The Vintage Aviator Ltd v DeMarco
[2021] NZHC 2467
•19 July 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2017-485-001027
[2021] NZHC 2467
BETWEEN THE VINTAGE AVIATOR LIMITED
First Plaintiff/First Counterclaim Defendant
PETER ROBERT JACKSON, FRANCES ROSEMARY WALSH and
PHILIPPA JANE BOYENS (as trustees of Film Property Trust)
Second Plaintiffs/Second Counterclaim DefendantsAND
EUGENE JOHN DEMARCO including as trustee of the Airtight Trust
First Defendant/First Counterclaim Plaintiff
OLD STICK & RUDDER CO LIMITED
Second Defendant/Second Counterclaim Plaintiff
CIV-2018-485-000417 BETWEEN
OLIVER WULFF
PlaintiffAND
EUGENE JOHN DEMARCO
First Defendant
THE OLD STICK & RUDDER CO LIMITED
Second Defendant
Hearing: 14, 15 and 19 July 2021 Appearances:
B A Scott and J E Henderson for The Vintage Aviator Ltd, the trustees of the Film Property Trust and Sir Peter Jackson
M G Colson and D W Ballinger for Mr Oliver Wulff
S J Fraser for The Old Stick & Rudder Co Ltd (and for Mr Eugene DeMarco (a bankrupt) on 14 July 2021)
G A D Neil for the Official Assignee (in the bankrupt estate of Mr DeMarco on 19 July 2021)
THE VINTAGE AVIATOR LIMITED v DEMARCO [2021] NZHC 2467 [19 July 2021]
Judgment: 19 July 2021
JUDGMENT OF GRICE J
(re: application for leave to appeal to Court of Appeal of interlocutory judgment (unless order) and application for stay of proceedings)
Contents
Para
Background[13]
Procedural history[15]
Debarring judgment[40]
Legal principles applicable[44]
Leave to appeal[45]
Stay of proceedings[48]
The DeMarco interests’ submissions[50]
Breach of natural justice[52]
Disproportionate response[62]
Bias[65]
Errors alleged by the DeMarco interests[68]
Analysis[84]
These applications[99]
Conclusion[106]
Costs[107]
[1] The two proceedings before me are not consolidated but have “travelled” together.
[2] In general terms the substantive allegations are that Mr DeMarco and the second defendant (I refer to them as the DeMarco interests) fraudulently dealt with property, including aircraft, which were owned by each of the plaintiffs.1
[3] The matters before me are applications for leave to appeal and for a stay pending the hearing of the appeals (and other appeals to which I refer later) in each proceeding. I have delivered a results judgment dismissing the application in relation to the second defendant. This judgment sets out the reasons for that judgment and is the result and reasons decision on the applications by Mr DeMarco personally.
[4] In simple terms the judgment under appeal debarred the DeMarco interests from defending the proceedings. It directed the trial would go ahead as if it were a formal proof hearing, prohibited the DeMarco interests from calling evidence or cross-examining, but allowed them to appear and make submissions. The debarring was as a result of failures by the DeMarco interests to comply with an “unless order”, which in turn had been made due to non-compliance with their discovery directions.
Those failures had not been remedied by the time of this hearing.2
[5] The proceedings were due to go to a three-week trial commencing on 12 July 2021. Due to the present application the start date was delayed until 19 July 2021.
[6] Matters have been further complicated as Mr DeMarco was adjudicated bankrupt shortly after the hearing of this application had been completed. Mr DeMarco has advised he is appealing that adjudication. Shortly afterwards the Official Assignee put the second defendant into liquidation.
1 The decision was delivered orally and has been edited for grammar and flow with the addition of footnotes for reference. I will call the plaintiffs in the CIV-2017-485-1027 matter the Jackson/TVAL interests. Mr Wulff is the plaintiff in the CIV-2018-485-417 application.
2 The Vintage Aviator Ltd v DeMarco [2021] NZHC 1476 [“Debarring Judgment”].
[7] The plaintiffs’ evidence in the form of affidavits had been filed, as had the opening submissions by both plaintiffs and defendants. The evidence was to be provided by way of affidavit with the deponents (some of whom are overseas) being available for questions by video link.3
[8] The Official Assignee sought time to allow him to consider the present proceedings. He has appeared as Assignee of the estate of Mr DeMarco in bankruptcy and liquidator of the second defendant.
[9] During oral arguments Mr Fraser, at that stage acting for the DeMarco interests, sought leave to amend his application for a stay by extending the stay to include a stay pending the determination of two other appeals by Mr DeMarco. First is an earlier appeal that he has lodged in the Court of Appeal against a judgment striking out parts of the statement of defence and counterclaim on the basis that they were inconsistent with the verdict of a jury which had found Mr DeMarco guilty of fraud relating to four causes of action that are in the Jackson proceedings.4
[10] The second is an appeal to the Court of Appeal against the criminal convictions. This appeal requires leave as it was only recently filed. Mr DeMarco was convicted on 13 September 2019 on six charges, brought by the Serious Fraud Office (SFO), in the Wellington High Court. This followed the verdicts of guilty by a jury. Mr DeMarco was sentenced to serve a term of imprisonment. He served part of that term from December 2019 until the end of September 2020 when he was released on parole.
[11] An earlier appeal against the convictions was abandoned. Mr Fraser explained that Mr DeMarco wished to concentrate on his Parole Board hearing and therefore had abandoned the appeal. The parole application was successful. Because the new appeal has been filed out of time leave will be required to pursue it. Mr DeMarco will need
3 The trial directions were made following the decision to debar. See Vintage Aviator Ltd v DeMarco HC Wellington CIV-2017-485-1027, 2 July 2021 and Vintage Aviator Ltd v DeMarco HC Wellington CIV-2017-485-1027, 5 July 2021.
4 The first four causes of action by the Jackson interests are based on the facts that were the subject of the charges and convictions in the High Court. The fifth to 18th causes of action were added in amended pleadings following investigation after the criminal trial, according to counsel. One of those causes of action is not pursued due to legal advice as to the evidential sufficiency available to prove the action.
to establish “exceptional circumstances” to proceed. Mr Fraser advises that Mr DeMarco hopes to retain counsel to conduct the appeal. However, no timeframe has yet been set for the Court of Appeal to deal with that appeal.
[12] Mr Fraser indicated legal aid for Mr DeMarco had been refused but that that refusal is on appeal to the Legal Services Tribunal. If that Tribunal makes a determination in favour of Mr DeMarco, the legal aid application would then be referred back for reconsideration to Legal Services. Mr Fraser did not expect any decision on legal aid in the near future. I note Mr Fraser’s assistance in providing that information to the court and that he continues to appear despite the circumstances.
Background
[13] The background is set out in the debarring judgment of 21 June 2021 as follows:5
[2] In an earlier interlocutory judgment dated 21 April 2021 I quoted counsel’s descriptions of the factual background, and for consistency and convenience I reproduce those quotes again here:
Background
[3] The background to the two proceedings is, for the most part, uncontroversial.
[4] The principal parties are or were all connected with the film production business of Sir Peter Jackson and Dame Frances Walsh, generally referred to as “Wingnut”.
[5] With respect to the 1027 proceeding, Mr Scott outlined the factual background in these terms:
23The facts on which the plaintiffs rely are relatively straightforward and are set out in the amended statement of claim. The nature of the fraud that flowed from those facts is also summarised in the trial judge’s sentencing decision. A chronology of material facts is set out in Schedule 1. Essentially however:
23.1TVAL restores and manufactures vintage aircraft. Mr DeMarco was the Production Manager and senior and trusted employee of the company.
5 Debarring Judgment, above n 2, at [2] (footnotes omitted).
23.2Mr DeMarco’s company, OSRC became liable for a loan to the FPT (the FPT Loan) and by early 2016 it was significantly in default (with over $1 million owing) and the FPT required repayment.
