Whimp v Dugdale
[2023] NZHC 2018
•31 July 2023
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV 2022-488-63
[2023] NZHC 2018
BETWEEN GARRY CECIL WHIMP
First Plaintiff
FOREX TECHNICAL ANALYST SYSTEMS LIMITED (IN LIQUIDATION)
Second PlaintiffAND
KENNETH RODNEY PEEL DUGDALE, LINDA YVONNE DUGDALE and JOHN MURU WALTERS
First Defendants
KENNETH RODNEY PEEL DUGDALE
Second Defendant
Hearing: 31 May 2023 Appearances:
S O McAnally and A Ho for the plaintiffs
B Molloy and O Rose for Mrs and Mr Dugdale H Waalkens KC and M Francis for Mr Walters
Judgment:
31 July 2023
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 31 July 2023 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
WHIMP AND ANOR v DUGDALE AND OTHERS [2023] NZHC 2018 [31 July 2023]
Introduction
[1] The defendants own a property in Mangawhai. On 2 September 2022, this Court made an interim injunction prohibiting the sale or other disposition of the property and an interim order prohibiting reducing the defendants’ equity in the property.
[2] The defendants refinanced the property on 22 December 2022. The refinance reduced the defendants’ equity in the property. The defendants did so without telling the plaintiffs and without obtaining a variation of the Court order.
[3] The plaintiffs apply for orders, under the Contempt of Court Act 2019, that the defendants be held in contempt of court, that the defendants’ property be sequestered until the contempt is purged, and that the defendants pay a fine. The defendants oppose. They say they remedied their breach of the order, they did not knowingly fail to comply with the order, and in any case the Court should exercise its discretion not to impose a fine or make a sequestration order.
[4]The issues I have to determine are:
(a)Did the defendants remedy their breach of the order?
(b)If so, is that a complete answer to the plaintiffs’ application?
(c)If not, did the defendants knowingly fail to comply with the order?
(d)Should the Court exercise its discretion to impose a fine or make a sequestration order?
Background
The substantive proceeding
[5] The second plaintiff, Forex Technical Analyst Systems Ltd (Forex), built residential properties in Northland and North Auckland. Forex’s sole director and
shareholder was and is Kenneth Dugdale. Mr Dugdale is the first-named first defendant and the second defendant.
[6] Mr Dugdale is also a former trustee of the Eternal Trust, which he describes as a “family trust”. The trustees of the Eternal Trust own the Mangawhai property that is the focus of this proceeding.
[7] The other trustees of the Eternal Trust are Karen Dugdale and John Walters, the other first defendants. Mr and Mrs Dugdale are husband and wife. Mr Walters is a solicitor who was admitted in 1981. He has practised for 43 years. He says he was appointed as a “professional trustee” of the Eternal Trust.
[8] In November 2020, Mr Dugdale arranged for Forex to build a home on the Mangawhai property. A building contract was entered into between Forex and the Eternal Trust to build the home for a price of $670,000. Forex then built the home.
[9] In February 2022, Mr Dugdale placed Forex into liquidation by shareholder resolution. The first plaintiff, Mr Whimp, was appointed liquidator.
[10] Mr Whimp investigated the contract that Forex had entered into to build the home for the Eternal Trust. He asked Mr Dugdale how it had been priced.
[11]In March 2022, the Dugdales placed the property on the market.
[12] In late August 2022, the plaintiffs commenced this proceeding. Their statement of claim advances three causes of action in relation to Forex’s construction of the home for the Eternal Trust. They allege Forex provided goods and services to the first defendants (sued as trustees of the Trust) at an undervalue, in breach of s 298 of the Companies Act 1993. They allege the second defendant, Mr Dugdale, breached his duties as a director. They allege the first defendants dishonestly assisted in Mr Dugdale’s alleged breach of duties.
Interim orders
[13] When the plaintiffs commenced this proceeding they applied, without notice, for a freezing order against the first defendants. The order sought was that the property not be sold or otherwise disposed of by the first defendants.
