Simpson v Hubbard

[2012] NZHC 3603

ORDERS FOR SUPPRESSION UNTIL FURTHER ORDER OF THE COURT OF ALL INFORMATION RELATING TO THE PERSONAL FINANCIAL SITUATION OF MRS HUBBARD OR THE HUBBARD ESTATE

IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY

CIV-2012-476-000144 [2012] NZHC 3603

IN THE MATTER OF     THE CORPORATIONS (INVESTIGATION & MANAGEMENT) ACT 1989

AND IN THE MATTER OF AN APPLICATION BROUGHT BY RICHARD GRANT SIMPSON, TREVOR FRANCIS THORNTON AND GRAEME CARSON MCGLINN AS STATUTORY MANAGERS OF AORANGI

SECURITIES LIMITED (IN STATUTORY MANAGEMENT) (A DULY INCORPORATED COMPANY)

Applicants

ANDMARGARET JANE HUBBARD (RELEASED FROM STATUTORY MANAGEMENT) AS EXECUTRIX AND TRUSTEE OF THE ESTATE OF THE LATE ALLAN JAMES HUBBARD

First Respondent

ANDMARGARET JANE HUBBARD Second Respondent

ANDMARGARET JANE HUBBARD (RELEASED FROM STATUTORY MANAGEMENT) AS EXECUTRIX AND TRUSTEE IN THE ESTATE OF THE LATE ALLAN JAMES HUBBARD

AND AS TRUSTEE OF THE TE TUA CHARITABLE TRUST (IN STATUTORY MANAGEMENT)

Third Respondent

ANDANDREW JAMES MORRIS AND EDGAR GEORGE BRADLEY TRUSTEES OF THE TEMPLE BAR TRUST (IN STATUTORY

SIMPSON V HUBBARD HC TIM CIV-2012-476-000144 [21 December 2012]

MANAGEMENT) Fourth Respondent

ANDFORRESTERS NOMINEE COMPANY LIMITED (IN STATUTORY MANAGEMENT) (A DULY INCORPORATED COMPANY)

Fifth Respondent

Hearing:         Dealt with on the papers

Judgment:      21 December 2012

JUDGMENT OF CHISHOLM J

[1]      Although  I  delivered  an  oral  judgment  concerning  various  matters  on

7 November 2012,[1] it was not possible to resolve all the matters that were before the Court at that time.  Subsequently I held a telephone conference with counsel for the statutory managers and Mrs Hubbard[2]  about the outstanding matters and further information has been provided.

[1] Simpson v Hubbard HC Timaru CIV-2012-476-000144, 7 November 2012.

[2] On 7 December 2012.

[2]     This judgment resolves the outstanding pre-trial matters concerning this proceeding.  The substantive hearing is scheduled to commence on 20 May 2013 and a week has been allocated.

Disbursements

[3]      In the oral judgment I made an order requiring the statutory managers to pay

Mrs Hubbard’s costs on the adjournment application of $30,000 and a further sum of

$7500 for wasted costs.  Unfortunately I overlooked the issue of disbursements.  It was my intention to award disbursements in addition to the other orders.

[4]      There  will  be  an  order  for  the  statutory managers  to  pay disbursements amounting to $9117.47.

Admissibility of documents

[5]      Since the oral judgment was delivered counsel for the statutory managers and counsel for Mrs Hubbard have reached agreement on a number of admissibility issues that directly concern those parties.  No similar issues have been raised by any other people involved in this litigation.

[6]      The agreement between the statutory managers and Mrs Hubbard is referred to in paragraphs 4 – 9 of the joint memorandum dated 26 November 2012.  Given that agreement, for which I am grateful to counsel, it appears that any remaining admissibility issues can be satisfactorily resolved at the substantive hearing.

Timetable

[7]      The following timetable will apply:

(a)       Amended originating application and affidavits in support to be filed and served by 21 December 2012.

(b)Any notice of opposition and affidavits in support to be filed and served by 25 February 2013.

(c)      Applicants’ submissions to be filed and served by 22 March 2013. (d)      Respondents’ submissions to be filed and served by 19 April 2013. (e)      Interested parties to file and serve submissions by 10 May 2013.

Future legal costs for Mrs Hubbard

[8]      Mrs Hubbard seeks an order that her actual costs reasonably incurred in

responding to the statutory managers’ originating application be met:

(a)      either by access to the proceeds of realisation of certain of the assets in dispute in this proceeding which are currently held in escrow by the statutory managers or their solicitors;

(b)      or by the statutory managers.

This   application   is   opposed   by   the   statutory   managers   who   consider   that

Mrs Hubbard can and should fund this litigation herself.