23.3At this time, Mr DeMarco arranged the sale of the three TVAL aircraft to Warbirds between April and June 2016. However, rather than selling them to Warbirds at TVAL’s list price, Mr DeMarco falsely represented to Warbirds that TVAL’s prices were significantly higher than TVAL’s agreed list prices. Mr DeMarco simultaneously falsely represented to TVAL that Warbirds wanted to pay more than TVAL’s list prices in order to help Mr DeMarco financially.
24.4 The purpose of these false representations was to enable Mr DeMarco to keep the difference between TVAL’s list prices and DeMarco/OSRC’s inflated prices charged to Warbirds (which would have been a total of
$621,770.50 had all three sales been completed).
23.5Mr DeMarco/OSRC was paid $2,105,879.50 by Warbirds as part-payment for the three TVAL aircrafts and later delivered possession of one of them to Warbirds (the Be2) before the criminal conduct was discovered by Sir Peter in July 2017. None of these monies were ever paid to TVAL, rather Mr DeMarco used part of the funds to repay the FPT Loan.
23.6Much later, after the fraud had been discovered and the delivery of the other two aircraft had been stopped, Mr DeMarco repaid Warbirds the deposits they paid for the Sopwith Camel and the Albatross, which had not been delivered to Warbirds. However, he has never paid to TVAL any part of the funds he/OSRC received from Warbirds for the Be2, being $937,250. Nor has he accounted for the benefit he obtained from the
$2,105,879.50 while it was in his possession.
23.7The plaintiffs’ first four causes of action relate to these transactions and seek judgment for the proceeds of sale and an accounting for the benefit obtained from the funds (causes of action one and two) and seek to be able to enforce that judgment against another plane (the Corsair) which was used as security for the FPT Loan, which in part had been
discharged using the funds received by Mr DeMarco from Warbirds (the third and fourth causes of action).
[Footnotes omitted]
[6] As to the 417 proceeding, Mr Ballinger’s summary of the background was as follows:
5.The background to Mr DeMarco’s counterclaim and Mr Wulff’s application to strike out is set out in the affidavits …
…
6.In essence, the background is a dispute between Mr Wulff and Mr DeMarco about the legal ownership of two vintage aircraft: a Goodyear Corsair FG-1D, and a Curtiss P40.
7.In March 2012, Mr DeMarco and Mr Wulff signed documents recording an agreement that included:
(a)Mr Wulff was to take a shareholding in The Old Stick & Rudder Co Ltd (OSRC);
(b)Mr Wulff was to own the P40 aircraft, and Mr DeMarco was to own the Corsair aircraft;
(c)Mr Wulff was to pay USD500,000 for his shareholding and ownership of the P40; and
(d)No loans were to be made against the aircraft without consent from both Mr Wulff and Mr DeMarco.
8.Mr Wulff paid the sum of USD500,000 in accordance with the agreement by March 2012. But he was never registered as a shareholder in OSRC.
9.On 7 June 2016, Mr DeMarco borrowed $250,000 from BNZ and purported to grant a security interest over the P40 aircraft in relation to that lending. Mr Wulff did not consent to that security interest being granted.
10.Mr DeMarco has subsequently been convicted by a jury in the Wellington High Court in September 2019 on a charge of theft in a special relationship, on the basis that he used the P40 as security for the bank loan with knowledge that this breached the terms of his agreement with Mr Wulff.
11.Mr Wulff was understandably concerned about the status of the P40 when he learned of Mr DeMarco’s
behaviour. He commenced a proceeding in this Court in 2018 against … Mr De Marco, seeking declarations that the effect of his 2012 agreement with Mr DeMarco was that either:
(a)he is the sole legal owner of the P40; or
(b)in the alternative, that OSRC is the legal owner of the P40, and Mr Wulff was to be registered as a 50 per cent shareholder in OSRC.
12.This proceeding is CIV-2018-485-417, and is set down for trial commencing in July this year.
13.Mr Wulff also took steps in January 2018 to file with the Civil Aviation Authority (CAA) a “Change of Possession” form for the P40 aircraft. The Change of Possession form effected a change in the New Zealand Register of Aircraft in the registered person for the P40 from OSRC to Mr Wulff, on the basis that Mr Wulff had an ownership interest in the aircraft.
14.A Change of Possession form is not a certificate of title or registration of a change of legal ownership, but rather is registration of a person who is entitled to possession of the aircraft for a period of 28 days or longer. It does not affect the legal or equitable ownership interests and rights in an aircraft.
[Footnotes omitted]
[7] For the Civil Aviation Authority, Mr Davis was content to adopt the summaries provided by Messrs Scott and Ballinger as a basis for his submissions.
[8] For Mr DeMarco and The Old Stick & Rudder Co, Mr Fraser did not challenge the core facts as described in Mr Scott and Mr Ballinger’s outlines of these, though it goes without saying that Mr DeMarco and The Old Stick & Rudder Co would not characterise the events in this same way as is done on behalf of the other parties, or accept that they should lead to the same outcomes.
[9] In mid-2017 The Vintage Aviator’s board of directors lodged a complaint with the Serious Fraud Office. Ultimately, the Serious Fraud Office laid six charges against Mr DeMarco concerning the same factual circumstances as are pleaded in these two proceedings.
[10] The criminal proceedings came on for trial in this Court before Clark J and a jury in September 2019 and on 13 September 2019 Mr DeMarco was convicted on all six charges. Attached to this judgment is a schedule that sets out the six charges laid against Mr DeMarco, and, in relation to each of those charges, the question trail provided by Clark J to the jury.
[14] To that summary I would add that Mr Colson QC, for Mr Wulff, advised that the security held by the Bank of New Zealand over the P40 aircraft has now been discharged.
Procedural history
[15] The TVAL proceedings (1027) were issued on 12 December 2017 and Mr Wulff issued his proceedings (417) on 18 June 2018. In May 2018 the Serious Fraud Office (SFO) laid six charges against Mr DeMarco. By consent these proceedings were put on hold at the defendant’s request pending the criminal trial. This resulted in the loss of some earlier trial dates.
[16] Following the convictions, the statements of claim were amended. In the case of the TVAL proceedings, the amendments were to correct and be consistent with Mr DeMarco’s criminal convictions. At that stage there were four causes of action. By February 2020 the plaintiffs had filed a memorandum seeking urgent timetable directions from the court as the defendants had not filed a statement of claim and were in breach of the timetable orders by over two months. At that stage the DeMarco interests were represented by counsel, although not by Mr Fraser.
[17] In a minute the Associate Judge made orders, without opposition, that unless a defence was filed by 27 March 2020 the defendant’s pre-existing defence would be struck out and the plaintiffs would be entitled to move for judgment by default.
[18] On 27 March counsel for the DeMarco interests sought an extension of the “unless order” in respect of filing the statement of defence. The extension was granted until 8 May 2020. A statement of defence was filed on 7 May 2020. That statement of defence was factually consistent with the convictions in the criminal trial.
[19] On 13 August 2020 updated timetable orders were made requiring the filing and service of an amended statement of claim by 28 August and defence by 25 September with standard discovery being provided by 23 October 2020. A fixture was to be allocated a four-week trial in the High Court. The registrar allocated a fixture date commencing 5 July 2021.
[20] The plaintiffs’ amended statement of claim was filed in accordance with the timetable and added the fifth to 18th causes of action. The DeMarco interests asked for a four-week extension for the filing of the statement of defence. While opposed, that was granted on 30 September 2020 extending compliance until 14 October 2020.
[21] A statement of defence and counterclaim in the TVAL proceedings were filed on 14 October 2020. Those pleadings were significantly different from the original statement of defence. This led to the plaintiffs’ application to strike out those statement of defence and counterclaims on the basis they made denials and allegations contrary to the facts upon which Mr DeMarco’s convictions were based and secondly, the counterclaims did not disclose a proper cause of action. Summary judgment was also sought by the plaintiffs on the counterclaim actions.
