HUNG AND ANOR V TSE AND ORS HC AK CIV 2008-404-8568

HUNG AND ANOR V TSE AND ORS HC AK CIV 2008-404-8568 26 February 2009IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-8568BETWEEN SIKWING HUNG ALSO KNOWN AS NORMAN HUNG First Applicant AND TRUSTEES OF THE MAY FAMILY TRUST Second Applicant AND KEUNG TSE First Defendant AND KEUNG TSE ALSO KNOWN AS DAVID TSE AND SHUN HING LEUNG TSE Second Defendants AND CHRIS M WALKER LAWYERS Third Defendant Hearing: 9 February 2009 Appearances: Evgeny Orlov for Applicants Paul Murray for First and Second Defendants Judgment: 26 February 2009JUDGMENT OF HARRISON JIn accordance with R11.5 I direct that the Registrar endorse this judgment with the delivery time of 2:00 pm on 26 February 2009_________________________________________________________________________________ SOLICITORS Dennis J Gates Lawyers (Whangaparaoa) for Applicants DLA Phillips Fox (Auckland) for First and Second Defendants[1] This proceeding was listed for mention before me in the Duty Judge list on 9 February 2009. It is described as a 'notice of originating application'. The document seeks relief under the Companies Act 1993 authorising the applicants, described as Sikwing Hung, also known as Norman Hung, and the 'Trustees of the May Family Trust', as first and second applicants respectively, to conduct a derivative action in the name of Parts Imports Co Ltd (in liquidation) in the form of a draft amended statement of claim. The parties apparently held interests in the company. [2] The document seeks directions prohibiting Parts from entering into negotiations with the nominated first defendant, Keung Tse, 'on matters concerning the release and disbursement of funds held in trust by DLA Phillips Fox on behalf of [Mr Tse] until the conclusion of the proceeding'; prohibiting Mr Tse from disbursing funds in a separate proceeding (CIV 2007-404-006648) (the 6648 proceeding); and joining the two applicants as additional plaintiffs in the 6648 proceeding; and that the application be part of the 6648 proceeding. Mr Tse's counsel, Mr Paul Murray, advised that the 6648 proceeding is extant, and relates to disputes arising from Parts' liquidation. The draft amended statement of claim in this proceeding is a discursive document but as far as can be ascertained makes wide ranging allegations of misconduct against Mr Tse in his former capacity as managing director of Parts. [3] At short notice Mr Murray filed a memorandum advising that Phillips Fox had received the documents by fax from the applicants' counsel on about 5 February (immediately before the long weekend) without inquiry as to whether or not the firm was authorised to accept service. Nevertheless, Mr Murray appeared for the first and second defendants on 9 February. There was no appearance for the third defendants, a firm of solicitors. [4] In the short time available Mr Murray has identified these defects in this proceeding: (1) the trustees of the relevant trust, not the trust itself, should be the proper party listed as second applicant; (2) the applicants have not joined Parts as a party to this application; (3) the derivative action which the applicants seek to bring is already the subject of an ongoing proceeding in 6648; (4) the notice of application fails to disclose the grounds on which the applicants should be granted leave to bringa derivative action (s 165 Companies Act 1993); (5) the notice seeks orders against Parts' liquidators without joining them; and (6) the applicants have not obtained leave to apply for directions against the liquidators (s 284 Companies Act). [5] Mr Murray's memorandum also pointed out that this is the third application by the applicants to become involved in the liquidators' proceedings. The 6648 proceeding is the principal one. Another, CIV 2008-404-6716, was discontinued with an unpaid order of costs against the applicants. And in the third, CIV 2007- 404-3902, the applicants have failed to pay a costs order of $11,528.54. [6] When the proceeding was called, Mr Orlov advised that after conferring with Mr Murray the applicants wished to 'remove' the names of the first and second defendants and substitute the name of McDonald Vague, a firm of insolvency practitioners. Partners in that firm are apparently the liquidators of Parts. He said the wrong parties were cited because of an intituling error in his office during his absence due to illness. Mr Orlov made an oral application for substitution. He submitted that the proceeding should be referred to Associate Judge Doogue. [7] Although not so articulated, Mr Orlov's application was for an order granting leave (1) to strike out the names of the first and second defendants and (2) to substitute McDonald Vague or its partners: r 4.56. Mr Murray consented to the former but opposed the latter. He also sought costs. I reserved judgment given the constraints imposed by a busy Duty List. I must observe, though, that Mr Orlov's explanation of an 'intituling' error leading to the incorrect nomination of Mr Tse instead of McDonald Vague is not easily reconcilable with the sustained allegations made in the draft amended statement of claim of fraudulent misconduct by Mr Tse personally prior to the liquidators' appointment. [8] On 17 February 2009 Mr Orlov filed and signed a document described as a 'Notice of Withdrawal of Application'. The facing sheet nominates 'Alastair McLymont' (presumably as the instructing solicitor) whose name had not previously appeared on documents in this proceeding. I shall return to this point. The document states:The Applicant hereby withdraws the Originating Application that was filed by the Counsel for the Applicant on 19 December 2008.