Sargison v Green Grass Limited
[2012] NZHC 912
•4 May 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-4830 [2012] NZHC 912
UNDER the Companies Act 1993
IN THE MATTER OF the liquidation of Club Crow Bar Limited
BETWEEN PAUL GRAHAM SARGISON AND SIMON DALTON
Plaintiffs
ANDGREEN GRASS LIMITED Defendant
Hearing: 4 May 2012
Counsel: B M Hojabri for the Plaintiffs
R B Hucker and D L Lang Siu for the Defendant
Judgment: 4 May 2012
(ORAL) JUDGMENT OF WOODHOUSE J
Solicitors:
Ms B M Hojabri, Keegan Alexander, Solicitors, Auckland
Mr R B Hucker, Hucker & Associates, Solicitors, Auckland
SARGISON AND DALTON V GREEN GRASS LIMITED HC AK CIV-2011-404-4830 [4 May 2012]
[1] This is an application by the defendant (Green Grass) to set aside a summary judgment obtained by the plaintiffs. The application is made pursuant to r 12.14, which is as follows:
12.14 Setting aside judgment
A judgment given against a party who does not appear at the hearing of an application for judgment under rule 12.2 or 12.3 may be set aside or varied by the court on any terms it thinks just if it appears to the court that there has been or may have been a miscarriage of justice.
[2] The judgment was regularly obtained. In particular, the defendant does not contend that service of the proceeding was not effected in accordance with the requirements of the Companies Act 1993 as to service of the Court proceedings on a company. Nor is it contended that there was some other substantial irregularity which would warrant the judgment being set aside without more.
[3] The enquiry in this case is therefore in accordance with the essentially unfettered discretion contained in the rule and as explained by the Court of Appeal in Russell v Cox[1] and the authorities referred to in Russell v Cox. In that regard I refer in particular to observations of the House of Lord in Evans v Bartlam[2] cited in Russell v Cox at 658. It is not to be overlooked that the ultimate enquiry in cases
such as these is as to whether there has been, or might be, a miscarriage of justice.
[1] Russell v Cox [1983] NZLR 654 (CA).
[2] Evans v Bartlam [1937] AC 473; [1937] 2 All ER 646.
[4] Notwithstanding the unfettered discretion in the ultimate enquiry numbers of factors commonly arise for consideration. One is whether the party who obtained judgment (in this case the plaintiff) is likely to suffer material prejudice if the judgment is set aside. Ms Hojabri, for the plaintiffs, responsibly acknowledged that that is not an issue in this case. There would be some relatively minor prejudice from wasted costs, but that can be dealt with by an order in favour of the plaintiffs. I do consider that this point – an absence of material prejudice – is of some importance. The remaining issues of consequence are whether the defendant has
shown it has a substantial ground of defence and whether the defendant has
explained its failure to defend the proceeding. I will come to those matters after a brief outline of the background facts.
Background facts
[5] The plaintiffs were appointed liquidators of Club Crow Bar Ltd on 3 June
2011. They sought the financial records of the company from Michaela Bleser, the accounts manager or office manager of Club Crow Bar. Ms Bleser told the liquidators that the director of Club Crow Bar, Megan McCabe, was overseas. The liquidators issued formal notice seeking the records, but it seems they have never obtained them; or at least, they have never obtained all of the relevant records.
[6] The liquidators did uncover records of substantial payments made by Club Crow Bar to Green Grass. It is relevant that at material times Megan McCabe was the sole director of Green Grass as well as Club Crow Bar. And Ms Bleser was the accounts manager or office manager of Green Grass as well as having the same responsibilities for Club Crow Bar. The liquidators wrote to Green Grass seeking repayment. There was no response.
[7] Summary judgment proceedings were issued. These were served at the registered office of Green Grass on 16 August 2011. An affidavit of service was filed in the usual way prior to entry of the summary judgment. Ms Bleser has effectively acknowledged in one of her affidavits that an attempt at service at the registered office was made by the process server. Ms Bleser said that she declined to accept the documents because she had not been given authority by Ms McCabe to do so. She says that the process server left the documents at her feet and, it seems, that this may have been on the footpath at the door of the premises. Ms Bleser claims that when she opened the door sometime later the documents had gone.
[8] Summary judgment was obtained at the first call on 20 September 2011. Judgment was entered against Green Grass in a sum of $219,320 plus costs of
$8,314.45.
[9] The liquidators then took steps to enforce the judgment leading to liquidation proceedings. There is evidence for Green Grass of enquiries it started making from around 14 October 2011. This occurred at the direction of David McCabe. Mr McCabe is the father of Megan McCabe. He replaced Ms McCabe as director of Green Grass at an earlier date. It should also be noted that Ms McCabe was adjudicated bankrupt on 1 September 2011. This was on the application of another company of which the plaintiffs are liquidators. The application by Green Grass to set aside the judgment was filed on 14 December 2011.
