Schmidt v Ebada Property Investments Ltd

[2012] NZCA 452

IN THE COURT OF APPEAL OF NEW ZEALAND

CA794/2011
[2012] NZCA 452

BETWEEN  TAYLOR JADE SCHMIDT
First Applicant

AND  ANTHONY MIKHAL SCHMIDT
Second Applicant

AND  EBADA PROPERTY INVESTMENTS LIMITED
First Respondent

AND  BRIAN PATRICK GARRITY
Second Respondent

AND  NOEL ROBERT HAIR
Third Respondent

Hearing:         11 September 2012

Court:             O'Regan P, White and French JJ

Counsel:         First Applicant in person
Second Applicant in person
I M Razak for First and Second Respondents
N W Woods for Third Respondent

Judgment:      2 October 2012 at 3 pm

JUDGMENT OF THE COURT

AAn extension of time to file the case on appeal from the date on which it was required to be filed until the date on which it was actually filed is granted.

BCosts are reserved.

_______________________________________________________________

REASONS OF THE COURT

(Given by O’Regan P)

Introduction

1. The applicants seek an extension of time to file the case on appeal in relation to their appeal against a decision of the High Court.[1]  The applicants’ notice of appeal was filed on 29 November 2011, so the case on appeal should have been filed by 29 May 2012.  The applicants did seek the allocation of a fixture prior to that date, but did not file the case on appeal until 17 August 2012, about two and a half months after the deadline.  The application is made under r 43(2) of the Court of Appeal (Civil) Rules 2005 (the Rules).  The respondents oppose the application.

High Court judgment

[1]Schmidt v EBADA Property Investments Ltd HC Auckland CIV-2011-404-4752, 25 November 2011.

1. The High Court judgment concerned an application by the applicants for an interim injunction to restrain the third respondent, Mr Hair, who is the registered owner of a property at Bell Road, Mangatawhiri from selling, transferring or disposing of the property.  That application was brought on the basis that the first respondent (Ebada) had fraudulently transferred the property to Mr Hair and that Mr Hair had taken the property with notice of that fraud. 

2. Mr Hair sought summary judgment and also sought to strike out the claim, and his applications were dealt with at the same time as the injunction application.  Heath J found that, even if there had been fraud by Ebada, there was no evidence that Mr Hair was on notice of any such fraud.  He dismissed the applicants’ application for injunction and granted Mr Hair’s application for summary judgment.

Factual background

1. The factual background is complex and, rather than trying to summarise it, we simply set out the High Court Judge’s narrative of the factual basis for the interim injunction application:

   Background facts

   [4]       I base my summary of the facts primarily on the Statement of Claim and Mr and Mrs Schmidt’s joint affidavit in support of their interim injunction application.  I do so because, on applications of the type before the Court, it is necessary to assume that disputed questions of fact will be resolved at trial in favour of the plaintiffs.  My summary should not be taken as indicating any acceptance by Ebada Property Investments Ltd (Ebada), Mr Garrity or Mr Hair of the allegations made against each of them.  Most of the material allegations of fact are in dispute.

   [5]       In 2001, Schmidt Trustee Ltd acquired the Bell Road property.  At that time, Schmidt Trustee Ltd was, on Mr and Mrs Schmidt’s case, trustee of two “Parallel Trusts” called “The TJ Schmidt Trust and The AM Schmidt Trust”.  Subsequently they are said to have been joined into “a combined Partnership Trust” called “The Schmidt Trusts”.

   [6]       In October 2002, the Excel Estate Trust was formed “with four ‘Mirror Beneficiary Trusts’” called The Nature Estate Trust, the Tech Estate Trust, The Schmidt Estate Trust and The Excel Tech Trust.  These are said to have been “joined by a Deed of Declaration (collectively)”, into The Excel Estate Trust.[2]  Mr and Mrs Schmidt assert that from the time of formation of the Excel Estate Trust (in October 2002) Schmidt Trustee Ltd held the Bell Road property on trust for it.

