MAINZEAL & ORS v YAN & ORS [2018] NZHC 2470

MAINZEAL & ORS v YAN & ORS [2018] NZHC 2470 [20 September 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2015-404-1094[2018] NZHC 2470BETWEEN MAINZEAL PROPERTY ANDCONSTRUCTION LIMITED (IN LIQ)First PlaintiffAND KING FAÇADE (PREVIOUSLY KNOWNAS RICHINA LAND LTD) (IN LIQ)Second PlaintiffAND MAINZAL GROUP LIMITED (IN LIQ)Third PlaintiffAND ANDREW JAMES BETHELL ANDBRIAN MAYO-SMITHFourth PlaintiffsAND RICHARD CILIANG YANFirst DefendantAND PETER GOMMSecond DefendantAND RT HON JENNIFER MARY SHIPLEYThird DefendantAND CLIVE WILLIAM CHARLES TILBYFourth DefendantAND PAUL DAVID COLLINSFifth DefendantAND SIEW MAY KWANSixth DefendantAND RICHINA GLOBAL REAL ESTATELIMITED (IN LIQ)Seventh DefendantAND ISOLA VINEYARDS LIMITED(PREVIOUSLY KNOWN AS WAIHEKEVINEYARDS LIMITED) (IN LIQ)Eighth DefendantHearing: 20 September 2018Counsel: M D O'Brien QC, Z G Kennedy and M D Pascariu and Y J Leefor the PlaintiffsD J Chisholm QC, T P Mullins and C I Hadlee for the FirstDefendantJ E Hodder QC, M D Arthur and J Marcetic for the Second toFifth DefendantsG P Blanchard QC and J Nolen for the Sixth DefendantJudgment: 20 September 2018ORAL JUDGMENT OF COOKE J(Admissibility of Mr Bethell's evidence)[1] These proceedings involve claims by the liquidators of Mainzeal Property andConstruction Ltd (in liquidation) and associated companies, and by the companiesthemselves, against the former directors. A number of claims for breach of directors'duties and obligations in connection with the ultimate failure of the companies areadvanced. For the purpose of the present question I do not need to summarise theclaims, but they include claims for breach of directors' duties under ss 135 and 136 ofthe Companies Act 1993.[2] The trial was set down for six weeks, with two weeks in reserve, commencingMonday 17 September. When I held the first pre-trial conference as the trial Judge on29 August, counsel advised that they thought the case may not finish within eightweeks. At the commencement of the hearing this week they advised that eight weekswould be required, but they expected that the trial would be completed in that time.[3] In the memoranda filed for the first pre-trial conference, counsel for some ofthe defendants indicated that an objection was taken to the evidence proposed to begiven by Mr Andrew Bethell, who is one of the liquidators and the plaintiffs' firstwitness. I timetabled the filing of written submissions on that issue the week beforetrial, and indicated I would deal with the matter after the plaintiffs had opened, and thedefendants had delivered mini-openings. That course has been followed, and I nowprovide my decision on the objection.First defendant's submissions[4] The argument objecting to the evidence was advanced by counsel for the firstdefendant, Mr Chisholm QC.[5] He contended that Mr Bethell's initial and supplementary/reply brief ofevidence contain numerous examples of commentary and argument on documentationand events that are inadmissible as opinion evidence. Simply summarising documentsis inconsistent with the requirement of r 9.7(4)(f) of the High Court Rules 2016, andthe opinion evidence is inadmissible. He argued that the problem is not remedied byMr Bethell's statement, added to the supplementary brief, that to the extent that he isgiving opinion evidence it was based on his expertise, and that he would comply withthe Code of Conduct for expert witnesses. A number of requirements for such expertevidence had not been met, including the identification of the questions he has beenasked to address, and the facts upon which his opinions are based.1 Neither was hisevidence initially prepared on that basis as required. Reference to the Code was saidto be a retrospective attempt to save evidence that is not properly admissible.[6] He accepted that a liquidator could be properly qualified to give expertevidence about the affairs of the company. The decision in FAF Holdings Ltd vBethune is an example.2 But he referred to the importance of the liquidator's duty ofimpartiality recognised by many decisions including Re Allebart Pty Ltd (in liq).3 Theexpert should not act as an advocate, engage in legal submission,4 or speculate onpossibilities not supported by evidence.5 He referred to the following observation byToogood J in Glenvar Property Holdings Ltd (in liq) v Terra3 Ltd:6 It is an unusual feature of the case that the only evidence for the plaintiffwas Mr Reynolds's opinion of events of which he had no direct knowledge,based on assumptions and inferences he drew from the