Sundberg v Malley & Co Lawyers
[2020] NZHC 1789
•22 July 2020
IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY
I TE KŌTI MATUA O AOTEAROA TE TIHI-O-MARU ROHE
CIV-2018-476-000039
[2020] NZHC 1789
BETWEEN JANINE NORA SUNDBERG and LINDA BEVERLY SUNDBERG
ApplicantsAND
MALLEY & CO LAWYERS
Respondent
Hearing: 22 July 2020 Counsel:
J L Bates for the Applicants M McKay for the Respondent
Judgment:
22 July 2020
JUDGMENT OF DOOGUE J
This judgment was delivered by Justice Doogue on 22 July 2020 at 5.45 pm
pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar Date:
Solicitors:
Brown & Bates Ltd, Napier Malley & Co, Christchurch
SUNDBERG & ANOR v MALLEY & CO LAWYERS [2020] NZHC 1789 [22 July 2020]
Introduction
[1] The applicants are the registered proprietors of separate half shares in the property with identifier CB40B/659, Canterbury Land Registry District (the property).
[2] The Sheriff of the High Court has fixed an auction of the property pursuant to sale orders, for midday this Friday 24 July 2020.
[3] The applicants have filed an application for an order staying sale. They seek a one month stay in order to pursue a prospective private sale of the property.
[4] The applicants claim that a substantial miscarriage of justice would be likely to result if the order for sale of the property were enforced.
[5] The judgment debt leading to the order for sale arises from services provided to the applicants by the respondent, a firm of solicitors (Malley & Co), which they say were professionally negligent.
[6] As at 21 July 2020, the applicants were jointly and severally liable to pay Malley & Co the sum of $127,677.11 (together with the costs of sale regarding the property), being:
(a)a principle sum of $119,858.16 (including interest from 1 August 2018 to 21 July 2020 of $7,167.38);
(b)the costs award on the interlocutory application for renewal of sale orders of $4,121.18 (including interest from 30 September 2019 to 21 July 2020 of $93.18);
(c)the costs award on the interlocutory application for renewal of charging orders with interest up to 27 August 2020 of $3,697.77 (including interest from 26 February 2020 to 21 July 2020 of $39.17); and
(d)costs of sale associated with the auction.
[7] The applicants say they will be rendered homeless and without funds if the auction proceeds and the property is sold by that process.
Background
[8] On 9 June 2017 the applicants were served with proceedings seeking judgment for their unpaid legal fees owed to Malley & Co.
[9] On 4 July 2017 the applicants filed a statement of defence and counter-claim (including allegations of professional negligence).
[10] On 13 December 2017 Malley & Co applied to strike out the statement of defence and counter-claim, and the applicants took no steps to oppose their application. The applicants’ proceedings were duly struck out.
[11] On 22 February 2018 Malley & Co obtained judgment against the applicants in the District Court for the sum of $110,338.67 following a formal proof hearing in respect of which the applicants were given advance notice but did not attend.
[12] On 1 March 2018 the District Court granted Malley & Co charging orders over the applicant’s respective half shares in the property and the charging orders were duly registered with Land Information New Zealand.
[13] On 8 August 2018 the judgment (and charging orders) were transferred from the District Court to the High Court and judgment was entered for $112,690.78.
[14] During February 2019 to late May 2019, Malley & Co, PGG Wrightson and an Ashburton valuer engaged on their behalf (Alister Wing) attempted to make arrangements with the applicants to facilitate an orderly inspection of the property for valuation purposes. On 26 February 2019 the applicants responded saying they would be in Wellington on 28 February 2019 and were unable to give access to the property on that date. Subsequent attempts to reschedule a site inspection were unsuccessful.
[15] On 23 September 2019 Dunningham J made an order on an unopposed basis (the application having been served) extending the sale orders.
[16] On 13 December 2019 the Sheriff of the High Court at Christchurch conducted an auction of the property, but the property was passed in for sale is it did not meet the reserve. The applicants did not apply for stay regarding the sale orders before the first auction.
[17] The property was offered to the market by way of auction on 13 December 2019 and there was a challenge made minutes before the auction was to commence regarding the GST position by a solicitor claiming they were acting for the applicants. This challenge was made publicly, and the sale process was delayed by some 20 minutes. It was clear that upon commencement of the auction this challenge and the delay to the sale process made purchasers even more cautious and they were less intent to bid with confidence. The property was withdrawn from sale with the reserve not being met.
[18] On 13 December 2019, after the auction, Arrowsmith Law emailed Malley & Co and advised that they were meeting with the applicants the following week and would recommend that the judgment be addressed by the amount being met.
[19] On 16 January 2020 Malley & Co wrote to Arrowsmith Law and sought the applicants’ consent to a renewal of the charging orders.
[20] On 20 January 2020 the registrar advised Malley & Co by email that the property could be relisted for sale by auction with a proposed date of 6 March 2020.
[21] On 21 February 2020 Associate Judge Lester further extended the charging orders.