   [2]This aspect of Mr and Mrs Schmidt’s case is more fully explained in Pepper New Zealand (Custodians) Ltd v Schmidt HC Auckland CIV-2011-404-5497, 15 November 2011 at [22]–[24].

   [7]       Mr Garrity formerly practised as a lawyer.  Mr and Mrs Schmidt allege that from July 2004, he provided services as both a lawyer and a trustee for the various trusts to which I have referred.

   [8]       In August 2004, Mr Garrity entered into negotiations on behalf of Schmidt Trustee Ltd with Transit New Zealand.  The object was to obtain compensation for the acquisition of part of the Bell Road land that had been taken under the Public Works Act 1981.

   [9]       Around September 2004, Mr Hair began to graze cattle on the Bell Road property.  A number of contracts were entered into, though there are differences between Mr and Mrs Schmidt and Mr Hair about those that were signed and are enforceable.

   [10]     Ebada was incorporated on 8 November 2005.[3]  Mr Garrity is its sole director and shareholder.  Mr and Mrs Schmidt allege that Mr Garrity formed the company “with the intention of using it to hold property”.  They say it was agreed, at that time, that Ebada would become the trustee of the Excel Estate Trust and that Bell Road, along with properties at 1493 and 1495 Kaiaua Road, Mangatangi, would be transferred into Ebada’s name.  Mr and Mrs Schmidt allege that various agreements were made with Mr Garrity in relation to the payment of the mortgage debt and the costs of sale.

   [3]While Mr and Mrs Schmidt deposed that the date of incorporation was 8 November 2005, the Companies Office Register records Ebada’s incorporation date as 8 December 2005.

   [11]     On 20 December 2005,[4] an agreement to transfer the Kaiaua Road properties into Ebada’s name was allegedly reached.  Ebada took title to the two Kaiaua Road properties on 5 January 2006.

   [4]This date is taken from the Statement of Claim.  The Schmidts’ joint affidavit refers to a date of 20 November 2005.

   [12]     On 17 January 2006, Mr Garrity completed negotiations with Transit New Zealand about the Bell Road property.  Transit New Zealand agreed to pay an interim settlement sum.  Mr and Mrs Schmidt allege that a further payment of $23,594.61 was made to Mr Garrity’s personal account.  They allege that, at Mr Garrity’s direction, $212,351.44 was paid off the mortgage on the Bell Road land but that Mr Garrity (without authority from them) retained the $23,594.61 for his own purposes.

   [13]     Schmidt Trustee Ltd transferred the Bell Road property to Ebada on 20 November 2006.  Mr and Mrs Schmidt were not directors of Schmidt Trustee Ltd at that time.  Nor was Mr Garrity.  At the time of its acquisition by Ebada, Mr and Mrs Schmidt claim that the Bell Road property had a registered valuation of $740,000.  Mr Garrity is alleged to have instructed lawyers to act for both Schmidt Trustee Ltd and Ebada in relation to the transfer of the Bell Road property, as part of a concerted attempt to deprive the Schmidts of their rightful interest in the land.

   [14]     In their own words, Mr and Mrs Schmidt say:[5]

   [5]The Judge reassembled these paragraphs from the Statement of Claim, “to make the narrative more comprehensible.”

   (a)Ebada acquired finance in the amount of $200,749.19 from Westpac Bank.  ‘Bell Road’ had a registered valuation of $740,000.00 at the time of transfer.  There was around $618,504.18 in equity in ‘Bell Road’ ($740,000.00 less the Mortgage of $121,495.82) when it was transferred from [Schmidt Trustee Ltd] (for [Excel Estate Trust]) to Ebada (for Excel Estate Trust]).