[10] There is a substantial body of evidence filed in support of Green Grass’s application and by the plaintiff liquidators in opposition. There is also the liquidators’ original affidavit in support of the summary judgment application. I have been materially assisted by submissions of both counsel on the relevance of these documents. I do not consider it necessary to go into the detail of the submissions but I have, of course, taken account of the relevant submissions made.
[11] It may be noted in this regard that on 2 May 2012 a third affidavit for the liquidators was filed (and presumably served on the same date). This is the third affidavit of the liquidator plaintiff Mr Simon Dalton. Mr Dalton annexed a large number of bank statements of Club Crow Bar for the period 28 April 2009 to 31 May
2011. Mr Dalton did not in his affidavit provide any evidence as to his opinion as to what these affidavits disclose. For Green Grass, Mr Hucker submitted that no account should be taken of these bank statements because Green Grass has had no opportunity to respond to contentions made in respect of them, being contentions advanced in Ms Hojabri’s submissions. I considered it was appropriate to permit Ms Hojabri to outline the submissions, rather than simply reject the affidavit, but the fact that representatives of Green Grass have not been able to comment on the contentions is relevant.
Substantial grounds of defence
[12] The essential contention of the liquidators, in seeking summary judgment, was that there had been no consideration for payments made by Club Crow Bar to Green Grass in the total sum of $219,730 for which judgment was entered. The
essence of the response for Green Grass, in affidavits from Mr David McCabe, but more significantly also from Ms Bleser, is that consideration was provided for these payments, and further payments well in excess of that sum. This consideration is said to have been provided by Green Grass’s supplying to its “associated” business Club Crow Bar, alcohol, staff and other items. Ms Bleser provided direct evidence to the effect that such consideration was provided. She and Mr McCabe supported these contentions by producing copies of invoices, ledgers and some other documents.
[13] Ms Hojabri, in her careful submissions, pointed to a range of inconsistencies in the evidence produced for Green Grass, and between the evidence produced by Green Grass and evidence produced for the liquidators, and in respect of the liquidators’ evidence including the bank statements. I acknowledge the relative force of the submissions made by Ms Hojabri. And beyond that there might be a basis for viewing the evidence produced for Green Grass with some caution. That caution might be reinforced to an extent by the approach of Green Grass to these matters, at least down to the point when Mr David McCabe began making enquiries. The approach of the responsible officers of Green Grass at the earlier period was casual to say the least. But these various matters in the end, although raising these questions, do not take the case to the point where Green Grass has failed to show that it has a substantial ground of defence.
[14] Where judgment has been regularly obtained without a defence being filed on a summary judgment application, a question arises as to what the defendant, seeking to set aside the judgment needs, to establish. The answer, in general terms, was provided by the Court of Appeal in Equiticorp Financial Group Ltd v Cheah[3] where Somers J said:
In the case of a summary judgment regularly obtained it will normally be necessary for the defendant seeking to set aside judgment to adduce material which leads the Court to the conclusion that the plaintiff has not satisfied the Court that there is a defence to the claim.
[3] Equiticorp Financial Group Ltd v Cheah [1989] 3 NZLR 1 (CA) at 8.
[15] In the written submissions for the plaintiff liquidators there is reference also to observations of Associate Judge Bell in Bank of New Zealand v Cannell.[4] Ms Hojabri’s written submissions appear to draw from the Associate Judge’s observations a proposition that the issue is whether the defendant has a substantial ground of defence to the plaintiffs’ claim. This, if I correctly understand the submission, would be a substantial modification of what the Court of Appeal said.
And Associate Judge Bell did not put the matter in this way. However, in discussing the question of onus with Ms Hojabri, it does appear that the essential proposition for the plaintiff liquidators is that the onus on this application rests on the defendant applicant. That is undoubtedly correct.
[4] Bank of New Zealand v Cannell HC Auckland CIV-2010-404-3877, 2 May 2011 at [11]-[12].
[16] It will usually be appropriate to consider whether there is a substantial defence, and it is certainly appropriate in this case. It seems to me that the best way of considering this question, when summary judgment has been obtained, is as follows: would the plaintiff have been entitled to summary judgment if all of the evidence now before the Court had been before the Court when the summary judgment application was determined? Looking at the matter in this way, and giving due weight to the submissions for the liquidators, I am satisfied that Green Grass has shown that it has a substantial defence. The matters that have been raised, including the serious issues advanced by Ms Hojabri in her submissions, are matters that should go to a full summary judgment hearing. It is not appropriate that that hearing be conducted on this present application. And it may very well be that, following this hearing, the plaintiffs will withdraw the application for summary judgment. Having made that observation I wish to make clear that I am not expressing any concluded view in that regard. The essential point is that there is a range of issues which simply are not appropriately dealt with by the Court on this interlocutory application. And this includes issues of credibility.