[14] The application was considered by Brewer J on the papers. His Honour treated the application as one for an interlocutory injunction and delivered a brief judgment dated 2 September 2022. The judgment concluded with:
Decision
[19]I make the following orders:
(a)An order by way of interlocutory injunction prohibiting the sale or other disposition of the property … pending further order of the Court.
(b)A further order prohibiting reducing the defendants’ equity in the said property by pledging it as security by whatever means whatsoever, pending further order of the Court.
[20]Leave is reserved to the defendants to apply, on five days’ notice, to vary or rescind these orders.
[21]Costs are reserved.
Orders are served on defendants
[15] On the evening of 2 September 2022, a Friday, the plaintiffs’ solicitor, Mr Ho, sent an email to Mr Walters attaching the judgment. Mr Ho’s email included:
The court has made an order prohibiting the sale of [the property] pending further order. Please confirm that the property will be withdrawn from sale.
[16] Mr Walters did not open and read the email until he returned to work on the morning of Monday 5 September 2022. He says that, without reading the judgment, he forwarded the email (including the attachment) to Mr Dugdale and asked him to call. Mr Dugdale called him that morning. Mr Walters told Mr Dugdale that the trustees could not sell the property.
[17] Mr Walters then advised Mr Ho that he was authorised to accept service, by email, on behalf of the defendants. In response, and still on the morning of Monday
5 September 2022, Mr Ho emailed various documents to Mr Walters, including the statement of claim and the application for a freezing order. The email included:
I look forward to confirmation from you that the property will not be dealt with until the proceeding is resolved.
The defendants’ understanding of the orders
[18] Mr Walters deposes that he browsed the documents that were emailed to him and saw that the plaintiffs had, in their application for a freezing order, applied for an order that the property not be sold or otherwise disposed of. He says he then looked over the judgment until he found the order prohibiting sale of the property. Once he found that order (at [19](a) of the judgment, quoted above) he did not read on. Mr Walters says he did not appreciate that the Court had made an additional order prohibiting the trustees from reducing their equity in the property.
[19] Mr Walters says that his partial and faulty understanding of the judgment was reinforced when, on 7 September 2022, Mr Ho sent him an email saying that the property was still listed for sale and that this was “a breach of the Court’s order”. Mr Walters forwarded that email to Mr Dugdale the same day, telling him he needed to take the property off the market.1
[20] Mr Walters’ professional indemnity insurers appointed solicitors to act for him on the proceeding. Mr Walters says his solicitors’ role was focussed on dealing with the substantive proceeding and as such he did not receive any advice from them that the Court’s orders prohibited the trustees from reducing their equity in the property.
[21] Mr Dugdale deposes that when he received the documents from Mr Walters, he understood that the trustees could not sell the property but did not understand that they could not refinance it. Mr and Mrs Dugdale then instructed new solicitors, Haigh Lyon, to act for them. Mr Dugdale says Haigh Lyon advised them they “could not refinance without seeking a variation of the Court order”. Mr Dugdale says the stress of the situation meant he “just did not absorb that advice”.
1 In fact, the Court’s orders did not prohibit the defendants from listing the property for sale. However, nothing turns on this.
[22] Mrs Dugdale deposes that she was under the misapprehension that the trustees could refinance the property. She confirms what Mr Dugdale says and describes the stress she was under at the time.
The defendants refinance the property
[23] On 8 November 2022, Haigh Lyon requested a copy of Brewer J’s judgment from Mr Ho. He emailed them a copy of the judgment that day.
[24] On 21 November 2022, Haigh Lyon proposed to Mr Ho that the property be sold subject to undertakings. Haigh Lyon told Mr Ho they understood Mr and Mrs Dugdale would instruct Mr Walters to act on any conveyance of the property.
[25] Discussions then followed between Mr Ho and Haigh Lyon as to conditions under which a sale of the property might occur. These discussions continued through to 26 January 2023.
[26] Meanwhile, Mr and Mrs Dugdale were under financial pressure. The property was subject to a mortgage in favour of Avanti Finance Ltd (Avanti Finance). Mr Dugdale says he was concerned that mortgage payments to Avanti Finance would not be paid and that the property would be subject to a mortgagee sale. He says he thought it would be better to refinance the property to prevent that from happening. He contacted his financial adviser (who was not aware of the Court orders) to help with refinancing. The financial adviser told him refinancing would not be available if Mr Dugdale remained a trustee.
