White v Lynch
[2015] NZHC 3202
•15 December 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-2845 [2015] NZHC 3202
BETWEEN AMANDA ADELE WHITE
First Plaintiff
ANNE LEOLINE EMILY FREEMAN Second Plaintiff
AND
CHRISTOPHER MAURICE LYNCH First Defendant
STUART GORDON SPENCE Second Defendant
CIV-2014-404-2282
IN THE MATTER of the Insolvency Act 2006
IN THE MATTER of the bankruptcy of Amanda Adele White
BETWEEN CHRISTOPHER MAURICE LYNCH Judgment Creditor
ANDAMANDA ADELE WHITE Judgment Debtor
[Continued over]
Hearing: 26 and 27 November 2015 Counsel:
Appearance:
PJ Wright and AJ Sinclair for defendants in CIV-2014-404-2485 and judgment creditor in CIV-2014-404-2282 and
CIV-2014-404-2284
AA White and ALE Freeman, plaintiffs/judgment debtors, in person
Judgment:
15 December 2015
JUDGMENT OF FAIRE J
This judgment was delivered by me on 15 December 2015 at 11 am, pursuant to Rule 11.5 of the High Court
Rules.
Registrar/Deputy Registrar
Date……………
White v Lynch [2015] NZHC 3202 [15 December 2015]
CIV-2014-404-2284
IN THE MATTER of the Insolvency Act 2006
IN THE MATTER of the bankruptcy of Anne Leoline
Emily Freeman
BETWEEN CHRISTOPHER MAURICE LYNCH Judgment Creditor
ANDANNE LEOLINE EMILY FREEMAN Judgment debtor
Contents
The applications .....................................................................................................[1] The bankruptcy proceedings ..................................................................................[2]
The application to rescind ......................................................................................[4] Relevant law .........................................................................................................[16] The bankruptcy proceedings ................................................................................[27] Orders ...................................................................................................................[32]
The applications
[1] There are three applications which require determination, namely:
(a) The plaintiffs’ application in CIV-2014-404-2485 that my judgment of
14 May 2015 be set aside;
(b) The judgment creditor’s application on CIV-2014-404-2282 that
Ms White be adjudicated a bankrupt; and
(c) The judgment creditor’s application on CIV-2014-404-2284 that
Ms Freeman be adjudicated a bankrupt.
The bankruptcy proceedings
[2] I will deal with the bankruptcy proceedings separately at the end of this judgment. They rely on non-compliance with a bankruptcy notice based on a judgment of the Court of Appeal delivered on 2 July 2014 which ordered the plaintiffs to pay the defendant’s costs in the sum of $3,433.1 The Court of Appeal judgment dealt with interlocutory issues which arose on an appeal against the decision of Priestley J, in which judgment had been entered against the plaintiffs in their capacity as third parties in favour of the defendants.2 The substantive appeal has not yet been determined.
[3] The requirements of ss 13 and 36 of the Insolvency Act 2006 have been met. The issue for determination is whether the court’s discretion, pursuant to s 37 of the Insolvency Act 2006 should be exercised by refusing to adjudicate both judgment debtors bankrupt. That discretion is necessarily affected by the outcome of the plaintiff’s application that my judgment of 14 May 2015 be rescinded. If it is not set aside then, apart from the as yet undetermined substantive appeal which is currently not being prosecuted, there appears to be no outstanding matters that the judgment debtors could call in aid relating to the dispute which might impact on the exercise of the discretion.
The application to rescind
[4] Although the application is drafted as an application to set aside my judgment of 14 May 2015, it is in fact (and I shall treat it as such), an application to rescind the order that I made in that judgment. The judgment dealt with an application to strike
out the plaintiffs’ statement of claim.
1 White v Spence [2014] NZCA 298.
[5] The defendants pleaded, as one of the grounds of opposition, that the order striking out the claim “was a final decision, not an interlocutory order and as such r 7.51 of the High Court Rules does not apply”.
