Scargetta v ASB Bank Limited
[2024] NZHC 2109
•31 July 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-000198
[2024] NZHC 2109
BETWEEN ELLIOT SGARGETTA
Plaintiff
AND
ASB BANK LIMITED
First Defendant
ANDREW JOHN HAWKES and VIVIAN JUDITH FATUPAITO
Second Defendants
Hearing: On the papers Appearances:
Plaintiff in Person
A D Marsh for the First-Named Second Defendant
Judgment:
31 July 2024
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 31 July 2024 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Minter Ellison, Auckland A D Marsh, Christchurch Copy to: E Sgargetta
SGARGETTA v ASB BANK LTD [2024] NZHC 2109 [31 July 2024]
Introduction
[1] The plaintiff, Elliot Sgargetta, has applied for an order extending the time for service of his notice of proceeding and statement of claim on the first-named second defendant, Andrew Hawkes. The application is necessary because r 5.72(2) of the High Court Rules 2016 (HCR) deems a proceeding discontinued if it has not been served within 12 months of when the notice of proceeding and statement of claim are filed.
[2] Mr Hawkes opposes the application because Mr Sgargetta has not shown that reasonable efforts were made to effect service on him. He says Mr Sgargetta has failed to adequately explain why the documents were not served within the timeframe required, there are no other good reasons why the extension of time should be granted, and he would be severely prejudiced by an extension as it would circumvent a limitation period that would otherwise bar Mr Sgargetta’s claim.
Background
[3] Mr Sgargetta’s claim relates to events that took place in 2016. In February 2016, the second defendants, Mr Hawkes and Vivian Fatupaito (the Receivers) were appointed by ASB Bank Ltd (ASB) to Sleep Overs Ltd (Sleep Overs) and related companies. ASB had lent around $3.4 million to Sleep Overs. The loans were secured by mortgages over two Queenstown lodges owned by Sleep Overs, and an unlimited cross guarantee and indemnity from Mr Sgargetta and the related companies. Sleep Overs defaulted on the loans, the Receivers were appointed, and the secured properties were sold in April 2016.
[4] In 2017 ASB took summary judgment proceedings against Mr Sgargetta under the guarantee and indemnity for the shortfall in the amount received on the sale and the outstanding loan balance. Mr Sgargetta opposed the application. One of his defences was that the Receivers sold the lodges at an undervalue. The High Court rejected Mr Sgargetta’s defences and ordered summary judgment.1 He appealed to the Court of Appeal, which rejected his appeal in September 2021.2
1 ASB Bank Ltd v Sgargetta [2017] NZHC 3097.
2 Sgargetta v ASB Bank Ltd [2021] NZCA 459.
[5] On 8 February 2022, Mr Sgargetta filed the present statement of claim and notice of proceeding in this Court. In the statement of claim he claims, across three causes of action, that:
(a)ASB and/or the Receivers sold the properties at an undervalue in breach of their statutory duties to obtain the best obtainable price; and
(b)ASB represented, promised, or impliedly agreed to facilitate syndication of the properties by Sleep Overs, and then inhibited the syndication process.
[6] On being served with the claim, ASB applied for orders striking out the statement of claim or for defendant summary judgment. In a judgment delivered on 1 September 2023,3 I struck out the first and third causes of action against ASB as an abuse of process, because the issues had already been determined by the Court of Appeal in the summary judgment. I struck out the second cause of action because it failed to disclose a reasonable cause of action. This judgment is under appeal by Mr Sgargetta.
[7] The claim against the Receivers proceeded on a different track. On 7 February 2023, in response to an email sent by Mr Sgargetta on 3 February 2023, the Registry informed Mr Sgargetta that “If the documents have been served through post and the Courier company has advised that the documents were received, then it should be considered served. It would also be a good idea to file an affidavit of service that confirms this.”
[8] On 20 March 2023, Mr Sgargetta filed an application for default judgment against the Receivers. He relied on an affidavit of service in which he deposed that he mailed the statement of claim and notice of proceeding to the Receivers by registered international post on 5 January 2023; and that he received a text message from Australia Post stating that the Receivers received the documents on 13 and 16 January 2023. He attached screen shots of automatic text messages from Australia Post stating that the items had been delivered to the recipients.
