KLEINE v IL FORNO LIMITED [2021] NZCA 207

KLEINE v IL FORNO LIMITED [2021] NZCA 207 [26 May 2021]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA668/2020[2021] NZCA 207BETWEEN DOUGLAS JAMES KLEINEApplicantAND IL FORNO LIMITEDRespondentCourt: Cooper, Courtney and Goddard JJCounsel: Applicant in personJ K Goodall and M J W Lenihan for RespondentJudgment:(On the papers)26 May 2021 at 11 amJUDGMENT OF THE COURTA The application for an extension of time in which to appeal is granted.B The appeal must be brought within 20 working days after the date of thisdecision.____________________________________________________________________REASONS OF THE COURT(Given by Cooper J)[1] The appellant, Douglas Kleine, has sought an extension of time to appeal ajudgment of the High Court under r 29A of the Court of Appeal (Civil) Rules 2005(the Rules).1 His application was lodged 56 working days after the date that the appealshould have been filed.1 Il Forno Ltd v Kleine [2020] NZHC 1889 [Substantive judgment].[2] The appellant also seeks to appeal a separate judgment of the High Court whichdealt with the issue of costs.2 In this case the appeal was filed one day late, but byconsent Brown J extended the time to file it by minute dated 2 March 2021. Thisjudgment deals with the issue of whether the appellant should also be granted anextension of time for appealing against the substantive judgment.[3] The dispute involved a bakery and café situated in Ponsonby, Auckland underthe trading name Il Forno Ltd (Il Forno). It was run by Andrew Kleine and his partnerHelane Mead. With financial assistance from his brothers Barry Kleine and theappellant (referred to as Jim in the High Court judgment), Andrew Kleine acquired ahalf interest in the business. The appellant provided the business with professionalaccounting services through his company Flow Control Ltd (Flow Control), but inNovember 2015 Andrew Kleine brought those arrangements to an end, alleging theappellant's professional accounting services had been inadequate and negligent,causing Il Forno to be liable for fines for failing to file its tax returns. Il Forno soughtdeclarations that Andrew Kleine was the sole legal and beneficial shareholder of thecompany, the appellant's or Flow Control's involvement with the company had beencancelled and the company had no further obligations towards the appellant or FlowControl. Il Forno sought compensation under the Contract and Commercial Law Act2017, or damages in contract or negligence. The appellant resisted those claims andcounterclaimed, asserting amongst other things that Andrew Kleine held a portion ofhis shares in Il Forno on trust for Flow Control. The counterclaim also raisedallegations of breach of trust and advanced a quantum meruit claim.[4] In the substantive judgment, Jagose J declared that Andrew Kleine wasIl Forno's sole legal and beneficial shareholder.3 He ordered the appellant to payIl Forno the sum of $14,185 in damages for negligence and to deliver up all digitalfiles in his possession containing any information belonging to Il Forno.4 Hedismissed the other causes of action in both the claim and counterclaim.5[5] On the subject of costs the Judge said:2 Il Forno Ltd v Kleine [2020] NZHC 2730 [Costs judgment].3 Substantive judgment, above n 1, at [28].4 At [87].5 At [88].[89] In my preliminary view, although Il Forno has achieved a measure ofsuccess, no party can claim comprehensively to be successful in theproceeding, and the family context of the proceeding also justifies avoidingcontinued grounds for dispute. For those reasons, from what I presently know,costs should lie where they fell or fall: that is, legal expenses are to be borneby the party incurring them.[90] If that is not accepted, or the parties cannot otherwise agree, I reservecosts for determination on short memoranda of no more than five pages [6] Notwithstanding those observations, after the Judge had consideredthe submissions that were filed on the issue of costs he ordered the defendants(the appellant and Flow Control) jointly and severally to pay costs to Il Forno in theamount of $91,828 plus disbursements of $83,744.6 As we have seen, the costsjudgment is itself subject to an appeal. However, the appellant now wishes to appealagainst the substantive judgment as well. He seeks to argue that the Judge should nothave found him personally negligent; rather, the finding should have been madeagainst his company, Flow Control. He contends that if the finding of negligence hadbeen made against Flow Control, then a set-off would have been available and therewould have been no damages. In those circumstances Il Forno would have beenunsuccessful and costs would not have been awarded in its favour. He also argues thathis quantum meruit claim should have succeeded.Relevant principles[7] The Court may extend the time for appealing under r 29A of the Rules applyingthe principles set out by the Supreme Court in Almond v Read.7 In that case, theSupreme Court held that exercise of the discretion to extend time necessitates anassessment of the particular circumstances of the case, bringing into account:8(a) the length of the delay;(b) the reasons for the delay;(c) the conduct of the parties, particularly of the applicant;6 Costs judgment, above n 2, at [10].7 Almond v Read [2017] NZSC 80, [2017] 1 NZLR 801.8 At [38].