[6] I called for memoranda to be filed on this issue as a preliminary point. If the defendants’ position is correct, then of course I would be functus officio and therefore not entitled to hear the plaintiffs’ interlocutory application.
[7] Mr Wright has now confirmed that the order I made striking out of the statement of claim is an interlocutory order by virtue of r 1.3. That concession, with which I agree, is consistent not only with the wording of r 1.3 but with decisions of the Court of Appeal.3
[8] Accordingly I conclude that I do have jurisdiction to consider this application. The approach which the court should adopt and the extent of the review to be undertaken, however, where a strike out application has been made are matters that I will discuss separately.
[9] My judgment of 14 May 2015 dealt with the defendants’ application to strike out the plaintiffs’ statement of claim in that proceeding. Other applications were also considered, but are not directly relevant to the matters which are raised in issue by the current application.
[10] In my judgment, I recorded that the defendants advanced the strike out application and claimed that the plaintiffs’ statement of claim “advanced three general claims, all of which are covered by a judgment given by Priestley J on
19 June 2013 between these parties”.4 I then recorded the three general claims as
follows:
[5] The first is a claim that the judgment was obtained by fraud and is therefore a collateral attack on the judgment. The defendants allege that the plaintiffs’ case does not satisfy the test which must be met to allow such an attack to be made.
3 Waterhouse v Contractors Bonding Ltd [2013] NZCA 151, [2013] 3 NZLR 361 and Matthews
Corporation Ltd v Edward Lumley & Sons (NZ) Ltd (1994) 7 PRNZ 591.
4 White v Lynch [2015] NZHC 1020 at [4].
[6] The second is that the various specific claims for remedies sought from Mr Spence in the proceeding are matters that were dealt with by Priestley J in the judgment.
[7] The third is that the various allegations amounting to negligence are made against Mr Lynch and likewise, were dealt with by Priestley J in his judgment. Accordingly, the defendants claim that those claims are barred either by the principle of res judicata or issue estoppel.
[11] My judgment set out in [13] to [33] the background, which I will therefore not repeat.
[12] There must, however, to that background summary be added the following recent developments.
[13] The plaintiffs filed an appeal in respect of my judgment on 20 May 2015. Security for costs was set. The plaintiffs applied to have security dispensed with beyond the time limit provided by the Court of Appeal Rules. The Registrar dismissed their application. The plaintiffs applied to review that decision.
[14] The review application was heard by Randerson J in the Court of Appeal. His Honour gave judgment on the papers on 17 August 2015 and declined the application.5
[15] His Honour’s judgment records the following reasons on the question of whether the Registrar’s decision should be reviewed:6
[21] This question depends substantially on whether security for costs should be dispensed with if an extension of time is granted. In Reekie v Attorney-General, the Supreme Court held that the Registrar (or a single Judge on review) should only dispense with security if it is right to require the respondent to defend the judgment under appeal without protection as to costs. Whether it is right is a matter of discretion which turns on whether the Court should preserve an impecunious person’s access to the Court for an appeal that a solvent person would reasonably wish to prosecute.
[22] The appeal brought by the appellants is not reasonably arguable.
Their substantive appeal amounts to a collateral attack against the original decision of Priestley J and his clear finding that there was no
profit-sharing agreement between the parties. An appeal against that
decision was filed in this Court and cannot be pursued unless
5 White v Lynch [2015] NZCA 376.
security is paid. The appellants are now seeking to relitigate the same issue by way of an appeal against the decision of Faire J. They are bringing their appeal on the basis of evidence this Court has already refused to admit on their first appeal.
[23] We also note that the bankruptcy notices issued against the appellants relied on a costs order made by this Court. That order can no longer be challenged.
[16] The plaintiffs have since abandoned the appeal against my judgment of
14 May 2015.
Relevant law
[17] The application is made in reliance on r 7.51. Rule 7.51 of the High Court
Rules provides:
7.51 Order may be rescinded if fraudulently or improperly obtained
(1) A Judge may rescind any order that has been fraudulently or improperly obtained.
(2) The Judge may grant any further relief by way of costs that the interests of justice require.
