Tankersley v Meroiti
[2014] NZHC 1874
•8 August 2014
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2012-485-641 [2014] NZHC 1874
BETWEEN RICHARD NORMAN TANKERSLEY
First plaintiff
RINOTA PROJECT MANAGEMENT SERVICES SDN BHD
Second plaintiff
ESTIMATING INTERNATIONAL SDN BHD
Third plaintiff
AND
JOHN DAVID MEROITI First defendant
DATA PLAN SERVICES LTD Second defendant
THE DRAFTING HOUSE LTD Third defendant
THE ESTIMATOR CENTRAL LTD Fourth defendant
JILL MEROITI Fifth defendant
CKM HOLDINGS LTD Sixth defendant
Hearing: 14 April 2014 Appearances:
B A Scott and A Kraack for plaintiffs
G W Manktelow for first and fifth defendants
T P Cleary for fourth defendantJudgment:
8 August 2014
JUDGMENT OF CLIFFORD J
TANKERSLEY v MEROITI [2014] NZHC 1874 [8 August 2014]
Introduction
[1] The first plaintiff, Richard Tankersley, and the second and third plaintiffs, the Singaporean companies Rinota Project Management Services Sdn Bhd (Rinota PMS) and Estimating International Sdn Bhd (Estimating International), apply to debar the first and fifth defendants, John and Jill Meroiti (the Meroitis), from defending these proceedings. They do so on the basis of the alleged non-compliance by the Meroitis with an “unless order” made in this Court by Kós J on 19 December
2013.
[2] The Meroitis oppose that application. They do so on the grounds they have substantially complied with the “unless order” and that any deficiencies in their compliance have arisen as a result of the complexities of their financial affairs and, hence, of the task of compliance, rather than as a result of any disregard by them of the Court’s order.
Background
The Substantive Proceedings
The parties
[3] Mr Tankersley is a New Zealand businessman who lives in Malaysia. Mr Tankersley controls Rinota PMS and Estimating International.
[4] Mr Meroiti was based in New Zealand and ran a business (the Business) developing and marketing software used by building supplies retailers to assist in quantity surveying.
[5] Data Plan Services Ltd (Data Plan), the second defendant, and The Drafting House Ltd (The Drafting House), the third defendant, are New Zealand companies controlled and owned by the Meroitis at the relevant times and used by them in the Business.
[6] Data Plan and The Drafting House are in liquidation.
[7] CKM Holdings Ltd (CKM Holdings), the sixth defendant, is also a New Zealand company controlled and owned by Mrs Meroiti. CKM Holdings was not involved in the Business.
[8] The Estimator Central Ltd (The Estimator Central), the fourth defendant, was a company owned and controlled by the Meroitis. The Estimator Central was not involved in the Business but used by the Meroitis in July 2006 to purchase another quantity surveying programme known as the Estimator programme. The Meroitis sold the Estimator Central in 2009 to a third party.
The business context
[9] There were four pieces of relevant software (the Software) involved in the
Business:
(a) SolidBuilder – a simple Computer Aided Design program used to create a 3D model of a house, framing and foundations.
(b)SmartStart/GDQ2000 – a programme that converted data exported from SolidBuilder into a schedule of products needed to build the modelled house, along with quantities and pricing.
(c) The Builders Tool - a cut down version of SmartStart designed for builders to use in the field to create quotes for presentation to customers.
(d)Tracker Joe – a reporting and management tool which matched quotes with success rates and actual sales.
[10] Data Plan was incorporated in 2000 to own, develop, install, support and maintain the Software in New Zealand. The Drafting House was incorporated in
2004 to provide quantity surveying services to Fletchers Distribution Ltd (Fletchers)
and to retail suppliers.
[11] In 2005 Mr Meroiti discussed with Mr Tankersley his plans to expand the Business into the United States. The plan was to market the Software and associated services to retailers overseas, to set up processing centres offshore, and to integrate and develop the Software to create a mega programme, with improved functionality, to be called TDX SolidBuilder.
[12] Mr Tankersley agreed to fund by way of joint venture the expansion of the Business by investing, via Rinota PM, in Data Plan and The Drafting House. For tax reasons, Rinota PMS’s funding was provided through the payment of expenditure incurred by Data Plan and The Drafting House in the expansion of the Business. Rinota PMS paid NZD 956,920.65 in this way between July 2005 and December
2005.
[13] In March 2006 an agreement formalising the joint venture, and giving Mr Tankersley part ownership of the intellectual property in the Software was entered into. Mr Meroiti and Mr Tankersley also entered into an agreement for Mr Tankersley to purchase 49 per cent of the shares in another of the Meroitis’ companies, International E-Business Ltd (International) for NZD 2 million. This was on the basis, Mr Tankersley says, that International by then owned the Software. Rinota PMS’ payments to Data Plan and The Drafting House, to the value of NZD
953,000, formed part of the payment for the shares. Mr Tankersley was required to pay a further NZD 1,047,000 in three instalments. Mr Tankersley paid the required instalments between30 March 2006 and 6 December 2006 and also, at Mr Meroiti’s request paid an additional NZD 47,000. Mr Tankersley’s agreement with Mr Meroiti was that the purchase price of the International shares was to be applied by Mr Meroiti to develop the Business.