3 Sgargetta v ASB Bank Ltd [2023] NZHC 2413.
[9] Mr Sgargetta’s application, along with ASB’s interlocutory application for strike-out/summary judgment/security for costs was listed for mention in the Chambers List on 21 April 2023. In a minute dated 17 April 2023, I noted that the notice of proceeding and statement of claim did not appear to have been personally served on the Receivers as required by r 5.71(1) of the HCR. I directed Mr Sgargetta to serve the notice of proceeding and statement of claim by personal service according to r 6.11 within 15 working days.4 I was unaware that the statement of claim was filed on 8 February 2022 and therefore that it was too late for Mr Sgargetta to serve the claim without the Court giving him an extension of time to do so under r 5.73.
[10] On 26 April 2023 Mr Sgargetta filed a memorandum maintaining that his notice of proceeding and statement of claim had been properly served on the Receivers by courier post, referring to his affidavit of service.
[11] In a minute dated 15 May 2023, I reiterated that Mr Sgargetta was required to personally serve the Receivers in accordance with r 6.11.5
[12] Mr Sgargetta then filed a memorandum dated 25 May 2023, seeking an order under r 6.8 which would effectively validate service of the proceeding on the Receivers by post.
[13] The matter came before Associate Judge Brittain on 18 July 2023, who repeated that service by post of the documents does not suffice.6 He confirmed my earlier direction to personally serve the proceeding on the Receivers. He said that it was open to Mr Sgargetta to instruct a process server to personally serve each of the Receivers in the conventional way.7
[14] On 16 August 2023, Mr Sgargetta filed a memorandum stating that the documents had been served on the Receivers by process server. He attached an affidavit from Jeffrey Swain, process server, who stated:
4 Sgargetta v ASB Bank Ltd HC Auckland CIV-2021-404-002285, 17 April 2023 (Minute) at [2].
5 Sgargetta v ASB Bank Ltd HC Auckland CIV-2022-404-000198, 15 May 2023 (Minute) and [2] and [4].
6 Sgargetta v ASB Bank Ltd HC Auckland CIV-2021-404-00198, 18 July 2023 (Minute) at [2].
7 At [3].
I Jeffrey David Swain of Kaiapoi, Process Server swear
That on Monday 7th August 2023 at approximately 2.40 pm I served the following documents on the Second Defendants at the address of Level 5 79 Cashel Street Christchurch Central. The documents were accepted by Margaret, Office Administrator.
- Statement of claim
- Notice of proceeding
- Notification letter
[15] Unfortunately, giving the documents to an unknown person called “Margaret” at an unknown address did not constitute personal service on the Receivers. Furthermore, the affidavit of service did not comply with r 6.10. It did not annex a copy of the documents served or describe the documents served, including their date, in a way that enabled the documents to be identified. The effect of these issues was that it was impossible to know whether the proceedings had in fact been served on the Receivers or not.
[16] I reiterated that the Court would not consider Mr Sgargetta’s application for default judgment against the Receivers until he effected personal service on each of them in compliance with r 6.11 and filed an affidavit proving service that complied with r 6.10.8
[17] Personal service was then effected on Mr Hawkes on 1 December 2023. It seems that Ms Fatupaito has not been served as she has not filed anything with the Court.
[18] Mr Hawkes’ counsel filed a memorandum on 25 January 2024 stating that as the claim was filed in February 2022 but not served on Mr Hawkes until 1 December 2023, the claim was automatically discontinued pursuant to r 5.72.
[19] After Mr Sgargetta disputed this position, I invited him to file an application for an extension of time under r 5.73.9
8 Sgargetta v ASB Bank Ltd HC Auckland CIV-2022-404-000198, 1 November 2023 (Minute).
9 Sgargetta v ASB Bank Ltd HC Auckland CIV-2022-404-000198, 28 February 2024 (Minute) at [7(a)].
Legal principles
[20] Rule 5.72(1)(a) of the HCR requires a plaintiff to serve a statement of claim and notice of proceeding as soon as practicable after they are filed. In addition, r 5.72(2) provides that unless service is effected within 12 months after the day on which the statement of claim and notice of proceeding are filed, or within such further time as the Court may allow, the proceeding must be treated as having been discontinued by the plaintiff against any defendant who has not been served.