[17] There is one other observation that I would make and which underpins this whole question as to whether there is a substantial defence or whether I could conclude at this point that there is not. It would be at least implicit in a conclusion that there is no substantial defence (in the sense explained above) that Ms Bleser’s
evidence lacks credibility, and that the extensive documentary evidence she has
produced, in the form of copies of invoices and ledgers, has been manufactured or at the very least is not prima facie evidence of what it purports to record. It would be wrong on this interlocutory application to reach a conclusion which would contain those sorts of propositions in it unless the conclusion was quite clear. And at this stage it is not.
Explanation for failure to defend
[18] Ms Hojabri submitted that Green Grass has not provided any reasonable explanation for its failure to defend the proceeding and that, in any event, there were unreasonable delays from 10 October 2011 when the defendant clearly had knowledge that judgment had been entered.
[19] Weighing the evidence on this, together with the submissions for the parties, I am satisfied that there is sufficient explanation for the failure to file a defence and that there was no material delay between 10 October and the filing of the application in December.
[20] The specific matters discussed, as with all specific areas of enquiry, are part of the ultimate enquiry as to whether there might be a miscarriage of justice. For the reasons outlined, I am satisfied that there would be a risk of a miscarriage of justice if the judgment is not set aside to give the defendant a full opportunity to argue the claim on the merits.
Costs and directions
[21] Mr Hucker’s written submissions for Green Grass include an application for costs. Mr Hucker acknowledged that where a party is effectively seeking an indulgence which is then granted, that party would generally not obtain costs. Mr Hucker submitted that in this case, however, the liquidators had, in effect, taken an unreasonable stand in vigorously contesting the issues. I am not persuaded that this is a case where there should be costs for the defendant, notwithstanding that it has succeeded. In fairness to Mr Hucker I should also acknowledge that in his discussions with me he did not seek unreasonably to pursue the application for costs.
[22] I am satisfied that the plaintiff liquidators are entitled to wasted costs and disbursements. The wasted costs and disbursements in this proceeding, with costs to be allowed on a 2B basis, are those on the appearance to obtain summary judgment, the affidavit of service and sealing the judgment. The plaintiffs are also entitled to costs and disbursements for the notice of opposition to the application to set aside. It was not unreasonable to have the matter tested. However, there is no allowance at this stage for the plaintiffs’ costs for the affidavits in support of the opposition because they now form part of the contest on the merits.
[23] There are also costs incurred by the plaintiffs in the associated liquidation proceedings against Green Grass. The liquidators are entitled to those costs whether or not another creditor of Green Grass applies to be substituted as the plaintiff in the liquidation proceeding against Green Grass.
[24] The costs awarded in this proceeding are to be paid within 14 days of the defendant’s receipt of notice of the quantum sought by the plaintiffs, subject to any further hearing that may be required if there is a dispute as to quantum. The costs fixed in the liquidation proceeding are also to be paid within 14 days of those costs being fixed. If costs are not paid on the due date the plaintiff will be entitled to apply for appropriate orders.
[25] There will be a telephone conference to review the next steps to be taken in this proceeding. This should be before an Associate Judge and will be on a date and at a time to be notified.
[26] For the avoidance of doubt, I make clear that the summary judgment has been set aside, but the summary judgment application itself has not been set aside. The plaintiff is therefore free to proceed on the summary judgment application if it considers that such is appropriate and notwithstanding the tentative observations in this judgment. In that context I would also observe that this is a case where it may be appropriate for the defendant to meet the costs of an independent accounting expert to undertake a full review of the accounting issues that arise. I have an initial impression that there are detailed accounting enquiries that would need to be made and these, at first blush, do not appear to be enquiries that should be undertaken by
the Court itself. If, following those enquiries, questions of substance remain, including questions of credibility or legal principle, then obviously the matter will have to be addressed by the Court.
Formal orders
[27] The judgment entered on 20 September 2011 is set aside.
[28] The plaintiffs’ application for summary judgment remains for hearing or other disposal.
[29] The defendant is to pay costs and disbursements to the plaintiffs as set out at
[22]-[24] above.
[30] There will be a telephone conference, to review the next steps to be taken, before an Associate Judge on a date and at a time to be notified.
Woodhouse J
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