Takanini Feeds Limited v Grunbaum HC Auckland CIV 2009-404-1307
[2010] NZHC 203
•1 March 2010
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2009-404-001307
BETWEEN TAKANINI FEEDS LTD
Plaintiff
AND J F GRUNBAUM First Defendant
ANDA M GRUNBAUM Second Defendant
ANDROCK ON FISHING LTD Third Defendant
AND P J HUSBAND Fourth Defendant
AND S DANDY
Fifth Defendant
Hearing: 25 February 2010
Appearances: N Woods and A Henderson for Plaintiff
D James for Fourth Defendant
Judgment: 1 March 2010 at 4:30 pm
JUDGMENT OF ASSOCIATE JUDGE BELL
This judgment was delivered by me on 1 March 2010 at 4:30 pm
pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………….
Solicitors:
Palmer Macauley, PO Box 576, Kerikeri
Rice Craig, PO Box 72440, Papakura
TAKANINI FEEDS LTD V J F GRUNBAUM AND ORS HC AK CIV-2009-404-001307 1 March 2010
[1] Jane Grunbaum worked as an in-house accountant for Takanini Feeds Ltd for over 15 years. From 2003 to 2007 she embezzled funds of her employer. When her dishonesty came to light it was discovered that she had misappropriated $446,636.26
– the total face value of 57 cheques applied by her for her own use. She was prosecuted, charged with obtaining a document dishonestly and without claim of right to obtain a pecuniary advantage. She pleaded guilty.
[2] Now Takanini Feeds Ltd has taken civil proceedings to recover its losses. It has sued not only Mrs Grunbaum, but also her husband and others associated with her who Takanini Feeds Ltd believes gained from her offending. Peter Husband, the fourth defendant, was associated with her in 2006-2007 through a company, Rock on Fishing Ltd, in which they were shareholders and directors. He says that he co- operated with the police and the plaintiff in the investigations. The police did not charge him. But the plaintiff believes that he is civilly liable for 15 of the cheques.
[3] On 22 June 2009 the plaintiff filed judgment by default against the fourth defendant who had been served on 11 May 2009. Judgment was sealed for the sum
of $121,938.62 plus costs of $6420, a total of $128,358.62. On 25 September 2009
the fourth defendant applied to have judgment set aside.
[4] The application was made under r 15.13:
A judgment obtained by default may be set aside or varied by the court on any terms it thinks just, if it appears to the court that there has been, or may have been, a miscarriage of justice.
[5] It is common ground that judgment was regularly obtained. As the Court of
Appeal’s decision in Russell v Cox [1983] NZLR 654 indicates, the court has regard
to whether the defendants’ failure to file a statement of defence in time is excusable, whether the defendant has a substantial ground of defence and whether the plaintiff would suffer irreparable injury by setting aside the judgment, but these are no more than factors which, on any application to set aside a judgment, may generally be regarded as relevant to an inquiry whether there may have been a miscarriage of justice.
[6] In the course of argument, Mr Woods, counsel for the plaintiff, submitted that the judgment was presumptively correct and the plaintiff did not have to justify
its claim against the defendant. While a defendant applying under r 15.13 carries the burden of persuading the Court that there has been or may have been a miscarriage
of justice, I do not read Russell v Cox as introducing the kind of rigidity Mr Woods was contending for. Indeed, the tenor of the judgment is that while there are factors that may be had regard to, there are no conditions precedent to the exercise of the discretion. In this regard, the following dictum of Lord Wright in Evans v Bartlam [1937] AC 473 at 489 is instructive:
A discretion necessarily involves a latitude of individual choice according to the particular circumstances, and differs from a case where the decision follows ex debito justitiae once the facts are ascertained. In a case like the present there is a judgment, which, though by default, is a regular judgment, and the applicant must show grounds why the discretion to set it aside should
be exercised in his favour. The primary consideration is whether he has merits to which the Court should pay heed; if merits are shown the court will
not prima facie desire to let a judgment pass on which there has been no
proper adjudication.