documents he obtained.While it is not uncommon for a liquidator to reconstruct the pre-liquidationactivities of a company, it is for the Court and not the liquidator to decide thefacts. The liquidator's opinion will not often meet the test of substantialhelpfulness required for admissibility under the Evidence Act. Mr Reynolds1 See R v Turner [1975] 1 QB 834 (CA); and s 25(3) of the Evidence Act 2006.2 FAF Holdings Ltd (in liq) v Bethune [2017] NZHC 2796.3 Re Allebart Pty Ltd [1971] 1 NSWLR 24 at 28. See also Re Contract Corporation; Gooch's Case(1872) 7 Ch App 207.4 Penny v Commissioner of Inland Revenue [2011] NZSC 95, [2012] 1 NZLR 433 at [32].5 Robinson v R [2014] NZCA 249 at [20]–[30].6 Glenvar Property Holdings Ltd (in liq) v Terra3 Ltd [2017] NZHC 2463 at [4] (footnote omitted).did not explain why no evidence was called from persons who were actuallyinvolved in the transactions on which he relied to found the claims against thedefendants.[7] Furthermore Mr Chisholm contends that Mr Bethell's position is compromisedby the litigation funding agreement that he has entered. The agreement contains anumber of terms that are said to prejudice Mr Bethell's obligation to act impartially asliquidator, including cl 14.1 which is a positive duty owed to the funder that requiresthe liquidators to "use their reasonable endeavours to maximise settlement orjudgment proceeds (net of costs) in an appropriate expeditious manner" and cl 14.2which prevents the liquidators settling the litigation without the funder's consent.[8] As an example of the agreement so prejudicing the liquidators' approach, heidentified the change in stance regarding the liquidators' treatment of a certain liabilityto Mainzeal for the purposes of the liquidator obtaining "pooling" orders, which hesays is no longer adopted in this proceeding in order to maximise the potential claimfor the benefit of the funder.[9] He relied on the observation of the Chief Justice in PricewaterhouseCoopersv Walker concerning the appropriateness of the funding agreement in that case, whichhe said was essentially the same as the funding agreement in this one.7 He also reliedon similar observations by Justice Anderson in Re Nautilus Developments Ltd, inwhich His Honour emphasised the importance of litigation funding agreements notcompromising the liquidator's independence.8[10] Mr Chisholm contrasted the position with the views of creditors in a creditorscommittee under s 258 of the Companies Act noting that s 258(4) records that theliquidator retains his or her discretion to conduct the litigation. Consultation ispermissible but the clauses in the funding agreement here go further. Further, aliquidator may be able to assign litigation but if pursuing it in his or her own name heor she needed to retain control as the Court of Appeal noted in ALF No 9 Pty Ltd vEllis.97 PricewaterhouseCoopers v Walker [2017] NZSC 151, [2018] 1 NZLR 735 at [123]–[131].8 Re Nautilus Developments Ltd (in liq) [2000] 2 NZLR 505 (HC) at [22] and [24]. Approved bythe Court of Appeal in ALF No 9 Pty Ltd v Ellis [2010] NZCA 529.9 ALF No 9 Pty Ltd v Ellis, above n 8, at [55].[11] Mr Chisholm also relied on the decision of the Court of Appeal in PrattleyEnterprises Ltd v Vero Insurance New Zealand Ltd where the Court held that aprincipal from the litigation funder itself should not have been allowed to give expertevidence as an exercise in advocacy rather than true expert evidence.10 Such evidencewas not substantially helpful in accordance with s 25 of the Evidence Act 2006.Mr Chisholm also stresses that the perception of independence is as significant asactual independence in relation to the position of a liquidator.[12] Mr Chisholm also made a number of particular objections to Mr Bethell'sevidence, in relation to hearsay statements, and its reliance on email communicationbetween people who are not to be called as witnesses. He focussed on the latter insubmissions he filed in reply.Plaintiffs' response[13] Mr O'Brien QC for the plaintiffs contended that Mr Bethell's evidence wasproperly admitted as evidence of fact given his role as liquidator, and he was able togive opinions associated with those facts under s 24 of the Evidence Act, and that hewas also properly qualified as an expert to give expert evidence in accordance withs 25.