The substantive claim
[14] Mr Tankersley1 claims the money paid to Data Plan, The Drafting House and/or the Meroitis was misspent and that Mr Meroiti: (i) misrepresented that the intellectual property in the Software had been transferred from Data Plan to
International; and (ii) overstated the value of the Software. Reflecting those claims,
1 From now on in this judgment, references to Mr Tankersley include, where appropriate, references to the second and third plaintiffs.
Mr Tankersley commenced these proceedings in March 2012 alleging misrepresentation under the Contractual Remedies Act 1979, deceit (in the alternative), breach of contract, breach of fiduciary duties, knowing receipt and dishonest assistance.
[15] Mr Tankersley claims that NZD 297,000 of International’s money was improperly used by the Meroitis to fund the purchase by The Estimator of the Estimator programme.
[16] Mr Meroiti’s wife is the sole director and shareholder of Lindale Lodge Ltd, a company incorporated on 11 January 2006. Lindale Lodge Ltd purchased a motel, Lindale Lodge, in February 2006. Mr Tankersley claims that some of the money he invested was misappropriated and used by Mrs Meroiti/Lindale Lodge Ltd to purchase Lindale Lodge.
[17] CKM Holdings is said by Mr Tankersley to have improperly received money he invested in the Business. CKM Holdings owned a number of properties on the Kapiti Coast, some of which it has sold since this dispute arose. The relevant properties are 165, 167A and 167B Huia Street.
[18] The Meroitis deny all of the plaintiffs’ claims. Mr Meroiti says that Mr Tankersley was always aware of the exact ownership structure of the intellectual property; that the valuations of that intellectual property were actual valuations or best estimates; that Mr Tankersley had no right to require Mr Meroiti to account for the money spent; and that all money was appropriately spent on further developing the Business.
Discovery, freezing and ancillary order
[19] Mr Tankersley’s application to debar the Meroitis from defending these proceedings, because they have not complied with Kós J’s 19 December 2013 unless order, can best be understood in the context of issues relating to discovery, freezing orders and ancillary orders that arose after Mr Tankersley filed these proceedings, and how matters relating to those issues stood on 18 November 2013 when Goddard J made the orders that became the subject of Kós J’s unless order.
Discovery
[20] In November 2012 I made targeted discovery orders by consent (the Original Discovery Orders). Each of the plaintiffs’ and defendants’ lists of documents were to be filed by 31 January 2013. In the case of the Meroitis, an important focus of the Original Discovery Orders were the payments by Rinota PMS to Data Plan and The Drafting House of NZD 956,920 , and the payments by Rinota PMS to Mr Meroiti (for use through International in the Business) of NZD 1.094 million. Bank statements from the Meroitis and related companies, including Lindale Lodge, were required to be disclosed for the period between 1 June 2005 and 31 December 2010.
[21] On 12 February 2013 the Meroitis provided a late and – as established by subsequent orders the Meroitis consented to – incomplete list of documents in accordance with the Original Discovery Orders.
[22] On 26 August 2013 (various issues relating to freezing orders to which I turn next having occupied the intervening period) Mr Tankersley applied for further discovery, in effect to procure compliance with the Original Discovery Orders. As before, the relevant focus of those further discovery orders was on bank statements from the Meroitis and their related companies for the period 2005 to 2010. Again, Mr Tankersley’s interest was to determine where the monies he had, via Rinota PMS, paid to Data Plan, The Drafting House and the Meroitis had gone.
[23] On 23 September 2013 Kós J ordered, again by consent, that the requested further discovery be provided by 29 October 2013.
[24] That was where issues relating to discovery stood on 18 November 2013.
Freezing and ancillary orders
[25] At the time he issued these proceedings, and perhaps as a prompt to that action, Mr Tankersley was aware that Lindale Lodge and 165 Huia Street were for sale. Mr Tankersley sought an undertaking that those properties would not be sold until these proceedings had been resolved. The Meroitis declined to provide such an
undertaking, but undertook to give Mr Tankersley seven days’ notice prior to the settlement of any sale of those properties.
[26] In December 2012, and whilst discovery issues were still at large, Mr Tankersley discovered that Lindale Lodge had been transferred from Lindale Lodge Ltd to Mr Meroiti and Lesley Clench, the trustees of a trust called the Piki Huia Trust. Mr Tankersley claimed the undertaking had been breached. The parties’ solicitors entered into correspondence. The Meroitis’ solicitors disputed that the undertaking had been breached, and said Mr Meroiti had couriered a notice of that transfer to Mr Tankersley’s solicitors’ office. Mr Meroiti was said to have a courier receipt to prove that.
[27] On 19 December 2012 Lindale Lodge had, in fact, been sold to a third party. That sale was registered on 20 February 2013.