[22] The hearing of the applications to strike out and the plaintiffs’ application for summary judgment was held on 4 March 2021. At the same hearing Mr Wulff, supported by the Jackson interests, made an application to strike out the defence in these proceedings for non-compliance with the discovery order, which was then overdue by more than three months from the timetabled date of 23 October 2020.6 On 21 April 2021 Johnston AJ’s decision was released. It made orders striking out parts of the defence filed on 14 October; granted summary judgment and a strike out in respect of Mr DeMarco’s counterclaims in the TVAL proceeding and made final discovery directions subject to “unless orders” requiring discovery to be provided by 30 April 2021. The Judge said: “…if they do not provide discovery by that date, or such other date as the Court may allow on their application, they will only be entitled to defend these proceedings with leave of the Court”.7
[23] The final discovery deadline was extended to 7 May 2021, by consent. It remained an “unless order”.
6 DeMarco v The Vintage Aviator Ltd HC Wellington CIV-2018-485-115 and Wulff v DeMarco
CIV-2018-485-417, 13 August 2020.
7 The Vintage Aviator v DeMarco [2021] NZHC 847, at [138](a) [“the Strike Out Judgment”].
[24] On 7 May the DeMarco interests filed an affidavit of documents. The plaintiffs filed memoranda seeking orders that the discovery order now be enforced as they considered the affidavit of documents was significantly non-compliant.
[25] On 17 May counsel for the DeMarco interests filed a memorandum in reply. They also sought consolidation of the proceedings. Just before this memorandum the defendants’ counsel provided the plaintiffs with a USB stick containing copies of all the SFO documents in the form that had been provided by the SFO. It is common ground this was the entire SFO trial disclosure file. The documents on the USB stick had not been reviewed for relevance or privilege.
[26] On the following day, 18 May 2021, Mr DeMarco personally filed a memorandum seeking to “remedy any discovery matters if there are any issues with what I have provided”. In that memorandum Mr DeMarco supplied copies of a revised cover page for the 7 May 2021 affidavit of documents. The cover page was titled to indicate the affidavit was filed on behalf of the first and second defendant.
[27] The plaintiffs had complained that the affidavit of documents of 7 May was incomplete in many respects and that there was only discovery given on behalf of Mr DeMarco, not the second defendant. Mr DeMarco was therefore attempting to cure this difficulty not by amending the affidavit of documents properly and having it re-sworn, but by substituting the cover page.
[28] A telephone conference was held on the plaintiffs’ application for enforcement of the final discovery order seeking orders debarring the DeMarco interests from defending either proceeding. On 20 May 2021 Johnston AJ issued a minute ordering the matter be set down for a half-day fixture on 15 June 2021.
[29] In that minute of 20 May 2021,8 his Honour noted that the principal issue related to discovery by the DeMarco interests.9 The Associate Judge said:10
[8] The core issue seems to be whether Mr DeMarco and The Old Stick & Rudder Co have provided compliant discovery of the documents generated in the course of the Serious Fraud Office’s prosecution of Mr DeMarco. If not then Mr DeMarco may be exposed to orders preventing him from defending the claim or aspects of it, and The Old Stick & Rudder Co may need leave to defend the claim. In those circumstances, it behoves counsel (both counsel for Mr DeMarco and The Old Stick & Rudder Co, but also counsel for the plaintiffs) to cooperate between now and 15 June 2021. Frankly, I would expect them to resolve issues of this sort without judicial intervention.
[30] The Judge noted that the DeMarco interests had also made two other applications. First, for an order joining a party (which was not pursued at the oral hearing) and secondly, an order joining another proceeding to these two proceedings. The latter order was dismissed in the strike out application judgment.
[31] Following that minute issued on 24 May 2021, the Jackson interests wrote to counsel for the defendants identifying the extent of discovery that was required in order to comply in some detail under various headings.
[32] In relation to the SFO USB stick documents, in an affidavit dated 14 June 2021 by Ms Quilliam-Mayne11 noted that the USB stick contained 13,230 documents but once duplicates, transcripts and evidence had been removed the number was reduced to 8,014 documents. The USB stick included further duplicates where files had been provided in both pdf and native format. Isolating the pdf files with a Serious Fraud Office prefix the USB stick went down to 7,920 files but that still included a number of duplicates.
[33] On 11 June 2021 the plaintiffs served evidence for the substantive trial, which had been rescheduled to start a week after originally scheduled, to 12 July 2021. On that afternoon, which was a Friday, with the strike out application due to be heard on
8 DeMarco v The Vintage Aviator Ltd HC Wellington CIV-2018-485-115 and Wulff v DeMarco
CIV-2018-485-417, 20 May 2021.
9 At [4].
10 At [8].
11 Ms Quilliam-Mayne is a senior associate at Chapman Tripp acting for the Jackson/TVAL interests.
the following Tuesday, Mr DeMarco served a second affidavit of documents for each set of proceedings.
[34] The plaintiffs say the second affidavit of documents was no more than a list of the documents that had been on the SFO USB stick but with the removal of the duplicates, but parts of the schedule were incomplete. The documents had not been sorted for relevance.
[35] The hearing of the enforcement application for failure to comply with discovery was held on 15 June 2021. The judgment was delivered, as I have noted above, on 21 June 2021.
[36] Various timetable directions were made after a trial management telephone conference on 2 July 2021 following the debarring judgment.
[37] At the same teleconference directions were made for the defendants to file an application for leave to appeal which they said they would pursue. At the time of the telephone conference held on 2 July 2021 the DeMarco interests had not filed the application for leave to appeal but had filed a notice of appeal (to the Court of Appeal) in this Court. Mr DeMarco had filed an application for stay of the enforcement judgment of Johnston AJ’s decision but none was filed for the second defendant.
[38] The required applications for leave to appeal were duly filed and served on 5 July 2021 and the notices of opposition were filed and served on the following day.
[39]Mr DeMarco has also filed an affidavit in support of the applications.
Debarring judgment
[40] I now turn to the debarring judgment of the Associate Judge dated 21 June 2021 and from that I note the following:
(a)The DeMarco interests were ordered to provide discovery by 30 April and then extended to 7 May 2021 as an indulgence. The original order required the provision of discovery by 23 October 2020. The extension
of time was potentially prejudicial to the plaintiffs having regard to the proximity of the trial which is why the order was made as an “unless order”. Failure to comply would require leave to defend the proceedings.12
(b)The DeMarco defendants had been required to file discovery (ultimately) by 7 May 2021. If they failed to do so they had been warned that they would be debarred from defending the proceeding without leave of the Court.13
(c)An order requiring a party to provide discovery necessarily meant that it must be done in strict compliance with the rules. The submission that the order only required the DeMarco interests to provide discovery, not to provide discovery in strict compliance with the High Court Rules 2016 (Rules), was rejected.
(d)Mr DeMarco had spent a period in jail and for a time the DeMarco interests had been unrepresented. However, they were represented initially when they entered defences to these proceedings and for a series of interlocutory matters leading to the present application, as well as in the present application. It noted Mr Fraser was attempting to obtain legal aid for Mr DeMarco.14
(e)There had been attempts by Mr DeMarco to discharge the defendants’ obligations. Nothing was filed by the second defendant.15
(f)A USB stick that apparently contained all the SFO documentation running to some 13,000 documents was served on the plaintiffs unaccompanied by any further affidavit or any index.16
12 Debarring Judgment, above n 2, at [19].
13 At [17].
14 At [21].
15 At [23].
16 At [24]. The date this was received by the solicitors was 17 May 2021 according to the plaintiffs (Mr Scott’s) updated chronology. The Associate Judge refers to this as being received on the same day as the affidavit dated 7 May 2021. The error is immaterial.