[14] He argued that the reliance on the Chief Justice in PricewaterhouseCoopers vWalker did not justify the criticism of the litigation funding agreement here.11 Thiswas a single judgment, which was not the result of argument and was not joined byother members of the Court. The agreement here was the same kind as had beenallowed by the Court of Appeal in that case, and also approved in Strathboss KiwifruitLtd v Attorney-General.12 Its terms were consistent with the liquidators' obligation tomaximise the assets of the company, so there was nothing objectionable about cl 14.1of the agreement or the other terms. He distinguished the position of Mr Keys inPrattley Enterprises Ltd v Vero Insurance New Zealand Ltd given the findings of factmade about Mr Keys' position in that case.1310 Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67, [2016] NZLR 750at [97]–[104].11 PricewaterhouseCoopers v Walker, above n 7.12 Strathboss Kiwifruit Ltd v Attorney-General [2015] NZHC 1596.13 Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd, above n 10.[15] Mr O'Brien emphasised that the liquidators are witnesses of fact, that thebusiness records of the company are admissible under s 19(1)(b) of the Evidence Act,and that the formal role of the liquidator with respect to reports under ss 255 and258A(1) of the Companies Act mean that Mr Bethell can properly provide evidenceof fact in relation to those matters. Mr O'Brien noted that the High Court had allowedevidence of that kind in not only FAF Holdings Ltd (in liq) v Bethune,14 but also inBlanchett v Keshvara.15[16] In both cases the Court took a realistic approach. This approach is recognisedby s 24 of the Evidence Act as well as s 25, and s 24 allows evidence of opinion toenable the witness to communicate their factual evidence. Mr O'Brien pointed outthat the observations of Justice Toogood in Glenvar Property Holdings Ltd (in liq) vTerra3 Ltd involved a case where the evidence did not meet the substantial helpfulnesstest as the liquidator was engaged in what was described as an "artificialreconstruction".16Analysis[17] I begin by observing that Mr Bethell is a witness of fact in relation to the stateof the companies, and his inquiries and investigations. He also has recognisedexpertise in relation to corporate activities associated with the liquidation ofcompanies, and can give opinion evidence on such matters in accordance with therules for the giving expert evidence.[18] Expert evidence can be given by a liquidator even though he or she is a partyto the proceeding. The liquidators are not in a unique position in this respect.Complete independence is not required for an expert giving expert evidence. That isnot a requirement set out in the Code of Conduct for expert witnesses, and thetouchstone for admissibility set out in s 25 of the Evidence Act does not depend onimpartiality, but ultimately on whether the opinion evidence will be of "substantialhelp".14 FAF Holdings Ltd (in liq) v Bethune, above n 2.15 Blanchett v Keshvara [2011] NZCCLR 34 (HC), upheld on appeal in Keshvara v Blanchett [2012]NZCA 553, [2013] NZCCLR 13.16 Glenvar Property Holdings Ltd (in liq) v Terra3 Ltd, above n 6, at [44].[19] A consideration of the type of matters that can come before the Court illustrateswhy this is so. Sometimes the very nature of the subject matter of litigation makesopinion evidence inevitable, including from the protagonists. In Geddes v NewZealand Dairy Board, for example, the plaintiffs were attacking a sophisticated modelthat was being used for assessing the breeding worth of dairy animals.17 A number ofwitnesses were called in response to that challenge, including a number of employeeswho had developed or implemented the model for use. The High Court held theycould give expert evidence notwithstanding they were obviously directly interested.It would have been unrealistic to deal with the facts of the case without dealing withthe questions of opinion.[20] Section 24 of the Evidence Act also allows a witness to give opinion evidence"if that opinion is necessary to enable the witness to communicate, or the fact-finderto understand, what the witness saw, heard, or otherwise perceived". The cases underthat section tend to be criminal cases where the subject matter may make it easier todistinguish between fact and opinion, and where this exception may have limitedoperation.18 The position may be different with a complex commercial case. Thedividing line between fact and opinion is more subtle. Ultimately this case turns onthe opinions that were formed by the directors at the time given the circumstances theywere confronted with. When they give their evidence, the evidence as to the opinionsthey formed at the time will, technically, be a question of fact. But it will be verydifficult for them not to also venture opinions about those matters as, in the words ofthe section, it is necessary to do so to enable the witness to communicate, or the fact-finder to understand, what the witness perceived.