[28] On 19 March 2013 Mr Tankersley, having concluded he had not received any notice from the Meroitis of the original transfer of Lindale Lodge and the subsequent sale to a third party, applied for a freezing over:
(a) Lindale Lodge;
(b) 165 Huia Street, Waikanae;
(c) 29 Cockburn Street, Whangarei; and
(d) any other assets valued at $5,000 or more, owned by the Meroitis.
[29] Mr Tankersley also applied for ancillary orders so as to determine the assets over which the freezing order applied.2
[30] On 21 March 2013 the Meroitis undertook not to dispose of or deal with the assets subject to the freezing order application until 15 February 2013, when the application was to be heard. The Meroitis were allowed, however, to pay $50,000
from the frozen accounts to their solicitors’ trust account for legal fees.
2 See High Court rule 32.3.
[31] On 9 April 2013 those undertakings were extended until 29 April 2013, the new hearing date for the freezing order application.
[32] Mr Tankersley’s application for a freezing order was heard on 29 April 2013. On 2 May 2013 Kós J issued a minute stating that “there is merit in the parties averting by agreement a judgment which is bound to be critical of the Meroitis in relation to the transfer of the Lindale Lodge Property”. The evidence at that hearing had suggested that Mr Meroiti had not couriered a notice of the transfer to Mr Tankersley’s solicitors’ office, as he said, but had couriered some other piece of paper in an attempt to fabricate a record of having given notice.
[33] On 2 May 2013 counsel agreed on the final form of freezing and ancillary orders (the Freezing Order and Ancillary Order) and submitted the orders to the Court. Justice Kós issued a minute containing the consent orders the same day and counsel received the minute on 3 May 2013. It relevantly provided:
(a) The Freezing Order restrained the Meroitis from disposing of or dealing with 165 Huia Street and 29 Cockburn Street, the proceeds of sale of Lindale Lodge, and all other assets other than personal chattels worth less than $5000. The Meroitis collectively were entitled to access a maximum of $100,000 for reasonable legal costs.
(b)The Ancillary Order was expressed in broad terms, and required the Meroitis to provide information with respect to the existence, nature and location of any assets owned by or associated with the defendants that were valued at $5,000 or more within 15 working days.
[34] The Meroitis did not comply with the Ancillary Order deadline and asserted that the 15 working days only began once the order had been served, despite the order having been made by consent. On 7 June 2013 the Meroitis filed and served affidavits in purported compliance with the Ancillary Order. Mr Tankersley instructed a forensic accountant, Mr Fisken, to advise on the adequacy of the information provided in compliance with the Ancillary Order.
[35] Mr Fisken provided his report on 31 October 2013. He concluded that the information provided was insufficient to enable identification of what assets were held by the Meroitis or had been transferred or disposed of. Further information was required, namely:
(a) bank statements and supporting documentation to enable the tracing of funds from the sale of 167B Huia Street;
(b)a settlement statement, supporting documentation as to mortgage repayments; bank statements and supporting documentation to enable the tracing of the proceeds of the sale of 167A Huia Street; and
(c) a settlement statement, supporting information, bank statements, trust minutes and resolutions and financial statements to enable the tracing of the proceeds of the sale of Lindale Lodge.
Justice Goddard’s orders of 18 November 2013
[36] Mr Tankersley’s application of 26 August 2013 for further discovery had a list call in the Judge’s Chambers List on 18 November 2013. For the purposes of that call, Mr Tankersley’s solicitors filed a memorandum dated 18 November 2013 (the 18 November Memorandum). In many ways it was the 18 November Memorandum which brought these matters to a head.
[37] The 18 November Memorandum recorded that the agreed discovery had still not then been provided in adequate form and, by reference to Mr Fisken’s report, that the ancillary order had not been complied with.
[38] At the list call various trial management issues were discussed and agreed.
[39] In terms of issues relating to discovery and the Ancillary Order, Goddard J
made the following orders:
(a) the Meroitis to file an affidavit explaining whether they had provided all documents sought by the plaintiffs in the application for further
discovery of 26 August 2013, in terms of which Kós J ordered further discovery on 23 September 2013, and if not why not, by 2 December
2013; and
(b)the Meroitis to provide the information listed in Mr Fisken’s report on the Meroitis’ failure to comply with the Ancillary Order by
2 December 2013.
Justice Kós’ 19 December unless order
[40] The Meroitis did not comply with Goddard J’s order by 2 December 2013. In a letter dated 12 December 2013 the Meroitis’ counsel stated that the Meroitis had “informed the Court that the defendants would be unable to comply with a 2nd of December timeframe and that is what occurred”. On 19 December 2013
Mr Tankersley, in a memorandum of counsel addressed to Kós J, sought an unless order on the basis that the Meroitis had not complied with Goddard J’s order or previous orders. Following a teleconference of that same date, Kós J issued a minute in which he made the requested unless order in the following terms:
[7] Today Mr Manktelow says his clients are “not recalcitrant” but are overwhelmed by the obligation to comply, and by the general Christmas rush. On his account that same overwhelmed state seems also to have overtaken those acting for the plaintiffs.
[8] This simply will not do. Court orders are being trifled with here. The information required by the orders of 3 May should have been provided by 24 May 2013. A further six months or more have passed.
