Secure Financial Services Limited v Nguy
[2018] NZHC 142
•14 February 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2015-404-001534 [2018] NZHC 142
BETWEEN SECURE FINANCIAL SERVICES
LIMITED Plaintiff
AND
JESSE SEANG TY NGUY First Defendant
MARLI INVESTMENTS LIMITED Second Defendant
Hearing: 14 November 2017 Appearances:
N Taefi for the Plaintiff
P J Napier for the First Defendant
No appearance for the Second DefendantJudgment:
14 February 2018
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me on 14 February 2018 at 4.00pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors: Bruce Dell Law, Auckland
Keegan Alexander, Auckland
Counsel: N Taefi, Auckland
SECURE FINANCIAL SERVICES LIMITED v NGUY [2018] NZHC 142 [14 February 2018]
Introduction
[1] This decision requires adjudication of competing applications relating to discovery in a proceeding concerning the sale of an apartment, Unit 3A4, in a residential apartment block at 160 Grafton Road, Auckland.
[2] The sale of Unit 3A4 took place in November 2011. The substantive proceeding was filed in July 2015. The trial is set down for a four day hearing commencing 5 June 2018.
[3] The First Defendant, Jesse Nguy, seeks an order for further discovery by the Plaintiff, Secure Financial Services Ltd (Secure), of any material, including Secure’s solicitor’s files, relating to the sale by Secure of two other units in 160 Grafton Road, Units 3A5 and 3A6, a month later than the sale of Unit 3A4.
[4] Secure seeks an Unless Order directing Mr Nguy be debarred from defending the substantive proceeding unless, within 21 days of the Court’s order, Mr Nguy complies fully with an order for further discovery made by Fogarty J on 4 July 2017.
Background
[5] Secure held a registered second mortgage over Unit 3A4 in the Grafton Road apartment block securing a loan it had made to Progression Developments Ltd (Progression) for the purchase of Unit 3A4. The Second Defendant, Marli Investments Ltd (Marli), held the registered first mortgage over the unit securing its own loan to Progression.
[6] In November 2011, Marli sold its first mortgage to Pleasant Forest Trust Company (Pleasant Forest) which on-sold Unit 3A4 by way of mortgagee sale to the trustees of the Grafton Road Trust. The sale took place without notice to Secure. Pleasant Forest has since been put into liquidation.
[7] Secure alleges the price originally agreed for the sale of Unit 3A4 was approximately $540,000 but the transfer was effected for approximately $248,000, and it says the sale for the lesser amount rendered Secure’s second mortgage valueless.
Secure alleges that these transactions were part of a scheme orchestrated by Stephen Kelly, the developer of the Grafton Road apartment block, who, Secure alleges, had effective control over Progression, Pleasant Forest and the trustees of the Grafton Road Trust.
[8] Mr Nguy was the solicitor for Pleasant Forest in its acquisition of the first mortgage over Unit 3A4 and in the sale of the unit. Secure alleges Mr Nguy also acted for and was a close business associate of Mr Kelly in various other business dealings. Secure says the nature of Mr Nguy’s relationship with Mr Kelly is relevant to the alleged scheme regarding the sale of Unit 3A4.
[9] In July 2015, Secure brought proceedings against Mr Nguy. It subsequently joined Marli as a Second Defendant.
[10] In its Second Amended Statement of Claim dated 8 April 2017, Secure’s claims against Mr Nguy are for:
(a) Negligence in discharging his duties under the Property Law Act 2007 (PLA);
(b)Conspiracy with Pleasant Forest to deprive Secure of its rights under the second mortgage;
(c) Dishonest assistance of Pleasant Forest in breaching duties owed to
Secure under the PLA;
(d)Being a joint tortfeasor with Pleasant Forest and Mr Kelly in breaching duties to Secure owed by Pleasant Forest.
[11] The proceeding has made fitful progress towards a hearing which had initially been set down for 20 February 2017. That hearing was vacated by Heath J on
13 February 2017 on the application of Mr Nguy on the grounds Secure had failed to comply with timetable orders for the service of statements of evidence. On 10 April
2017 Venning J gave judgment in favour of Mr Nguy in an application for wasted costs incurred in preparation for the vacated fixture.