[27] Secure Funding Ltd (Secure Funding) agreed to refinance the property. In early December 2022, Mr Dugdale instructed Mr Walters to act on the refinancing and to prepare a deed of resignation as trustee. Mr Dugdale deposes that it did not occur to him to inform Haigh Lyon about the refinancing or that he was resigning as trustee.
[28] Mr Walters accepted the instruction. He deposes that he had one of his staff solicitors open a new file for the refinancing. He says he did not advise his staff
solicitor of the Court’s injunction because he did not understand it to be relevant to the refinancing.
[29] The refinancing occurred on 22 December 2022. Mr Dugdale resigned as trustee. The property was transferred to Mrs Dugdale and Mr Walters, as remaining trustees. They received an advance of $970,105 from Secure Funding. From that sum,
$812,811.81 was paid to Avanti Finance to discharge the existing mortgage over the property. The balance was used to pay various debts (including some debts of Forex) or was made available to Mr and Mrs Dugdale.
[30] The plaintiffs say the refinancing resulted in the defendants’ equity in the property reducing by $157,293.19 (the advance from Secure Funding of $970,105, minus the payment of $812,811.81 to Avanti Finance). The defendants say the reduction in their equity was only $103,080.45. The difference between the parties ($54,212.74) relates to a payment that was made to United Timber Merchants Ltd (United Timber) from the Secure Funding advance. The defendants say the payment discharged an obligation in favour of United Timber that was secured against the property. The plaintiffs say the obligation to United Timber was not secured against the property.
Steps taken to remedy the breach
[31] Haigh Lyon became aware of the refinancing in February 2023. They advised Mr Ho in early March 2023.
[32] On 13 March 2023, the parties filed a joint memorandum informing the Court of the breach. The defendants apologised unreservedly for the breach and said they were considering ways to remedy it. The parties said they intended to discuss how best to resolve what had occurred and proposed to update the Court following those discussions.
[33] Brewer J issued a minute in response on 14 March 2023. His Honour directed that any update be provided by 17 April 2023 and that it provide a full explanation of how the breach occurred.
[34] The parties then discussed how the defendants might remedy the breach of the interim order. No agreement was reached.
[35]On 27 March 2023, Haigh Lyon informed Mr Ho that they were holding
$38,025 in their trust account pending further order of the Court or agreement between the parties. That is how matters stood when the plaintiffs filed, on 13 April 2023, their application seeking orders under the Contempt of Court Act.
[36] Mr Walters swore an affidavit, dated 14 April 2023, in response to the application. He said he was able to return the sum of $15,540 that was used from the Secure Funding advance to pay his fees. Mr Walters paid that amount to his solicitors’ trust account in May 2023.
[37] Mr Dugdale swore an affidavit dated 17 April 2023. He said Haigh Lyon was by then holding a total of $52,103.66 pending further order of the Court or agreement between the parties.
[38] At the hearing of the application, Mr Waalkens KC, senior counsel for Mr Walters, told me that Mr Walters had made a further payment of $35,436.79 into his solicitors’ trust account.
[39] All this meant that, by the time of the hearing, the defendants had collectively paid $103,080.45 to their solicitors, to be held pending further order of the Court or agreement between the parties. This matches the amount by which the defendants say the refinancing reduced their equity in the property. The defendants say, therefore, that they have remedied their breach. The plaintiffs, on the other hand, say that there is still a shortfall of $54,212.74. This reflects the disagreement between the parties as to the amount of the reduction in the defendants’ equity caused by the refinancing.