[21] Rule 5.73(1) allows a plaintiff, either before or after the expiration of the 12 month period, to apply to the Court for an order extending that period. By r 5.73(2), the Court may order an extension of six months from the date of the order if satisfied that reasonable efforts have been made to effect service on the defendant, “or for other good reason”.
[22] Associate Judge Sussock recently reviewed the authorities that have considered provisions equivalent to r 5.73.10 As she noted, in Hibbs v Towle,11 Richardson J considered the meaning of “good reason” and referred to the three separate categories of case identified by Lord Brandon in the House of Lords decision Kleinwort Benson Ltd v Barbrak Ltd:12
(a)first, where the application for extension is made when the statement of claim is still valid and before the relevant limitation period has expired;
(b)second, where the application for extension is made when the statement of claim is still valid but the relevant limitation period has expired; and
(c)third, where the application for extension is made when the statement of claim has ceased to be valid and relevant limitation period has expired.
10 Stewart v JR Legal Ltd [2024] NZHC 38 at [9]–[14].
11 Hibbs v Towle CA60/87, 21 July 1988.
12 Kleinwort Benson Ltd v Barbrak Ltd [1987] AC 597 (HL) as cited in Hibbs v Towle, above n 11,at 10.
[23] Lord Brandon explained that it was not possible to define or circumscribe the scope of the expression “good reason”, holding that it will depend on all the circumstances of any particular case. In category three cases, however, Lord Brandon held that an applicant had an extra difficulty to overcome in that they must also give a satisfactory explanation for the failure to apply for the extension before the validity of the claim expired.13
[24] Lord Brandon further commented that whether an extension should be granted is a discretionary decision, with the judge entitled to have regard to the balance of hardship between the plaintiff and defendant. 14
[25] In Zaremba v Guardian Trust & Executors Co of New Zealand, Henry J held that the jurisdiction to extend time for service should “only be exercised in exceptional circumstances where the claim has become statute-barred and the defendant has a clear right to plead the statute.”15
[26] But in Melgren v Public Trustee, Moller J held that the use of phrases such as “exceptional case” or “exceptional circumstances” may well be misleading and concentrate attention too much upon individual aspects of any given case, to the exclusion of an overall view of every aspect of the matter in the search to discover whether the plaintiff had “good reason” for seeking an order.16 Moller J went on to say, however:17
It is of course necessary to remember even then that, in cases in which an order to review would deprive a defendant of a defence under the Limitation Act, the reason, to be "good", "must be strong".
Reasonable efforts to effect service?
[27] Rule 5.72 requires a plaintiff to serve a notice of proceeding and statement of claim as soon as practicable after filing the documents (or after directions as to service are given), and at the outside, within 12 months. Service must be made by one of the
13 At 622–623.
14 At 623.
15 Zaremba v Guardian Trust & Executors Co of New Zealand [1968] NZLR 476 (SC) at 478.
16 Melgren v Public Trustee [1971] NZLR 681 (SC) at 688.
17 At 688.
methods set out in r 6.1(1): personal service; service at an address for service given under the HCR or directed by the Court; or by post, document exchange, fax or email if the person or their solicitor has agreed in writing to service by that method.
[28] As none of the other methods of service in r 6.1(1) were available, Mr Sgargetta was required to personally serve the notice of proceeding and statement of claim on Mr Hawkes. A document is personally served by leaving the document with the person to be served, or, if that person does not accept it, by putting it down and bringing it to the notice of that person.18
[29] I do not consider that Mr Sgargetta made reasonable efforts to effect personal service of the documents on Mr Hawkes as soon as practicable after filing the documents and within 12 months.
[30] Before explaining why, I acknowledge that the Court overlooked that the statement of claim and notice of proceeding had been filed over 12 months prior when it directed Mr Sgargetta to personally serve the proceedings throughout 2023. The minutes are silent on this point. Had the Court been conscious of this fact it almost certainly would have informed Mr Sgargetta that it was necessary for him to apply for an extension of time to serve the documents.
