The Vintage Aviator Ltd v DeMarco
[2021] NZHC 1476
•21 June 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2017-485-1027
[2021] NZHC 1476
BETWEEN THE VINTAGE AVIATOR LIMITED
First Plaintiff/First Counterclaim Defendant
PETER ROBERT JACKSON, FRANCES ROSEMARY WALSH and
PHILIPPA JANE BOYENS as trustees of the Film Property Trust
Second Plaintiffs/Second Counterclaim DefendantsOLIVER WULFF
Third Counterclaim DefendantTHE CIVIL AVIATION AUTHORITY OF NEW ZEALAND
Fourth Counterclaim DefendantPETER ROBERT JACKSON
Fifth Counterclaim DefendantAND
EUGENE DEMARCO including as trustee of the Airflight Trust
First Defendant/First Counterclaim Plaintiff
THE OLD STICK & RUDDER CO LIMITED
Second Defendant/Second Counterclaim Plaintiff
CIV-2018-485-417 BETWEEN
OLIVER WULFF
PlaintiffAND
EUGENE JOHN DEMARCO
First Defendant
THE VINTAGE AVIATOR LIMITED v DEMARCO [2021] NZHC 1476 [21 June 2021]
THE OLD STICK & RUDDER CO LIMITED
Second Defendant
Hearing: 15 June 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 Mr Eugene DeMarco and The Old Stick & Rudder Co LtdJudgment:
21 June 2021
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction and background
[1] These two proceedings are set down to be heard over three weeks commencing on 12 July 2021 — about three weeks from now. It is unusual for the Court to be delivering a judgment at his point dealing with applications for orders that an additional party be joined, that these proceedings be heard along with others and that the principal defendants, Mr Eugene DeMarco and The Old Stick & Rudder Co Ltd be debarred from defending the claims against them. But there it is. The parties need a decision promptly.
[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:1
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”.
1 The Vintage Aviator Limited & Ors v DeMarco & Anor [2021] NZHC 847.
[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.
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.
24.4The 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 of:
(a)Dominic Shaheen (7 March 2018);
(b)Oliver Wulff (3 April 2018);
(c)James Corke (20 November 2020);
(d)David Harrison (21 January 2021).
The affidavits of Mr Shaheen and Mr Wulff were filed in a separate but related proceeding between the same parties. Leave is sought to refer to those affidavits to the extent necessary.
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.
[3] In that judgment, I made orders striking out aspects of the defences entered by Mr DeMarco and The Old Stick & Rudder Co, entered summary judgment in favour of the plaintiffs in relation to one counterclaim and made a series of pre-trial directions.
[4] The parties have now exchanged another round of amended pleadings in which Mr DeMarco and The Old Stick & Rudder Co have complied with my orders as to what they may and may not plead in their defences.
[5]The first direction that I made concerned discovery:
(a)the only outstanding interlocutory matter would appear to be discovery by Mr DeMarco and The Old Stick & Rudder Co in both the 1027 and the 417 proceedings. I direct that by 30 April 2021, Mr DeMarco and The Old Stick & Rudder Co provide sworn lists of documents in both proceedings. I direct that 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;
…
[6] Subsequently, the parties agreed to extend that deadline from 30 April to 7 May 2021.
[7]As already foreshadowed, there are three applications before the Court:
(a)an application by Mr DeMarco and The Old Stick & Rudder Co for an order joining a company by the name of Dairy Air Ltd, in the 1027 proceeding as an additional counterclaim plaintiff. The background to this application is that in my 21 April 2021 judgment I concluded that one of the counterclaims pleaded there by Mr DeMarco and The Old Stick & Rudder Co was in fact a claim in which Dairy Air Ltd was the proper claimant;
(b)a second application by Mr DeMarco and The Old Stick & Rudder Co for an order that these proceedings be tried along with two others, a proceeding commenced by Mr De Marco in February 2018 (CIV-2018-485-115) and a proceeding commenced by The Vintage Aviator Ltd in March 2018 (CIV-2018-485-164); and
(c)applications by the plaintiffs in both of these proceedings for orders confirming that Mr DeMarco and The Old Stick & Rudder Co are debarred from defending them — enabling them to proceed on a formal
proof basis — on the ground that those parties, or so it is said, have not complied with their discovery obligations and that both are therefore in breach of the order that I made in my 21 April 2021 judgment.
