EAST COAST ALUMINIUM LIMITED (IN LIQUIDATION) v PERRY [2016] NZHC 2019

EAST COAST ALUMINIUM LIMITED (IN LIQUIDATION) v PERRY [2016] NZHC 2019 [26 August 2016]IN THE HIGH COURT OF NEW ZEALANDROTORUA REGISTRYCIV-2014-463-184[2016] NZHC 2019UNDER the Companies Act 1993IN THE MATTER OF the liquidation of East Coast AluminiumLimited (In Liquidation)BETWEEN EAST COAST ALUMINIUM LIMITED(IN LIQUIDATION)First PlaintiffVIVIEN-JUDITH MADSEN-RIES ANDHENRY DAVID LEVIN ASLIQUIDATORS OF EAST COASTALUMINIUM LIMITED (INLIQUIDATION)Second PlaintiffsAND PATRICIA MERTLE PERRYFirst DefendantDONALD GRAEME PERRYSecond DefendantANTONY DAVID SANDFORDFLEMINGThird DefendantHearing: 26 August 2016Appearances: N Malarao and C P Eason for the PlaintiffWJC Wynyard for the First and Second DefendantsNo appearance for Third DefendantJudgment: 26 August 2016ORAL JUDGMENT OF MUIR JCounsel/Solicitors:N Malarao & C P Eason, Meredith Connell, AucklandWJC Wynyard, Holland Beckett, TaurangaIntroduction[1] In response to an application for formal proof by the plaintiffs, the first and second defendants apply for leave to file a statement of defence out of time.[2] They have now filed evidence in support of their application and draft statements of defence. Although this was not in compliance with orders made by Heath J, the first and second defendants have complied with subsequent orders made by me and paid the costs I ordered against them.[3] On receipt of such evidence the plaintiffs confirmed, in my view responsibly, that they did not oppose the application for leave, albeit that they sought terms, particularly as to wasted costs, which were not acceptable to the first and second defendants.[4] After the expression of some provisional views by me as to how I considered the matter best approached, the plaintiffs elected not to make submissions in opposition to the application to leave and invited consequential orders.The application for leave[5] I am satisfied that this is a case where leave is appropriately granted. I have reviewed the affidavits of the defendants and Mr Farrell. They establish in my view the requisite substantial grounds of defence. I am particularly influenced in that conclusion by the fact that on the second cause of action there is evidence that some part at least of the residential mortgage serviced by the company related toborrowings made with the specific purpose of the company's recapitalisation. Itseems to me that if that is the factual position ultimately established, there are substantial grounds for suggesting that there was no breach of fiduciary duty by the directors servicing the loan from company funds.[6] In relation to other causes of action, the affidavits of Mr Farrell and the defendants present in my view responsible defence arguments.[7] As to whether the delays are adequately explained, this case has had an unusual procedural history. Because the third defendant filed a defence this resulted in standard case management procedures including the allocation of conferences from time to time. The first and second defendants did not file a defence with the result that formal proof was sought against them. However, in the meantime a number of telephone conferences were scheduled, of which the first and second defendants were notified, and which they arranged to participate in. However, such conferences did not ultimately proceed because discussions between counsel for the third defendant and the plaintiffs had resulted in their adjournment. I accept that this created a confusing situation for a self-represented litigant and could well have contributed to a belief that the matter was not being actively prosecuted in the interim. Moreover, I accept that the second defendant faced very significant health issues during the relevant period.[8] Nevertheless it is clear from the joint memorandum of counsel dated 11 December 2014, prepared at a time when the first and second defendants were represented by counsel, that they were on notice that if they did not file a statement of defence on or before 30 January 2015 they were at risk of a formal proof application. That is relevant to my assessment of how the issue of wasted costs should be dealt with.[9] In terms of the third limb in Russell v Cox I am satisfied that there is no irreparable injury to the plaintiffs from the grant of leave.1 They remain as susceptible to judgment as they have always been but more significantly, the plaintiffs are currently protected in terms of the constructive trust claim (being their most likely source of a recovery) by a caveat over the property in which the first and second defendant reside. Nor is there any suggestion that such property is declining in value. Rather I consider I may take judicial notice of the fact that provincial property values are, if not increasing, certainly at least stable.1 Russell v Cox [1983] NZLR 654.