[9] I assume that this document is intended to be a notice of discontinuance: r 15.19(1)(a). If so, it must be filed in accordance with form G24 and, specifically, be signed either by the plaintiff or the solicitor for the plaintiff. I pointed out to Mr Orlov during the hearing on 9 February that a party had no right to withdraw, just an entitlement to discontinue or to apply to strike out. [10] The originating application was filed in the name of 'Evgeny Orlov, barrister for the applicants, under instructions from DJ Gates Lawyers'. The address for service is given as 'the offices of Equity Law' at 44 Khyber Pass Road, Auckland. The draft statement of claim is to the same effect. [11] Rule 44 High Court Rules (now r 5.44) which was then in effect materially stated:At the end of the first document filed by a party there shall be a memorandum stating—(a) That the document is filed by the party in person, or by the party's solicitor, as the case may be; and (b) Where it is filed by a solicitor,— (i) The name of the solicitor; and (ii) If the solicitor is a member of a firm or practises under a firm name, the name of the firm [Emphasis added][12] Mr Hung's notice of originating application does not comply with r 44. The document must be filed in the names either of Mr Hung or his solicitor, whose names are to be included. Mr Orlov is not the applicants' solicitor. He is described as Mr Hung's barrister (that is, he acts on instructions from Mr Hung's solicitor). Mr Orlov submitted that the Rules entitle a barrister to file documents 'but there must be a solicitor's address on the front'. He said the registry had confirmed his view. [13] Part 5, subpart 7, dealing with a solicitor's authority to act in proceedings filed in this Court, is a central part of the Rules. A solicitor pays an important part inthe orderly conduct of litigation. He or she is responsible to the Court for the due prosecution of the case and is obliged to apply his or her own mind to its viability; going on the record is not just a formality: Harley v McDonald [1999] 3 NZLR 545 (CA) at [84]. Filing a document constitutes a warranty to the Court and all parties that the solicitor is authorised 'by the party on whose behalf the document purports to be filed, to file the document': r 5.37. While the strict view that a proceeding commenced without a solicitor's warranty of authority is a nullity no longer prevails, it is a serious irregularity which justifies a stay of proceedings until it is cured:Edwards & Hardy Hamilton Ltd v Woodhouse (1990) 3 PRNZ 362; Hubbard Association of Scientologists v Anderson (No 2) (1971) VR 577. [14] The applicants have not taken any steps to cure their defect in filing this proceeding in breach of r 5.44. The facing sheet of the 'Notice of Withdrawal' nominates 'Alastair McLymont' whose contact details are provided. This is an apparent representation that Mr McClymont (his name is misspelled on the document) is now the solicitor on the record. But, if that is so, Mr McClymont should have taken the appropriate steps for that purpose: r 5.40. [15] The pleadings suffer from further significant defects. The second applicant is described as the 'trustees of the May Family Trust'. A trust is not a legal entity which can sue or be sued. Proceedings must be issued by nominated trustees. [16] I requested Mr Orlov to identify the trustees whom he represented. Initially he said that he was not in a position to provide those details. When pressed Mr Orlov advised that the trustee was 'the wife of Mr Andrew Yong' whom he did not identify. He said he 'understood' that a solicitor was also a trustee. He said 'their names will be added; it is just a question of intituling'. [17] Mr Orlov's explanation reflects a misunderstanding of a lawyer's role and is unacceptable. A solicitor issuing proceedings in the names of trustees must, for obvious reasons (such as liability for costs), have authority from each. I do not accept Mr Orlov's representation of authority and instructions from the trustees to act for them as applicants in this proceeding.[18] Mr Orlov is apparently responsible for the carriage of this proceeding. The originating documents are filed in Mr Orlov's name, rather than the name of a solicitor as required by the Rules, with reference to a firm of solicitors. The so- called 'Notice of Withdrawal' is signed by Mr Orlov but not by the applicants or their solicitor and purports to be in the name of a solicitor who has not been previously nominated as the solicitor on the record. And neither the originating nor terminating document complies with the wording and spirit of the Rules. [19] I am treating the steps taken by Mr Orlov as notice that the applicants do not wish to continue with a proceeding which was improperly commenced. I order that the proceeding be struck out on the ground that it does not disclose a reasonably arguable case appropriate to the nature of the pleadings given Mr Orlov's concessions that the first and second defendants at least are incorrectly joined: r 15.1(1)(a). Alternatively the proceeding is struck out as an abuse of process resulting from the applicants' failures to comply with and rectify breaches of the Rules: r 15.1(1)(d). [20] Mr Murray applied for an order for costs. Ordinarily costs would follow the event. However, the first and second defendants have not taken any steps in the proceeding. The application for costs is declined. [21] This narrative of events leaves me in real doubt about whether or not a solicitor was ever formally instructed to file or discontinue this proceeding. I direct the registry to send copies of this judgment to Messrs Dennis Gates and Alastair McClymont personally. I further direct: (1) Mr Gates to file an affidavit by 4 pm on 12 March 2009 providing details of (a) the individual or individuals who instructed him to file this proceeding; (b) the date on which those instructions were received; and (c) the date on which he instructed Mr Orlov to act as counsel in this proceeding; (2) Mr McClymont to file an affidavit by 4 pm on 12 March 2009 providing details of (a) the individual or individuals who instructedhim to act in this proceeding and (b) the date on which he instructed Mr Orlov to file a 'notice of withdrawal'. [22] Also, the breaches of the Rules outlined in this judgment are serious and fall well below the standards expected of legal practitioners in this Court. I am directing the registry to send copies of this judgment to the Professional Standards Director of the Auckland District Law Society and the New Zealand Law Society. ______________________________________ Rhys Harrison J