The application, the opposition, and the issues that arise
[40] The plaintiffs apply for orders that the defendants be held in contempt of court, that the defendants’ property be sequestered until the contempt is purged, and that the
defendants pay a fine. They say the defendants acted in breach of Brewer J’s order by reducing their equity in the property through the refinancing.2
[41] The orders are sought under s 16 of the Contempt of Court Act. This provides, relevantly:
16 Certain court orders and undertakings may be enforced
(1)This section applies to—
(a)any interim or final order, decision, decree, direction, or judgment of a court (a court order) to do or abstain from doing something …
(2)A court may enforce the court order … against the party, non-party, or other person bound by the order … by taking action provided for in subsections (3) and (4) on application by—
(a)the party who sought the order … being enforced …
(3)The court—
(a)must not proceed further under this section unless it is satisfied that other methods of enforcing the court order … have been considered and are inappropriate or have been tried unsuccessfully; and
(b)if so satisfied, must make a finding as to whether it is proved beyond reasonable doubt that—
(i)the court order … being enforced has been made in clear and unambiguous terms and is clearly binding on the person; and
(ii)the person had knowledge or proper notice of the terms of the court order … being enforced; and
(iii)the person has, without reasonable excuse, knowingly failed to comply with the court order … being enforced.
(4)On finding beyond reasonable doubt that the requirements of subsection (3)(b)(i) to (iii) are met, the court may—
(a)do any of the following:
(i)issue a warrant committing the person or a director or an officer of the body corporate, as the case may be, to a term of imprisonment not exceeding 6 months:
2 It appears Mr Dugdale may also have breached the interlocutory injunction granted by Brewer J by disposing of his interest in the property. The plaintiffs did not seek any orders in respect of that possible breach.
(ii)impose a fine,—
(A)in the case of an individual, not exceeding
$25,000; or
(B)in the case of a body corporate, not exceeding
$100,000:
(iii)order the individual or a director or an officer of the body corporate, as the case may be, to do community work, not exceeding 200 hours, as the court thinks fit:
(b)if the court is the High Court, make a sequestration order in accordance with the rules of court.
(5)An applicant may apply under subsection (2) on 1 or more occasions to enforce the same court order or undertaking, and the court may take further action under subsections (3) and (4) as it thinks necessary to enforce the order or undertaking.
(6)Any enforcement action under this section does not operate to extinguish or affect the liability of the person to comply with a court order … .
[42] Section 16 creates a statutory form of enforcement of court orders. It replaces the common law of contempt of disobeying court orders (such common law contempt being abolished by s 3(3)). Section 16 deliberately avoids the language of contempt.3 The first of the orders sought by the plaintiffs (that the defendants be held in contempt of court) is not available under s 16. The actions specified in s 16(3)(b) and (4) are the ones that are available.
[43] Some matters are not in dispute. The defendants accept the interim order was clear and unambiguous, it was binding on them, and they had proper notice of it (meeting the requirements of s 16(3)(b)(i) and (ii)). They accept they breached the interim order. They do not suggest they had a reasonable excuse for their breach.
[44]The defendants nonetheless oppose the making of any orders on the basis that:
(a)They remedied their breach of the interim order by arranging for their solicitors to hold the sum of $103,080.45. The interim order has
3 Law Commission Reforming the Law of Contempt of Court: A Modern Statute (NZLC R140, 2017) at 5.61.
thereby been enforced successfully. Accordingly, by virtue of s 16(3)(a), the court must not proceed further.
(b)If the Court finds it can proceed further, the defendants did not “knowingly” fail to comply with the order (s 16(3)(b)(iii)).
(c)In any case, the Court should not exercise its discretion under s 16(4) to impose a fine or make a sequestration order.
[45]The issues are:
(a)Did the defendants remedy their breach of the interim order by arranging for their solicitors to hold the sum of $103,080.45?
(b)If so, has the interim order been enforced successfully?
(c)Did the defendants “knowingly” fail to comply with the order?
(d)If the requirements of s 16(3)(b) are met, should the Court exercise its discretion under s 16(4) to impose a fine or make a sequestration order?
Did the defendants remedy their breach of the interim order by arranging for their solicitors to hold the sum of $103,080.45?
[46] The defendants have arranged for $103,080.45 to be held by their solicitors. They say this is equivalent to the amount by which the refinancing reduced their equity in the property. They say they have therefore remedied their breach.
[47] Whether the defendants’ arrangements have remedied their breach depends on whether the refinancing reduced their equity in the property by $103,080.45. As noted earlier, the parties dispute the extent of the reduction. The defendants say it was
$103,080.45. The plaintiffs say it was $157,293.19. The difference is $54,212.74.