(g)Neither of the DeMarco defendants had complied with their discovery obligations within the timeframe required by the unless order, that is to say, by 7 May 2021.17
(h)The solicitors for the plaintiffs had written to the DeMarco lawyers identifying the respects in which they sought proper discovery and seeking clarification on some issues. Compliance was not forthcoming.18
(i)On 11 June the defendants filed replacement affidavits. They did not advance matters materially.19
(j)The Judge said it was: “beyond serious argument” that the DeMarco interests had failed to comply with the court’s order of 21 April and failed to provide discovery in accordance with the Rules in that:20
[29] As already said, it is beyond serious argument that Mr DeMarco and The Old Stick & Rudder Co failed to comply with the Court’s order of 21 April 2021; that they failed to provide discovery in accordance with the Rules by 7 May 2021:
(a)the affidavits sworn by Mr DeMarco and filed and served on 7 May 2021 do not comply with important aspects of pt 8 of the High Court Rules. Most obviously there is no coherent description of the steps taken to ensure that discovery was adequate;
(b)those affidavits were demonstrably incomplete, most obviously because they included none of the documentation in the defendant’s control relating to the Serious Fraud Office proceeding. It is common ground that this documentation includes documentation that is relevant in the two civil proceedings;
(c)this was certainly not rectified by the delivery to the plaintiffs, also on 7 May 2021, of USB sticks simply containing the Serious Fraud Office documentation (apparently, approximately 13,000 documents)
17 Debarring Judgment, above n 2, at [25].
18 At [26].
19 At [28].
20 At [29].
unaccompanied by any supplementary affidavit of documents) concerning this material).
(k)Once there had been non-compliance nothing more was required in terms of the court order of 21 April 2021. The DeMarco interests had become debarred from defending proceedings unless they applied for and obtained the court’s leave to do so.21
(l)The plaintiffs’ solicitors again wrote to the DeMarco interests identifying “with precision exactly the respects in which they said that discovery had not been completed and making specific and detailed requests that the position be rectified”.22
(m)On 15 June 2021 the DeMarco interests filed two further affidavits.
They did not comply and did not take the matter much further.23
(n)In an affidavit a Christchurch legal executive, Ms Charlotte Gavin, with experience in managing discovery exercises, on behalf of the DeMarco interests, said that it would take 763 hours to review the SFO documentation and comply with discovery obligations. The DeMarco interests contended in view of that it would be unreasonable not to allow the DeMarco interests to defend the proceedings for breach of the court order. The Associate Judge rejected that submission noting:
(i)It proceeded on a concession that the DeMarco interests had not complied with the court’s order of 21 April 2021 and not provided proper discovery.
(ii)The legal executive’s evidence was “unpersuasive”. It was not unusual to deal with vast quantities of documentation in commercial litigation and could be dealt with by entering the
21 Debarring Judgment, above n 2, at [30].
22 At [31].
23 At [32].
material into a database and interrogating it by use of specified search terms.
(iii)The DeMarco interests’ claim that all the SFO file documents were relevant “in one way or another” was rejected. The Associate Judge said:24
… The reality is that Mr DeMarco and The Old Stick & Rudder Co have not assessed the 13,000 documents in the Serious Fraud Office material in order to make even the most rudimentary assessment of relevance.
(iv)The DeMarco interests had not complied with the Court’s order of 21 April 2021, nor did they comply by 7 May (the extended date). That had not been rectified by the date of the debarring judgment.
(v)No leave for defending proceedings had been sought although the Judge dealt with the matter as an application for leave on the basis that the court had a residual discretion to allow the DeMarco interests to defend the proceedings when they went to trial, notwithstanding the position described.25
[41]The Judge, in conclusion, said:
(a)The court, in deciding whether to exercise that discretion, had regard to “fairness to all parties”.26 Both plaintiffs were already seriously prejudiced but if the DeMarco interests were permitted to defend these proceedings “my assessment is that this would compound the prejudice to the plaintiffs”.27
(b)Any “apparent unfairness” to the DeMarco interests was of their own making. The Judge said “I am not prepared to compound the unfairness
24 Debarring Judgment, above n 2, at [34](b).
25 At [35]–[36].
26 At [37].
27 At [38].
to the plaintiffs by granting a further indulgence” to the DeMarco interests in the circumstances.28
(c)The Judge then went on to consider the principle in SM v LFDB.29 In that case the Court of Appeal referred to obedience with directions being the foundation upon which the rules operate and “… [f]rom time to time the Court encounters a party who chooses not to obey, seeking perhaps to avoid accountability to the other party or to secure an unfair settlement. In such a case the interests of justice require that the Court do whatever is necessary to enforce obedience to its orders”.
[42]The Associate Judge then concluded:
[41] The overriding question in deciding whether or not to excuse a breach of an unless order is what justice demands in the circumstances of the case? Considerations such as the public interest in the efficient administration of justice, the interests of the injured party, and any injustice to the defaulting party will be relevant. Ultimately, however, the enquiry will … be context specific, and the considerations will be given greater or less weight depending on the circumstances of the case. Here, given this proceeding’s protracted history and repeated failures by the defendants to comply with their discovery obligations, there can be no doubt that justice demands the unless order be enforced.
(Footnotes omitted)
[43] The Judge then declined the “informal” application for leave to defend the proceedings.30 He ordered the proceedings go ahead as scheduled as if they were formal proof proceedings. The DeMarco interests would be entitled to attend and participate, either personally or through their respective counsel, in the formal proof hearings “for the purposes of making submissions only”.31
28 Debarring Judgment, above n 2, at [39].
29 At [40] citing SM v LFDB [2014] NZCA 326, [2014] 3 NZLR 494 at [28].
30 At [42].
31 At [44].
Legal principles applicable
[44] There was little contest about the principles that apply to applications for leave and for stay of proceedings pending appeal. It was how those principles applied to the facts in issue that was in contention.
Leave to appeal
[45] Both the DeMarco interests and the plaintiffs referred to the principles extracted from the decisions in Greendrake v District Court of New Zealand,32 and Finewood Upholstery Ltd v Vaughan.33
[46] In summary, the following considerations are relevant to an appeal for leave to appeal under s 56 of the Senior Courts Act 2016:
(a)A high threshold exists.
(b)The applicant must identify an arguable error of law or fact.
(c)The alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value.
(d)The circumstances must warrant incurring further delay.
(e)The ultimate issue is whether the interests of justice are served by granting leave.
[47] As noted in Finewood Upholstery Ltd,34 the requirement for leave to appeal is intended to serve as a filtering mechanism to ensure that unmeritorious appeals of interlocutory orders do not unnecessarily delay the proceedings in which orders were made.
32 Greendrake v District Court of New Zealand [2020] NZCA 122, at [6] and [7].
33 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679, at [13].
34 At [13].
Stay of proceedings
[48] Again, the legal principles which are to be applied in relation to applications for stay are not contested, although their application is.
[49] The relevant principles to be taken into account were set out by the Court of Appeal in Keung v GBR Investment Ltd:35
(a)A range of factors are to be weighed in determining the balance between the successful litigant’s right to the fruits of judgment and the need to preserve the position should the appeal succeed. These include:
(i)whether the appeal may be rendered nugatory (this is not definitive);
(ii)whether the unsuccessful party will be injuriously affected by the stay;
(iii)the novelty and importance of questions involved;
(iv)The public interest in the proceedings;
(v)The overall balance of convenience;
(vi)The apparent strength of the appeal.
The DeMarco interests’ submissions
[50] The submissions made in general terms related both to the application for leave to appeal and to the stay application (as amended in the course of the hearing to extend to the strike out judgment and the criminal appeal).
35 Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17, at [11].
[51] I propose dealing with the submissions by the DeMarco interests in general terms and then turn to apply them to each of the separate applications and then analyse them in terms of the applications.
Breach of natural justice
[52] An important point emphasised by Mr Fraser, for the DeMarco interests, was that the judgment debarring the defending of the proceedings, except in the limited manner allowed, deprived the defendants of their right to natural justice. He said this was a situation where the plaintiffs were well-resourced and financed. They were supported by teams of lawyers from large law firms, while the defendant had no available resources, no legal aid and could not afford counsel. The plaintiffs had adopted, he said, “bullying” tactics and made applications to deprive him of the defendants’ rights to defend the action.