[12] On 8 May 2017, Secure filed an application for further discovery. The application sought:
(a) Documents relating to Unit 3A4 and two adjacent units, 3A3 and 3B1, of 160 Grafton Road, including documents relating to the actual or intended purpose, sale and transfer of the units from one entity to another.
(b)Documents relating to the purchase by Mr Nguy of certain properties on Boiler Gully Road, Awhitu from Pleasant Forest, including the financing of those purchases.
(c) Documents recording communications between Mr Kelly (and his employees or agents) and Mr Nguy (and his employees or agents) between 1 January 2011 and 31 December 2012.
(d) Trust deeds of:
(i) The Pleasant Forest Trust; (ii) The Schwarz Wald Trust; (iii) The 915 Trust.
(e) Any other documents relevant to the issues raised between the parties.
[13] On 29 June 2017 Fogarty J heard Secure’s application for further discovery. In his judgment of 4 July 2017, Fogarty J observed the difficult position Mr Nguy was in if he had knowingly participated in breaches of duties owed under the s 121 PLA and said:
[18] … I can appreciate that there are some legal issues which cast some doubt as to the extent of Mr Nguy’s potential liability and that makes relevant the extent to which he knew of and participated in the purposes and conduct of the related parties being corporate entities owned of controlled by
Mr Stephen Kelly, such as Pleasant Forest.
[19] Whether or not he is liable in common law negligence as distinct from being party to a breach of s 121 [of the PLA], is an issue which does not appear to me to be covered clearly by authority. But again, it is reasonably arguable and likewise justifies wide discovery by Mr Nguy of his relationships with Mr Kelly and Mr Kelly’s companies.
[20] The application for further discovery relates to discovery of documents relating to neighbouring units 3A3 and 3B1 (the unit that was transferred and which is the centre of the litigation is 3A4). The relevance alleged is that Mr Nguy was involved in the purchase of these three properties.
…
[22] This is a three-fold complaint: 1) that these are highly relevant documents directly relating to the transactions; 2) no good reasons for why these documents are not on the record; and 3) that there has been a narrow construction of what is relevant.
[14] Accordingly, Fogarty J ordered further discovery by Mr Nguy within 21 days on the terms sought by Secure. In the event, Mr Nguy filed his further affidavit of discovery on 4 October 2017, three months after Fogarty J’s judgment.
[15] On 5 September 2017, Mr Nguy filed his own application for further discovery seeking:
(a) Any material, including Secure’s solicitor’s files, relating to the sale by
Secure of two other units in 160 Grafton Road: Units 3A5 and 3A6;
(b) Marli’s files, or copies thereof, relating to the sale of Unit 3A4.
[16] On 11 October 2017, Secure applied for an Unless Order directing that
Mr Nguy be debarred from defending the proceeding unless, within 21 days of the order, Mr Nguy complied fully with Fogarty J’s order for further discovery made on
4 July 2017.
[17] I heard Mr Nguy’s application for further discovery and Secure’s application for an Unless Order together on 14 November 2017. Counsel for Marli did not appear. The arguments related only to Secure and Mr Nguy.
Mr Nguy’s application for further discovery
[18] Mr Napier for Mr Nguy said that Secure had provided discovery of the documents in the second category of documents sought in the application relating to the sale of Unit 3A4. The remaining substantive question is the request for discovery of documents relating to Secure’s sale of Units 3A5 and 3A6. The only documents in contention are Secure’s solicitor’s conveyancing files relating to that sale.
[19] Mr Napier said the information regarding the sale of Units 3A5 and 3A6 was relevant to the market value of Unit 3A4, the Unit said by Secure to have been sold at an undervalue. He said Mr Kelly would be giving evidence at the substantive trial to say the best price reasonably obtainable for Unit 3A4 had in fact been obtained. The market value of Unit 3A4 would be relevant to whether or not Mr Kelly’s evidence should be accepted.
[20] Mr Napier referred to an affidavit sworn on 16 August 2017 by John Alexander
Churton, a registered valuer, who had been instructed to give a market value for Unit
3A4 as at November 2011. In his affidavit, Mr Churton said the sales of Units 3A5 and 3A6, which took place in December 2011, would be relevant to his assessment of the market value of Unit 3A4 in November 2011. Mr Churton said he would like to see the conveyancing files for Units 3A5 and 3A6, which he understood to be comparative if not superior to Unit 3A4, to understand why Units 3A5 and 3A6 were sold for $25,000 each.