[8]I will deal with those applications in the order that I have summarised them.
An additional party
[9]During the course of the hearing this application was abandoned.
[10]It is formally dismissed.
Consolidation of proceedings
[11] By application dated 13 May 2021, Mr DeMarco and The Old Stick & Rudder Co apply for an order that these two proceedings be heard with the two proceedings described earlier (the 115 proceeding and the 164 proceeding). This is opposed by the plaintiffs.
[12] Only the application relating to the 115 proceeding was argued, and then briefly.
[13] Mr Fraser submits that these proceedings and the 115 proceeding involve common parties. In other words, there is no party in the 115 proceeding that is not also a party to one or either or both of these proceedings. He submits that the issues involved in the 115 proceeding are straightforward. He described it — and no one suggested that this description was inaccurate — as a simple claim by Mr DeMarco for the recovery of a debt.
[14] Mr Scott submitted that whilst these two proceedings are set down for trial to commence in three weeks, nothing has happened in relation to the 115 proceeding since mid-2018. Furthermore, he submitted that, even since this application was made on 13 May 2021, no steps have been taken to ready the 115 proceeding for trial. He added that, however straightforward the proceeding may be, the parties are at least entitled to consider what interlocutory steps may be necessary before it is set down for
trial. His contention was that it was just too late for the Court to make the order sought by Mr DeMarco and The Old Stick & Rudder Co.
[15]I agree.
[16] Had Mr DeMarco wished to pursue this claim he had ample time within which to do so, and there is no reason to think that it might not have been readied for trial at the same time as these two proceedings. That, however, has not happened. I am not prepared to make any order that might put the 12 July 2021 fixture in jeopardy. The application for joinder is dismissed.
Mr DeMarco and The Old Stick & Rudder Co’s status
[17] The order on which the plaintiffs in both proceedings rely was to the effect that Mr DeMarco and The Old Stick & Rudder Co were to provide discovery by (ultimately) 7 May 2021, and, if they failed to do so, they would be debarred from defending the proceeding without leave of the Court.
[18] In the course of his submissions, Mr Fraser observed that this order only required Mr DeMarco and The Old Stick & Rudder Co to provide discovery, not to provide discovery in strict compliance with the High Court Rules 2016. As I say, that was more in the nature of an observation than a submission. Nevertheless, it calls for a response. An order requiring a party to provide discovery necessarily means, and always means, that that must be done in strict compliance with the Rules. In my view, the order in this case was open to no other interpretation.
[19] At the time that I made that order Mr DeMarco and The Old Stick & Rudder Co were already dramatically out of time for providing discovery which they were originally ordered to do by 23 October 2020. Ordering that they do so by 30 April, let alone 7 May 2021, was an indulgence, and potentially prejudicial to the plaintiffs, having regard to the proximity of the trial. That is why I made the order in the terms that I did — that unless Mr DeMarco and The Old Stick & Rudder Co complied, they would need to apply for and secure leave to defend the proceedings.
[20] Mr DeMarco and The Old Stick & Rudder Co’s positions in relation to representation has been a changing one. When they originally entered defences in these proceedings they were represented by solicitors and counsel. These proceedings were effectively put on hold for a period during which Mr De Marco faced related criminal proceedings. These proceedings came to an end on 13 September 2019 with Mr DeMarco’s conviction. Following sentencing he spent a period in prison. During this time, Mr DeMarco and The Old Stick & Rudder Co’s solicitors changed, and there came a time when their new advisers sought and obtained leave to withdraw. For a period, Mr DeMarco and The Old Stick & Rudder Co were unrepresented.