[53] Mr Fraser referred to the decision of the UK Supreme Court in Osborn v The Parole Board,36 and in its application in the Northern Ireland Court of Appeal decision of Galo v Bombardier Aerospace UK.37
[54] Osborn related to the circumstances in which the Parole Board was required to hold an oral hearing. Oral hearings are not granted as right but the Supreme Court considered the guidance given by the management of the Board as to when oral hearings would take place was illogical.38 The Supreme Court said it was not possible to define exhaustively the circumstances in which an oral hearing would be necessary but gave some circumstances which would often indicate an oral hearing was required.39
[55] The Court noted that procedurally fair decision-making ensured the decision-maker received all the relevant information. This would be liable to result in better decisions. The Court also pointed out that other important values were engaged, including avoiding a sense of injustice by the person the subject of the decision by
36 Osborn v The Parole Board [2013] UKSC 61.
37 Galo v Bombardier Aerospace UK [2016] NICA 25.
38 Osborn v The Parole Board, above n 36, at [17].
39 At [2], which summarises the Court’s conclusions.
paying due respect to persons whose rights are significantly affected by decisions taken in the exercise of administrative or judicial functions.40 The Court continued that procedural requirements for decision-makers required that the Court listen to persons who have something relevant to say. This promotes congruence between the actions of decision-makers and the law which should govern their action.41 In addition, oral hearings, while they may involve an immediate cost, would contribute to better decision-making so in reality are less costly than they appear, nevertheless, cost was a consideration.42
[56] The United Kingdom Supreme Court pointed out it was difficult to define exhaustively the circumstances in which an oral hearing was required but they included where there were facts in dispute which may affect the outcome.43 It noted that even where the important facts were not in dispute they may be open to “explanation or mitigation” and lose some of their significance in the light of other new facts.44 The Board’s task was the assessment of risk and it was difficult to address effective representations to a decision-maker without knowing the points which are troubling it.45
[57]Mr Fraser relied on the comments of the Northern Ireland Court of Appeal in
Galo, when it adopted the principles outlined in Osborn. It noted based on Osborn:
(a)Protection of human rights is not a distinct area of the law but permeates the legal system. The UK Courts have taken it into account in development of the common law and interpretation of legislation. Those Courts would continue doing so in relation to the convention guarantees (human rights) but it is the UK legal principles rather than the judgments of the International Court that are the starting point.46
40 Osborn v The Parole Board, above n 36, at [67]–[69].
41 At [71].
42 At [72].
43 At [74].
44 At [75] and [85], citing R (West) v Parole Board [2005] UKHL 1, [2005] 1 WLR 350.
45 At [75].
46 Galo v Bombardier Aerospace UK, above n 37, at [49].
(b)The Appellate Court must decide for itself whether a decision-maker has adopted a fair procedure.47
(c)The purpose of procedural fairness is to ensure better decisions. It ensures the decision-maker has all the relevant information and it is properly tested.
(d)Whenever possible, feelings of resentment by a party to a proceeding that they cannot influence the result must be removed.
(e)Procedural requirements to listen to persons who have something relevant to say promote congruence between the actions of the decision-maker and the law which governed the actions.48
[58] Galo was dealing with the rights of people with disabilities. It explained that they had a fundamental right to enjoy a fair hearing and to participate effectively in the hearing. It was for the relevant Court or the Tribunal to recognise the fact of disability and to consider such modified approach as may be necessary. The suggested procedure was by way of an early “ground rules hearing”.49 The Court however noted that it was not unlawful for a tribunal to insist that a condition for adjournment was that a medical report be produced providing the reasons why the appellant was unfit to attend, together with the prognosis as to when he will be fit to attend.50
[59] Mr Fraser seeks to apply these principles to the present case. He submitted that he did not suggest that the Associate Judge in making the debarring judgment did not have issues of natural justice squarely in mind, nor did he say that there could never be a case where a party should be debarred from defending for procedural failures. His submission was that the debarring in this case was a disproportionate response given the circumstances and, in particular, that the DeMarco interests had largely met their obligations.
47 Galo v Bombardier Aerospace UK, above n 37, at [50].
48 At [50].
49 At [53].
50 At [65].
[60] Mr Fraser said he could not locate any other decisions in which a defendant had been debarred from defending on the basis of non-compliance with discovery obligations. Mr Fraser noted that discovery was always relative to what was relevant in the case and this could be the subject of legitimate disagreement. Therefore, he said, the DeMarco interests should have been allowed more latitude in complying with their discovery obligations. He said the discovery should have been a continuing process rather than one which was time-limited, in view of Mr DeMarco’s resourcing difficulties.
[61] Mr Fraser said that the Associate Judge had other tools to manage compliance with case management. For instance, he could have: ordered costs; given the DeMarco interests more time; taken a more hands-on management role by directing from time to time what should be discovered; allowed the DeMarco interests to defend the action but recognised the trial Judge could make inferences in the absence of relevant documents that might have existed but were not discovered; and/or by the Judge allowing adjournments during the trial if matters arose and documents became available.
Disproportionate response
[62] Mr Fraser said that the facts giving rise to the Court of Appeal decision in SM v LFDB51 were much more serious than here. The Court of Appeal there described the failures by the debarred party as “flouting” the unless order knowing the ramifications of what the defaulting party deliberately did. The Judge had initially expressed concern that the relevant party’s actions had constituted a “protracted game of ‘chicken’ with the Court”.52 Despite that, in the first instance the Judge had granted an application allowing the delinquent party to defend the proceedings, to participate and had extended time for compliance with a second unless order, discharging it but awarding the appellant costs on the application. The Court of Appeal disagreed with the Judge’s actions. It reinstated the debarring of the respondent despite the fact that the respondent had complied with the relevant order before the debarring application was heard at first instance and there was no continuing non-compliance. The
51 SM v LFDB, above n 29.
52 At [24] and [36].
non-compliance had been failure to pay costs awarded on previous interlocutory matters, together with interest. The defaulting party had applied retrospectively to extend the time for compliance supporting his application with a memorandum contending his non-compliance was “explicable”.53
[63] In that case there had been a significant number of interlocutory applications. The unless order in issue was made in relation to a second costs order following an earlier unless order made after failure to pay costs awarded earlier. A warning had been given to the respondent that unless he complied by a given date he would be debarred from defending. There had been 23 interlocutory applications in the proceedings, 53 affidavits and five judicial conferences requiring seven court judgments or directions and appeals.54
[64] In relation to the second unless order, the Judge had earlier rejected proposals by the respondent to make staggered payments of the outstanding costs and had refused the first application for a stay of enforcement of the second unless order and debarring of the respondent, but had granted a second application when the respondent paid the full amount of a second costs order.
Bias
[65] Mr DeMarco also instructed Mr Fraser that he would be appealing the Associate Judge’s decision on the basis of bias. Mr Fraser was unable to elaborate on that submission although in his affidavit of 30 June 2020 titled “in response to decision of Assoc Judge Johnston” Mr DeMarco said that the plaintiffs had taken a “very harsh approach toward me” and further said “I am not getting a fair hearing”. In relation to the debarring judgment he said, “A decision has been made against me without the parties or the Judge looking at the material the decision was made about, a clear indication of bias”. Mr DeMarco went on in his affidavit to say that damage created by the “apprehension of bias cannot be remedied” therefore the hearing and subsequent orders were void.
53 SM v LFDB, above n 29, at [21] and [37].
54 At [8].
[66] The allegation of bias appears to be based on allegations that the Judge had made errors in the judgment and that he had not looked at the SFO material provided by Mr DeMarco.
[67] That does not provide a proper basis for an allegation of bias or predetermination in the legal sense.55 Mr Fraser did not elaborate on this submission in his oral argument. I do not propose considering it further.