   (b)The funds of $200,749.19 were transferred from Ebada (for [Excel Estate Trust]) to lawyers acting for [Schmidt Trustee Ltd] (for [Excel Estate Trust]), who were then, as instructed by Mr Garrity;

   (i)To pay $121,495.82 to discharge [Schmidt Trustee Ltd’s] Mortgage with The ANZ Bank; and

   (ii)To pay $74,324.47 to [Excel Estate Trust’s] Bank Account.  This was the residual amount once all the legal fees and associated costs for [Excel Estate Trust] were paid; and

   (c)Mr Garrity accessed [Excel Estate Trust’s] bank account, and made 2 transfers to his Bank Account for $4,416.00 and $70,000 on 27 November 2006.

   (d)It was also agreed between [Excel Estate Trust], Ebada and Mr Garrity;

   (i)To pay $20,000.00 to Mr Garrity and Ebada as compensation for their Lawyer/Trustee duties.  This was paid out of the $74,324.47 held for [Excel Estate Trust]; and

   (ii)That [Excel Estate Trust] pay all the outgoing costs for ‘Bell Road’ (such as Rates, and Insurance), while Ebada held ‘Bell Road’ in Trust for [Excel Estate Trust].

   (e)Mr Garrity and Ebada did not fully account to [Excel Estate Trust] for these funds of $74,324.47.  A partial account was given, but no full record.  Mr Garrity advised on 27 February 2007 that he had taken $35,000.00 of these funds to contribute to his $50,000.00 divorce commitment, despite advising in May 2006 that he was to draw these funds off ‘Kaiaua Road’, and indeed did.

   [15]     Mr Hair purchased the Bell Road property from Ebada in December 2008 for $700,000.  He took title to it on 13 January 2009.  A few days later, on 21 January 2009, Schmidt Trustee Ltd was struck off the register of companies.  No application for restoration has been made.

   [16]     Mr and Mrs Schmidt say that Mr Hair acquired the property with knowledge of the frauds committed by Ebada and Mr Garrity.  The injunction is sought to preserve their interests while Mr and Mrs Schmidt pursue a substantive claim to impeach Mr Hair’s otherwise indefeasible title to the land.[6]

Relevant criteria

[6]      Land Transfer Act 1952, ss 62, 63, and 182.  See also Frazer v Walker [1967] NZLR 1069 (PC).

1. In their submissions, all parties said the factors relevant to a decision as to extension of time are those set out in My Noodle Ltd v Queenstown Lakes District Council: the reasons for the delay, the length of the delay, the conduct of the parties and the extent of any prejudice caused by the delay, with the ultimate question being whether granting an extension would meet the interests of justice.[7]  However, those criteria relate to applications for an extension of time to commence an appeal under r 29 of the Rules, rather than applications to extend the time for the filing of the case on appeal under r 43(2).  Cases relating to applications under r 43 are not the same. 

   [7]      My Noodle Ltd v Queenstown Lakes District Council [2009] NZCA 224, (2009) 19 PRNZ 518.

2. The leading authority on the predecessor to r 43 (r 10 of the Court of Appeal (Civil) Rules 1997), Airwork (NZ) Ltd v Vertical Flight Management Ltd emphasises the philosophy behind the rule as follows:[8]

   The new rule implements the philosophy that once a matter has been the subject of a determination in the High Court any party wishing to challenge that determination by an appeal to the Court must do so expeditiously or forfeit the right to pursue the appeal.  It is thus required of appellants that they should have the case on appeal prepared and lodged within six months of the filing of the appeal and an application for a fixture made to the Registrar of this Court within the same period. 

   Recognising, however, that sometimes there may be good reason to give an appellant a longer period to prepare for the hearing of the appeal, the Court is empowered to extend the period on one or more occasions provided that the appellant continues to be willing to pursue the appeal speedily and demonstrates that willingness by applying to the Court within the time allowed for an extension.  The appellant in so doing brings the further progress of the appeal within the control of the Court.

   [8]      Airwork (NZ) Ltd v Vertical Flight Management Ltd [1999] 1 NZLR 29 (CA) at 30.