[9] I am going to give the first and fifth defendants one last chance to comply. There is to be full compliance of the terms of Goddard J’s orders of
18 November 2013 by 31 January 2014.
[10] If purported compliance with those orders by that date is in any respect materially deficient, the first and fifth defendants will be debarred from defending this proceeding.
[41] On 31 January 2014 Mr Meroiti swore and served affidavits in accordance with that direction.
Application to enforce the unless order, setting down, and grant of freezing order
[42] On 17 February 2014 Mr Tankersley, in a memorandum of counsel addressed to Kós J, requested the Meroitis’ statement of defence be struck out as their compliance with the unless orders was materially deficient. In that memorandum Mr Tankersley first raised the possibility that the Meroitis had also breached the Freezing Order. Mr Tankersley identified a withdrawal of AUD$20,000 from an Australian bank account on 30 September 2013 as raising questions and observed that more information was required to determine whether the withdrawal breached the freezing order.
[43] In response to Mr Tankersley’s memorandum of 17 February 2014, Kós J issued a minute of 19 February setting the matter down for a one and a half hour hearing before an Associate Judge or Judge of the High Court on the first available date after 3 March 2014. As matters transpired the hearing came before me on
14 April 2014.
[44] Subsequent to that setting down on 4 March 2014, Mr Tankersley expanded on the issue of breaches of the Freezing Order in a follow up memorandum and submitted that any breaches were relevant to the Court’s discretion to enforce the unless order. Mr Tankersley had in the interim engaged Mr Fisken to undertake an analysis of all bank statements disclosed to date. Mr Fisken provided a report on
3 March 2014 detailing four breaches of the Freezing Order and earlier undertakings. The relevant transactions were said to be:
(a) The withdrawal of NZD 36,207.25 from BNZ bank accounts on
21 and 22 March 2013 in breach of the undertakings.
(b)The payment of AUD 80,028 to the Meroitis’ daughter’s bank account on 5 April 2013 from an Australian bank account in breach of the undertakings.
(c) Multiple cash withdrawals amounting to AUD 74,749 from various Australian bank accounts and branches over a three day period between 2 to 4 May 2013 in breach of the Freezing Order.
(d)The withdrawal of AUD 140,000 by way of three cash withdrawals from Australian bank accounts between 27 March and 2 May 2013 in breach of the undertakings and Freezing Order.
[45] Mr Meroiti filed an affidavit in response on 3 April 2014 and Mrs Meroiti did similarly on 7 April 2014. The Meroitis accepted that they had made the identified transactions but sought to explain them. The NZD 36,207.25 was withdrawn to pay for their daughter’s eye operation and other outstanding creditors. Mrs Meroiti believed this was the right thing to do and did not fully understand the situation. On
5 March 2013 prior to the Freezing Order or undertakings the Meroitis had instructed the bank to pay the AUD 80,028 to their daughter. They were unaware that had not been actioned until 5 April 2013. The remaining withdrawals were for legal fees. The Meroitis wrongly assumed the Freezing Order allowed each defendant $100,000 for legal fees, rather than collectively. Mrs Meroiti acted with the best of intentions but now realised she was wrong.
The application to debar a defence
The legal requirements
[46] The Court of Appeal has recently provided guidance on the principles that govern the imposition of ‘unless orders’, the consequences of their breach, and the significance of belated compliance.3 Those principles are:4
(a) As an unless order is an order of last resort, it is properly made only where there is a history of failure to comply with earlier orders.
(b) An unless order should be clear as to its terms. That is, it should specify clearly what is to be done, by when and what is the sanction for non-compliance. That sanction should be proportionate to the default.
(c) The sanction will apply without further order if the party in default does not comply with the order by the time specified. However, the party in default may seek relief by application to the Court.
(d) Justice may require that the party in default be relieved of the consequences of the unless order where the Court is satisfied that the breach resulted from something for which that party should not be
3 SM v LFBD [2014] NZCA 326.
4 At [31].
held responsible. The party should not assume that belated compliance will suffice.
(e) Where the unless order has been deliberately breached – that is, flouted – it is difficult to conceive of any situation where the interests of justice would require granting the flouter relief from the sanction imposed, notwithstanding belated compliance with the order.
(f) In deciding whether or not to excuse breach of an unless order the question for the Judge is: what does justice demand in the circumstances of this case? Considerations in answering that question include:
i. The public interest in ensuring that justice is administered without unnecessary delays and costs.
ii. The interests of the injured party, in particular in terms of delay and wasted cost.
iii. Any injustice to the defaulting party, although that consideration is likely to carry much less weight in the circumstances than considerations (i) and (ii).
[47] The Court of Appeal also stated in Anderson v Mainland Beverages Ltd that: 5
… “unless” orders should generally be reserved for cases where breach or continued breach is objectively measurable and unchallengeable. The consequences of failing to comply with ”unless” orders – striking out, stay or the like – are so significant that, in general, they should not be made in other cases, particularly where the obligations of the party in default are not unmistakably clear.
