Wenzhou Hongliang Trading Co Limited v Finnigan

[2021] NZHC 1499

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-001187

[2021] NZHC 1499

UNDER

The Companies Act 1993 and Part 18 of the High Court Rules

IN THE MATTER OF

The Liquidation of Wenztro Cooperation Limited

BETWEEN

WENZHOU HONGLIANG TRADING CO LIMITED

Plaintiff

AND

PERI MICAELA FINNIGAN and BORIS VAN DELDEN

Defendants

Hearing:

21 June 2021 via telephone conference

Appearances:

W C Pyke for the Plaintiff

V Wethey and M Fee for the Defendants

Judgment:

22 June 2021

JUDGMENT OF NATION J

On application to vacate trial

[1]    On 19 August 2019, these proceedings were set down for a seven day trial commencing 28 June 2021. At the time, the solicitor for the plaintiff (WTL) was Howard Thompson of McMahon Butterworth Thompson.

[2]    On 9 November 2020, Sellar Bone & Partners advised the solicitors for the defendants that they had been instructed to act for WTL with Mr Bryers to act as counsel.

WENZHOU HONGLIANG TRADING CO LTD v FINNIGAN [2021] NZHC 1499 [22 June 2021]

[3]    On 4 February 2021, Fee Langstone, solicitors for the defendants, emailed Sellar Bone seeking confirmation that they were solicitors for WTL and suggesting a timetable for steps to be taken before trial, including filing and service of briefs of evidence.

[4]    On 12 February 2021, Mr Bryers emailed Fee Langstone to advise McVeagh Fleming were to be solicitors for WTL with Mr Bryers to act as counsel.

[5]    On 26 February 2021, after a conference with Mr Bryers for WTL and Ms Wethey and Ms Fee for the defendants, Associate Judge Bell made various directions to ensure the proceedings would go to trial as scheduled on 28 June 2021. They included a direction WTL file and serve any amended statement of claim by 26 March 2021 and the defendants file any statement of defence by 14 April 2021. The close of pleadings date was 14 April 2021. WTL was to file any further evidence by 5 May 2021 and the defendants were to serve their evidence by 2 June 2021.

[6]On 26 March 2021, WTL filed an amended statement of claim.

[7]    On 14 April 2021, Associate Judge Bell issued a judgment increasing the security for costs required from WTL by $35,000 to $80,000.

[8]    In decisions to 23 April and 30 April 2021, Associate Judge Bell ordered WTL to pay the defendants’ costs of $6,697 plus disbursements arising out his judgment of 14 April 2021. Mr Bryers was still acting as counsel for WTL.

[9]    On 3 June 2021, Mr Pyke, as counsel for WTL, joined in signing a memorandum for the defendants agreeing to the defendants serving their briefs of evidence together with a list of further documents for the common bundle by 11 June 2021.

[10]   On 17 June 2021, by memorandum, Mr Pyke, as counsel with Sellar Bone & Partners as instructing solicitors, advised the Court WTL would be applying to adjourn the trial and would be seeking leave:

(a)  to add McDonald Vague Ltd (McDonald Vague) and Shieff Angland as second and third defendants respectively;

(b)  to file and serve an amended statement of claim against the existing and joined defendants no later than 30 July 2021; and

(c)  for orders for enforcement of discovery orders made by consent and for further case management.

[11]   Moore J directed the application must be made by interlocutory application. Such an application was filed on 18 June 2021, supported by a memorandum from counsel and an affidavit of Wei Lin who says he is an agent of WTL.

[12]   I received submissions from counsel by way of a telephone conference on 21 June 2021.

Submissions for WTL

[13]   Mr Pyke, for WTL, says the trial needs to be adjourned because, on his review of the case, it is not ready for hearing.

[14]   As he explained the situation, as currently framed, WTL’s claim is against the directors of McDonald Vague. They were appointed as liquidators of a company Wenztro Cooperation Ltd (Wenztro) which was indebted for a substantial sum to WTL. The liquidators issued proceedings against the directors of Wenztro. Those proceedings were funded by WTL. The liquidators were successful in obtaining funds from the directors. Those funds were applied in payment of costs incurred during the liquidation, particularly with regard to the cost of proceedings against the former directors of Wenztro. After payment of those expenses, nothing was available for WTL.

[15]   Mr Pyke submitted that, on his becoming acquainted with the case, he had identified there should also have been a claim in contract against McDonald Vague as the party with whom WTL had contracted when agreeing to fund the liquidation brought by the directors as liquidators.

[16]   Mr Pyke submitted, for WTL’s reasonable and potential claims to be fully determined, WTL needs to be able to allege that McDonald Vague were in breach of contract and in breach of fiduciary duties arising out of that contract.