[22] On 3 March 2020 Malley & Co sent the applicants a sealed copy of the order as to the extension of the charging orders.
[23] On 10 March 2020 the applicants advised they would be travelling the next week to meet with a senior solicitor in Wellington. They said the solicitor would be representing them and would be instructed to make immediate contact with Malley & Co. They claimed to have a proposed purchaser poised to purchase the property.
[24] On 20 March 2020 Malley & Co emailed the applicants and sought confirmation of the applicants’ Wellington-based solicitor and the name of the proposed purchaser. On the same day the applicants responded by email advising the proposed purchasers were “a Mr and Mrs Kean” and that discussions were ongoing. They did not provide the name of their Wellington-based solicitor.
[25] On 25 March 2020 Malley & Co emailed the applicants asking for the name of their Wellington-based solicitor and the first names of the proposed purchasers. The applicants did not respond to this email.
[26] On 20 May 2020 Malley & Co wrote again seeking the requisite details. Malley & Co also advised the applicants that unless matters were promptly resolved by agreement they would be listing the property for sale by the Sheriff with the auction date likely to be 3 July or 10 July 2020.
[27] On 25 May 2020 the applicants emailed Malley & Co and advised that once they had set new counsel in place that they would make contact with Malley & Co straight away. Counsel did not contact them.
[28] On 9 July 2020 Malley & Co wrote to the applicants enclosing a copy of the advertisement of the notice of sale assigned by the Sheriff dated 19 June 2020 and the associated auction terms. The applicants responded to that letter, acknowledging its receipt.
[29] Now the property is being reoffered to the market by way of auction with the further terms of sale supporting a clearer GST position. Interested buyers have sought legal advice and conducted due diligence at a substantial cost to them. The sales team handling the sale have been focusing on creating competition to maximise market value with 28 sets of auction particulars being distributed to date. If there was to be a further delay, the evidence suggests most potential purchasers may withdraw from any further process thereby minimising competition and subsequently decreasing any realised value.
[30] For completeness, while the applicants initially sought an order setting aside the judgment debt, Mr Bates advised the Court the applicants no longer seek to do so. Rather, they will take recourse against Malley & Co for their alleged professional negligence by separate proceedings.
Applicants’ case
[31] The applicants engaged Malley & Co in respect of the estate of the late Caitriana Mackay Beatock Baker, and claim Malley & Co were professionally negligent in their failure to pursue the removal of a fellow trustee.
[32] In an affidavit dated 20 July 2020, the first applicant said the applicants are currently completing redecoration of the interior of the homestead and had in fact hoped to have the property on the market at the end of the summer in 2019/2020. She said this was not possible due to COVID-19 restrictions. Further she said they wish to complete the redecorating work when the warmer weather returns, and put the property on the market in summer 2020/2021. In addition, she said they have parties interested in purchasing the property when the redecoration work is completed.
[33] Today Mr Bates was instructed to advise the Court the applicants are in confidential negotiations with a prospective purchaser who would likely pay considerably more than would be realised under the proposed auction and that this purchase could be concluded within a month.
Respondent’s submissions
[34] Malley & Co does not accept the claim that the firm’s services were professionally negligent.
[35] Malley & Co said that they will suffer extreme prejudice if even a temporary stay is granted because:
(a)the current sale orders expire on 10 September 2020 and cannot be further renewed as per 17.24(3) of the High Court Rules 2016;
(b)in order for a sale order to be fully executed, there may well have to be payment over of the sale proceeds by the sheriff to the execution creditor;1
(c)accordingly, in order for a further auction to be complete under the Sale Orders, it is not sufficient that the auction be held before 10 September 2020, but that the sale settle before 10 September 2020;
(d)if a three-week marketing campaign (the bare minimum and not recommended) is held for a further auction, it would, therefore, need to commence on 19 August 2020 (less than four weeks away);
(e)put another way, it is not possible to have a further auction (other than on 24 July 2020), and a six week stay under the sale orders;
(f)in the event the property is not sold by private treaty with a prompt settlement date, a temporary stay will increase the costs of sale incurred by Malley & Co and those costs may not be recoverable (in practical terms) from the applicants;
(g)as at 21 July 2020, a total of $167,131.68 is owed by the applicants to Malley & Co, being:
(i)judgment sums of $127,677.11; and
(ii)costs of sale of $39,454.57 (including GST);
(h)given PGG Wrightson appraised the property on 21 July 2020 as having a market value under a Court ordered sale of between $345,000.00 to
$375,000.00 including GST (if any), it is not clear that there will be enough equity in the property to cover the applicants’ debt to ANZ and Malley & Co, as well as the costs of sale.
1 Charles Rich Antiques Ltd v Rudyard Developments Ltd [1979] 2 NZLR 724 at 728 per Barker J.
The law
[36] The application is brought pursuant to r 17.29 of the High Court Rules 2016. It provides as follows:
17.29 Stay of enforcement
A liable party may apply to the court for a stay of enforcement or other relief against the judgment upon the ground that a substantial miscarriage of justice would be likely to result if the judgment were enforced, and the court may give relief on just terms.