[21] In its Notice of Opposition dated 25 September 2017 and through the submissions of Ms Taefi, Secure said the conveyancing files for Units 3A5 and 3A6 were not relevant to the matters at issue in its claims against Mr Nguy. In an affidavit sworn on 18 October 2017, Michael Leith Thomson, a director of Secure, said Secure’s counsel had inspected the one conveyancing file relating to the sale of Units 3A5 and
3A6 and that:
… it was found that the file contained nothing that was discoverable to
Mr Nguy. It is simply a conveyancing file relating to conveyancing matters.
[22] In his affidavit, Mr Thomson also stated that Secure had obtained the real estate file from Barfoot & Thompson for the sale of Units 3A5 and 3A6. He annexed that
file to his affidavit, while stating that producing this was without prejudice to Secure’s position that the documents are not relevant to Mr Nguy’s liability.
Discussion
[23] Mr Nguy’s application is governed by Rule 8.19 of the High Court Rules which provides that the Court may make an order for particular discovery after a proceeding has commenced where:
… it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered …
[24] As stated by Kós J in Robert & Ors v Foxton Equities Ltd:1
The following general principles may be taken from decisions of this Court in ANZ National Bank Ltd v Tower Insurance Ltd and Southland Building Society v Barlow Justice Ltd:
(a) A document will be discovered if it is relevant to matters which will actually be in issue before the Court.
(b) Relevance is determined by the pleadings.
(c) On an application for particular discovery under r 8.19, there must be prima facie evidence that the document exists and is in the party’s control (although the applicant need not prove that the document actually exists).
(d) The applicant need no longer establish “necessity” for an order (in contrast to former r 300). However, the supposed regulatory relaxation may not be substantial: the order will still only be made in relation to documents that should have been discovered.
(e) The Court retains an overriding discretion as to whether to make an order.
[25] In terms of the above principles, Mr Thomson’s affidavit confirms the conveyancing file exists and is in Secure’s control. The only issue is the relevance of the conveyancing file for Units 3A5 and 3A6 to Secure’s claims against Mr Nguy over the sale of Unit 3A4.
[26] Ms Taefi said, in effect, that market value was not relevant to the issues raised in the pleadings. She pointed to paragraph 18(b) of Secure’s Second Amended Statement of Claim dated 8 April 2017 where Secure alleges:
By instructing Mr Nguy to accept that the amount agreed in its agreement for sale and purchase with the trustees, Pleasant Forest breached its duty to take reasonable care to obtain the best price reasonably obtainable at the time of sale, under s 176 PLA.
[27] Ms Taefi said the issue under paragraph 18(b) is whether Pleasant Forest breached its duty “to take reasonable care” to obtain the best obtainable price for Unit
3A4 and whether Mr Nguy (as solicitor for Pleasant Forest) knew or ought reasonably to have suspected that there had been a breach of those duties. Ms Taefi said Secure’s case was that Pleasant Forest did not take reasonable care because it did not insist on its agreement to sell Unit 3A4 for $540,000 but instead sold it for approximately
$248,000. She said the best obtainable price was $540,000, the price at which Pleasant Forest had a legally enforceable contract to sell the Unit. Accordingly, documents relating to the sale of other units were not relevant to this issue.
[28] Without wishing to enter into the substantive issues between the parties, for the purposes of this application I cannot accept that submission. Section 176 of the PLA2 places a duty on a mortgagor exercising a power of sale to obtain the best price reasonably obtainable at the time of sale. That is to be determined objectively. In normal circumstances, that entails consideration of the market value of the property. Consideration of the market in turn entails consideration of other sales of like or similar units, particularly those sold in the same development at much the same time,
even if there may be reasons why those units were sold at a substantially lower price.
2 Section 176(1) of the Property Law Act 2007 provides:
A mortgagee who exercises a power to sell mortgaged property, including the exercise of the power through the Registrar under section 187, or through a court under section 200, owes a duty of reasonable care to the following persons to obtain the best price reasonably obtainable at the time of sale:
(a) the current mortgagor: (b) any former mortgagor: (c) any covenantor:
(d) any mortgagee under a subsequent mortgage:
(e) any holder of any other subsequent encumbrance.