Basis of application

[9]      Mrs Hubbard (both in her own right and in her capacity as executrix of her husband’s estate) is the legal owner of the disputed assets, the ownership of which is to be determined in this proceeding.[3]   Currently these assets are held by the statutory managers  pursuant  to  undertakings  entered  into  by  the  statutory  managers  and Mrs Hubbard.  However, there is a mechanism for these undertakings to be revoked.

[3] When referring to Mrs Hubbard below I refer to her in both those capacities.

[10]     The  application  is  advanced  on  the  basis  that  the  undertakings  will  be revoked in which case the statutory managers will need to apply for a preservation of property order.  In other words, the application anticipates that this step will be taken and that the legal principles applying to a preservation order will come into play.

[11]     According to counsel for Mrs Hubbard the relevant principles are:

(a)       There must be a proper case for a preservation of property order (which will ordinarily require an arguable case).   In respect of a freezing order there must be a good arguable case.

(b)       Where  a  defendant  seeks  to  access  property  the  subject  of  a preservation order because the plaintiff asserts a proprietary interest in the same, for the purpose of the defendant’s legal representation, the defendant must first establish that they are otherwise unable to fund the same – that there is no fund on which they might otherwise draw.

(c)       The defendant must then show that he or she has an arguable case to the funds.

(d)       The Court then determines whether it is in the interests of justice that the defendant have recourse to the preserved property for that purpose.

(e)       It will only be in an exceptional case that a defendant is deprived of access to funds necessary to conduct litigation.

[Footnotes omitted.]

[12]     Counsel for Mrs Hubbard submit that this would be a proper case for a preservation order.  They also submit that the per-requisites to Mrs Hubbard and the Estate funding the litigation by recourse to the assets in dispute can be made out and that it would be in the interests of justice for Mrs Hubbard to have access to the assets for that purpose.

[13]     With particular reference to the interests of justice, it is submitted:  the risk of injustice if Mrs Hubbard cannot continue to be legally represented is acute; this has been accentuated by the statutory managers’ conduct of this litigation; compared with the potential fund of at least $60 million, the legal fees involved would be comparatively small; and without representation the Court would not be in a position to properly determine the issues arising in this proceeding.

[14]     Alternatively, it is submitted that the necessary funding should be met by the statutory managers.   In support of that proposition it is submitted:   this was the position while Mr and Mrs Hubbard  remained under statutory management; the statutory managers have met the costs of independent legal representation for the third  to  fifth  respondents;  as  a  result  of  the  default  of  the  statutory  managers Mrs Hubbard’s ability to continue funding her legal representation is in jeopardy; and continued representation will be of value to the Hubbard Management Fund.

Opposition by the statutory managers

[15]     While the statutory managers accept that Mrs Hubbard has an arguable claim to the assets involved in this litigation, they do not accept that her claim is strong. They note that some of the documents that  have now been located support the statutory managers’ case and they also note that Mrs Hubbard signed the accounts of Aorangi Securities Limited which include the assets in question.

[16]     As to impecuniosity the statutory managers contend that there is insufficient evidence for the Court to conclude that this ground has been made out.   In this respect they rely on the further affidavit evidence that they have adduced.  They also contend  that  Mrs  Hubbard  has  alternative  methods  of  funding  the  litigation, including litigation funding, legal aid, or funding by creditors and/or investors who would benefit if she succeeds.

[17]     The  statutory  managers  also  contend  that  the  Court  should  exercise  its discretion against making any order.  They suggest that even if Mrs Hubbard is not legally represented the other parties involved in the litigation can effectively test the statutory managers’ claim.  They also contend that to the extent that the interests of the investors have to be weighed against Mrs Hubbard’s interests, the interests of the investors should prevail because the statutory management arose from the actions of Mr and Mrs Hubbard.  The statutory managers also contend that Russell McVeagh are already committed to this litigation and it is too late for them to withdraw.

Conclusions

[18]     Given that Mrs Hubbard is no longer under statutory management I cannot see any way that ss 58 and 59 of the Corporations (Investigation and Management) Act 1989 could provide a plausible vehicle for the Court to make the orders sought. Nor do I consider that the Judicature Act 1908 or the provisions of the High Court Rules relating to costs could support that outcome.

[19]     Thus the application stands or falls on a preservation of property order under Rule 7.55 of the High Court Rules.  Although application for such an order has not been made at this stage, I am satisfied that it would not be improper for Mrs Hubbard to withdraw her undertaking and in that event the statutory managers would have no option other than to make application to this Court for the preservation of the assets pending the substantive hearing.   Given the delay and expense that would be involved, it would be pointless for the Court to require that formal step to be taken.