[31] I accept therefore that when evaluating the steps taken by Mr Sgargetta, the Court should assume that had Mr Sgargetta been so advised he would have applied for an extension of time in April 2023 rather than March 2024.
[32] Mr Sgargetta does not suggest that he made any attempt to serve the proceedings on the Receivers until January 2023. He gives no explanation for why he waited 11 months after filing the documents to serve them. He does not suggest that Mr Hawkes was difficult to find. Mr Hawkes is a member of the senior leadership team of an accountancy practice and his contact details are readily available on the internet. Furthermore, when he was finally contacted by the process server in late 2023, he arranged to be in the office so he could be personally served.19
18 High Court Rules 2016, r 6.11.
19 Affidavit of Andrew John Hawkes in Support of Notice of Opposition to Plaintiff’s Application for Extension of Time for Service, dated 5 April 2024, at [13].
[33] When Mr Sgargetta finally took steps to serve Mr Hawkes in January 2023, he did not do so by personal service. Mr Sgargetta is self-represented, but he is still required to comply with the HCR. It is important that documents originating a court proceeding are properly served on a defendant to give the Court jurisdiction over the defendant; and to give the defendant notice of the claim and the steps they must take if they wish to oppose the claim.
[34] Mr Hawkes deposes that while he was made aware of the proceeding by ASB, he never received anything via registered post or courier in January 2023 or at any time. He says that he did not therefore understand that anything was needed from him. He confirms that he was never served with the proceedings before he was served by the process server in December 2023.
[35] Mr Sgargetta makes three submissions concerning the issue of whether he took reasonable steps. First, that that he could not make personal service as he was in Australia and could not afford to engage a process server. Second, that he was wrongly advised by the Registrar on 7 February 2023 that service by courier post constituted proper service. Third, that the Court did not alert him to the fact that he was out of time to serve the documents through 2023 or advise him to apply for an extension of time and instead directed him to effect personal service.
[36] The fact that Mr Sgargetta resides in Australia does not exempt him from complying with the important rules concerning service of court documents originating a proceeding on a defendant. Mr Sgargetta had the option of instructing a process server in the usual way. The cost of a process server is not significant and clearly Mr Sgargetta had the means to engage a process server in December 2023.
[37] It is unfortunate that the Registrar did not inform Mr Sgargetta that personal service was necessary. However, I am not persuaded that Mr Sgargetta would have served the proceeding by personal service within 12 months of filing if the Registrar had responded differently. After allegedly sending the documents by post, Mr Sgargetta sent an email to the Registrar on Friday 3 February 2023, two working days before the 12 months expired. The Registrar replied to Mr Sgargetta on the next working day — Tuesday 7 February 2023 (Monday 6 February 2023 being Waitangi
Day, a statutory holiday in New Zealand). That left one working day for Mr Sgargetta to arrange and effect personal service. Yet when the Court explained to Mr Sgargetta repeatedly throughout 2023 that service by post did not suffice and directed him to personally serve, he resisted. It was not until August 2023 that he accepted the Court’s direction and engaged a process server to personally serve the documents. In these circumstances, I do not accept that the email from the Registrar was as significant as Mr Sgargetta suggests.
[38] Finally, had Mr Sgargetta applied for an order extending the time to serve the proceedings in April 2023 (when the matter first came before the Court), this would not make any difference to the conclusions I have reached above.
[39] For these reasons, I am not satisfied that Mr Sgargetta took reasonable steps to serve Mr Hawkes according to the HCR as soon as practicable and within 12 months.
A good reason?
[40] The circumstances of this case mean that there must be strong reason for the Court to extend the time for service.
[41] The application for extension was made after the statement of claim ceased to be valid on 8 February 2023.
[42] Further, to grant the application and extend the time to file the statement of defence would be to deprive Mr Hawkes of a limitation defence that would otherwise be available to him. Under s 11(1) of the Limitations Act 2010, a defendant has a defence to a money claim if they establish that the date on which the claim is filed is at least six years after the date of the act or omission on which it is based. Mr Sgargetta’s claim against the Receivers relates to their acts from their appointment on 4 February 2016 to the sale of the properties on 22 April 2016. Therefore, the six-year limitation period expired on or around April 2022. Consequently, if the Court does not grant the extension, Mr Sgargetta is out of time to bring a new claim against Mr Hawkes in relation to these events.