[48] That difference is the amount of the obligation to United Timber that was discharged by a payment from the Secure Funding advance. The question is whether the obligation to United Timber was secured against the property. If it was, the
discharge of that obligation must be taken into account in calculating the reduction in the defendants’ equity in the property that resulted from the refinancing.
[49] The obligation to United Timber arose from a written credit agreement between United Timber and Forex, under which United Timber agreed to supply goods and services on credit to Forex. The defendants contend that Mr and Mrs Dugdale provided, in their capacity as trustees of the Eternal Trust, a guarantee to United Timber of Forex’s obligations under the agreement, together with a charge over all their property to secure Forex’s obligations.
[50] The agreement is dated August 2017. Forex is defined as the “Customer”. The execution section of the agreement includes the following:
If I/We am/are completing this Credit Application on behalf of an Incorporated Body or Trust, I/We warrant and acknowledge that I am/We are a Director(s) or Trustee(s) or additional Guarantor of the Applicant; … and in consideration of [United Timber] supplying goods and services at my/our or the applicant’s request, I/We personally guarantee performance of the terms in this Credit Application.
[51] Underneath that paragraph are three signatures. Each signature has a “Designation” next to it. Mr Dugdale’s signature appears twice, the first time with “Designation: Director” and the second time with “Designation: Trustee The Eternal Trust”. Mrs Dugdale’s signature appears with “Designation: Trustee The Eternal Trust”. I note that, at the time of this agreement, Mr and Mrs Dugdale were the only trustees of the Eternal Trust.
[52]Terms and conditions of trade then follow. These include:
16. PERSONAL GUARANTEE OF COMPANY DIRECTORS OR TRUSTEES OR OTHER GUARANTORS (All Signatories are Guarantors irrespective of other positions/designations)
If the Customer is a company or trust, the director(s) or trustee(s) and guarantor(s) signing this contract … sign this contract in their personal capacity and jointly and severally personally undertake as principal debtors to [United Timber] the payment of any and all monies now or hereafter owed by the Customer to [United Timber] … .
19. CAVEAT
The Customer/Guarantor(s) charge(s) in favour of [United Timber] as security for the Customer’s obligations to [United Timber], all rights, title and interest
… in any property held now by the Customer/Guarantor(s) … or acquired by the Customer/Guarantor(s) at any time hereafter, also as a trustee. If the Customer/Guarantor(s) default(s) in payment of any amount owed to [United Timber], the Customer/Guarantor(s) specifically authorise(s) [United Timber] to lodge a caveat against any such property …
[53] After the terms of trade, Mr and Mrs Dugdale’s signatures appear again, with the same designations as before.
[54] Mr McAnally, counsel for the plaintiffs, submitted that although Mr and Mrs Dugdale signed as trustees, the Eternal Trust was not a Customer. Forex was the only Customer. In terms of the opening words of cl 16 (“If the Customer is a company or trust”), the Customer was plainly a company. He submitted the guarantee was therefore given only by Mr Dugdale in his capacity as a director of Forex, and not by Mr and Mrs Dugdale in their capacities as trustees of the Eternal Trust. This meant that the charging clause, cl 19, did not charge the property that was the subject of Brewer J’s interim order.
[55] I find that Mr and Mrs Dugdale did guarantee Forex’s obligations in their capacities as directors of the Eternal Trust. The paragraph that appears in the execution section of the agreement contemplates, first, that the Customer may be an incorporated body or a trust, in which case those signing warrant that they are directors or trustees and provide a personal guarantee. If the paragraph went only that far, there might be substance to Mr McAnally’s submission. But the paragraph contemplates a further possibility, namely that someone completing and signing the agreement is an “additional Guarantor of the Applicant”. That is plainly the basis upon which Mr and Mrs Dugdale each signed with the designation “Trustee The Eternal Trust”.
[56] This is consistent with, and reinforced by, cl 16. It says, in its heading, that “All Signatories are Guarantors irrespective of other positions”. The clause then provides for a guarantee from directors (where the Customer is a company), trustees (where the Customer is a trust) and “guarantor(s) signing this contract”.