[29] Market value is largely a question of price and, as Ms Taefi observed, the information on the price obtained for the sale of Units 3A5 and 3A6 is already available to Mr Nguy. Even so, just because Mr Nguy may have information relevant to a point at issue does not mean he is not entitled to discovery of other documents that relate to that issue. To paraphrase a sentence from the decision of Kós J in Robert
& Ors v Foxton Equities Ltd,3 such additional contextual material that is on the file
(and not subject to privilege) may strengthen or weaken the forensic point about the state of the market.
[30] These factors persuade me Mr Nguy’s application for further discovery should be granted.
Secure’s application for an Unless Order
[31] Secure asserts, in its application dated 22 October 2017, and in an accompanying memorandum of the same date by Ms Grant as counsel, that in his affidavit of documents, sworn on 3 October 2017, Mr Nguy failed to comply adequately with Fogarty J’s order of 4 July 2017. In particular, the application asserts that in his affidavit Mr Nguy failed:
(a) To list documents relating to Mr Nguy’s purchase of the Boiler Gully
Road properties;
(b) To list documents recording all communications between Mr Nguy and
Mr Kelly; and
(c) To explain adequately why those documents had not been provided or listed.
[32] In its application, Secure also asserts that Mr Nguy failed to make reasonable enquiries for documents held by:
(a) Mr Nguy’s former counsel, Sam Carey, relevant to Mr Nguy’s purchase of the Boiler Gully Road properties;
(b)Mr Nguy’s former counsel, Matt Taylor, who had acted for Mr Nguy in relation to personal guarantees Mr Nguy had given regarding the purchase of the Boiler Gully Road properties;
(c) Mr Nguy’s former counsel, Hugh Leabourn, who had acted for
Mr Nguy in relation to proceedings brought by the Auckland Council against Mr Nguy and Mr Kelly under the Resource Management Act
1991 relating to the Boiler Gully Road properties;
(d) Mr Kelly;
(e) Timothy Fleming, the former receiver of Pleasant Forest;
(f) The Auckland High Court in relation to two proceedings relevant to the purchase of the properties to which Mr Nguy was a party;
(g) The Environment Court in a proceeding involving Mr Kelly to which
Mr Nguy was a party;
(h) The District Court in a matter relevant to Mr Nguy’s relationship with
Mr Kelly and to which Mr Nguy was a party.
[33] Ms Grant in her memorandum and Ms Taefi in oral submissions put particular emphasis on Mr Nguy’s failure to explain why Mr Nguy does not have any documents recording communications between himself and Mr Kelly, despite the evidence that their business and personal relationship goes back to 2010. Ms Grant in her memorandum asserts that it was reasonable to expect that Mr Nguy would comply with his obligations to retain copies of relevant correspondence with a client and that it was not credible that Mr Nguy does not have any documents that relate to his long- standing personal relationship with Mr Kelly for a full two-year period.
[34] In his Notice of Opposition to Secure’s application, dated 27 October 2017,
Mr Nguy asserted that his affidavit of documents was compliant with Fogarty J’s order because:
(a) It listed all relevant documents in his control relating to the purchase of the Boiler Gully Road properties and that the original files were in the control and possession of Mr Kelly who declined to provide the files for discovery;
(b)It recorded there were no relevant communications with Mr Kelly outside Mr Nguy’s files;
(c) These matters were adequately explained in the affidavit.
[35] In his Notice of Opposition Mr Nguy also stated he was not aware that closed court files and barristers’ files were sought by Secure because they had not been listed in the Schedule to Secure’s application for further discovery. However, in the Notice he summarised the steps being taken to obtain the barristers’ files and court files. He also said Secure had discovered Mr Fleming’s files which were in the control of Secure. With regard to Mr Kelly, Mr Nguy said in the Notice of Opposition:
Mr Kelly has declined to provide the original files for discovery and he can compel him to do so.
[36] In an affidavit sworn on 27 October 2017, Lucas Clooney, a solicitor at Keegan Alexander, solicitors for Mr Nguy, set out the steps he had taken to obtain the barristers’ files and court files identified in Secure’s application. In his submissions,
Mr Napier said that with one exception, all the barristers’ files and court files had been obtained and were available for informal inspection at Keegan Alexander’s offices. The exception was the District Court file which had either been lost or destroyed. Mr Napier said the volume of documents involved was very large and he proposed that the files either be inspected as is or bulk listed.