[43] The fact that Mr Sgargetta will be deprived of a claim due to the application of a limitation period is not in itself a good reason to grant an extension.20
[44] I note that a strong reason would have been required even if the Court had advised Mr Sgargetta that he needed to apply for an extension of time when the matter first came before the Court in April 2023. Any such application would still have been made after the statement of claim ceased to be valid, and granting the application would still have deprived Mr Hawkes of the ability to rely on a limitation defence that would otherwise apply.
[45] Also weighing against there being a good reason is that the Court of Appeal found, in the appeal of the summary judgment, that there was no merit to Mr Sgargetta’s allegations about the Receivers. The Court said:21
[56] There is also insufficient evidence to support the claim that the receivers’ sales process was hasty or inadequate. The receivers' second report records that there were 12 tenders received for the Remarkables lodge ranging from $550,000 to $1.9 million, eight tenders for the Evergreen lodge ranging from $950,000 to $2 million, and one tender for both properties for a price of
$2.5 million. There is nothing to suggest that the tender process was flawed.
[57] The receivers had to negotiate clean tenders for each property. The actual sales prices achieved were $1.85 million for the Remarkables lodge and
$1.93 million for the Evergreen lodge. Both included chattels. The valuations undertaken by Mr Jarvis in November 2015 for the Remarkables and Evergreen lodges were $1.85 million and $2 million (both including chattels), respectively, and the forced sales values were $1.58 million and $1.78 million (both excluding chattels), respectively. Importantly, the actual sales prices were in the vicinity of the valuations and exceeded the forced sales values.
[58] The sales prices achieved were also very close to the anticipated offers of $2 million for each property, which Mr Lethbridge said were ready to be made on 10 March 2016, and the offer of $2.16 million for the Evergreen lodge received by Ray White in July 2015. That evidence suggests that the prices obtained were true market values for the properties at the time.
[59] Evidence from late 2015 and 2016 is a better comparator than valuations obtained from 2013 and 2014, which were not proximate to the sales date. We also do not consider any weight can be put on emails sent six months after sale in which the price expectations for each property were set at a minimum of $3 million. These emails are not indications of value but are simply reflective of the hopes and expectations of the owners of the lodges at the time. Similarly, the fact that each lodge sold for $2.7 million on
20 Hobday v Selwyn District Council [2024] NZHC 550 at [43]–[45], citing Heaven v Road and Rail Wagons [1965] 2 QB 355, [1965] 2 WLR 1249 at 365.
21 Sgargetta v ASB Bank Ltd, above n 2 (emphasis added).
19 October 2017, nearly 18 months after sale, cannot be compared to the sales achieved by the receivers. The obligation to obtain the best price reasonably obtainable is assessed at the time of sale.
[60] The upshot of all this evidence is that we do not consider there to be a sufficiently tenable defence that ASB’s marketing strategy, prior to the appointment of the receivers, was flawed and led to the properties being sold at an undervalue. Nor is there a reasonably arguable case that the receivers’ sales process was a continuation of the prior process or that ASB (via Bayleys) was so involved with that process so as to be liable for any breach by the receivers. Finally, to the extent that there was any flaw in any of the sales processes, we do not consider there to be a tenable claim that these lead to the properties being sold at an undervaluation.
[46] In the strike-out/summary judgment, I held that Mr Sgargetta was estopped from advancing the third cause of action (against ASB) because of the Court of Appeal’s finding of fact that the secured properties were not sold at an undervalue.22 The same holds true as against the Receivers. Therefore, granting an extension of time is pointless and will only put Mr Hawkes to the time an expense of having to apply to have the claims struck out.
Result
[47] The application for an order extending the time for service of the notice of proceeding and statement of claim on Mr Hawkes is dismissed.
[48] Mr Sgargetta will pay Mr Hawkes his costs, on a 2B basis, for filing the notice of opposition and affidavit and preparing a memorandum of submissions, together with disbursements.
Associate Judge Gardiner
22 Sgargetta v ASB Bank Ltd, above n 3, at [62] and [68].
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