[37] Counsel did not dispute that the applicable principles are those set out in the judgment of White J in Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd:2
[19]As the authorities referred to in McGechan on Procedure at [HR 17.29.02] and the submission for the parties confirm, the principles relating to the interpretation and application of rule 17.29 are reasonably well established. They may be summarised as follows:
(a)The onus is on an applicant for the stay of enforcement to persuade the Court to exercise its discretion.
(b)A “substantial miscarriage of justice” must be involved bearing in mind that “substantial miscarriage” means “something more than minor or insubstantial” and that it is not a substantial miscarriage of justice for a party that has had the use of another’s money to be required to repay that money or for a creditor to be able to take whatever steps it sees fit to pursue recovery:…
(c)A substantial miscarriage of justice must be “likely to result” if the judgment were enforced. It is not sufficient that a miscarriage of justice “might” result; it must be “likely to result” i.e. probably result:…
(d)The Court must seek to recognise and reconcile the conflictions interests of both parties in such manner as will best serve the overall interests of justice: …. A balancing exercise is involved.
(e)A miscarriage of justice is unlikely to result where a party is required to pay to another an amount that it owing to it and the paying party is free to pursue its claim against the other party in the normal way:…
(f)Other factors which may be relevant include: the apparent strength or weakness of the claim; the ability of the applicant for the stay to meet the judgment that is being enforced; and
2 Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd HC Napier CIV-2010-441-134, 8 June 2011 at [19] (footnotes omitted).
the potential bankruptcy or liquidation of a party seeking to pursue an apparently strong claim: …
[38]I turn to consider these principles in the circumstances of this case.
Analysis
[39] There is no doubt that the applicants will face distress and hardship as a result of the sale of the property, but this cannot be characterised as likely resulting in a miscarriage of justice. It is simply a result of one party owing a judgment debt that has been properly obtained but not discharged. It is the law following its normal course.
[40] The evidence strongly weighs in favour of Malley & Co. First, because judgment against the applicants was properly obtained as long ago as February 2018.
[41] Secondly, since then, the applicants have had remedies available to them to challenge that judgment. They have not done so. Similarly, they have had ample time to pursue a claim of professional negligence against Malley & Co and have not done so.
[42] Thirdly, recent claims in the affidavit of the first applicant that the applicants have not been served with any communications in relation to the auction date set for the sale of the property are inconsistent with written evidence before the Court.
[43] Fourthly, the claims in the first applicant’s affidavit of 20 July 2020 concerning completion of redecoration and a plan to sell the property in the summer of 2020/2021 appear to be yet another iteration of the delaying tactics that have been employed by the applicants throughout and are chronicled in [7]-[23].
[44] Fifthly, since the first applicant’s last affidavit was sworn, the applicants’ position has shifted yet again although no evidence was tendered to support the submission that the applicants were hopeful of achieving a sale to the unnamed prospective purchaser within a one- month time frame.
[45] Past behaviour being the best predictor of future behaviour, the applicants’ claims about actively improving and marketing the property will not likely result in
the property being put on the market or sold. Similarly, the applicants’ claims about an active and interested buyer about whom the Court is told nothing does not build confidence that a private sale will be realised in short order.
[46] Sixthly, the applicants have been assisted by no fewer than four lawyers in this matter since the judgment debt was entered against them, and no substantive action has been taken either to apply to set aside the judgment debt or to bring a statement of claim of professional negligence against Malley & Co.
[47] Finally, Malley & Co took the unusual but highly responsible step of offering to contribute to the applicants’ legal costs in order for them to obtain representation before a meeting to discuss resolution. The applicants did not take up the offer which was repeated in subsequent correspondence during 2019.
[48] In summary, the applicants have sat on all their rights. They have not taken advantage of such legal representation as they have had to properly prosecute their claims.
[49] The applicants’ position is analogous to the unsuccessful applicants for stays in Noe v Ratzapper Australasia Ltd,3 and Harnish v Bruce.4 In both cases, the Court declined applications for stays of enforcement made in the week or so before sale where there had been negotiations between the judgment debtor and the judgment creditor (which failed), and the judgment debtor had had time to sell (at least a year in Noe) to sell the relevant property, but had failed to do so.
[50] The applicants have failed in the circumstances to discharge the onus on them to persuade the Court to exercise its discretion in their favour.
[51] Rather than real prejudice arising for the applicants, I consider real prejudice would occur to Malley & Co if I were to stay this sale for the reasons set out in [37].
3 Noe v Ratzapper Australasia Ltd [2019] NZHC 2962.
4 Harnish v Bruce [2014] NZHC 302.
Result
[52]The application to stay the order for sale is declined.
[53] Costs in respect of this application shall issue against the applicants in favour of Malley & Co.
[54]Costs are ordered on a 2B basis, together with any reasonable disbursements.
Doogue J
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