[57] It follows that the charge in favour of United Timber in cl 19 extended to the present and after-acquired property of Mr and Mrs Dugdale in their capacities as
trustees of the Eternal Trust. This means the obligation to United Timber was secured against the subject property.
[58]At the time of the refinancing, the amount owed to United Timber was
$54,212.74. That debt was cleared in the refinancing. I therefore conclude that the refinancing reduced the defendants’ equity in the property by $103,080.45 and that, by arranging for $103,080.45 to be held by their solicitors, the defendants have remedied their breach.
Given that the defendants have remedied their breach, has the interim order been enforced successfully?
[59] By s 16(3)(a), I must not proceed further under s 16 unless I am satisfied that “other methods of enforcing the court order … have been considered and are inappropriate or have been tried unsuccessfully”.
[60] The defendants say the plaintiffs did try another method of enforcing the court order and that it was successful. On 4 March 2023, soon after having been told of the refinancing, Mr Ho wrote to Haigh Lyon. His letter invited Haigh Lyon to put forward a proposal as to how the defendants’ contempt could be “purged”. Mr Ho said he considered “the only means to do so is to pay an amount equivalent to all of the additional borrowing into court or a trust account pending the outcome of the proceeding”. The defendants say they have done the very thing requested of them by the plaintiffs and that this amounted to successful enforcement of the court order by another method.4
[61] Mr McAnally submitted that this did not amount to “enforcing” the court order in terms of s 16(3)(a). He said the order prohibited the defendants from reducing their equity in the property. Once the defendants had breached that order, there was no way of “enforcing” the order, as their equity had already reduced. Their contempt could not be undone. Any remedy of their breach went only to penalty.
4 The defendants did not pay as much as the plaintiffs requested. But that was because of the defendants’ view of the United Timber obligation, which I have held to have been correct.
[62] I do not accept Mr McAnally’s submission. It assumes that a “method of enforcing” in s 16(3)(a) is a method that results in the other party doing the very thing, or abstaining from doing the very thing, specified in the court order. I consider that is an unduly narrow view of “enforcing” in s 16(3)(a).
[63] In general legal usage “enforcing” does not carry the narrow meaning that underlies Mr McAnally’s submission. The primary remedy for breach of civil obligations is an award of damages, rather than an order that the defendant do (or refrain from doing) the thing she or he is obliged to do (or refrain from doing). Damages are nonetheless considered a means of enforcing such obligations.
[64] This broader conception of “enforcing” is consistent with the text of s 16. Section 16(2) says the Court may “enforce” the court order by taking the action provided for in s 16(4). Section 16(4) provides for imprisonment, a fine, community work and sequestration. None of those things will necessarily result in the defendant complying specifically with the court order. Section 16 nonetheless conceives of them as “enforcing” the court order.
[65] Further, Mr McAnally’s submission is not consistent with the structure of s 16. Section 16 places, at the forefront of the court’s enquiry, the question whether other methods of enforcing the order have been tried (and, if so, whether they have been successful). The underlying principle is that action by the court under s 16 should be a last resort.5 It is consistent with this principle that if the breach of the court order has been remedied as a result of actions by the party who had the benefit of the order, the court should not proceed further.
[66] Here, the plaintiffs’ response, on learning of the breach of the order, was to urge the defendants to remedy the breach by paying an amount into court or into a trust account. That is what the defendants have done. Their payments have put the plaintiffs in the same financial position they would have been in had the order not been breached. The plaintiffs have, in terms of s 16(3)(a), successfully enforced the order. This means I must proceed no further under the section.
5 Johnson v Johnson [2021] NZHC 840 at [64]; and Han v Zhu [2021] NZHC 3007 at [30].
[67] My finding on this issue means that, strictly speaking, I do not have to address the remaining issues. However, I received full argument on the issue whether the defendants knowingly failed to comply with the order. Resolution of that issue may be of some independent importance to the defendants. I will therefore make findings on that matter.
Did the defendants “knowingly” fail to comply with the order?
