it captured the core claim as pleaded sufficiently for considering its strengths or weaknesses. The defendants have all denied the allegations in para 85 of the statement of claim.
[67] It is clear from this that the issue of who owns the software will need to be determined in the Wellington Proceedings. The two causes of action pleaded rely on the defendants utilising the assets of Convendium and Eftpos otherwise than for the benefit of those companies and their shareholders. The software designed by Sandfield is a key asset of Convendium and so its ownership and, consequently, the terms on which Sandfield agreed to be paid, will need to be determined.
[68] It appears from the documents filed that determining this question will not be straightforward. In response to para 24 of the statement of claim in the Wellington Proceedings — which provides a breakdown of the shareholders in Convendium as at 17 September 2012 — Kurt Bredenbeck, Murray Parsons and PKB (fourth, fifth and ninth defendants) say they have no knowledge of and, therefore, deny those allegations but:
… by way of affirmative defence say that the shares granted to Sandfield Ventures Limited were in lieu of payment of its software development invoice approximating $750,000.00 which Convendium had failed to pay.
[69] The statements of defence filed by the other defendants either plead that they had no knowledge and, therefore, deny the pleading or that they are not required to plead but, to the extent that they are, deny the allegations. They do not, therefore, shed any further light on the issue.
[70] In the affidavits filed in opposition to the applications for security for costs in the Wellington Proceedings, Paul Monnery and Greg McCarthy depose that Bruce Copeland agreed in 2009 that the money owing to Sandfield would be capitalised and that Bruce Copeland agreed to invest a further sum which together would give Sandfield Ventures a 10 per cent share in Convendium.
[71] Bruce Copeland’s affidavit filed in reply does not respond to these paragraphs specifically, despite responding specifically to other paragraphs.
[72] Furthermore, Paul Monnery in his affidavit in support of his opposition to summary judgment dated 26 April 2019 deposes:
At the time [Sandfield] carried out the work, it knew of the financial position of Convendium and carried out work knowing that it would not be paid until Convendium was in a position to do so. In fact, in order to avoid GST implications, the work was never invoiced to Convendium (certainly and not to me) (sic).
[73]Bruce Copeland’s affidavit in response, again, does not respond directly.
[74] Correspondence is exhibited to the affidavits filed for the security for costs proceedings between the parties in early 2017. In a letter to Sandfield’s lawyers dated 10 March 2017, MacAlister Mazengarb, acting for Andy Parsons and Push, referred to the Sandfield letter dated 23 September 2009 confirming that Convendium owned the intellectual property in the Festival platform, and said Sandfield’s conduct was “confusing” and “[o]bviously, this has repercussions”. An offer to resolve matters between those parties was withdrawn, it appears, partly on the basis of the Sandfield letter.
[75] Correspondence attached to the affidavits further shows that Bruce Copeland and Sandfield together with Paul Monnery suspected that Andy Parsons and Push Developments were using the Festival Payments system developed for Convendium and licensed to Eftpos in Push vending machines, contrary to the licence agreement. The correspondence attached to the affidavits is not complete, but it raises serious questions as to what the position was in respect of ownership of the software and the terms of payment to Sandfield.
[76] If there is a serious question as to the terms on which Sandfield agreed to be paid, as there appears to be, then even if the execution of the summary judgment and the Bankruptcy Proceedings are not stayed, the liquidators may not be in a position to pay out any money to the creditors of Convendium until the Wellington Proceedings are resolved. The liquidators are required to pay Sandfield first, as Sandfield funded the Summary Judgment Proceedings for the liquidators. If the liquidators are unsure of the amount to pay Sandfield, then they may have no choice but to wait until the issue is determined in the Wellington Proceedings before making any payments.
[77] The “third party” proceedings in this case may, therefore, not only determine whether there was an agreement preventing recovery of the summary judgment debt, but whether the largest creditor’s priority claim in the liquidation is payable.
[78] If it is held in the Wellington Proceedings that Convendium owned the software and does not owe Sandfield any or all of the money claimed, then the Monnery Family Trust, as the 49.43 per cent shareholder of Convendium could technically receive any surplus money collected by the liquidators in excess of the amounts found to be outstanding to creditors.
Merits of the Wellington Proceedings
[79] Counsel for Convendium emphasised Associate Judge Johnston’s findings in the security for costs judgment that the claim in the Wellington Proceedings is not strong, both in submissions before me and in updating memoranda filed following the hearing.
[80] Associate Judge Johnston’s impression that the claim was not strong was based in part on the view that the evidence before the Court suggested that Convendium was obliged to pay for the software before it could claim ownership and it was clear that it did not make such payments. With the further evidence on this point, it appears that it may not be so clear cut.