[21] At some stage, certainly before the previous interlocutory hearing on 4 March 2021, new solicitors and counsel emerged for Mr DeMarco and The Old Stick & Rudder Co, John Miller Law and Mr Fraser. Although no notice of change of solicitors was filed and served at that stage, John Miller Law’s name appeared on some if not all documentation. In some of the documentation John Miller Law and Mr Fraser are described as “interim” solicitors and interim counsel. I am informed that this reflects the fact that legal aid funding has been sought but as yet no confirmation has been forthcoming that such funding will be available. In my view, solicitors are either acting for, and on the record for, a party or they are not. They cannot hover tentatively like legal equivalents of Schrődinger’s cat. In my earlier judgment I made the assumption that John Millar Law was acting for Mr DeMarco and The Old Stick & Rudder Co, and I see no reason to revise that assumption.2 Indeed, as recently as 17 June 2021, notices of change of solicitor were filed and served confirming that John Millar law is acting.
[22] On 7 May 2021 the plaintiff parties in these proceedings received documentation which appears to have been an attempt by Mr DeMarco and The Old Stick & Rudder Co to discharge their discovery obligations.
[23] This consisted of two affidavits sworn by Mr DeMarco one intituled in each proceeding, headed “DEFENDANT’S AFFIDAVIT OF DOCUMENTS” and dated 7 May 2021. In each case Mr DeMarco says that he is “the defendant” in the case,
2 At [22].
that he is unrepresented, that as a result of the criminal proceedings and consequential “interference with [his] personal possessions” he has not had access to “all the documents which [he] would like to access”, that he has “searched through documents disclosed to [him] as part of these and other proceedings, reviewed my personal emails and records, requested information from other parties, and … done [his] best to organise these” and listed them in the schedule.
[24] Later the same day the plaintiffs’ solicitors in both proceedings received a USB stick which apparently contains all the Serious Fraud Office documentation — running to some 13,000 documents. This was unaccompanied by any further affidavit, or an informal index of any sort.
[25] In my judgment, it could not be clearer that neither Mr DeMarco nor The Old Stick & Rudder Co complied with their discovery obligations within the timeframe required by the unless order, that is to say by 7 May 2021. I will return to why I have reached that view. In the meantime it is important to conclude the narrative.
[26] There followed correspondence between the parties. In particular the plaintiffs’ solicitors in the 1027 proceeding and the plaintiffs’ solicitors in the 417 proceeding both wrote to Mr DeMarco and The Old Stick & Rudder Co’s advisers identifying the respects in which they said that proper discovery had not been provided and seeking clarification on various issues.
[27] Those acting for Mr DeMarco and The Old Stick & Rudder Co responded to some aspects of those requests.
[28] It was not until 11 June that replacement affidavits of documents were filed. However, it is not at all obvious to me that these further affidavits advance matters materially.
[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) unaccompanied by any supplementary affidavit of documents) concerning this material).
[30] At that point, in terms of the Court’s order of 21 April 2021, Mr De Marco and the Old Stick and Rudder Company became debarred from defending these proceedings, unless they applied for and obtained the Court’s leave to do so.
[31] The plaintiffs did not move immediately to confirm the status of Mr DeMarco and The Old Stick & Rudder Co as being prevented from defending the proceedings. Rather, the solicitors and counsel for the plaintiffs in both cases took the responsible course, frankly, as the Court would expect, of writing to Mr DeMarco and The Old Stick & Rudder Co 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.
[32] Whilst some aspects of that correspondence was responded to the position is that until the day prior to the hearing before me, there was no substantive attempt by or on behalf of Mr DeMarco or the The Old Stick & Rudder Co to rectify the position. On 15 June 2021, two further affidavits were filed. As far I am able to discern, all that
these affidavits did was apply numbers to the 13,000 Serious Fraud Office documents and outline the difficulties with discovery.