[68] Within this issue, a sub-issue arose as to what was encompassed within “knowingly” in s 16(3)(b)(iii). Mr McAnally, relying on cases that dealt with the common law of civil contempt,6 submitted that it included both intentional and reckless conduct. Mr Waalkens submitted that actual knowledge was required and that recklessness and constructive knowledge were insufficient. He contrasted other provisions of the Act that did refer to recklessness and constructive knowledge.7 Mr Molloy, counsel for Mr and Mrs Dugdale, adopted Mr Waalkens’ submission.
[69] I accept Mr Waalkens’ submission that s 16(3)(b)(iii) is concerned with actual knowledge. That is the ordinary meaning of “knowingly”. Given that the actions that can be taken under s 16 include imprisonment, fines and community service, a court should not expand that ordinary meaning to include recklessness. If it had been intended to include recklessness, I consider that would have been stated expressly. The drafters did so in s 9(2), providing that a person who “knowingly or recklessly fails to comply” with a take-down order commits an offence.
[70] The issue, therefore, is whether it is proved beyond reasonable doubt that the defendants knowingly – in the sense of having actual knowledge – failed to comply with Brewer J’s order. Before addressing the evidence on that matter, I make one further observation about the knowledge requirement.
[71] The Contempt of Court Act has its origins in work carried out by the Law Commission. In its report on reform to the law of contempt, the Law Commission
Morris v Douglas (1996) 10 PRNZ 363; Norbrook Laboratories Ltd v Bomac Laboratories Ltd
HC Auckland CIV-2002-404-1732, 18 December 2003.
Contempt of Court Act 2020, ss 9(2), 13(1)(b) and 22(1)(b).
described the elements of common law contempt in the form of non-compliance with court orders as follows:8
Any applicant seeking to enforce a civil judgment by contempt proceedings must prove to the criminal standard of beyond reasonable doubt that:
(a)the terms of the court order were clear and unambiguous and binding on the defendant;
(b)the defendant had knowledge or proper notice of the terms of the order, normally as the result of personal service;
(c)the defendant acted in breach of the terms of the order; and
(d)the defendant’s conduct was deliberate.
It is unnecessary to establish whether a defendant knew he or she was breaching a court order. It is sufficient to show the relevant actions were deliberate. …
[72] As authority for its propositions in the final paragraph, the Law Commission referred to the Court of Appeal’s judgment Siemer v Stiassny, in which the Court said:9
[10] It was not necessary for Mr Stiassny to establish that Mr Siemer knew he was breaching the injunction. It was, instead, sufficient to show that the relevant actions of Mr Siemer were deliberate. …
[73] The Law Commission recommended that the common law in respect of contempt involving breach of a court order be replaced by statutory provisions. It proposed a draft Bill to do so. The predecessor to s 16(3)(b)(iii) in the Law Commission’s draft Bill was:
the person has, without reasonable excuse, intentionally failed to comply with the court order …
[74] This is the same wording as appears in s 16(3)(b)(iii), except that “intentionally” rather than “knowingly” was used.10
8 Law Commission Reforming the Law of Contempt of Court: A Modern Statute (NZLC R140, 2017) at 5.32 (footnotes omitted).
9 Siemer v Stiassny [2007] NZCA 117, [2008] 1 NZLR 150.
10 The Bill that became the Contempt of Court Act, as introduced to Parliament, retained the word “intentionally”. That word was changed to “knowingly” by the Justice Committee when reporting on the Bill. The Committee did not comment on the change, which appears to have been regarded as a minor or technical amendment.
[75] There is nothing in the Law Commission report to suggest that it intended its proposed statutory provision would alter the common law elements it had described. Nonetheless, I consider that the wording it proposed, and the wording of s 16(3)(b)(iii), differs from the position expressed by the Court of Appeal in Siemer v Stiassny. Under Siemer v Stiassny, the relevant question is whether the defendant’s conduct was deliberate. Under s 16(3)(b)(iii), the question is whether the defendant knowingly failed to comply. To knowingly fail to comply, one must know that one’s conduct is in breach of the order.
[76] I now turn to the evidence. I begin with Mr Walters. Although he received proper notice of the order prohibiting the defendants from reducing their equity in the property, he swore an affidavit that he did not read the part of the judgment that contained that order, that he did not appreciate the Court had made that order and that he did not receive any advice that the defendants were prohibited from reducing their equity. He deposed that when he instructed his staff solicitor to open a file for the refinancing, he did not tell the solicitor about the injunction because he did not understand it to be relevant to the refinancing. He said he did not realise or appreciate that by refinancing, the defendants were breaching the order.