3. Having failed to meet the six month deadline, however, the intended appellant faces an appeal that is treated as abandoned, unless the Court intervenes.  The position under the current rule was summarised as follows in Harris v Davies:[9]

   Once an appellant has allowed r 43 to be triggered, he or she is then in a position where, instead of being able to appeal as of right, he or she “requires the exercise by this Court of a positive discretion”: Russell v Commissioner of Inland Revenue (2006) 22 NZTC 19,807 at [10] (CA).  Before exercising that discretion, this Court is always interested in the reason why the appeal has not been prosecuted diligently.  Another relevant factor, as stated in Russell, is “whether the proposed appeal is genuinely arguable”.  Appeals as of right can be brought regardless of merits, but once an appellant needs leave to continue, this court will generally grant such leave only if the appeal seems meritorious.

Length of delay

[9]      Harris v Davies [2007] NZCA 358 at [8].

1. The length of the delay was two and a half months.  That is reasonably significant in itself, but in addition to that the requirement to obtain an extension of time has further delayed the hearing of the appeal and put the respondents to the cost and inconvenience of having to appear at the hearing of the present application.

Reason for delay

1. The reason given for the delay is the fact that the applicants have made a number of unsuccessful attempts to obtain legal representation on legal aid, but for various reasons none of these attempts has succeeded.  They had intended that the lawyer ultimately engaged to act for them would deal with the case on appeal.

2. The applicants, both under the name of “Schmidt” and under other various names that they have used (as noted in the intituling of the High Court judgment) have conducted a number of proceedings as litigants in person, including a successful appeal in this Court in August 2010.  They represented themselves in the High Court in the present case and also in relation to aspects of their dispute with Mr Hair over their tenancy of the Bell Road property. 

3. The Court allows some latitude for litigants in person where that is required in the interests of justice.[10]  But in the present case, the applicants were sufficiently aware of the requirements of this Court that they filed their application within time and that the matter be set down for hearing and sought an extension of time to file a case on appeal.  The case on appeal that was ultimately filed was prepared by them.  Given their familiarity with court processes and experience of conducting court proceedings in person and the obvious difficulties they were having in obtaining legal representation on legal aid, we do not consider that the reason given for the delay in filing the case on appeal is convincing.

Prejudice

[10]      Rabson v Gallagher [2011] NZCA 204 at [9].

1. The respondents, particularly Mr Hair, refer to the considerable inconvenience to them arising from the protracted proceedings relating to the Bell Road property.  These have included proceedings relating to the termination of the tenancy of the applicants, caveat proceedings and, now, additional proceedings in the High Court seeking damages.  Mr Hair argued that these last mentioned proceedings are duplicitous, a matter denied by Mr Schmidt.  We note that those proceedings against Mr Hair were struck out on 20 September 2012 for the reason that they were “a virtual copy of the earlier proceeding”.[11]

   [11]      Schmidt v Ebada Property Investments Ltd [2012] NZHC 2437 at [69].

2. While we accept that there have been a raft of different proceedings relating to the Bell Road property, the enquiry on which we are required to embark in the present context is the prejudice caused by the delay in filing the case on appeal, not the prejudice in there being an appeal at all.  When pressed on that issue, counsel for Mr Hair, Mr Woods, accepted that the additional prejudice caused by this delay was not of great moment. 

Merits

1. The respondents argue that the proposed appeal is meritless, and involves a repetition of the arguments relating to fraud in terms of s 182 of the Land Transfer Act 1952 that did not find favour with the High Court Judge in the decision to which the proposed appeal relates or with Associate Judge Bell in associated caveat proceedings.[12]  They pointed out that, given the nature of the proceedings, Heath J made an assumption that the applicants would be able to prove fraud against Ebada and its principal, Mr Garrity, which was a very favourable assumption to the applicants.  Even so, the applicants failed to establish any proper basis for imputing knowledge of any fraud to Mr Hair.

   [12]      Schmidt v Hair HC Auckland CIV-2010-404-7389, 14 March 2011.