The Plaintiffs
[48] The plaintiffs say that the Meroitis’ compliance with both aspects of Goddard J’s order, and thus the “unless order”, is materially and objectively deficient.
[49] There are two aspects to Mr Tankersley’s argument that the response to the
discovery prong of the unless order is inadequate. First, Mr Meroiti’s affidavit of
30 January 2014 is said to be, on its face, inadequate. Second, subsequent affidavits of the Meroitis are said to evidence the inadequacy of the 30 January affidavit.
5 Anderson v Mainland Beverages Ltd (2005) 17 PRNZ 757 at [45]
[50] The affidavit of 30 January 2014 is said to lack explanation of whether a range of documents required to be disclosed by the discovery orders had been provided. Mr Tankersley focussed, however, on the inadequacy of the explanation as to the provision of all relevant bank accounts and statements for the period December 2005 to May 2010. The plaintiffs have sought disclosure of relevant bank statements and bank accounts since their first application for a discovery order. Relevant bank accounts were a category of documents upon which the “unless order” required Mr Meroiti to comment. Mr Meroiti’s affidavit stated that some bank statements for some bank accounts had been discovered and listed the periods for which such bank accounts had been provided (largely from 2005 to 2007). Mr Meroiti implied this was the only discovery of bank statements he was required to make. He did not explain whether all bank statements had been provided for all bank accounts required by the order, why bank statements had not been provided for all of the period covered by the application for further discovery (July 2005 to May 2010) or why the missing bank statements had not been provided.
[51] Moreover, the inadequacy of that explanation is demonstrated by Mr Meroiti’s subsequent attempts to explain why bank statements for the full period were not discovered and his acknowledgement that a number of identifiable bank accounts exist which were not disclosed in response to the “unless order” and from which bank statements could be obtained but were not. In an April affidavit Mr Meroiti acknowledged:
(a) an additional relevant Westpac bank account existed and he can request bank statements for the account;
(b) he can request additional Lindale Lodge Ltd bank statements;
(c) he can provide bank statements and financial statements for a partnership the Meroitis were operating but had not disclosed, the J & J Meroiti Partnership;
(d)he can request additional bank statements for two The Drafting House accounts he had previously disclosed.
Two additional bank accounts held by CKM Holdings were disclosed on the day of the hearing of this application.
[52] This, Mr Tankersley says, demonstrates that the Meroitis did not comply with the unless order. The unless order required the Meroitis to acknowledge those accounts existed and explain why the relevant bank statements had not yet been discovered.
[53] Turning to the Fisken report prong of the unless order, Mr Tankersley says the Meroitis did not provide all of the additional information that the unless order required them to disclose. The Fisken report required the provision of documents to enable the plaintiffs to trace the proceeds of sale of three properties previously owned by the Meroitis (167A Huia Street, 167B Huia Street and Lindale Lodge).
[54] The Meroitis did not provide in relation to 167A Huia Street:
(a) Supporting documentation for the repayment of the mortgage. The settlement statements shows the proceeds of the sale were used to repay three loans totalling $543,348.18. No details of those loans were provided.
(b)Bank statements from accounts which received part of the proceeds from the sale of 167A Huia Street. The settlement statement shows that:
(i)$56,580.85 was allegedly paid to the Piki Huia Trust as a repayment of a loan. No bank statements or supporting documentation show the debt owing to Piki Huia Trust or the repayment.
(ii)$16,825 was given to CKM as a “balance deposit”. No bank statements or other documentation shows where the funds were deposited or transferred to.
(iii)$10,000 was paid to a Westpac Visa account. No credit card accounts have been disclosed and no statements provided.
(c) Supporting documentation for any expenditure or withdrawals of
$5000 or more from the CKM account. Approximately $85,000 was withdrawn from the CKM account. Mr Meroiti explains but provides no supporting documentation for $35,000 of the $85,000 and no explanation for the remainder.
[55] In relation to 167B Huia Street the Meroitis did not provide an explanation or supporting documents that detail what occurred to the proceeds of the sale. The disclosed documents show that the proceeds were placed into a second BNZ term deposit account but no supporting documentation is provided that would enable the tracing of the proceeds of the sale from that second term deposit account. Additionally, not all requested bank statements were provided and nor was supporting documentation for withdrawals of over $5000 from the specified bank accounts.
[56] In relation to the proceeds of the sale of Lindale Lodge the Meroitis did not provide bank statements for a fourth Westpac Australia bank account into which proceeds of the sale of Lindale Lodge were placed.
The Meroitis
[57] The Meroitis state they have complied with the ancillary order. The Meroitis
explain that the plaintiff’s second amended statement of claim concerns payments made by plaintiffs during the following time periods:
13 July 2005 to 13 December 2005 13 March 2006 to 7 December 2006
20 November 2006 to 30 April 2008
[58] Mr Manktelow, representing Mr Meroiti before me, submitted that Mr Meroiti’s previous counsel, Mr Millard, had at the time been of the view that the only relevant bank statements were therefore those in the period in which payments were being made into the ANZ accounts. That “submission” was, for a variety of obvious reasons, not at all helpful. The “unless order” required the Meroitis to explain why a document was not being discovered and Mr Meroiti explained that documents referred to in schedules 1 and 2 of the amended statement of claim had been discovered. To obtain the balance of bank statements up to 2010 was seen as not being relevant and costly. Mr Meroiti has subsequently made an attempt to obtain the other bank statements.