[7] In the same way, a plaintiff who has sealed judgment by default cannot assume that the court will tacitly accept the plaintiff’s case without question. As will appear later I was concerned about the soundness of the cause of action on which the plaintiff sealed judgment against the fourth defendant. If a plaintiff facing an application to set aside cannot tell the court the legal foundation for its judgment, it runs the risk of judgment being set aside.
[8] In this proceeding the plaintiff’s first cause of action against Mrs Grunbaum
is for conversion or money had and received. The relief claimed was damages for conversion of 57 cheques (without specifying the amount of damages sought), judgment for $446,636.26 as money had and received, costs of investigation and inquiry claiming $36,000 in damages, interest and costs.
[9] The plaintiff’s second cause of action against her was an alternative claim, in deceit, for fraudulently inducing the plaintiff to sign cheques. The relief claimed in the first cause of action is the same as in the second cause of action. The plaintiff has sealed a judgment by default against the first defendant.
[10] The second defendant is the separated husband of the first defendant. The first cause of action against the second defendant is for conversion and money had and received for 18 of the 57 cheques in issue in the claim against the first defendant. The judgment sought is $115,938.77, being the total value of the cheques, plus damages for the costs of inquiry, interest and costs.
[11] The second cause of action against the second defendant is for unjust enrichment and the relief sought for that is an accounting for an amount by which the second defendant has been unjustly enriched.
[12] The plaintiff and the second defendant settled the claim against the second defendant, but the plaintiff’s counsel advised the Court that the second defendant has not complied with the terms of the settlement. The claims against the second defendant, which were earlier abandoned, may now be revived.
[13] The third defendant, Rock on Fishing Ltd, is in liquidation and the claim against it is stayed under s 248(1)(c) of the Companies Act 1993. The first cause of action against the third defendant relates to cheques totalling $121,938.62 (being 15
of the 57 cheques in the first cause of action against the first defendant). This cause
of action pleads that without the plaintiff’s authority the third defendant received the cheques and presented them for payment, this constituting conversion of the cheques, or alternatively, the receipt of the funds is money had and received. The relief sought is damages for the conversion, alternatively, $121,938.62 for money had and received, damages of $36,000 for investigation and inquiry and related relief.
[14] The second cause of action against the third defendant is for deceit in that the directors of the third defendant, the first defendant or the fourth defendant, falsely represented the third defendant as a legitimate and genuine payer of the cheques, and the plaintiff acted on them to its detriment.
[15] The fifth defendant is said to have been a partner of the first defendant in the “Courtview Partnership”. The claim against the fifth defendant is for $28,298.77 for two cheques of the plaintiff. The claims against the fifth defendant are for money
had and received or conversion, for partnership liability and for unjust enrichment. The plaintiff and the fifth defendant have settled and the plaintiff has discontinued against the fifth defendant.
[16] The second cause of action against the fourth defendant is said to be for unjust enrichment. It is pleaded that the fourth defendant colluded with the plaintiff, knew or ought to have known that sums paid to the third defendant were not honestly obtained, that the third defendant was being used as a vehicle to launder funds misappropriated from the plaintiff and that the fourth defendant benefitted personally
by receiving assets funded by the misappropriations. On that cause of action the plaintiff seeks an accounting for an amount by which the fourth defendant has been unjustly enriched.
[17] The first cause of action against the fourth defendant is the one on which the plaintiff has sealed judgment. It is a claim in conversion or money had and received
in respect of 15 of the 57 cheques in issue in the claim against the first defendant. These are the same 15 cheques in issue in the causes of action against the third defendant. As it will be necessary to look at this cause of action, the pleading is recorded:
33. During the period 8 February 2006 and August 2007 the Fourth Defendant without authority of the Plaintiff Company drew and/or received those cheques on the Plaintiffs account with Westpac Bank (Account No.
030399-0159899-00), at their branch at Papakura and presented the said cheques and obtained payment thereof in the manner contained and
described in Schedule 3 attached hereto.