[81] Furthermore, the findings made in the Wellington Proceedings, even if not successful for the Monnerys, may still affect payments to be made by the liquidators.
Effect on Wellington Proceedings
[82] Counsel for Convendium submits that the bankruptcy of the Monnerys would not prevent the Wellington Proceedings continuing because that proceeding could be continued by the Monnerys as trustees of the Monnery Family Trust. Despite the bankruptcy of the first plaintiff, s 104 of the Insolvency Act confirms that the Trust’s causes of action will not vest in the Official Assignee to the extent that Mr and Mrs Monnery are acting as trustees.
[83] As well as this, Mr Chisholm QC submits that if, in fact, the Wellington Proceeding does have merit then the proceedings could continue in Paul Monnery’s name with the Official Assignee’s consent.
[84] Both of these scenarios would require funding by the Monnerys, as is noted in Body Corporate 207650 v Singh.24 In Downtown House (No.2) Ltd v Ensom25 it was also accepted that the Official Assignee was unlikely to embark on complex litigation without making sure there is funding to cover costs.
[85] The evidence given by Mr Monnery is that his bankruptcy will put an end to his new business because of the terms of his business loan. It appears, therefore, that bankruptcy would put an end to the Wellington Proceedings as the Monnerys will not be able to fund it.
[86] Counsel for Convendium submitted further that given the financial position of the Monnerys it is unlikely that the Wellington Proceedings will progress to trial, in any event, with progress having been slow so far. This does not appear to provide a fair basis for rejecting the application for a stay if it appears issues in the Wellington Proceeding need to be determined to achieve a fair overall result.
Delay
[87] The Wellington Proceedings were due to be heard at a three week fixture scheduled to commence on 21 June 2021. Associate Judge Johnston vacated that fixture by Minute dated 2 March 2021. No replacement fixture has yet been allocated, but counsel for Convendium has estimated that a fixture is unlikely to be allocated until mid-2022.
[88] The fixture was vacated because there are still a number of discovery issues that require the allocation of an interlocutory fixture for resolution and there was “virtually no prospect” of dealing with all of the discovery issues and getting the timetable on track so that the fixture could be maintained.26
24 Body Corporate 207650 v Singh, above n 17 at [35].
25 Downtown House (No.2) Ltd v Ensom, above n 18 at [9].
26 Minute of Associate Judge Johnston dated 2 March 2021, CIV-2018-485-482.
[89] The failure to address the discovery issues appears to have resulted from a number of factors, not all of which appear to be the fault of the Monnerys. Any stay or halt ordered, if it is to extend until the Wellington Proceedings are determined, will need to be in place for a significant period, perhaps until the end of 2022, which is a factor that must be weighed carefully in the balancing exercise.
Possibility of claim by liquidators
[90] Counsel for Convendium further submitted that if there was a legitimate claim for misappropriation of Convendium’s property, then Convendium should be the proper plaintiff. But, the liquidators would need to be funded for any claim in the same way as they have been for the Summary Judgment Proceedings. If the stays sought are not granted and the Monnerys are bankrupted they will not be in a position to fund the liquidators and, therefore, no claim would be brought by Convendium.
Other creditors
[91] A further factor that must be considered is the position of creditors other than Sandfield. The only other creditors of Convendium as listed in the liquidators’ reports are a former employee of the company, who is claiming $59,993.36, plus a claim by the Inland Revenue Department of $5,427.16 in respect of GST arrears.
[92] Counsel for the Monnerys submitted that the fact there were relatively few other creditors was a strong factor in support of ordering stays both of execution of the summary judgment and adjudication as it was not a situation where there were many other creditors waiting for their money.
[93] As noted above, the further difficulty here is that if Sandfield is owed money by Convendium, Sandfield is to be paid in priority to the other creditors as it funded the Summary Judgment Proceedings brought by the liquidators. Until the Wellington Proceedings are determined, it may be difficult for the liquidators to assess the appropriate amount to pay out to Sandfield and, therefore, to the other creditors.
Evidence of financial circumstances
[94] Mr Chisholm QC submitted that where a party is seeking an indulgence from the Court, as the applicants are here, they must be candid about their financial circumstances. He submits the applicants have not been in this case.
[95] However, it is clear on the evidence that the Monnerys are not in a position currently to pay the judgment debt owed. Furthermore, Paul Monnery has deposed to how bankruptcy would affect them in terms of their business loan.