[59] The Meroitis explain that the only other bank accounts under their control that would have received funds sourced from the original four accounts are a Westpac account into which Mr Meroiti’s wages are paid and disclose that the J & J Meroiti Partnership has a Westpac account for which financial statements will be tracked down.
[60] Mr Meroiti also emphasises that he has no control over a company, The Drafting House (USA), which was incorporated to expand the Software into the United States and does not therefore have access to its bank accounts. Mr Tankersley as a shareholder and director does and accordingly, the plaintiffs should themselves discover those documents. TDHL and DPSL are in liquidation. The plaintiffs have had access to the documents held by the liquidators but they are not in Mr Meroiti’s control.
[61] The Meroitis have therefore complied with the discovery aspect of the
“unless order”.
[62] As to the Fisken report aspect of the “unless order”, the Meroitis say they have endeavoured to comply with the ancillary order and to discover the information requested in the Fisken report. The complexity of the Meroitis’ financial affairs however means that it is inevitable that no more than a summary of the financial transactions taken in the three years prior to 2 May 2013 could be undertaken. The Meroitis hold multiple bank accounts at ANZ, BNZ, Westpac and Commonwealth
banks in New Zealand and Australia and money is placed on interest earning deposit, transferred between accounts and banks, and withdrawn to pay for private household expenditure, business debts and servicing of loans. The Meroitis have provided a “fulsome and open affirmation about the Meroiti’s financial affairs and, in light of the complexity of the Meroitis’ financial affairs” have complied with the order.
[63] More specifically, the Meroitis explain the failure to disclose documents that describe what happened to the proceeds of 167B Huia Street by denying that there is a separate BNZ term deposit account. The Meroitis say they have attempted to obtain statements from BNZ showing monies placed on interest earning deposit and subsequently withdrawn from time to time but have been told it is an internal process and would be difficult if not impossible to obtain. Similarly, there is no separate Commonwealth Bank of Australia term deposit account, only monies that are placed on interest earning deposit with the bank itself. As to the proceeds of 167A Huia Street the Meroitis have attempted to obtain a copy of the Westpac repayment loan but have been unsuccessful and say that the Piki Huia loan is valid. As to Lindale Lodge the Meroitis deny that there is a fourth account and say that the bank mistakenly re-numbered one of the three accounts disclosed.
[64] The Meroitis have not endeavoured to conceal the complexity of their financial affairs and have not hesitated to reveal crucial facts that operate to their disadvantage. The Meroitis do not have the accounting resources to provide the complete picture demanded by the plaintiffs. The Meroitis have thus not ignored the orders but rather “their affairs are in such a state of muddlement as to make detailed analysis difficult, if not impossible”. They have done their best in an extremely difficult situation.
Analysis
[65] The Meroitis do not challenge Kós J’s making of the “unless order”. Given their history of non-compliance with court orders outlined above, they could not sensibly do so. The issue here, therefore, is whether the Meroitis complied with the “unless order” by the specified time. If not, the sanction which Kós J stated would be the consequence of non-compliance – debarment – automatically takes effect
unless the Meroitis can establish that the interests of justice require relief from that consequence. If the Meroitis deliberately flouted the “unless order” the interests of justice are most unlikely to require relief.
Compliance with the discovery aspect of the “unless order”
[66] It is sufficient in analysing compliance with the discovery aspect of the “unless order” to focus on the Meroitis’ discovery of bank accounts and bank statements.
[67] Mr Meroiti’s affidavit of 30 January 2014 begins by quoting Mr Tankersley’s request, which became the subject of Kós J’s Further Discovery Order for:
(b) bank statements for accounts in the name of any of the defendants,
or any other entity … which received:
i. funds from any of the plaintiffs between July 2005 - May
2010;
ii. funds from bank accounts which can be traced back to funds sent by Richard Tankersley into accounts properly discovered under (i) above.”.
[68] Mr Meroiti then explained that he has already discovered bank statements for a number of accounts for the periods March 2005 to February 2008. The statements “well and truly cover the payments” referred to in Mr Tankersley’s amended statement of claim. Mr Tankersley does not have access to The Drafting House (USA)’s bank accounts, has had difficulty obtaining bank statements from the Piki Huia Trust, and the Drafting House and Data Plan are in liquidation. Accordingly Mr Meroiti concluded that:
I believe that I have disclosed all documents within the power or possession of myself and of the sixth defendant. The fifth defendant does not have any documents independent to mine.
[69] This explanation is, on its face, not compliant with the requirement to explain whether all documents have been provided and if not, why not. The affidavit quotes the request for bank statements for the period July 2005 – May 2010, identifies that statements have been disclosed for a lesser period, proffers no
explanation of why bank statements for the full period have not been provided, and yet asserts all documents have been discovered.