34. As a result the Fourth Defendant has converted the said cheques to his own name or the name of those other persons who were likewise unauthorised to receive the same, and thereby has wrongfully deprived the Plaintiff, who has suffered loss and damage in the sums specified below.
Particulars of Loss
(a) Actual loss as specified in Schedule 3 being $121,938.62;
and
(b) Cost of investigation and enquiry:
(i)Accounting costs estimated at $10,000 but to be assessed prior to trial.
(ii) Forensic accounting expenses estimated at $12,000
but to be assessed prior to trial.
(iii) Internal management and administrative expense estimated at $12,000 but to be assessed prior to trial.
35. Alternatively the said sum(s) are payable to the Plaintiff by the Fourth
Defendant as money had and received by her (sic) to the use of the Plaintiff.
[18] The third schedule to the statement of claim lists 15 cheques of the plaintiff dated from 20 February 2006 to 26 January 2007 in issue in the claim against the fourth defendant. The total value of the cheques is $121,938.62. The payee on the first three cheques is the first defendant. The payee on the next 11 cheques is Rock
on Fishing Ltd, the third defendant. The receiving bank for the first 14 cheques is the Bank of New Zealand. The 15th cheque, dated 26 January 2007, is to “ABB” and the receiving bank is the ASB Bank.
Delay in filing statement of defence
[19] The fourth defendant was served at Houhora on 11 May 2009. Mr Husband says that the plaintiff and its solicitors did not contact him directly to say that the plaintiff was going to sue him but that he heard about that from second-hand sources and telephoned one of the directors of the plaintiff asking about this. The director suggested to Mr Husband that he contact the plaintiff’s lawyers. Mr Husband says that he did so and during that call he gave the plaintiff’s lawyer his address. He was served about two weeks after that telephone call. He says that he read the documents
he was served with and did note the advice that he had 25 working days to file a statement of defence. He did not know about how to go about filing a statement of defence. He says he telephoned the plaintiff’s solicitor again and asked about where
he was supposed to send a statement of defence and what to do about it. The solicitor declined to advise him and suggested that he get a lawyer. He also says that
he made inquiries with the staff at the High Court in Auckland to find out what he had to do to defend the matter. He says he was advised that he needed a lawyer to file a statement of defence on his behalf.
[20] His impression was that he would not be able to look after the matter without
a lawyer. It was clear from the background information that he gives about himself
that he does not have the skills to file a proper statement of defence in this Court. He understood from his conversation with the Court staff that the case would have a telephone conference on 30 July 2009. He wanted to know if he could appear in Court on that date but was told that that would be a telephone conference. His understanding was that 30 July was the date on which he needed to get a lawyer and get a defence filed. I note that his earlier experience with the court system has been with the criminal jurisdiction, where of course a personal appearance in court is usually required.
[21] Mr Husband says that he contacted lawyers in the Kaitaia area but he found that the lawyers said that they did not do High Court civil cases. Two of them also said that they would not do High Court civil cases on legal aid. He also telephoned three lawyers in Auckland but they each said that they would not be prepared to do work on legal aid. He says that he telephoned the High Court again during June and explained the problem but the staff again advised him to keep on trying to find a lawyer. He was also advised that the case conference was rescheduled to 15 September 2009. He says that during July he spoke to another Kaitaia lawyer, who did not have a contract with Legal Services Agency but referred him to a Kerikeri lawyer, Mr James. He then made an appointment with Mr James on 7 August 2009. After his meeting with Mr James on 7 August 2009, he completed a legal aid application and returned it to Mr James within about 10 days and it was filed with the Legal Services Agency on 25 August 2009. Mr James had advised him that he would not be able to take any steps until there had been a grant of legal aid. Aid was granted on 15 September 2009. He spoke with Mr James at length again on 15 September 2009. At that stage, Mr James made inquiries and found that a default judgment had been entered during June 2009.
[22] The plaintiff asked me to find that Mr Husband was dilatory and that his delay was inexcusable. The plaintiff relies in particular on Mr Husband’s statement that he was aware of the 25 day limit for filing a statement of defence.