[17]   Mr Pyke also claimed there has not been adequate discovery of documents, particularly those that show precisely what payments were made by the liquidators out of the funds they received, when those payments were made and what they were for. He also suggested there should have been some expert evidence analysing all relevant records to avoid WTL having to question the payments made and to seek explanations for them in a piecemeal and potentially incoherent way.

[18]   Mr Pyke submitted, to enable the Court to deal comprehensively with what is at issue between the parties, the legal firm of Shieff Angland should have been joined as a defendant. WTL wishes to assert they were advised by Shieff Angland to appoint the defendants as liquidators. It is apparent from the briefs of evidence filed for the defendants that they deny they were negligent in the way they conducted proceedings, at least in part on the basis they acted appropriately in obtained advice from Shieff Angland as to how they should proceed. WTL wishes to now claim as against Shieff Angland in contract or in tort that, if the liquidators acted on the advice of Shieff Angland, then that advice must have been wrong and negligent.

Submissions for the defendants

[19]   The defendants strongly oppose any adjournment of the proceedings. They say they have prepared fully for the trial beginning on 28 June 2021. The defendants wish to avoid the inevitable significant delay and further costs that would result from an abandonment of the currently scheduled trial.

[20]   Ms Wethey for the defendants says WTL has had a complete record of the payments made by the liquidators from funds received and what those payments were for through an Excel spreadsheet that was made available to Mr Bryers when he was acting as counsel. That summary has been provided with a brief of evidence from the defendants. She submitted, on the evidence at it stands, there is no dispute as to what payments were made. The issue is over whether the payments made by the liquidators

were reasonable. She said WTL has previously engaged an expert to consider the documents that have been provided.

[21]   Ms Wethey advised that the defendants have said on record they are not going to deny the claims made on the basis that WTL’s contract was with McDonald Vague rather than the defendants who are and were the two directors of McDonald Vague. Ms Wethey submits the case has thus been prepared for the parties on the basis of the factual issues that have arisen with regard to the alleged negligence of the directors and allegations as to the unlawful or improper way in which monies which the directors received had been applied.

[22]   Ms Wethey submitted that WTL obviously made a conscious decision not to sue Shieff Angland as a defendant. It is not a case of their now wanting to do so because of information which has emerged only recently.

[23]   Ms Wethey submitted, on the pleadings as they stand and on the evidence that has been prepared for the parties, the issue is whether there was negligence in the way the liquidators sought and acted on the advice of Shieff Angland. The correctness of such advice is not an issue in the proceedings. Ms Wethey submitted, if WTL now wishes to make that an issue, they would have to do so by bringing a claim against Shieff Angland and claiming that Shieff Angland had been negligent in the advice they gave their liquidators and, in doing so, were in breach of some duty they owed to WTL.

[24]   Ms Wethey submitted, if WTL wishes to pursue such a claim now, they should do that through new and separate proceedings. They should not be allowed at this late stage to join Shieff Angland in the current proceedings with the defendants then having to face all the delays and costs that would inevitably result from such a development.

Determination

[25]   Rule 10.2 of the High Court Rules 2016 provides that the Court may adjourn or postpone a trial if it is in the interests of justice to do so. The interests of justice considerations extend beyond the interests of the parties. The Court retains a wide discretion.

[26]   The parties have had nearly two years and three months in which to be ready for trial. The adjournment of a multi-day fixture such as has been allocated here would have a significant flow-on affect in that further time would need to be allocated for the hearing, causing consequential prejudice to the litigants in other unrelated proceedings. An adjournment of the current proceedings at this late stage would mean the timely and proper administration of justice for other litigants would be compromised.

[27]   The vacation or adjournment of trials at such a late stage, as here, should be granted only as a last resort and in circumstances where that course is all but unavoidable. I am not persuaded this is such a situation.

[28]   Further, I am advised by the Registry that, if this seven day trial is adjourned, the delay before a new trial can be scheduled will be considerable; at least into the last quarter of 2022. That is not only because civil trials have had to be adjourned and reallocated due to COVID-19 restrictions but also because criminal jury trials were suspended. Those suspended trials, as well as new criminal work, require priority allocations, especially where defendants are in custody.

[29]   Inefficiencies in the use of finite judicial resources arising from the vacation or adjournment of trials must be taken into account. So too is the need to maintain public confidence in the judicial system. In this case, the interests of the defendants in having these proceedings brought to a timely end need to be considered.

[30]   Having heard the submissions from both counsel, I am not persuaded that an adjournment is necessary for the Court to be able to determine fairly as between WTL and the defendants the allegations and complaints WTL wishes to pursue as against the defendants or McDonald Vague.