Errors alleged by the DeMarco interests
[68] Mr Fraser’s principal submission under this head, in essence, is that the Judge responded disproportionately to the DeMarco interests’ failure to comply with discovery because the Judge made factual errors. The main error is said to relate to the fact that the DeMarco interests had substantially complied with discovery and the Associate Judge had not properly reviewed the affidavits of discovery or the descriptions and the matters which Mr DeMarco had pointed out in his affidavit.
[69] Mr Fraser indicated that he was reliant on Mr DeMarco’s allegations as to what had actually been done to comply with discovery. He had not been through the documents himself.
[70] Mr Fraser characterised the non-compliance as largely being breaches of the technical requirements of the rules and gave the illustration of a failure to adhere to the regulation margins on the documents.
[71] The main areas of “technical” non-compliance which Mr Fraser characterised as insignificant were the failure to complete the parts of the schedule as required by the rules, in either the 7 May affidavit of documents by Mr DeMarco, or the subsequent affidavit of 11 June 2021 in which Mr DeMarco had listed the SFO documents.
55 See for instance Saxmere Co Ltd v Wool Board Disestablishment Co Ltd [2009] NZSC 122, [2010] 1 NZLR 76 at [4], citing Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337. See also Guidelines for Judicial Conduct 2019 (Tāhū o te Ture | Ministry of Justice, 2019) at [22]–[28].
[72] The original 7 May affidavit by Mr DeMarco was deficient on its face. It listed approximately 600 documents but did not:
(a)List any of the SFO documents despite Mr DeMarco having opposed their release in an application for their release to the criminal trial Judge by the plaintiff following Mr DeMarco’s convictions. These were gathered for Mr DeMarco’s trial. The reason the Judge refused to allow their release was Mr DeMarco’s claim of privilege over some of the SFO documents.56
(b)Claim any privilege.
(c)Refer to the particulars of the steps taken to fulfil the obligations of discovery as is required by r 8.15(2)(c) of the Rules.
(d)Make any statement of the categories or classes of documents that have not been searched, or the reason or reasons for not searching them under r 8.15(2)(d) of the Rules.
(e)Refer in the schedule to the documents to claims of privilege (if any).
(f)Identify documents which were not in control of the party giving discovery but which that party knows would be discoverable if that party had control of them in terms of r 8.16(e) of the Rules.
[73] In the prescribed form for an affidavit of documents (G37) under the High Court Rules,57 Schedule 1 of Mr DeMarco’s affidavit did not include lists of documents complying with: Part 2 (documents in Mr DeMarco control for which he claimed privilege); Part 3 (documents in his control and for which he claimed confidentiality); Part 4 (documents no longer in Mr DeMarco’s control and stating when, to the best of his knowledge and belief each document ceased to be in his control and the persons who to the best of his knowledge and belief now had control of each
56 Minute of Clark J dated 14 November 2019 (access to court documents).
57 High Court Rules 2016, sch 1.
document); and Part 5 (other documents known to Mr DeMarco that had never been in his control but would be discoverable if he had control of them). The affidavit did not indicate why the information in those parts was missing.
[74] The affidavit of documents of 7 May was only on behalf of Mr DeMarco. Mr DeMarco attempted to remedy the fact that the second defendant had not provided an affidavit of documents by subsequently filing an amended cover sheet referring to both defendants but not any amended affidavit. Mr DeMarco is not the director of the second defendant although he is the 100 per cent shareholder. The provision of a cover sheet did not remedy the defect of the second defendant not having sworn an affidavit of documents.
[75] The second affidavit of documents was entitled “First and Second Defendant Second Affidavit of Documents Dated 11 June 2021”. It was prepared by Mr DeMarco personally and served by him.
[76] The second affidavit was on behalf of Mr DeMarco and the second defendant. Mr DeMarco said he was authorised by Mr Russell Ward,58 the director of the second defendant, to provide the affidavit. The second affidavit was provided after prompting by the plaintiffs.
[77] In the second affidavit of documents Mr DeMarco listed the SFO’s documents in Schedule 2. He explained that he had used the SFO document ID numbers but shown the document date, document type, author and recipient and, where appropriate, the parent document ID, as he was required to under the High Court Rules. There were approximately 7,000 documents in the list of documents discovered. However, in the Schedule Part 2 was not completed (privilege); Part 3 (no documents in the defendant’s control for which confidentiality is claimed) was not completed; Part 4 (documents which are no longer in the defendant’s possession custody or control) was uncompleted; and Part 5 (documents in existence but were in the possession of other persons) was only referred to in relation to email correspondence and correspondence
58 Mr DeMarco, in the second affidavit of documents, indicated that Mr Ward had sworn and filed an affidavit to this effect on 17 May 2021.
concerning Mr Jackson. There was no reference to the Kensington Swan material or to their files in relation to the trial.
[78] In response Mr Fraser says that Mr DeMarco could have waived privilege, so there may have been no privileged documents. That is correct and perhaps the list of privileged documents was unnecessary, however, given the opposition raised by Mr DeMarco to the obtaining of the SFO documents from the criminal trial file on the basis of privilege that stance was inconsistent with his previous position.
[79] In the second affidavit of documents the material listed excluded the duplicates but there was no attempt to sort those documents for relevance. Ms Quilliam-Mayne, for the plaintiffs, in her affidavit said that she analysed the documents and no sorting for relevance had taken place.59 This was apparent, for instance, by the reference in the list to documents dated April and May 2019 which had no relevance to the present proceedings at all.
[80] Mr Fraser sought to explain these deficiencies by saying that relevance was “in the eye of the beholder” and that he had been told by Mr DeMarco that they had been sorted for relevance. Mr DeMarco quibbled with the Associate Judge’s assessment that he had not made even “the most rudimentary assessment of relevance” in his comments in the debarring judgment.60 Mr DeMarco said he had “trimmed it down to around 7,000 documents”.
[81] Mr DeMarco said in his affidavit dated 30 June 2021 that the Judge “erred in fact and misled the court, resulting in a miscarriage of justice”. He goes on to say that the Judge had missed the point of Ms Gavins’ affidavit (the legal executive with experience in discovery). Mr DeMarco said that he had to complete the work which she had referred to as likely to take an estimated 763 hours. Mr DeMarco says, “I did
not use this as an excuse, I undertook the work and did it”.61 Mr DeMarco takes issue with the Associate Judge’s comments that Mr DeMarco “chose” not to complete discovery and to avoid accountability. Mr DeMarco said he had drawn attention to
59 See above at [32] and her further affidavit dated 9 July 2021.
60 Debarring Judgment, above n 2, at [34](b).
61 The underlining was part of the original affidavit dated 30 June 2021.
the documents “they want, in particular the records of financial transactions”. Mr DeMarco also said that the plaintiffs’ discovery was not properly complete, in any event.
[82] Mr Fraser noted that he had not done a check himself and was reliant on Mr DeMarco’s comments about the checking for relevance. On its face the first affidavit was materially deficient. The second affidavit only listed the SFO documents and was screened for duplicates but not even all of those were excluded. The documents had not been sorted for relevance. Mr DeMarco says the Judge was in error when he said that all the affidavit did was to apply reference numbers to the 13,000 SFO documents and outline the difficulties with discovery. Mr DeMarco says that is “totally incorrect” as he retained the SFO ID numbers, however, he complied with the High Court Schedule in that he described each document, said who it was from, who it was to, and the exact date the document was created. Mr DeMarco does not say he specifically looked at the documents for relevance as he was required to do in order to comply with his discovery obligations. He merely says that he had done something with the documents and therefore he says the Associate Judge was biased and in error.
[83] While Mr DeMarco may have done something by way of taking out duplicates and putting the documents into a schedule, he did not comply with the Rules in material respects – in particular, he had not assessed the documents for relevance.
Analysis
[84] The DeMarco interests were automatically debarred from defending the proceedings from the time they failed to comply with the filing of a compliant affidavit of documents by the deadline of 7 May 2021. Case law is consistent on the point that the debarring occurs automatically.62 Of course a degree of flexibility will be required as discovery is an ongoing obligation. However, more than minor non-compliance is non-compliance. It was therefore a leave application that Mr Fraser was pursuing on 15 June 2021 to enable the DeMarco interests to proceed.