[23] It is necessary to approach this question with some realism.
[24] Mr Husband could not have filed a proper statement of defence on his own behalf. Mr Husband has had, at best, a basic education. He is not equipped to deal with the requirements for a statement of defence under the High Court Rules. It would not have served any useful purpose for him to attempt to write a statement of defence on his own behalf. Pleadings by laymen inevitably trigger the response from the Court that the layman ought to take legal advice and file a proper pleading. Mr Husband was right to recognise the limits of his abilities.
[25] The claims against Mr Husband involve legal concepts little understood by laymen – “the tort of conversion”, “money had and received” and “unjust enrichment”. Only a lawyer can be expected to plead properly to these allegations. Mr Husband’s difficulties in obtaining legal advice are understandable. The place of service is significant. Houhora is north of Kaitaia. There are no lawyers in practice in Houhora.
[26] Mr Husband needed access to a lawyer who could advise him about High Court litigation. There are no lawyers in the Kaitaia/Doubltess Bay area with appropriate experience for High Court civil litigation. High Court civil litigation north of the Mangamukas is rare. Mr Husband’s means do not allow him to pay for a lawyer himself. He was entitled to and needed legal aid. In Northland today, there are very few lawyers prepared to carry out civil litigation on legal aid. Mr James is one of the few.
[27] Any lawyer prepared to do civil litigation on legal aid will be reluctant to undertake work before the grant of legal aid, lest the work carried out will not be paid for.
[28] Against this background, the facts that Mr Husband did not file a statement of defence himself, that he consulted lawyers in the centre closest to where he lived but could not obtain immediate assistance, that he was referred to a lawyer in a centre further south, Kerikeri, and that it required time after the initial contact before aid was granted and steps could be taken, are all entirely understandable. The fact that this process took more than 25 working days is not surprising, given the difficulties that Mr Husband faced.
[29] No doubt Mr Husband did not understand correctly the advice given by the High Court staff. While he understood the requirement to file a statement of defence, he appears mistakenly to have thought that he would not lose any rights if
he took part in the first case management conference. He had been in touch with the Court to see that he could take part in the conference. I regard his mistake in not appreciating that by not filing a statement of defence before the conference and leaving it open for judgment to be entered against him as bona fide.
[30] In the context of a criminal appeal, the Court of Appeal has indicated that some latitude is permissible in meeting the deadline for lodging an appeal if there has been due diligence in finding out whether a ground of appeal can be properly advanced; R v Clode [2009] 1 NZLR 312 at 318:
This court would always look favourably on an application to extend time for appealing in circumstances where appellate counsel was carrying out due diligence as to whether a ground of appeal could properly be advanced.
[31] Similarly this court will not look unkindly on an application to set aside a judgment by default where the defendant was carrying out due diligence to arrange representation and the filing of a statement of defence and could not complete that within the time for filing a statement of defence (all other things being equal, of course). I am satisfied that within his means Mr Husband could not have arranged the representation on legal aid he required before default judgment was sealed. I do not regard the time it took for the present application to be made as so long as to disqualify him from applying to set aside the judgment.
Grounds for defence
[32] In general, Mr Husband denies any knowledge of Mrs Grunbaum’s wrongdoing and denies receiving any of the plaintiff’s money. In some respects his evidence is unsatisfactory. For example, he mistakes Maungatapere near Whangarei
for Mangatawhiri south of the Bombay Hills. The dates he gives for his involvement with Trans Coastal Ltd and later with Rock on Fishing Ltd do not match Companies Office documents showing the incorporation of these companies in the same month. But I cannot say that his denials of knowledge of wrongdoing are to be dismissed out
of hand. His evidence shows that he believed and trusted her. In assessing that, it is relevant that directors of the plaintiff, who had known her longer than he had, also believed and trusted her.
[33] The causes of action the plaintiff relies on, conversion and money had and received, do not require proof of knowledge of wrongdoing. However, it will be seen that these causes of action may not take the plaintiff as far as it hopes.