2. The applicants seek to argue for a broader interpretation of s 182 than that which they say Heath J applied in this case.  They say that if this broader test were adopted, then this Court would find that there was not a sufficiently cogent case for summary judgment to be entered in favour of the respondents, given the relatively restrictive test for defendant summary judgment set out in this Court’s decision in Westpac Banking Corp v M M Kembla NZ Ltd.[13]

   [13]      Westpac Banking Corp v M M Kembla NZ Ltd [2001] 2 NZLR 298 (CA) at [62]–[63].

3. It is difficult to assess the merits of the proposed appeal on our limited consideration of the information before us.  The most we can say is that the merits appear to be weak, but we cannot say that the appeal is hopeless. 

Disentitling behaviour?

1. In Scenic Developments Ltd v Kelmarna Properties Ltd this Court pointed out that an application for an extension of time to file the case on appeal seeks an indulgence from the Court, which should not be provided to a party whose conduct disentitles them to an indulgence.[14]  In Erwood v Maxted, this Court refused to grant an extension of time in circumstances where the applicant’s conduct of the litigation had led to delay and prejudice and the failure to file the case on appeal and seek a fixture had compounded that delay.[15]  In that case, the reason for the delay was similar to that in the present case, namely difficulties in obtaining legal counsel on legal aid.  In the present case Mr Woods on behalf of Mr Hair strongly argued that the conduct of the applicant was disentitling.  He pointed out the fact that they had not paid costs awarded against them in a number of proceedings and had commenced multiple proceedings in which they had been unsuccessful (including the duplicitous proceedings in the High Court that have now been struck out).  He said that Mr Hair had been put to considerable cost and had been subject to an ongoing abuse of process. 

Our analysis

[14]      Scenic Developments Ltd v Kelmarna Properties Ltd (2004) 17 PRNZ 489 (CA) at [29].

[15]      Erwood v Maxted [2007] NZCA 161.

1. We see this case as finely balanced.  The merits of the appeal seem weak but we cannot say on the basis of our limited evaluation of the substantive issues that the appeal is hopeless.  The additional prejudice arising from the two and a half months delay in pursuing the appeal is not significant.  The reason for the delay is unconvincing, given the applicants’ ability to prepare the case on appeal themselves and the time in which they could have easily done so.  We are conscious that the issues have been dealt with in a summary judgment context and the applicants have clearly wanted to pursue an appeal against the decision, pursuant to the right of appeal available to them.  Their failure to meet the deadline in the Rules for filing the case on appeal is regrettable.  However, we acknowledge they are lay litigants, albeit experienced lay litigants, and we see denying them an extension of time as disproportionate to the delay their lack of action in relation to the case on appeal has caused.  Although we accept that their relentless pursuit of litigation relating to the Bell Road property has caused considerable cost and inconvenience to the respondents, we do not regard the applicants’ conduct as of sufficient gravity to disentitle them to an extension of time.

1. We therefore grant an extension of time for the filing of the case on appeal from the date on which it was required to be filed to the date on which this was actually done.  We do so on condition that the applicants comply with any case management directions made by the Court or any Judge of the Court.  We ask the Registrar to allocate a hearing date in consultation with the applicants and counsel for the respondents and, when this has been done, convene a telephone conference before Justice White so that a timetable can be set for the various steps required to bring the matter to a hearing including the payment of relevant fees and security for costs for which the applicants may be liable, which will depend on the outcome of their attempt to obtain legally aided representation.  The applicants are put on notice that the Court will not allow their ongoing attempts to obtain legal aid to cause further delays and they must be prepared to conduct their appeals in person if they do not obtain legal aid in the near future.

Costs

1. The applicants have succeeded but they should not have had to seek this indulgence from the Court.  They are not entitled to costs as lay litigants in any event.  The respondents have not succeeded but it was reasonable for them to oppose an extension of time.  In the circumstances, we reserve costs on this application and any party may ask the panel that hears the appeal to take into account this application when setting costs in relation to the substantive appeal.
   
   

Solicitors:
Smith & Partners, Auckland for First and Second Respondents
Rice Craig, Auckland for Third Respondent