[31]   In a joint memorandum for the first case management conference, then counsel for both parties said there were five causes of action pleaded as against the defendants:

(a)  review of liquidators remuneration, i.e. as to the remuneration of their costs and whether WTL had been properly advised as to what those costs would be;

(b)  breach of s 312 of the Companies Act 1993 as to whether funds recovered should have been allocated between creditors in a manner different than had occurred;

(c)  breach of s 253 of the Companies Act as to whether the liquidators had acted negligently in the way they conducted the proceedings;

(d)  the liquidators failed to maintain independence and profited from their position as liquidators in a manner not authorised by law; and

(e)  knowing receipt, that is whether the liquidators had received from the Court funds held as security for costs which the liquidators knew had been paid to them in breach of a fiduciary duty which the solicitors alleged owed to WTL.

[32]   In WTL’s amended statement of claim dated 26 March 2021, WTL’s claims are introduced as:

(a)  first cause of action - breach of statutory duty and/or negligence of liquidators;

(b)  second cause of action – review of liquidators’ remuneration pursuant to s 284E of the Companies Act;

(c)  third cause of action – breach of statutory, ethical and professional requirements relating to the defendants handling of monies held in trust for WTL; and

(d)  fourth cause of action – breach of s 312 and schedule 7 of the Companies Act 1993.

[33]   WTL’s case is that the defendants, as liquidators, acted negligently, in breach of statutory duty and in breach of ethical and professional obligations they had to WTL in the course of the liquidation. Whatever obligations the defendants had arose through WTL’s contractual engagement of McDonald Vague to act in the liquidation. The claims against the defendants and the evidential issues that arise out of them are

thus likely to be the same as would arise if McDonald Vague are included as a defendant but the claims against them are framed legally in contract rather than in tort.

[34]   I accept WTL’s wish to join Shieff Angland as a defendant does not result from information that has just become available. WTL had made a complaint to the Law Society regarding Shieff Angland’s involvement with all that happened with the liquidators many months ago. That must have been the case. In his decision of 14 April 2021, Associate Judge Bell recorded that the decision made by a Standards Committee as to that complaint was then awaiting a decision from the Legal Complaints Review Officer.

[35]   Counsel recently instructed may be of the view that WTL’s case could have been better prepared or that the defendants should have been able to provide further documentation to explain why and how they have dealt with the funds that are at issue. If the documents the defendants have made available do not adequately explain or justify the way they have dealt with the funds that were under their control, that is likely to be to their disadvantage rather than to the prejudice of WTL. I do not consider, at this late stage, it would be in the interests of justice to vacate the scheduled trial because newly engaged counsel considers WTL’s case could be better prepared.

[36]   I am not persuaded that an adjournment of the trial is necessary to enable WTL to bring a new claim against Shieff Angland. Mr Pyke acknowledged that, although there might be pressure to bring on such a claim to avoid a limitation defence, it would be possible for WTL to bring such proceedings separately. That may put WTL to some additional cost, but it is not unreasonable for them to bear such a cost given it was their decision not to join Shieff Angland as a defendant at the outset.

[37]   With the correctness of the legal advice the defendants say they received not having been put in issue through the way this case has been pleaded, I consider it unlikely that Shieff Angland would be able to argue that any claim by WTL would be barred through issue estoppel.

[38]   I accordingly determine that the interests of justice do not require the Court to vacate the trial scheduled for 28 June 2021. That trial must proceed as currently scheduled.

[39]   The defendants have indicated they would consent to McDonald Vague being joined as a third defendant provided the claim against them does not raise any evidential issues which have not had to be addressed in the pleadings as they currently stand.

[40]   I grant leave to WTL to file an amended statement of claim, so as to allow a claim against McDonald Vague as a further defendant. Neither the defendants nor McDonald Vague are required to file a statement of defence to that amended statement of claim.

[41]   I also grant such leave on the basis the amended statement of claim is not to raise any new issue that would require additional evidence from either WTL or the defendants other than is anticipated with the current proceedings. The current defendants or McDonald Vague have leave to object to any aspects of the amended statement of claim which they say have that consequence. It will be for the trial Judge to determine whether or not any pleadings in the further amended statement of claim should be disallowed on that ground.

[42]   WTL’s application to vacate the trial has been unsuccessful. It should not have been necessary for such an application to be made at such a late stage. The defendants are entitled to costs in respect of this application. If they cannot reach agreement over those costs, a memorandum from the defendants is to be filed within four weeks. A memorandum from WTL is to be filed within six weeks. Any further memorandum in reply from the defendants is to be filed within one week of receiving WTL’s memorandum. The memoranda are to be no longer than five pages. Costs will be dealt with on the papers.

Solicitors:

W C Pyke, Barrister, Auckland Fee Langstone, Auckland.