(d) any prejudice or hardship to the respondent or others with a legitimateinterest in the outcome; and(e) the significance of the issues raised by the proposed appeal, both to theparties and more generally.Ultimately, however, the question is what the interests of justice require.9[8] The Supreme Court accepted that the merits of a proposed appeal might inprinciple be relevant to the exercise of the discretion to extend time, noting that theremight be occasions when the court would risk facilitating unjustifiable delaying tacticsif it does not consider the merits.10 However, it accepted there would be qualificationsto that principle, including in cases where the merits or otherwise of a proposed appealwould be "overwhelmed" by other factors (such as the length of the delay or the extentof prejudice to the respondent or others).11[9] In any event, the Court said that consideration of the merits of an appeal in thecontext of an application to extend time will necessarily be relatively superficial.It endorsed observations of the Court of Appeal of England and Wales in R (Hysaj)v Secretary of State for the Home Department to the effect that the court should firmlydiscourage much argument on the merits and reach a view about them only when theyare obviously very strong or very weak.12 A decision to refuse an extension of timebased only on a lack of merit should be made only where the appeal is "clearlyhopeless".13 The Supreme Court said:14An appeal would be hopeless, for example, where, on facts to which there isno challenge, it could not possibly succeed, where the court lacks jurisdiction,where there is an abuse of process (such as a collateral attack on issues finallydetermined in other proceedings) or where the appeal is frivolous or vexatious.The lack of merit must be readily apparent. The power to grant or refuse anextension of time should not be used as a mechanism to dismiss apparentlyweak appeals summarily.9 At [38].10 At [39].11 At [39(a)].12 R (Hysaj) v Secretary of State for the Home Department [2014] EWCA Civ 1633, [2015] 1 WLR2472 at [46].13 Almond v Read, above n 7, at [39(c)].14 At [39(c)].This case[10] Here, the appellant seeks an extension of time on the grounds that there aregood reasons for his delay since he had to wait for the costs judgment to be issuedbefore determining whether to pursue an appeal (the grounds of which, he claims, allhave a connection to costs) and he had relied on the Judge's comments inthe substantive judgment that his preliminary view was that costs ought to lie wherethey fall. The appellant says he was entitled to give that significant weight. He alsoasserts that the appeal has merit.[11] He notes that the substantive judgment was issued on 31 July 2020, but thecosts judgment was not delivered until 19 October 2020. The appellant claims hisdelay in filing the appeal is attributable to the delay in delivery of the costs judgment.He submits that there is no prejudice to Il Forno.[12] Il Forno opposes the application, claiming that the length of the delay issignificant and suggesting that the explanation given for the delay amounts to no morethan a deliberate decision on the part of the appellant not to pursue an appeal. Thereis a degree of prejudice evident from an affidavit of Andrew Kleine in which he setsout the emotional and financial toll that the proceeding has taken on him and hisfamily. It is said that there is no public interest in the appeal and the substantivedecision was primarily an application of settled law to the facts. Il Forno also submitsthe appeal has no merit.Decision[13] We accept that the delay that has occurred is reasonably significant. We alsoconsider the explanation for it is not particularly strong. There is merit in theproposition advanced by counsel for Il Forno that in effect the appellant chose not toappeal following the issue of the substantive judgment albeit that decision may havebeen influenced by the Judge's preliminary observations about costs. There is no otherissue arising out of the conduct of the parties which needs to be taken into account inthe present context.[14] This is not a case where it would be appropriate to treat the merits of the appealas influential on the outcome of the present application. Our impression is that themerits of the appeal are weak but we do not consider the case falls into the categoryof one which is so obviously hopeless that an extension of time for appealing shouldbe refused. There is no public interest in the appeal, nor are the private interestsengaged particularly significant.[15] That leaves for consideration the issue of prejudice.[16] On this issue, opposition to an extension of time is based on an affidavit ofAndrew Kleine affirmed for himself and his partner Helane Mead. In his affidavit herefers to the litigation as having involved "five years of relentless financial strain". Herefers to claims being advanced without substantive evidence, and constant challengesto the credibility of himself and his partner. Andrew Kleine explains how the companyhas been forced to take on debt to fund legal and expert costs fighting the case andoverall the litigation has resulted in a considerable emotional toll.[17] We have no doubt the picture painted by Andrew Kleine in his affidavithonestly expresses the effect the litigation has had on him and his partner. Thedifficulty is that it recounts the effect that the litigation has had on them over the five-year period addressed. Our concern in the present case is what prejudice should betaken into account as specifically referable to the grant of an extension of time. Thekinds of concerns addressed in the affidavit are inevitably not focussed in that way.[18] While we understand that the prospects of an appeal against the substantivedecision will result in ongoing emotional and financial cost for Andrew Kleine as thedirector and shareholder of Il Forno, and his partner, that would have been the casehad the appeal been filed in time. Some degree of ongoing pressure would in anyevent arise from the costs appeal and there is now no issue that appeal will proceed.[19] Standing back and looking at the overall interests of justice, we have concludedthat it will be appropriate to extend the time for appealing on the basis that there is nodemonstration of prejudice properly linked to the delay of 56 working days in filingthe appeal. For that, and the reasons we have already addressed in relation to the otherrelevant considerations, we have decided that time should be extended accordingly.Result[20] The application for an extension of time in which to appeal is granted.[21] The appeal must be brought within 20 working days after the date of thisdecision.Solicitors:Hornabrook Macdonald, Auckland for Respondent