[37] In an affidavit sworn on 13 November 2017, Mr Nguy stated he had done his best to obtain documents relating to the purchase of the Boiler Gully Road properties but that Mr Kelly had uplifted them and would not provide Mr Nguy with them or
with a copy of them. Attached to the affidavit was an email exchange between
Mr Clooney and Mr Kelly in which Mr Kelly stated he would not be giving up the information in his possession.
[38] Mr Napier said that Mr Nguy had complied with Fogarty J’s order as far as he was able and could not provide documents he did not have. He said there was no need for an Unless Order. Ms Taefi, however, maintained that an Unless Order was Secure’s first preference. She also said that at a minimum, Mr Nguy should be required to provide an affidavit explaining his business relationship with Mr Kelly. Ms Taefi also asked that Mr Nguy provide formal discovery of the barristers’ files and court files.
Discussion
[39] Given the responses by Mr Nguy to Secure’s application for an Unless Order, the only substantive question in contention is whether Mr Nguy may have other documents in his possession or control about his relationship with Mr Kelly in the period 1 January 2011 and 31 December 2012 – the period specified in Fogarty J’s order. Mr Nguy said he does not. In his affidavit of 3 October 2017, Mr Nguy swore on oath that Mr Kelly had uplifted the files relating to the Boiler Gully Road properties and that he, Mr Nguy, had not been able to locate any further files which recorded conversations between himself and Mr Kelly or their respective offices and employees.
[40] I understand Secure’s reluctance to accept that no such documents exist. However, when I pressed Mr Napier on the point, he said those were his instructions and he could take the matter no further. Neither can this Court. As Ms Grant said in her memorandum of 22 October 2017, as a lawyer, Mr Nguy has a duty of absolute honesty to the Court and must not mislead or deceive the Court.4 In the absence of evidence providing an adequate basis for doubting the veracity of the affidavit, I must accept Mr Nguy’s affidavit as conclusive.
[41] There is no basis, therefore for the court to issue an Unless Order as sought by Secure. As stated by the Court of Appeal in SM v LFDB5 when setting out the principles that apply to unless orders, an Unless Order is an order of last resort and is properly made only where there is a history of failure to comply with earlier orders. While Mr Nguy was slow in complying with Fogarty J’s discovery order of 4 July
2017, he did comply according to his affidavit, with respect to communications between himself and Mr Kelly. He also complied with regard to the barristers’ files and court files, albeit late and without necessarily accepting that these files were covered by Fogarty J’s order.
[42] As noted above, Ms Taefi said that even if an Unless Order was not made,
Mr Nguy should be required to provide an explanation of his relationship with
Mr Kelly. That is not a matter for an application for discovery. If Secure wishes to issue interrogatories ahead of trial or to cross examine Mr Nguy at the trial, those are outside the scope of the applications before me.
[43] There remains the issue of whether formal discovery should be required for the barristers’ files and court files. This matter should be capable of resolution between counsel without further intervention from the Court. Some pragmatism could be exercised with respect to documents that have arisen in quite separate contexts and which are unlikely to bear heavily on the key points of contention regarding the sale of Unit 3A4 at 160 Grafton Road. If it cannot be resolved between counsel, it will have to be the subject of a further application.
Result
[44] Mr Nguy’s application for further discovery of documents is granted in the following terms:
(a) The Plaintiff shall file and serve within 21 days of this judgment a
Supplementary Affidavit of Documents:
(i)Including a schedule which lists documents that are in the possession or control of the Plaintiff which constitute any material, including the Plaintiff’s solicitor’s files, relating to the sales of Units 3A5 and 3A6, 160 Grafton Road, Auckland, by the Plaintiff;
(ii)If the documents are not in the possession of the Plaintiff, stating that to be the case and advising what steps have been taken to verify that the documents are not in the possession or control of the Plaintiff;
(iii)If the documents do exist but are no longer in the possession or control of the Plaintiff, stating when this occurred and what became of them;
(b)The Plaintiff make the documents (to the extent they are in its possession or control) available for inspection by the First Defendant.
[45] Secure’s application for an Unless Order is dismissed.
[46] Mr Nguy is entitled to costs on both applications on a 2B basis. If the parties cannot agree costs, Mr Nguy may apply by memorandum of no more than four pages filed and served not later than 13 March 2018. Secure shall have until 3 April 2018 to
file and serve any memorandum in reply of no more than four pages.
van Bohemen J
0
0
1