[70] The inadequacy of this explanation is particularly obvious in light of the subsequent affidavits filed by the Meroitis. As described at [6], in an April affidavit Mr Meroiti subsequently acknowledged that additional relevant bank accounts existed and that he could obtain bank statements for the full period the defendants had requested. Mr Meroiti does not explain in that affidavit why the additional bank accounts had not previously been disclosed but states that it was not thought that bank statements for the full period were relevant given the dates referenced in the plaintiffs’ second amended statement of claim.
[71] The Meroitis therefore breached the “unless order”. Not only did the Meroitis fail to give the required explanation, they subsequently disclosed the existence of bank accounts and statements whose disclosure was required by the Original Discovery Order, the September 2013 further discovery order, the November 2013 order, and the December 2013 “unless order” in which Kós J warned the Meroitis that they were trifling with Court orders and had one last chance to explain whether all bank accounts and statements had been disclosed and if not, why not, by 31 January 2014.
[72] This is a not a situation analogous to Matthews v Scott where the fact an affidavit was filed was seen as sufficient evidence of compliance and the “the accuracy of the affidavit [was] an issue that can be pursued by way of interrogatories, or by cross-examination at trial.”6 The accuracy or adequacy of Mr Meroiti’s affidavit is not something that needs to be pursued at a later stage as its failings are “objectively measurable and unchallengeable”. The explanation is, on its
face, inadequate. Moreover, subsequent to the date by which Mr Meroiti was required to explain whether he had, and if not why not, discovered bank statements for accounts that received relevant funds, Mr Meroiti disclosed the existence of additional accounts and accepted he could obtain additional bank statements. That is
unmistakeable evidence of non-compliance.
6 Matthews v Scott HC Auckland CIV-2010-404-1117, 19 November 2010.
[73] Mr Meroiti’s counsel seeks to explain the failure to discover all relevant bank statements by stating it was believed that bank statements were only sought for the periods covered by the second amended statement of claim and Mr Meroiti’s affidavit explained that documents referred to in schedules 1 and 2 of the amended statement of claim had been discovered. With respect, I do not find this explanation credible. The Meroitis consented in November 2012 to discover bank statements between 2005 and 2010. The plaintiffs sought discovery for this period again in August 2013. The Meroitis did not provide an alternative list of documents they would discover and Mr Meroiti’s affidavit in response to the unless order quotes the request for bank statements from accounts that received funds from the plaintiffs between July 2005 – May 2010. To suggest that the Meroitis were unaware that bank statements for that period were sought and explain, now (though not in the January affidavit in which the Meroitis were required to explain why documents were not being discovered) that those statements were seen as irrelevant and too costly to obtain is unsatisfactory. The Meroitis were aware of their obligations to discover these statements and did not comply with Kós J’s “unless order” requiring them to explain why they had not been discovered. Moreover, the Meroitis have never attempted to explain their failure to disclose the existence of other relevant bank accounts in response to the “unless order”.
Compliance with the Ancillary Order aspect of the “unless order”
[74] The issue of the Meroitis’ compliance with the ancillary order aspect of the “unless order” is more vexed. I accept the Meroitis’ claim, made in submissions as early as 26 April 2013 that “the requirement to disclose the existence, nature and location of any assets valuated at $5,000 or transferred or disposed of within the last three years imposes such a low threshold that it seriously risks failure”. I do not find the plaintiffs’ identification of various failures to disclose withdrawals of relatively small amounts of money persuasive evidence of non-compliance with the “unless order”. Nor do I consider the dispute over the existence of a fourth Westpac bank account into which the proceeds of the sale of Lindale Lodge were placed, or the existence of a separate BNZ term deposit account, to be evidence of unmistakeable non-compliance with the “unless order”.
[75] However, there are several, material, objectively measurable and unchallengeable aspects of the Meroitis’ non-compliance that I do not find so easily excusable on the grounds the Meroitis made their best attempt to comply with their obligations.
[76] Justice Goddard ordered the Meroitis to comply with Mr Fisken’s request for
information to enable the tracing of the proceeds of 167A Huia Street on
18 November 2013. That explicitly required “supporting documentation on the amount of the mortgage repayment” and copies of bank statements for any accounts that received part of the proceeds of sale. In the earlier 2 May 2013 ancillary order the Meroitis were already required to disclose “the existence, nature and location of any assets valued at $5000 or more transferred or disposed within the past three years”. That would include the sale of 167A Huia Street. Mr Meroiti’s January affidavit attaches no supporting documentation as to the repayment of the mortgage on 167A Huia Street beyond the settlement statement which shows that the proceeds of the sale of 167A Huia Street were $722,156.81 and there was a repayment of three loans totalling $543,348.18. No supporting documentation of the loan repayments was provided and no bank statements for the bank accounts that received the funds were provided.