(3) This rule does not limit any other remedies of a party who has been adversely affected by an order that has been fraudulently or improperly obtained.
[18] In Yang v Ko the High Court, in considering this rule, drew attention to the following relevant principles:7
a) The rule exists to prevent intentional or innocent misuse of the
Court’s processes;
b)The focus of the enquiry is the knowledge and conduct of the party that obtained the order in question: orders are fraudulently obtained when there is intentional misuse of Court processes but improperly obtained when there is innocent misuse;
c)A key factor in an enquiry into whether the order was improper[sic] obtained is whether the party obtaining it knowingly ignored a legal obligation, so that it would be contrary to the interests of justice to allow the order to stand;
d)The conduct of the party seeking to rescind the order is relevant only insofar as it affects the knowledge of the party who obtained the order;
7 Yang v Ko HC Auckland CIV-2005-404-4583, 31 July 2007 at [24].
e)The fact that the order would not have been granted had the alleged impropriety not occurred is a relevant fact in the exercise of the discretion.
[19] In Elvidge v ASB Bank Ltd, Associate Judge Bell added the following additional points:8
(a) Applications under r 7.51 are not to be used as a second chance to have a second bite at the cherry - finality is just as important with interlocutory decisions as substantive ones. The rule is restricted to where an order has been fraudulently or improperly obtained;
(b)The time limits on review and appeal rights should be respected by not allowing applications under r 7.51 to be used as a substitute for an appeal or review;
(c) Where an application under r 7.51 is based on new evidence that was available at the time of the original hearing and could reasonably have been adduced then such evidence will only be considered in special circumstances;
(d)The word “obtained” in r 7.51(1) shows a linkage is required between the alleged fraudulent or improper conduct and the court’s order. Conduct which does not influence the court’s decision is outside the rule;
(e) Although the rule is silent as to all the consequences of a rescission order, a flexible discretionary response to meet the circumstances of the case seems open;
(f) “The court has a vital interest in ensuring that those who give evidence in its proceedings do so honestly, not on the basis of half truths given in the hope of avoiding detection. The court needs to be protected against being misled.”
[20] In my judgment I dealt with the 15 causes of action pleaded in the statement of claim which was the subject of the strike out application. I noted that:
(a) The third to sixth, and eleventh to sixteenth causes of action did not allege fraud; and
(b)Those causes of action raised matters that were either dealt with by Priestley J in his judgment or should have been raised in that proceeding. They were accordingly “caught by the principles of finality in respect of civil proceedings under the established doctrine of res judicata and under the inherent powers to prevent abuse of
process”.9
[21] The plaintiffs have advanced no basis for the proposition that the strike out order which I made in respect of those causes of action could possibly be said to be fraudulently obtained or improperly obtained. What was carried out was an analysis of Priestley J’s judgment and an analysis of the new pleading which sought to set aside the judgment. Those causes of action simply cannot now be maintained for the reasons set out in [20].
[22] Before dealing with the causes of action where there is a fraud allegation it is appropriate that I record the following comment. The analysis which I was required to carry out in the strike out application necessarily required a determination of whether:
(a) the pleading could be said to sustain a fraud allegation in the strict legal sense;
(b) that there had been a sufficient pleading of it; and
(c) that there was prima facie evidential support for it.
[23] Only if that was proven could the strike out application be resisted. That position is not altered by virtue of the fact that this application is made under r 7.51.
[24] My judgment recognised that there is an exception to the principle of finality in litigation where a judgment is the result of fraud which goes to the heart of the judgment itself. I do not intend to review or summarise further the passages from the authorities referred to in [42] and [43] of my judgment. Suffice to say, that is the law and the authorities provide the test which I must apply to the remaining causes of action. They are the first, second, seventh, ninth and tenth causes of action.
[25] These causes of action were analysed in [52] to [69] of my judgment. I have given careful consideration to everything that Ms White has placed before me. I am not satisfied that the analysis I carried out in my judgment has been proven to be wrong and that the order I made should be rescinded.