62 SM v LFDB, above n 29, at [29].
[85] In my view the Judge made no errors that were material. His comments in general terms about the SFO discovery were correct. In material terms, on the face of the second affidavit of documents, there has been no consideration of the relevance of the documents and material parts of the schedule were not completed. Even accepting there were no privileged documents there were clearly irrelevant documents included in the list and a lack of reference to documents which Mr DeMarco must have known about, such as those held by Kensington Swan.
[86] The description of playing a “protracted game of ‘chicken’ with the Court” coined by the trial Judge to describe the defaulting party’s behaviour in SM v LFDB,63 is an apt description of Mr DeMarco’s behaviour in this case.
[87] Here the Mr DeMarco interests have not complied with discovery to date nor was there any attempt to do so following the hearing before the Associate Judge on 15 June 2021.
[88] The Judge took into account the problems that Mr DeMarco was facing, having been released from jail in September 2020 and having to undertake the discovery himself. However, Mr DeMarco did not discover important and relevant material which he had in his possession at the time of the first affidavit. He did not complete important parts of that affidavit. In the second affidavit he again did not comply by providing full and relevant discovery and failed to complete all parts of the schedule, even after the plaintiffs had explicitly laid out what was needed.
[89]The comments of the Court of Appeal in SM v LFDB as follows apply here:64
Applicable legal principles
[26] The starting point is the objective in r 1.2 of the High Court Rules (the Rules) “to secure the just, speedy and inexpensive determination of any proceeding or interlocutory application”. The case management regime now included (since 2008) in Part 7 of the Rules is designed to achieve that objective by isolating the issues and trying them fairly, swiftly and efficiently, with regard to what is at stake.
[27] Case management plainly matters to the immediate parties in any given case. It matters to litigants in other cases too, because it affects the time
63 SM v LFDB, above n 29, at [24].
64 At [26]–[31] (footnotes omitted).
their cases will take to come to trial and influences their expectations of the Court; expectations matter because they influence the settlements in which the majority of civil proceedings end. And it matters to potential litigants – the public at large – because they should feel confident that the Court can try cases fairly, quickly and efficiently. From the perspective of a judge dealing with any given case, all these interests are relevant; all form part of the interests of justice.
[28] Obedience is the foundation upon which the Rules operate. From time to time the Court encounters a party who chooses not to obey, seeking perhaps to avoid accountability to the other party or to secure an unfair settlement. In such a case the interests of justice require that the Court do whatever is necessary to enforce obedience to its orders.
[29] Enforcement powers are found in r 7.48, which empowers a judge to respond to breach of a procedural order by making any order the judge thinks just. Rule 7.48(2) sets out examples of orders the judge may make. Although an “unless” order is not listed, it is now well-established that r 7.48 permits a judge to make one. As the name suggests, an unless order is peremptory; it decrees that unless the specified action is taken by the specified time, the stated sanction will result. An unless order takes effect automatically if it is not complied with. In other words, a party need not apply to enforce the order. Any unless order should now be resolved, in light of Marcan Shipping. It follows that the appellant in this case need not have applied to Ellis J to enforce the second unless order.
[30] We consider the principles that should guide a judge dealing with the situation that faced Ellis J are as set out in [31] below. We have drawn these primarily from the English cases, particularly the excellent statement of principles by Ward LJ in Hytec Information Systems Ltd v Coventry City Council. Those principles summarised and restated the position after Birkett v James, Tolley v Morris and Re Jokai Tea Holdings Ltd, which have been subsequently reaffirmed in Stolzenberg v CIBC Mellon Trust Co Ltd. We have also noted the Australian authorities, many of which endorse the approach in Hytec. Not least, we have drawn on the various decisions of our own High Court. Lastly, we have factored in what this Court said in Anderson v Mainland Beverages Ltd, which appears to be the one case where this Court has considered unless orders. In Anderson, this Court discharged the unless order both because its terms were unclear and because the order was not proportionate to the default.
[31]The principles are these:
(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 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).
[90] Orders debarring a party from participating in a trial due to non-compliance with discovery obligations are likely to be rare. It appears most litigants, even litigants in person, tend to meet their obligations for discovery. However, in Ko v Ko,65 on a review of a Master of the Court’s decision the High Court upheld an order debarring a plaintiff from pursuing her claim due to failure to provide proper discovery, following an unless order made earlier by the Master.
[91] In that case documents that were in the possession of the plaintiff, but which had not been discovered, were the subject of an application by the plaintiff to allow their provision in a supplementary list of documents. The Master was not prepared to consider the application. The Court noted that the unless order had become operative when the non-compliance had occurred with the failure to file a compliant list. The proceedings had in fact been struck out automatically by operation of the unless order. The High Court Judge on review referred to the draconian nature of an unless order
65 Ko v Ko (2000) 14 PRNZ 362 (HC).
and noted that it was an order of last resort. He said it would not be made unless there had been a history of failure to comply. The Judge rejected the fact that the prejudice to the other party for the failure had been relatively minor in that case. He said that there was no need to show “wilful (or contumacious) default or serious prejudice”.66 The Judge also noted that case management principles should not, in ordinary circumstances, override the justice of the situation but where “a judicial officer has felt compelled to make an ‘unless order’ unless it can be satisfied there were no grounds for making such an order or that reasons beyond the party’s control caused non-compliance the order should be upheld”.67
[92] The Judge in Ko v Ko noted that an “unless order” was a last chance order. In that case the Judge noted there had been a history of breaches of timetable orders. At the time of the application for reinstatement before the Master discovery remained incomplete.
[93] I note that while Ko v Ko was a review of a Master’s decision and so not exactly the same circumstances as the present, being a leave to appeal, the principles articulated apply equally to the present applications. The principles expressed by the Judge in Ko v Ko are consistent with those expressed by the Court of Appeal in SM v LFDB.68
[94] Compliance with the obligations of discovery underpin parties’ fair trial rights in civil matters. An orderly discovery process assists in the efficient and fair disposal of proceedings – whether by resolution between the parties or by trial. The parties are required to make context specific enquiries and conduct a reasonable search in the circumstances.69 If documents have been “lost” due to the passage of time a detailed explanation as to why should be provided.70 The compliance with discovery by Mr DeMarco fell far short of what was reasonably required in this case. He was given a number of opportunities, both by the court and the plaintiffs, but still did not comply. In addition, his assertions that he had complied were misleading.
66 Ko v Ko, above n 65, at [13] quoting Prokofyev v A O Karelrybflot (1998) 12 PRNZ 510 (HC) at 512.
67 Ko v Ko, above n 65, at [18].
68 SM v LFDB, above n 29.
69 Pyne Gould Corp Ltd v Bath Street Capital Ltd [2020] NZHC 1247 at [30].
70 At [31].
[95] The rules of natural justice require a hearing that is appropriate to the circumstances. I note the principles enunciated in Osborn and Galo apply in general terms to all proceedings although the circumstances surrounding those decisions engaged human rights issues, which demand a more exacting adherence to hearing rights.
[96] The court in a civil matter must undertake a balancing exercise. A tension exists between ensuring compliance with the rules of procedure to manage cost, efficiency and fairness to all parties and the public in managing cases and the rights of the non-complying party to present its case. In this case the defendants have not been debarred entirely. They are entitled to participate to the extent of making submissions. They have been debarred from calling evidence and cross-examining, which is nevertheless a significant limitation on their rights. However, the prejudice to the plaintiffs through the lack of proper discovery, up to the present time, would be compounded significantly, as the Associate Judge said, if they were not made aware of what documents the defendant had or knew about. The proceedings would likely be disrupted if such documents suddenly came to light during the hearing.