[21] A similar situation may be said to arise when a liquidator is giving evidence insupport of a claim against the former director. The liquidator can be expected to giveevidence of fact concerning the position of the companies, and the results of theliquidators' inquiries and investigations. He or she would be expected to introduce thebusiness records of the companies and explain what they show. I note r 9.7(4)(f) ofthe High Court Rules, but the position may be different here where the liquidator17 Geddes v New Zealand Dairy Board HC Wellington CP52/97, 27 August 2003 at [71]–[74].18 See Elisabeth McDonald and Scott Optican (eds) Mahoney on Evidence: Act and Analysis(Thompson Reuters, Wellington, 2018) at [EV24.01]–[EV24.02].places the business records before the Court so that the factual position can beunderstood. In doing so it may be difficult not to provide some expressions of opinion.The dividing line between fact and opinion again becomes less clear the more complexor sophisticated the underlying matters of fact are.[22] Ultimately, however, it is a matter of degree. That is so both for admissibilityunder s 24, and admissibility under s 25. The principal of the litigation funder whopurported to give expert evidence in Prattley Enterprises Ltd v Vero Insurance NewZealand Ltd was too closely financially interested in the outcome of the litigation toprovide expert evidence of any assistance.19 Equally the evidence that was involvedin Commissioner of Inland Revenue v BNZ Investments was a jumble of expertopinion, submission and argument.20[23] I do not think that the terms of the litigation funding agreement entered into bythe liquidators' compromise Mr Bethell's ability to give expert evidence in such a waythat would render it inadmissible under s 25. The metes and bounds of whatpermissible litigation funding agreements actually are is not subject to a clear set ofrules. I note the observations that have been made in the authorities referred to byMr Chisholm, including those in relation to litigation funding agreements involvingliquidators, and the possible risk to the independence of the liquidators. On the otherhand it needs to be recognised just how expensive large scale commercial litigationhas become in New Zealand, and why recourse to litigation funding agreements isnecessary if such cases are to be argued at all.[24] I accept that there are some points that can be made about the litigation fundingagreement here. But cl 14.1 is not problematic. It involves a promise to maximise thesettlement or judgment proceeds. That promise is consistent with the liquidators'duties – the liquidator has a duty to maximise the assets of the company in liquidation,and the litigation is such an asset. The liquidator has maximised that asset, in his view,by entering the litigation funding agreement, which allows that asset to be maximised.Part of the price of that arrangement is the liquidators' promise that they will maximise19 Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd, above n 10.20 Commissioner of Inland Revenue v BNZ Investments Ltd [2009] NZCA 47, (2009) 19 PRNZ 553.the settlement or judgment for the benefit of the funder, as well as the company. Thoseare not inconsistent obligations.[25] Similarly I do not regard cl 14.2, which requires the funders consent to anysettlement, to be clearly objectionable. It recognises the funder's legitimate interestin the outcome of the case. It's consent cannot be exercised unreasonably given thatany dispute about settlement is subject to a dispute resolution procedure in cls 14.4–14.6 where ultimately an independent expert makes the decision. I do not think theseclauses result in the liquidator yielding control of the litigation in the mannercontemplated by Re Allebart Pty Ltd (in liq), at least as that case should be applied intoday's litigation environment.21 I have no doubt that it is the liquidators and not thefunder that are bringing this claim. Indeed what this argument is about is the extent towhich the liquidator may give evidence in support of it.[26] For these reasons, I do not view the existence of the litigation fundingagreement, or its terms and conditions, as such that the evidence from Mr Bethell isnot substantially helpful.