[34] Mr Husband says that his background includes time spent working on marine farms. In 2005 he worked for the plaintiff for about four months installing stock feed hoppers at Mangatawhiri. He said he had a nodding acquaintance with the first defendant at that time – through her employment by the same company as inhouse accountant. He says that through discussions with directors of the plaintiff he aroused their interest in developing oyster farms. They established a company, Trans Coastal Ltd, incorporated on 16 February 2006. Mr Husband was a 50% shareholder. Burndred & Sheffield Trading Ltd was the other shareholder. Messrs Burndred and Sheffield are directors of the plaintiff.
[35] Mr Husband says he worked in the Trans Coastal project for about three months. After that venture started, he says that the first defendant approached him. According to him, she said she was also interested in developing oyster farms. She told him that she had $20,000 in family sources and that there were oyster farm leases available to take over. Mr Husband says that he told her that he wanted to clear it with Messrs Burndred and Sheffield because of the connection with the Trans Coastal project. Later, when the Trans Coastal project was discontinued, he took up the first defendant’s proposal to establish the third defendant, Rock on Fishing Ltd.
[36] Rock on Fishing Ltd was incorporated on 17 February 2006. The first and fourth defendants were directors and sole shareholders of the company, each holding
50 of the 100 shares. The fourth defendant says that he continued to work for the plaintiff, but also worked for Rock on Fishing Ltd. He says that the division of functions in Rock on Fishing Ltd was that the first defendant attended to strategic direction, management, administration and accounts, whereas he was the hands-on operations person. His understanding was that the first defendant arranged for his
income from the plaintiff to be paid into the third defendant. He was also aware of the first defendant putting money into Rock on Fishing Ltd and says that she told him that she had received money from her family. He says that while he did work
for Rock on Fishing Ltd, he received petty cash from the company and was reimbursed for living expenses, fuel and purchases. He believes that the value of these drawings from the company was about $16,000. For some of the 2006-2007 period, he lived in a property at Whakapirau Road, Maungaturoto. Initially, Rock on Fishing Ltd rented it, but later bought it for about $270,000, the purchase being largely financed by mortgage. He says that the first and second defendants guaranteed the loan and put up their own property at Waiuku as collateral. He signed the mortgage as director of the third defendant. The Whakapirau Road property was later sold by mortgagee sale after the first defendant’s defalcations came to light.
[37] In 2007, two properties on State Highway I in Victoria Valley, that is, on the north side of the Mangamukas but south of Kaitaia, were bought – Lots 1-2 DP
210217 with an area of 5.0626 hectares and Lots 4-7 DP 344943 with an area of
18.92 hectares. The purchase price was $220,000. The vendor was Allan John Gillespie. The purchaser was Rock on Fishing Ltd. The purchase was financed by the fourth defendant’s wife, Robyn Gay Husband, putting in the proceeds of sale of the house she had sold at 33 Oxford Street, Whakapirau – approximately $130,000, plus a loan for $100,000 from the ASB Bank secured by mortgage over the properties. Rock on Fishing did not put in any funds of its own. Mr Husband says that the purchase was made in the name of Rock on Fishing Ltd to obtain a GST benefit. At the same time, the shareholding in Rock on Fishing Ltd was changed to give Mrs Husband 30 of the 100 shares in the company.
[38] Mr Husband’s evidence was silent on the basis on which his wife’s funds were put into the company. But I can note that it is common practice in small closely-held companies for such payments to be treated as shareholder’s advances repayable on demand.
[39] Later, Rock on Fishing Ltd sold the Victoria Valley properties to the fourth defendant and his wife for $220,000, the same as the purchase price of the year
before. The property is still subject to the mortgage to the ASB. The plaintiff sees a potential opportunity for advantage for itself in being able to pursue the fourth defendant because of his interest in this property.