[20]     The  principles  to  be  applied  when  considering  whether  disputed  assets subject to a preservation order should be made available to defend a plaintiff’s claim

for ownership are well settled:  see Ming Shan Holdings Limited v Tai Yuan Ma & Ors.[4]   The Court needs to be satisfied that:

[4] Ming Shan Holdings Limited v Tai Yuan Ma & Ors HC Auckland CIV-2000-404-001597,

4 August 2005, at [9] – [14].

(a)       Mrs Hubbard has an arguable case for denying that the assets belong to the statutory managers;

(b)      she is unable to fund her defence to the statutory managers’ claim; and

(c)       the Court is prepared to exercise its discretion in favour of allowing access to the disputed assets for the purpose of funding the litigation.

It has also been held that it will only be in an exceptional case that a defendant is deprived of access to disputed assets in this type of situation:  see United Mizrahi Bank Limited v Doherty[5] which relied on an earlier Court of Appeal decision, Sundt

Wrigley & Co Ltd v Wrigley.[6]

[5] United Mizrahi Bank Limited v Doherty [1998] 1 WLR 435 (CA) at 439.

[6] Sundt Wrigley & Co Ltd v Wrigley Unreported 23 June 1993 CA (Civil Division) per Sir Thomas

Bingham MR.

[21]     I now turn to the three issues identified in the previous paragraph.

(a)       Arguable case

[22]     This requirement has been responsibly conceded by Mr Barton.   While I appreciate that this concession reflects a relatively low threshold, it is not feasible for the Court to go beyond that concession and effectively determine the actual strength of the defence before the substantive hearing.  I accept that the first requirement has been made out.

(b)       Impecuniosity

[23]     Whether  or  not  this  requirement  has  been  satisfied  is  far  from  straight forward.  Given the complexity and evolving nature of the financial situation facing

both Mrs Hubbard and the Estate I have adopted a relatively broad brush approach.

On the strength of the affidavits before the Court relating to both Mrs Hubbard and the Estate (which I suppress, as well as the memoranda of counsel referring to those assets), I am satisfied that the impecuniosity requirement has been made out.   In reaching that conclusion I have concentrated on existing liabilities, as opposed to contingent  liabilities,  and  I  have  also  taken  into  account  the  points  made  by Mr Barton.

[24]     Understandably, the statutory managers are concerned about assets that might become available to Mrs Hubbard and/or the Estate in the future.   These include Houtimata  Farm  Limited,  Cash  Real  Properties  Limited,  Debonaire  Products Limited, Blair Rich Station Limited, Birnie Capital Limited, Pioneer Adventures Limited, and South Island Farm Holdings Limited.

[25]     In his affidavit Mr Linton questions whether these assets are ever likely to provide a source of funding for Mrs Hubbard or the Estate.  Although at this stage it is not possible to determine whether he is right, that certainly appears to be a real possibility.  Under those circumstances I am not prepared to take those assets into account when determining whether Mrs Hubbard and the Estate have the ability to fund this litigation.  On the other hand, I acknowledge that it would be appropriate for there to be a charge over those assets.   I return to that later.

[26]     Faced with the relatively short timeframe before the substantive hearing, coupled with the importance to the investors of that hearing proceeding as scheduled, I do not accept that any of the alternative methods of funding suggested by the statutory managers provide an answer to the application before the Court.   This reflects several factors.  In each case the timeframe for organising such funding is likely to present a problem.  Current indications are that litigation funding is likely to be expensive,  although  I would  not  rule out  that possibility as  a top  up.   The complexity of the case, coupled with the limited pool of lawyers that are likely to be available, effectively rules out legal aid.  Finally, I am unwilling to take the gamble that investors and/or creditors might be prepared to fund the defence, only to find that that is not the case and the fixture is put in jeopardy.

[27]     I therefore accept that the impecuniosity requirement has been satisfied.

(c)       Discretion

[28]     Having reached those conclusions it is necessary to decide whether the Court should exercise its discretion in favour of the order sought.  This involves balancing the injustice that might result to Mrs Hubbard if an order is refused against the injustice to the investors (through the statutory managers) if the defence funded by the assets in dispute fails.   In my view a number of factors favour access to the disputed assets.

[29]     First, it is very important that this complex litigation is properly argued at the substantive  hearing.    Until  now  Mrs  Hubbard  has  been  represented  by  skilled counsel who have undoubtedly acquired considerable knowledge about the case. Their contribution at the substantive hearing is likely to be significant, and self representation  is  not  a  feasible  proposition.    While  counsel  for  other  interested parties will be able to present argument in opposition to the originating application in relation to some assets, it appears highly unlikely that that will apply to all the assets in dispute.

[30]     Secondly, given the proximity of the substantive hearing it would be highly undesirable for there to be a change of counsel for Mrs Hubbard at this stage.  Thus the possibility of the Court appointing an amicus can be eliminated from consideration.  Having said that, I accept that there is substance in the submission on behalf of the statutory managers that a “blank cheque” approach would be inappropriate.