Accountability
[96] It was submitted on behalf of Convendium that the Monnerys had exposed their creditors to an unreasonable level of risk and should be held accountable for their insolvency. But is not clear at this stage, on the evidence, what risk Sandfield had agreed it was prepared to bear, or what the terms of the arrangements in relation to Paul Monnery’s and Sandfield’s remuneration were.
[97] It was also submitted on behalf of Convendium that investors in Convendium lost investments exceeding $2.6 million during which time the Monnerys took advances exceeding $500,000 from Convendium by way of overdrawn current account. The cause of Convendium’s losses is a matter for determination in the Wellington Proceedings as well as the agreement in relation to Paul Monnery’s remuneration, and so this factor is neutral for the balancing exercise at this stage.
Convendium’s conduct
[98] It was submitted on behalf of Convendium that as well as not being a party to the Wellington Proceedings, there is also no question of it having acted improperly.
[99] I accept that Convendium did not act improperly in bringing the Summary Judgment Proceedings. The question of whether a stay should be ordered preventing execution of that judgment needs to consider the position of not only Convendium, however, but of the other relevant parties.
Paul Monnery’s conduct
[100] Many of the submissions made on behalf of Convendium focused on Paul Monnery’s conduct, the fact that Convendium had been insolvent for years and that as new investor funds were introduced the Monnerys took those funds for their own benefit, to the detriment of Convendium, its creditors and investors.
[101] On the evidence, Convendium does appear to have been insolvent for many years, but for a number of those years it appears to have had shareholder support. The remainder of the matters raised in relation to Paul Monnery’s conduct are matters that are still to be determined in the Wellington Proceedings, having not been relevant to the Summary Judgment Proceedings.
Public Interest
[102] In this case the small number of creditors and the circumstances in which the debt arose do not “cry out” for the appointment of the Official Assignee to investigate the Monnerys’ affairs, contrary to the submission made on behalf of Convendium.
Court of Appeal
[103]Counsel for Convendium concluded its outline by saying:
The liquidators of Convendium seek the Monnerys’ bankruptcy and understandably wish to take enforcement steps on the Judgment. As the Court of Appeal noted in the context of Convendium as an insolvent company, this is neither oppressive or unjust.
[104] The comment by the Court of Appeal that it was neither oppressive nor unjust was in respect of the liquidators taking steps to secure repayment of the overdrawn current account. As the Court of Appeal held in Bromley Industries Ltd v Martin v Judith Fitzsimons Ltd:27
There is a difference between whether the entry of a summary judgment may be unjust and whether the subsequent execution of the judgment may lead to a miscarriage of justice.
27 Bromley Industries Ltd v Martin and Judith Fitzsimons Ltd [2009] NZCA 382, (2009) 19 PRNZ 850 at [67].
[105] The question of a stay was raised in the Court of Appeal because it was included in the agreed issues list (although it had not been included in the Notice of Appeal and nor could it have been, having not been raised in the High Court).
[106] The Court of Appeal declined to order the stay sought, saying that even if it had jurisdiction (which it doubted), it did not have the relevant material before it from the Wellington Proceedings. Consequently, the Court of Appeal concluded the High Court was the appropriate venue for any stay application, but refrained from commenting on what it considered the likely outcome of any stay application might be.
Overall balancing
[107] Having considered all of the above factors and weighed those in favour of a stay and those against, and bearing in mind that the onus is on the applicant for the stay, I consider that in the circumstances of this case there would be a substantial miscarriage of justice if a stay of execution of the summary judgment were not ordered pursuant to r 17.29. With execution of the judgment upon which the Bankruptcy Proceedings are based stayed, the Bankruptcy Proceedings are not able to proceed. Consequently, a halt of the Bankruptcy Proceedings is also ordered, pursuant to s 38 of the Insolvency Act.
[108] The threshold for ordering a stay of execution is higher than for ordering a halt to the Bankruptcy Proceedings, a stay of execution requiring a substantial miscarriage of justice as being likely to result, as compared to a halt, where it is for the Court to determine whether it would be appropriate. If I am wrong in my decision on the application for a stay of execution, I record that I would have granted a halt to the Bankruptcy Proceedings pending the determination of the Wellington proceedings in any event.
Result
[109]I order:
(a)A stay of execution of the summary judgment entered against the Monnerys obtained by Convendium pending the final determination of the Wellington proceedings, CIV-2018-485-482;
(b)A halt of the Bankruptcy Proceedings, CIV-2019-404-1906 and CIV-2019-404-1907, pending the determination of the Wellington Proceedings, CIV-2018-485-482.
Costs
[110] The Monnerys have succeeded in their applications so are entitled to costs. The parties should confer and, if costs are unable to be agreed, file memoranda of no more than five pages.
Associate Judge Sussock
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