[40] Default judgment has been entered against the fourth defendant on the plaintiff’s first cause of action against him, for conversion of cheques or money had and received in respect of 15 cheques issued between 20 February 2006 and 26
January 2007 described in paragraph 19 above. The plaintiff’s affidavits exhibit copies of the front pages of 14 of those cheques, plus the copy of another cheque (dated 20 September 2006 for $4347.47) which does not appear to be the subject of the claim against the fourth defendant. The first three cheques in schedule 3 are cheques drawn on the account of Takanini Feeds Ltd where the payee is the fourth defendant. The next 11 cheques in schedule 3 are payable to Rock on Fishing. The 15th cheque, not put in evidence, is to ABB. Counsel for the plaintiff advised me that ABB is the name of a bogus business entity of the first defendant. The date of that cheque to ABB is 26 January 2007. The plaintiff pointed to a credit in the bank statements of Rock on Fishing Ltd for $10,000 on the same day.
[41] There is no evidence that the fourth defendant drew the cheques in issue. All but three are signed by directors of the plaintiff. It seems unlikely that Mr Husband could have signed the other cheques. There is no evidence that he had access to the plaintiff’s cheque books. There is no evidence identifying his handwriting on the cheques. Mr Husband has an arguable defence to the allegation that he drew the cheques without authority.
[42] Mr Husband is the payee of the first three cheques but they were paid into the account of the Rock on Fishing Ltd. There is no evidence of the cheques having been endorsed by Mr Husband. He says that he did not personally handle those cheques but had given the first defendant a signing authority. But the facts that he is the payee and that the proceeds of the cheques were paid into the account of a company of which he was a director is evidence that points towards his handling the cheques in a manner inconsistent with the plaintiff’s right to possession of the cheques. Nevertheless Mr Husband’s answer is not one that can be dismissed out of hand. He has a possible defence that the first defendant did the conversion all herself
– to the extent of presenting the cheques to be paid into Rock on Fishing Ltd’s bank account. Evidence showing at which branch of the BNZ the cheques were presented would help in finding out whether Mr Husband handled the cheques but that evidence was not before the Court.
[43] Rock on Fishing Ltd is the payee of the next eleven cheques. Mr Husband says that he did not handle these cheques himself. There is no evidence that he was the one who presented the cheques for payment. Given the division of functions between him and Mrs Grunbaum it is entirely possible that she handled this side of Rock on Fishing Ltd’s business. Mr Husband has an arguable defence to the claim of conversion of these cheques.
[44] On the 15th cheque there is no evidence implicating Mr Husband in the payment of the cheque or receipt of its proceeds.
[45] The plaintiff did not argue that as director Mr Husband was liable for the company’s tort of conversion under the exceptions to the rule that directors are not liable for torts committed by a company. These are helpfully discussed in Standard Chartered Bank v Pakistan National Shipping Corp (No 2) [2000] 1 Lloyd’s Rep
218 at 233-235. The plaintiff’s case does not show that Mr Husband was a joint tortfeasor, assumed personal responsibility, or procured or induced the company to commit the tort. Accordingly on all 15 cheques I find that Mr Husband has arguable defences to a claim of conversion.
[46] I took the alternative plea of money had and received as a form of waiver of tort. For the plaintiff to succeed against the fourth defendant on waiver of tort the plaintiff must first prove that the defendant has committed the tort. For the reasons above I have found that Mr Husband has arguable defences to the claim of conversion. Further, in a claim of money had and received, the plaintiff must also prove that the defendant had the money. But the plaintiff’s case is that the proceeds
of the cheques were all paid into the account of Rock on Fishing Ltd. By itself that
is not evidence that the fourth defendant received the proceeds of the cheques so as
to make him liable for money had and received.
[47] It turned out that the plaintiff was trying to use the money had and received claim as a form of common law tracing to follow the plaintiff’s funds through Rock
on Fishing Ltd to the fourth defendant. To implicate Mr Husband the plaintiff pointed to these matters: he was a director of Rock on Fishing Ltd, he paid money of
his own into the company, he used company funds for living expenses and building materials, had an ATM card and a cheque book, was an authorised signatory, received drawings from the company, and lived rent free at the Whakapirau Road property.