[10] I stand back then and look at the matter in terms of the overall interests of justice. I agree with counsel for the first and second defendants that such interests militate in favour of a grant of leave. Were formal proof judgment entered against the first defendant it is likely she would be required to enter bankruptcy and if the constructive trust claim is successful it would mean the plaintiffs could ultimatelyproceed to sell the defendant's family home. Given that there are, in my view,substantial grounds of defence made out in the affidavits, it would I believe work an injustice to the defendants were they denied an opportunity to defend the claim. I grant leave accordingly. However, such is necessarily on terms.The terms of leave[11] The plaintiffs seek wasted costs of $18,109 on the basis that these are less than the scale costs payable on the steps taken by them (which they calculate to be $20,293).[12] That calculation proceeds on the basis of the allocations made in the ThirdSchedule to the Rules under the heading "Trial Preparation and Appearance". I donot consider that to be an appropriate basis for assessment of wasted costs on a formal proof application in the generality of the case. There is no specific provision in the Rules for assessing costs in such a situation and it is for that reason I make nocriticism of the Liquidator's approach. In some ways an abandoned application forformal proof might be considered closer to an application for summary judgment which, in accordance with the Third Schedule, would provide for costs of approximately $6,000 for steps taken to date.[13] In Gao v Cao2 Venning J adopted the Trial Preparation and Appearance measure of 2.5 days for preparation of briefs and affidavits and applied it to both the preparation of the evidence and submissions on formal proof. He also made an assessment of other general wasted costs of one day. In relation to the application for leave itself he allowed costs on the basis of 0.25 of a day.2 Gao v Cao [2015] NZHC 1609.[14] In Neumayer & Anor v Kapiti Coast District Council,3 Kos J (as he then was) approached the wasted costs issue on a global basis ordering that they be fixed at $1,500 plus disbursements. He made no specific order in relation to the application for leave itself. That was a leaky building case where preparation for formal proof can be assumed to have been reasonably significant.[15] In the present case I do not intend to award costs on the application for leave adopting the approach of Kos J and noting the minimal award in that respect by Venning J.4[16] In terms of wasted costs I adopt an approach analogous to that of Venning J and allow on a 2B basis:[a] 2.5 days for preparation of the affidavit and submissions associatedwith the plaintiffs' application for formal proof.[b] 0.5 days for other general wasted costs.[17] In the result, I award wasted costs in the amount of $6,690 in favour of the plaintiffs against the first and second defendants.[18] I make the following further orders:[a] The defendants are to file their statements of defence by 4 pm on Friday 30 September 2016.[b] By the same time and date they are to pay the award for wasted costs in [17] above, in default of which they are debarred from taking further steps in the proceeding. In that event, the matter will be reallocated a formal proof hearing on application by the plaintiffs.3 Neumayer & Anor v Kapiti Coast District Council [2014] NZHC 417.4 In respect of the first defendant such an award would in any event be precluded by s 45(2) of theLegal Services Act 2011 as a result of her having, on Mr Wynyard's advice today, secured agrant of legal aid for the leave application. However, that does not seem to me to preclude an award of wasted costs for steps previously taken and as the term of a grant of leave. That position may change if the defendants are ultimately granted legal aid to defend the substantive proceeding as opposed to the limited grant currently made in the first defendant's favour.[c] I direct the first plaintiff as caveator to consent to the registration of any secured borrowing not exceeding $7,000 together with interest thereon which the defendants may be required to raise in order to meet the award of wasted costs in [17]. I do so cognisant of the factthat, on the evidence available to me, the trustees' equity in theproperty exceeds by a reasonable margin the quantum of the constructive trust claim.[d] In the event of a grant of legal aid to the defendants for defence of the substantive proceedings, I reserve leave to apply under r 14.8(2) for an order reversing or discharging the order for wasted costs. I express no current view on whether such reversal or discharge would be appropriate in the context of an order which relates to wasted costs in the period prior to the grant of legal aid.[e] At the time of filing their statements of defence the first and second defendants are to file and serve an undertaking to the Court not to plead any defence based on the Statute of Limitations in the event the plaintiffs amend their statement of claim as a result of defences raised by the defendants or material provided on discovery. In making thatorder I note Mr Wynyard's observation that the Statute of Limitationshas no application for some considerable time yet.[f] In the event statements of defence are filed and the costs order paid the parties are to complete discovery by Friday 28 October 2016.[g] I direct that a case management conference be convened on the first available date after 28 October 2016 as allocated by the Registrar.[h] I reserve liberty to apply in relation to any matter consequent on these orders.__________________________Muir J