[97] As the learned author in Principles of Civil Procedure comments, “it should not be thought, … that unlimited indulgence would be extended by the court. Although the courts are reluctant to turn away genuine grievances, there has been a growing concern with the proper use of scarce resources… A balancing exercise has to be undertaken to ensure justice for the greatest number of people”.71 Fairness to other litigants awaiting hearings must also be considered as well as the public interest in ensuring that the objective of the High Court Rules “to secure the just, speedy, and inexpensive determination of any proceeding or interlocutory application” is realised.72
[98] The Associate Judge had the difficult task of weighing the various factors. He was familiar with the proceedings having managed them almost from their inception. He dealt with a number of interlocutory matters and conducted case management
71 Andrew Beck Principles of Civil Procedure (3rd ed, Brookers, Wellington, 2012) at 8 (footnotes omitted).
72 High Court Rules 2016, r 1.2.
conferences. He was in a good position to exercise his discretion to refuse leave to the defendants to call evidence or cross-examine due to their persistent failures to comply with, in particular, the discovery requirements.
These applications
[99] I now turn to consider the application of the principles relating to each of the applications in this case.
[100] In relation to the application for leave to appeal, a high threshold exists. The principles are, to recap:73
(a)The applicant must identify an arguable error of law or fact. As will be apparent from the above there is no arguable error of law or fact made by the Associate Judge. There may have been minor errors in the judgment,74 however they were immaterial and did not detract from the substance of the judgment nor would they have affected the exercise of discretion by the Associate Judge.
(b)The alleged error should be of general or public importance warranting determination, or otherwise, of sufficient importance to the applicant to outweigh the lack of general or precedential value. As I have indicated above Mr DeMarco has pointed to some errors, but they are immaterial. The Judge’s decision was the result of the routine application of settled principles and the exercise of a discretion available to him in the circumstances. I have considered the evidence in detail and the material before the Judge. In my view, in the circumstances the order was fair and one which was available to him. It was made in accordance with settled principles.
73 See above at [44].
74 These include a reference in the Debarring Judgment to 13,000 documents when there were approximately 7,000 listed in the second affidavit of documents, whereas it was the USB stick containing the SFO documents that contained approximately 13,000 documents. The difference was made up by the duplicates removed by Mr DeMarco.
(c)The circumstances must warrant incurring further delay. The TVAL proceedings are already over four years old. Progress was halted by the criminal trial. The present fixture has been known to the parties since October 2020. All parties have been prepared for a hearing commencing on 12 July. The plaintiffs have filed their evidence and, subsequently, affidavits according to the timetable directions in order to bring the matters to trial on that date. Significant time and resources have been expended by the plaintiffs to prepare for this hearing. The trial was originally set down for three weeks but with the recent developments, is now set down for one week. Nevertheless, it would likely not obtain another fixture before 2022. Given the failures to comply with directions to date, the circumstances do not warrant further delay.
[101] The ultimate question is whether the interests of justice are served by granting leave. I have considered the submissions of Mr Fraser on behalf of the DeMarco interests. In particular, the fair trial issues and natural justice points he raised. It is a balancing act, but fairness requires consideration of all parties. When there is a defaulting party, such as in the present case, the consideration requires a proper assessment of fairness to the other parties. Also at issue is fairness to litigants in general and their interests in obtaining timely hearings. The court would be unable to effectively utilise the hearing time set aside for this trial at this late stage. Also to be considered is the public interest in having confidence in the efficiency and effectiveness of the courts. In this case those factors weigh against granting leave to appeal.
[102] Mr DeMarco is able to appeal following the outcome of this trial. No doubt the debarring will be a matter he raises in any appeal he chooses to bring. At present the appeal rights are for the Official Assignee.
[103] I now turn to the application for a stay of proceedings in relation to the debarring judgment. I deal with the principles as follows:75
(a)Whether the appeal may be rendered nugatory: as indicated above the DeMarco interests may lodge an appeal following the trial. The appeal will not be rendered nugatory by refusing this stay application. The plaintiffs have accepted that if the stay is not granted and the appeals that have been filed or for which leave may be sought are successful, they may be required to face another full trial. However, the plaintiffs have indicated they are strongly in support of proceeding this week. While that may result in wasted costs to them it will not affect the outcome of the applicant’s appeal.
(b)Whether the unsuccessful party will be injuriously affected by the stay: in this case I have set out the issues that face the plaintiffs and the defendants. The plaintiffs are ready and willing to go to trial. They have invested significant time and resources in preparation. While, as Mr Fraser says, that preparation might be used in a later trial and further work can be done in the meantime, realistically much of the preparation will be lost with the effluxion of time. While the evidence would likely not need to be materially updated, nevertheless, it would need to be reviewed and certainly the witnesses would need to be re-briefed and counsel would need to re-familiarise themselves with the case. It is also unlikely the case will be allocated trial dates in the near future. The plaintiffs remain without their day in court despite the fact, in the case of the Jackson plaintiffs, the proceedings have been extant for four years. In that time Mr DeMarco has been found guilty on the facts on which the first to fourth causes of actions are based. Mr DeMarco, on his own admission, is in a parlous financial state. He has recently been adjudicated bankrupt. Whether the plaintiffs, if successful, would practically be compensated through an award of interest, costs or
75 See above at [48]–[49].
otherwise, is in doubt. Any meaningful monetary compensation from Mr DeMarco is uncertain.
(c)The novelty and importance of questions involved: as I have indicated above the Associate Judge applied settled law to the facts in this case. There is nothing novel or important involved in relation to the questions raised.
(d)The public interest in the proceedings: these proceedings are squarely based on the facts which are in contention between the parties. There is little valid public interest in the proceedings which are about private commercial dealings. That is not to say the public may not be interested in the proceedings as it involves some high-profile parties. The proceedings are of significance to the DeMarco interests which I have considered. That is a matter to be considered in the mix.
(e)The apparent strength of the appeal: I have given some detailed consideration to the errors to which Mr Fraser and Mr DeMarco have pointed to in relation to the debarring judgment. I do not consider the grounds for appeal are strong.
(f)The overall balance of convenience: as I have indicated above the factors weigh in favour of not granting a stay.
[104] I now turn to consider the application for amending the application of the stay to include a stay until the hearing of the strike out appeal and conviction on appeal. This includes a proposed appeal from the strike out decision. These applications were made orally in the course of arguments and the plaintiffs were severely prejudiced by the failure to give them notice of the amendments. The plaintiffs’ submissions were addressed to the stay based on the original debarring judgment.
[105] In the circumstances I decline the leave for amendment of the application for stay. The hearing of the conviction appeal appears to be some time away and no details of the grounds for appeal were canvassed before me. The appeal from the application
to strike out that judgment will depend on the success of the conviction appeal. That is likely to be some time away. In my view, given the prejudice to the plaintiffs due to the late amendment of the application for stay, the likelihood is those appeals will not be resolved for some time and the lack of detail as to the grounds for those appeals I dismiss the oral application for amendment.
Conclusion
[106] In conclusion, the applications for leave to appeal the debarring judgment and a stay pending the hearing of that appeal are dismissed.
Costs
[107] The proceedings have been categorised as 2B. No reason was raised as to why costs should not be awarded on that basis. Accordingly, costs and disbursements are awarded against the first and second defendants in favour of the plaintiffs. Certification is also made for second counsel for each of the plaintiffs. I note of course that Mr DeMarco is now in bankruptcy so there may be issues concerning enforcement.
Solicitors:
Grice J
Chapman Tripp, Wellington for The Vintage Aviator, the trustees of the Film Property Trust and Sir Peter Jackson.
Finn Collins, Wellington for Oliver Wulff.
John Miller Law, Wellington for Eugene DeMarco and The Old Stuck & Rudder Co Ltd (on 14 July 2021).
Meredith Connell, Auckland, for the Official Assignee in the bankruptcy of Eugene DeMarco and the liquidation of The Old Stick & Rudder Co Ltd (on 15 July and 19 July 2021).
Present instructing solicitor for Mr Fraser: Regena Sommers, EXEO Legal, Wellington, (notified on 22 July 2021).
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