[48] This approach overlooks the limit to common law tracing. See Lord
Ellenborough in Taylor v Plumer (1815) 3 M & S 562, 572:
[T]he product of or substitute for the original thing still follows the nature of the thing itself, as long as it can be ascertained to be such, and the right only ceases when the means of ascertainment fail, which is the case when the subject is turned into money and mixed and confounded in a general mass of the same description.
A more recent statement of the same point is found in Goff & Jones The Law of
Restitution 7th ed. 2-026, page 104:
[I]f A’s money is paid by B into his bank account and then money is paid from that account into C’s account, A’s claim against C will fail if his money was mixed with B’s money in B’s bank account. A cannot then prove that C received his money.
[49] The bank statements of Rock on Fishing Ltd put in evidence show that payments to the company also came from sources other than the plaintiff. On the basis of those statements I cannot conclude the plaintiff’s funds kept their identity when they were paid into the account of Rock on Fishing Ltd or that the common law would indentify payments by Rock on Fishing Ltd to the fourth defendant as the plaintiff’s funds. The fourth defendant has an arguable defence to this aspect of the plaintiff’s claim in money had and received.
[50] The plaintiff’s claim that Mr Husband has some liability in respect of the funds the first defendant dishonestly obtained from the plaintiff because of his role and work in Rock on Fishing Ltd really comes down to a claim of accessory liability.
The test for accessory liability is dishonesty. Lord Nicholls said this in Royal Brunei
Airlines v Tan [1995] 2 AC 378 at 389:
[I]n the context of the accessory liability principle acting dishonestly, or with
a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At
first sight this may seem surprising. Honesty has a connotation of
subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standard of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.
In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others’ property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learns something he would rather not know, and then proceed regardless.
[51] And again at 392:
Drawing the threads together, their Lordships’ overall conclusion is that dishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation. It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly, although this will usually be so where the third party who is assisting him is acting dishonestly. “Knowingly” is better avoided as a defining ingredient of the principle and in the context of this principle the Baden [1993] 1 WLR 509 scale of knowledge is best forgotten.
[52] The law as to accessory liability derives from equity: see Barnes v Addy (1874) LR 9 Ch App 244. The plaintiff’s pleading on which it has obtained judgment is based on common law causes of action. These causes of action are not directed at Mr Husband’s potential liability for accessory liability. The information
before the court is not enough to persuade me that Mr Husband has no defence to a claim of accessory liability.
[53] The plaintiff’s second cause of action, for unjust enrichment, might be read
as a claim for alleged knowing receipt although it is not couched in those terms. The plaintiff has not sealed judgment against Mr Husband on the claim for unjust enrichment. A claim for knowing receipt would be directed at actual benefits received by Mr Husband which arguably may be net benefits after taking into account costs incurred by him.
[54] It would not be safe to uphold the judgment on the conversion or money had and received causes of action. There are arguable defences to those claims. If the plaintiff wants to claim that Mr Husband is liable because he was her accomplice in her embezzlement, it needs to file a pleading expressly making that clear – for example that he was a joint tortfeasor or that he is liable in equity as an accomplice. Those claims are not presently before the Court.
Irreparable harm to the plaintiff
[55] The plaintiff focused on the transactions involving the Victoria Valley properties. By reference to data from Terranet, it said that the properties had increased in value, and now that he was a co-owner of the property, Mr Husband had enriched himself. The plaintiff saw itself as the loser while he had been able to make gains. However, the plaintiff did not attempt to trace funds misappropriated by the first defendant through to the Victoria Valley properties. On these properties some caution is required on the assumption that the properties have risen in value, in the absence of reliable evidence from reputable registered valuers. The property remains subject to the mortgage in favour of the ASB. As between Mr Husband and his wife, their marriage appears to be of short duration and Mr Husband’s interest in the property may be slight, in relation to hers, depending on the application of the short duration provisions of the Property (Relationships) Act 1976.