[27] There is an issue with the actual form of the evidence Mr Bethell proposes togive if it is to be admitted under s 25. As Mr Chisholm rightly said, the original briefof evidence was prepared without the discipline in terms of the requirements for givingexpert evidence. The introduction of the Code in the supplementary brief appears tohave been an afterthought.[28] The briefs are accordingly not structured in terms of questions of expertevidence the liquidator is addressing, and the factual assumptions that are made forthe purposes of providing that opinion under s 25. Rather they are in the form ofcommentary on the factual events that, in the liquidator's opinion, were taking placeand (essentially) his criticism of the defendants for those events. They maynevertheless be admissible as still meeting the substantially helpful test under s 25,and under s 24 if such opinions are necessary for the liquidator to communicate, andfor the Court to understand, the factual issues.21 Re Allebart Pty Ltd (in liq), above n 3.[29] At times passages of the proposed evidence appear to be rightly characterisedas submission and argument rather than duly admissible opinion. I think it likely thatmuch of this evidence could have been given with less advocacy involved by the useof more neutral language. Given these circumstances the question is to decide howbest to deal with this situation as it currently presents itself. I am ultimately guided bythe question whether the opinions expressed by Mr Bethell are necessary to understandthe evidence of fact, and whether they are of substantial help.[30] The approach followed by Justice Venning in Blanchett v Keshvara22 and byJustice Woodhouse in FAF Holdings Ltd (in liq) v Bethune23 recognise thepracticalities involved in a liquidator giving evidence in relation to complex companyaffairs. Their approach suggest application of ss 24 and 25 in a realistic way given thesubject matter.[31] Mr Bethell is duly qualified to give expert opinion evidence, and the matterson which he expresses his opinion are within his expertise. He is the liquidator, andentitled to provide evidence of fact as to the records of the companies, and his reports.It is very difficult for me to decide at the outset of this case, when I only have a verypreliminary understanding of the underlying key issues, to make a final determinationthat certain views of the liquidator are admissible or not. For similar reasons, the Courtof Appeal was not able to rule out perhaps more obviously objectionable evidence inadvance of trial in Commissioner of Inland Revenue v BNZ Investments.24 I suspectmany of the passages objected to will fall away in terms of their significance when theunderlying facts are more closely addressed. At the moment, however, I do notpropose to rule on each of the passages objected on by the defendants. I will receivethe evidence de bene esse, and I will make subsequent rulings on them in the ultimatejudgment if that truly proves necessary. I expect it may not in the end. I will adoptthe same approach to the five listed documents that the defendants object to on thebasis that they are not admissible business records, although I am prepared to considerthat matter further when we come to those documents as Mr O'Brien effectivelyaccepted.22 Blanchett v Keshvara, above n 15.23 FAF Holdings Ltd (in liq) v Bethune, above n 2.24 Commissioner of Inland Revenue v BNZ Investments, above n 20.[32] I appreciate that this approach may cause some degree of perceiveddisadvantage for the defendants, particularly in relation to cross-examination. Thereis a risk that it will extend cross-examination because of a perceived need to confrontMr Bethell on the challenged passages. I should make it plain, however, that I willnot adopt the view that Mr Bethell's opinions that are objected to will be accepted bythe Court simply because they are not challenged. Cross-examining counsel can alsobe expected to have the confidence in their own views about the lack of substantialhelp that I will ultimately derive from those expressions of opinion, especially givenmy observations above.[33] Accordingly, I decline to uphold the first defendant's objection at this stage.That determination is without prejudice to a subsequent review of the extent to whichMr Bethell's evidence is substantially helpful, or necessary to understand the issues offact at the close of this case.Cooke JSolicitors:MinterEllisonRuddWatts, Auckland for the PlaintiffsLeeSalmonLong, Auckland for the First DefendantChapman Tripp, Auckland for the Second to Fifth DefendantsK3 Legal Ltd, Auckland for Sixth DefendantCopy to:Mark O'Brien QCGreg Blanchard QCJack Hodder QCDavid Chisholm QC