[26] Ms White failed to appreciate that where an attempt is made to set aside a final judgment the fraud in issue is fraud in the strict sense. Matters of a lesser nature simply do not override the principle of finality. That conclusion, by itself, is sufficient to dispose of the application. However, there are additional factors, namely:
(a) The material alleging fraud was available to be placed before the court at the time of trial had proper steps been taken. Courts have already rejected the proposition that there are special circumstances for dispensing with this requirement; and
(b)Previous reviews of the case have concluded that yet a further investigation by trial is simply not justified.
[27] I conclude therefore that the application must be declined.
The bankruptcy proceedings
[28] As I have recorded in [3], the only issue is the court’s discretion under s 37 of the Insolvency Act 2006. The issue is whether it is just and equitable that the court not make an order of adjudication.
[29] In Eide v Colonial Mutual Life Assurance Society I summarised the general principles involved in the exercise of the discretion under s 26 of the Insolvency Act
1967 (which is now s 37 of the Insolvency Act 2006) and noted that the important matters were the following:10
1)“A creditor who establishes the jurisdictional facts set out in s 23 is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made.” McHardy v Wilkins & Davies Marinas Ltd (Court of Appeal, Wellington, CA 54/93, 7 April 1993) at p 3.
2)“. . . in the exercise of the discretion under s 26 it is proper for the Court to consider not only the interests of those directly concerned – the petitioner, other creditors, the debtor – but also the wider public interest.” McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.
3)In determining whether an order should be made, the wider public interest must be taken into account to determine whether adjudication is “conducive or detrimental to commercial morality and the interests of the general public.” Re Nisbett, ex parte Vala [1934] GLR 553 at p 556.
4)“. . . on a bankruptcy petition the Court must have regard to public interest in a way which transcends the interest of the immediate parties to the proceeding. . . . The public interest in exposing and controlling an insolvent debtor is one which exists quite independently of the separate question of debt collection by his immediate creditors.” Re Fidow [1989] 2 NZLR 431 at p 444.
5) Absence of assets is a factor but:
“. . . even the undoubted absence of assets will not necessarily preclude an order, for the circumstances may be such that the debtor ought in the public interest to be visited with the disqualifications that go with bankruptcy.” McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.
6) Another matter:
“. . . is the potential for further investigation. A bankruptcy makes available to creditors an array of procedures for investigating the financial circumstances of the debtor.
10 Eide v Colonial Mutual Life Assurance Society Ltd [1998] 3 NZLR 632 (HC) at 635.
Those procedures are likely to prove more effective than an investigation conducted by other means.” Re Fidow (supra) at p 444.
7) There is a need:
“. . . for the Court to balance the various considerations relevant to the case, and to determine whether in the end the debtor has succeeded in showing that an order ought not to be made”. McHardy v Wilkins & Davies Marinas Ltd (supra) at p 4.
[30] That approach was expressly approved by the Court of Appeal.
[31] I am conscious of the fact that there is an outstanding appeal from the judgment of Priestley J, although that has not been prosecuted for a considerable period of time. I conclude, therefore, that is no reason to decline to exercise the discretion to adjudicate. The judgment debtors have provided no reason, beyond a possible continuation of the proceedings and issues which were determined by Priestley J.
[32] Now that to all intents and purposes appeals and further proceedings in respect of those issues have been concluded, there is no reason to delay an order of adjudication.
Orders
[33] I make the following orders:
(a) The application for an order that I rescind my judgment of 14 May
2015 is refused;
(b) Amanda Adele White is adjudicated bankrupt. Such order is timed at
11 am on 15 December 2015;
(c) Anne Leoline Emily Freeman is adjudicated bankrupt. Such order is time at 11 am on 15 December 2015; and
(d)The defendants and judgment creditor are entitled to costs. I fix costs in respect of the three applications based on Category 2 Band B together with disbursements as fixed by the Registrar. Costs shall be
payable by the plaintiffs and judgment debtors.
JA Faire J
Solicitors: Sellar Bone, Auckland
And to: AA White, Auckland
ALE Freeman, Auckland
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