[56] Having said that, the plaintiff should still have the opportunity to pursue Mr
Husband’s interest in the Victoria Valley properties after judgment. If it can
establish that Mr Husband does have some valuable interest in the Victoria Valley properties, it ought to be protected against any potential loss. That is, Mr Husband ought not to be given the opportunity to make himself judgment proof in respect of
the Victoria Valley properties in the meantime.
[57] The plaintiff did not identify any other relevant heads of irreparable harm.
Miscarriage of justice
[58] It is necessary to set the default judgment aside to avoid a miscarriage of justice to Mr Husband. He has arguable defences to the cause of action on which judgment was sealed. Liability in conversion may be established for at least some of the cheques, but at present, Mr Husband has properly raised genuine defences and there would be an injustice to him if he were not given the opportunity to have the Court determine whether he is liable. His omission to file a statement of defence in time has been adequately explained, given the difficulties of obtaining legal advice and legal aid in the Far North.
[59] The plaintiff has registered a charging order following judgment on the Victoria Valley properties. It has also lodged a caveat. The caveat was not put in evidence and I do not know on what basis the plaintiff claimed a caveatable interest
in the property. It is prudent to leave the charging order in place. The plaintiff is entitled to be protected against the risk of Mr Husband making himself judgment proof. It is also entitled to take a belt and braces approach, lest the caveat should fail.
Costs
[60] A defendant applying to have a default judgment set aside normally pays the costs of the application. In this case, Mr Husband has legal aid. The plaintiff seeks costs notwithstanding the grant of legal aid and relies on ss 40(2) and 40(3)(a)–(b) of the Legal Services Act 2000. Under these provisions, no order for costs may be made against an aided person in a civil proceeding unless the Court is satisfied that there are exceptional circumstances. Amongst other things, the Court may take
account of any conduct that causes the other party to incur unnecessary cost and of any failure to comply with procedural rules. A legally aided person’s immunity from costs imposes a greater cost on their opponents. That inability to recover costs ought not to be exacerbated by legally aided people who do not comply with procedural rules and whose conduct causes the other party unnecessary cost. I regard this case
as falling within the exceptional circumstances, in that, while I found Mr Husband’s delay in filing a statement of defence understandable, it has still put the plaintiff to significant extra cost in dealing with this application. I fix costs at $3000, including disbursements, applying the 2B scale and not allowing for second counsel. The plaintiff asked for an order requiring payment of costs before a statement of defence is filed. I do not see the need for such order and decline to make it.
[61] Mr James raised the possibility of the matter being transferred to the District Court, given that the amount claimed against his client was within the jurisdiction of that Court. I have no jurisdiction to order a transfer in the absence of consent. Mr Woods elected to keep the proceeding in this Court. He explained that the settlement with the second defendant had fallen over so this proceeding would remain alive against that defendant. Further, he might wish to amend his pleadings, including seeking relief against Mr Husband for breach of director’s duties under the Companies Act, a matter outside the District Court jurisdiction.
[62] The plaintiff sealed judgment for only the liquidated amount of its claim. On the case going to a hearing it will be able to claim for all the relief it has sought, liquidated or not. On judgment being set aside it will also be able to amend its pleadings if it chooses.
[63] I accordingly order:
a) The judgment by default of 24 June 2009 against the fourth defendant
is set aside;
b) Notwithstanding the setting aside of the judgment, charging order
8233826.1 registered against the land in identifiers NA183A/84 and
184354 shall remain registered against the titles pending further order
of this Court. Liberty is reserved to the parties and to any third party
to apply further in respect of the charging order.
c) The fourth defendant shall pay the plaintiff costs of $3000. There is no condition as to the time for payment of this costs order.
d)The plaintiff may file any amended statement of claim within 15 working days of this judgment. The fourth defendant is to file a statement of defence within a further ten days of the plaintiff filing its amended statement of claim.
[64] There is to be a case management conference for this matter on 15 April
2010 at 10:50 am.
R M Bell
Associate Judge
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