[77] Mr Meroiti explains in his affidavit of 4 April 2014 that he asked the solicitor involved in the sale to provide a copy of the Westpac repayment statement and the solicitor failed to do so. The repayment statement is attached to Mr Meroiti’s counsel’s submissions of 14 April 2013. In those circumstances I also find the assertion that Mr Meroiti used his best endeavours to obtain that document, so readily obtained in April, as simply not credible.
[78] The Meroitis encounter a similar problem in respect of their failure to provide bank statements for the bank accounts that received funds from the proceeds of sale of 167A Huia Street ($56,580.85 to the Piki Huia Trust; $10,000 to a Westpac visa;
$16, 825 to CKM Holding Ltd). The plaintiff’s desire to trace the proceeds of the sale of 167A Huia Street and the court’s orders that the Meroitis provide bank statements for accounts that received these proceeds, were known to the Meroitis for at least eight months. The Meroitis’ inability to, in that time, obtain bank statements
for three accounts to which they had access is not indicative of the Meroitis having made their best attempts to obtain the requested documents.
[79] Both of these breaches are objectively measurable and unchallengeable. The “unless order” required the Meroitis to disclose the documents. The Meroitis were capable of disclosing the documents and did not do so within the time frame imposed by the “unless order”.
Relief from the automatic consequence of debarment
[80] As the Meroitis breached the unless order, the consequence specified by Kós J – debarment – follows automatically unless the Meroitis can persuade me they should be relieved from that outcome.
[81] The Meroitis were required to comply with the “unless order” by 31 January
2014. Since 31 January 2014 the Meroitis have made substantial disclosures that have, to some extent, alleviated their initial failures. These disclosures are, however, simply too little too late. An “unless order” is a last chance order. The Meroitis’ response to having been given a last chance to comply with court orders was to not comply with those orders, to assert they had complied, and then for the next few months to gradually disclose additional information that was proof of their non- compliance. The Meroitis’ breaches do not result from events outside their control, but rather evidence a continued pattern of disregard for court orders.
[82] Moreover, the plaintiffs make a convincing case that, as has occurred throughout these proceedings, the late information disclosed by the Meroitis provides further evidence that the Meroitis have yet to fully comply with their obligations, suggesting as it does the existence of further undisclosed bank accounts. Central to the plaintiffs’ proceedings is the issue of tracing the money invested in the joint venture. Their essential concern has been, and justifiably remains, that there are in fact other bank accounts that have not been disclosed. This concern has been heightened by the gradual uncovering of bank accounts and the repeated assertions that discovery has been completed followed by the provision of additional discovery.
[83] Mr Tankersley also sought to rely on the alleged breaches of the Freezing Order and preceding undertakings identified at [44] in support of his argument that the Meroitis should be debarred. During the hearing of this proceeding I raised questions as to the extra-territorial application of the Freezing Order and subsequently received memoranda from counsel on that issue. On reflection, I do not think it is an issue it is necessary to resolve. There is ample evidence that the Meroitis breached the unless order and they proffer no convincing explanation for their actions. I do however note that the Freezing Order and preceding undertakings were made by consent and, by my assessment of the materials, was understood by all parties including the Meroitis to apply to the Meroitis’ Australian assets.
[84] I acknowledge that the consequences for the Meroiti’s of being debarred from defending these proceedings are significant. Judgment would likely be to the effect of at least $1 million and the Meroiti’s claim they have a defence to the allegations made against them. However, as stated in Hytec Information Systems Ltd v Council of City of Coventry:7
The interests of justice require that justice be shown to the injured party for the procedural inefficiencies caused by the twin scourges of delay and wasted costs. The public interest in the administration of justice to contain those two blights upon it also weighs heavily. Any injustice to the defaulting party, though never to be ignored, comes a long way behind the other two
[85] The Meroitis have acted with disregard for court orders with the effect that the plaintiffs have been unable to trace the money that is the very subject of these proceedings and have been unable to prevent the Meroitis from continuing to dissipate the assets out of which any judgment in the plaintiffs favour would be ordered. Mr and Mrs Meroiti undertook to give notice before selling Lindale Lodge, then sold Lindale Lodge without giving notice; gave an undertaking not to dissipate their assets, then dissipated their assets; consented to a Freezing Order then denied its application; consented to discovery being ordered on agreed terms then failed repeatedly to comply with those discovery obligations; and finally, have failed to comply with the “unless order”. No compelling explanation for the breach of the unless order has been provided. The interests of justice do not therefore require that
the Meroitis be relieved from the consequences of their non-compliance.
7 Hytec Information Systems Ltd v Council of City of Coventry [1997] 1 WLR 1666 (CA) at 1674-5.
Result
[86] The Meroitis did not comply with Kós J’s “unless order” by the required date. The Meroitis have not established that the interests of justice require they be relieved from the automatic consequence of that. They are therefore debarred from defending these proceedings.
[87] I request a further submission from the plaintiffs as to the consequences of this judgment. At the present time, I do not see how the plaintiffs’ claim can be regarded as a liquidated demand.
“Clifford J”
Solicitors:
Chapman Tripp, Wellington for the plaintiffs.
G Manktelow, Lower Hutt for first and fifth defendant. P H Mitchell, Wellington for the fourth defendant.
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