[77] It is extraordinary that a solicitor with Mr Walters’ experience did not read the entirety of what was a very short judgment. Nonetheless, Mr Walters’ evidence does not lack all credibility. When the judgment was emailed to him by Mr Ho, the email said the Court had made an order prohibiting the sale of the property. Mr Walters was then, before reading the judgment, provided with the plaintiffs’ application for a freezing order. These things may have caused him to look only for the order prohibiting sale. Further, Mr Walters, who was present at the hearing, was not cross- examined on his evidence. I find it is not proved beyond reasonable doubt that Mr Walters knowingly failed to comply with the order.
[78] As to Mr Dugdale, he deposed that after he was sent the judgment and talked to Mr Walters about it, his understanding was that the defendants could not sell the property, but he did not understand they could not refinance it. This evidence is consistent with what Mr Walters said was his understanding at the time. It raises a reasonable doubt as to Mr Dugdale’s understanding of the order at that point.
[79] Mr Dugdale said that he then engaged Haigh Lyon on 20 September 2022 to advise him and Mrs Dugdale about the proceeding. He explained the financial pressure they were experiencing in November 2022 and which led to their decision to refinance the property. Mr Dugdale deposed:
Although we had been advised by Haigh Lyon that we could not refinance without seeking a variation of the Court order, the stress of the situation meant that I just did not absorb that advice.
[80] Mr Dugdale therefore knew, at some point between his engagement of Haigh Lyon on 20 September 2022 and the refinancing on 22 December 2022, that the order meant he could not refinance the property. Mr Dugdale does not say, anywhere else in his affidavit, what he means by not having “absorbed” the advice. I find his evidence to be lacking in precision and to be evasive. Further, Mr Dugdale said that he told Haigh Lyon in early February 2023 that he had refinanced the property and that, after discussing the matter with Haigh Lyon, “we understood we were not meant to have financed the Property”. Mr Dugdale said he was shocked by this. Yet his own evidence was that, even after early February 2023, he paid away a number of further amounts from the Secure Funding advance. This conduct is consistent with Mr Dugdale having knowingly breached the order when he undertook the refinancing.
[81] Mr Dugdale was not cross-examined. However, given that relevant parts of his evidence were either imprecise and evasive or were consistent with him knowingly failing to comply with the order, there was nothing that the plaintiffs had to challenge. I am satisfied, beyond reasonable doubt, that Mr Dugdale knowingly failed to comply with the order.
[82] Mrs Dugdale is in a different position. She deposed that at the time she was overwhelmed by stress and grief. It is not necessary for me to recount the reasons. This evidence, which was not challenged, is such as to create a reasonable doubt that she knowingly failed to comply with the order.
Costs
[83] The plaintiffs sought indemnity costs, regardless of the outcome of their application. The defendants resisted any award of costs. Mr Waalkens asked that
I direct memoranda to be filed, signalling there may be correspondence relevant to costs.
[84] I will allow the parties the opportunity to file brief memoranda, but encourage counsel first to confer and attempt to resolve costs. In case it assists, I express the provisional view that all defendants should pay costs to the plaintiffs on at least a 2B basis, with allowance for second counsel. The plaintiffs were justified in bringing the application. The defendants did not remedy their breach of the order until shortly before the application was heard. I have found that Mr Dugdale knowingly breached the order. Although I have not made that finding with respect to Mr Walters, his failure to appreciate the scope of the orders made by Brewer J nonetheless fell well short of what the Court expects of any litigant, let alone an experienced solicitor.
[85] If costs cannot be agreed, the plaintiffs are to file and serve a memorandum not exceeding three pages (excluding relevant annexures) by 21 August 2023. The defendants are to respond, each with a memorandum not exceeding two pages, by 4 September 2023.
Result
[86]The plaintiffs’ application is declined.
[87]Memoranda on costs may be filed in accordance with [85] above.
Campbell J
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