[33] By the time the matter was argued before me Mr De Marco and The Old Stick & Rudder Co had arranged to file an affidavit sworn by a Christchurch Legal Executive with experience in managing discovery exercises. Her evidence was to the effect that to review the Serious Fraud Office documentation and comply with discovery obligations would have taken 763 hours and on the strength of this evidence Mr Fraser contended that it would be unreasonable not to allow Mr DeMarco and The Old Stick & Rudder Co to defend the proceedings, for breach of the Court’s order.
[34]I make two observations about this contention:
(a)first, it proceeds on the basis of a concession that Mr DeMarco and the The Old Stick & Rudder Co have not complied with this Court’s order of 21 April 2021 and have not provided proper discovery;
(b)second, I find Ms Gavin’s evidence unpersuasive. It is by no means unusual in commercial litigation for parties to have to deal with vast quantities of documentation and it is now commonplace for such material to be entered in to a database so that it can then be interrogated by the use of specific search terms. This process is designed to identify with relative precision genuinely relevant documentation, so as to avoid parties doing precisely what Mr DeMarco and The Old Stick & Rudder Co appear to have done in this case and provide by way of discovery an entire body of material and effectively leave it to the other party to review it for relevance. Mr Fraser’s response to the criticism that Mr De Marco and The Old Stick & Rudder Co had put in the entire Serious Fraud Office file is that every document in that file is relevant in one way or another. I do not accept that contention. 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.
[35] Pausing there to summarise the position as it now stands, Mr DeMarco and The Old Stick & Rudder Co have not complied with the Court’s order of 21 April 2021 to provide discovery since that date, which, ultimately, they were obliged to do by 7 May 2021. Nor has the position been rectified. Nor have Mr DeMarco and The Old Stick & Rudder Co applied for leave to defend the proceeding notwithstanding their default. There is no formal application before the Court, even at this stage. Mr Fraser pointed to a memorandum in which Mr DeMarco had said that he and the company wanted to defend the proceeding, but that is not an application to which the plaintiffs could be expected to have responded.
[36] I accept Mr Fraser’s fallback contention, which, although not articulated in this way, I take to be that the Court retains a residual discretion to allow Mr DeMarco and The Old Stick & Rudder Co to defend these proceedings when they go to trial on 12 July 2021 notwithstanding the position I have described.
[37] However, the Court must, in deciding whether to exercise that discretion, have regard to fairness to all parties.
[38] As both Mr Scott for the plaintiffs in the 1027 proceeding and Mr Colson for the plaintiffs in the 417 proceeding submitted, the plaintiffs in these proceedings are already seriously prejudiced. If, in these circumstances, Mr DeMarco and The Old Stick & Rudder Co were permitted to defend these proceedings, my assessment is that this would compound the prejudice to the plaintiffs.
[39] Any apparent unfairness to Mr DeMarco and The Old Stick & Rudder Co is of their own making, and I am not prepared to compound the unfairness to the plaintiffs by granting a further indulgence to Mr DeMarco and The Old Stick & Rudder Co in the circumstances.
[40] There is also a further point of principle involved. In SM v LFDB the Court of Appeal said:3
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
3 SM v LFDB [2014] 3 NZLR 494, (2014) 22 PRNZ 253, [2014] NZCA 326.
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.
(footnote omitted)
[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?4 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.5 Ultimately, however, the enquiry will be 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.
[42] To the extent that Mr DeMarco and The Old Stick & Rudder Co may be viewed as having applied — informally — for leave to defend these proceedings I decline their application.
[43] The proceedings will go ahead on 12 July 2021 as if they were formal proof proceedings.
[44] Mr DeMarco and The Old Stick and Rudder Company will be entitled to attend and participate in the formal proof hearings, Mr DeMarco personally or through counsel, and The Old Stick & Rudder Co through counsel, for the purposes of making submissions only.
[45] I have not heard from counsel in relation to costs so reserve these. My preliminary view is that the applicants in each case are entitled to their costs on a 2B basis. If counsel are unable to settle these then they may file memoranda in the usual way.
Associate Judge Johnston
4 At [31](f).
5 At [31](f).
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