[31]     Thirdly, any suggestion that Mrs Hubbard and the Estate do not come with “clean hands” because they have effectively created the statutory management situation does not, in my view, take fully account of the legal principles discussed earlier and the importance of the Court being in a position where it can properly resolve the proprietary issues concerning assets of around $60 million.  Apart from that it is probably wrong in principle to merge the issue of costs with the conduct

giving rise to the litigation:  Paper reclaim Ltd v Aotearoa International Ltd.[7]This case needs proper argument on both sides.

[7] Paper reclaim Ltd v Aotearoa International Ltd  [2006] 3 NZLR 188 (CA) at [160].

[32]     Fourthly, having surmounted the two pre-requisites to the exercise of the Court’s discretion, Mrs Hubbard is entitled to expect that the Court will exercise its discretion in favour of allowing reasonable access to the disputed assets unless there are valid reasons to the contrary.   While I can understand the investors being concerned that disputed assets might be wasted on an unsuccessful defence of the originating application, that is not enough to justify a departure from the principles explained earlier.   I should also record that Mrs Hubbard has advised that if she succeeds she would like to take care of the investors to the extent that she can subject, of course, to the obligations owed to her creditors.

[33]     I am, therefore, satisfied that the Court’s discretion should be exercised in

favour of making an order.

Form of the order

[34]     As Allan J observed in An Ying International Financial Limited and An Ying (Wellington) Limited v Qiu Yun Li and Hong Lai Zhao[8]  the allowance should be realistic and not parsimonious.   On the other hand, the Court should impose proper restraints over the level of costs to be met from the assets.  That is by no means an easy balancing exercise, especially in a case of this nature.

[8] An Ying International Financial Limited and An Ying (Wellington) Limited v Qiu Yun Li and

Hong Lai Zhao HC Auckland CIV-2004-404-6952, 6 April 2005 at [82].

[35]     Given that the substantive hearing has not yet occurred, I have concluded that it would be unrealistic to fix a global sum, which might or might not accurately reflect the actual legal representation.   For that reason I concluded that any order would need to be linked in some way to the scale of costs provided for in the High Court  Rules.    That  was  the  broad  approach  adopted  in  Limin  Yang  and  Yang

(Jasmine) Liu v Paul Yu Po Chen[9]  where Allan J fixed a daily allowance of $3600.

In arriving at that figure he noted that Rule 14.2(D) provides that the appropriate

daily  recovery  rate  will  normally  be  two  thirds  of  the  daily  rate  considered reasonable in relation to the proceeding ($2400).   He then uplifted that figure to reflect the litigation to be funded.

[9] Limin Yang and Yang (Jasmine) Liu v Paul Yu Po Chen HC Auckland CIV-2007-404-1751, 15

May 2010.

[36]     The daily rates under the scale have increased since that time. Accepting, as I

do, that this litigation can be properly categorised 3C, the daily rate under Schedule

2 of the High Court Rules would be $2780.  On the basis of Rule 14.2(d) this would indicate that the daily rate for solicitor/client costs would be $4170.   Given the complexity of that litigation I am prepared to lift that figure to $5000 per day and there will be provision for one extra counsel at half that rate.

[37]     What I have in mind is that Schedule 3 to the High Court Rules will apply, with the sum of $5000 replacing the figure of $2780 per day in Schedule 2.  Where any particular step is not expressly provided for I contemplate that analogies will be drawn in the same way as the memorandum from counsel for Mrs Hubbard dated

17 December 2012 suggests an analogy should be drawn at 6.(d).  Funding through the  assets  in  dispute  is  to  apply  to  all  steps  from  7 November  2012,  with  an allowance for a half day hearing and no second counsel on that date.  I contemplate that there will be progressive payment of the fees with any disputed fees being referred back to the Court for resolution.

[38]     While I accept  that  further details  may need  to  be resolved,  this  should provide the parties with sufficient indication of the broad nature of the Court’s order. If there are any anomalies, or clarification is required, counsel are invited to submit memoranda and if necessary I will convene a telephone conference.

[39]     Finally, there is the issue of a charge over assets that might be recovered. The nature of the charge that I have in mind should be apparent from this judgment.  I invite counsel to consider the form that any such charge should take, reporting back to the Court in due course.

[40]     Costs on this application are reserved, as is leave for any party to apply further on this issue.

Solicitors:

F B Barton, Anderson Lloyd, Dunedin,  [email protected]

Anderson Lloyd, Christchurch,  [email protected] Anderson Lloyd, Dunedin,  [email protected] Russell McVeagh, Wellington,  [email protected] Russell McVeagh, Wellington,  [email protected] Cavell Leitch Pringle & Boyle, Christchurch,  [email protected]