ESTABLISHED INVESTMENTS LTD (IN LIQUIDATION) V A C ARMITAGE HC AK CIV 2004-404-4084

ESTABLISHED INVESTMENTS LTD (IN LIQUIDATION) V A C ARMITAGE HC AK CIV 2004-404-4084 2 April 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2004-404-4084BETWEEN ESTABLISHED INVESTMENTS LIMITED (IN LIQUIDATION) Plaintiff AND ALLAN CLIFF ARMITAGE Defendant Hearing: 5 March 2007 Appearances: M V Robinson for Plaintiff K F Gould for Defendant Judgment: 2 April 2007 at 11:00amRESERVED JUDGMENT OF ANDREWS JIn accordance with r540(4) I direct that the Registrar endorse this judgment with the delivery time of 11.00am on 2 April 2007..Deputy/Registrar Date: ..Solicitors / CounselSimpson Grierson, Private Bag 92518, Wellesley St Auckland (for the Plaintiff) Bruce C McNiece, PO Box 99 Auckland (for the Defendant) K F Gould, PO Box 1011 Auckland (Counsel for the Defendant)Introduction[1] The plaintiff has applied under r 258 of the High Court Rules for an order that the defendant's defence be struck out and judgment entered against him. The stated grounds may be summarised as being that: a) The defendant has i) failed to comply with an order for further and better discovery made on 17 August 2006; ii) throughout the course of the proceeding, wilfully and contumeliously failed to comply with Court orders, despite having been previously granted the indulgence of the Court; and b) The plaintiff has suffered serious prejudice as a result.Background[2] The background to this proceeding was set out by Associate Judge Abbott at [1], [2] and [5] to [10] of his judgment delivered on 14 July 2005 as follows:[1] In this proceeding the plaintiff is seeking to recover from the defendant, as damages for conversion or as an account for money had and received (or damages in lieu), an as yet an unspecified part of $818,000.00 of bearer cheques issued by the plaintiff and cashed by the defendant between May 2001 and April 2003. The plaintiff alleges that the defendant has an obligation to account to it for the money received by cashing of the cheques and has either converted those proceeds or holds them on the plaintiff's behalf. [2] The defendant admits cashing the cheques and collecting the proceeds of payment but says that he paid the proceeds to various persons and entities upon the instructions of a director of the plaintiff. [5] The plaintiff was put in liquidation in July 2003. The liquidators have been endeavouring since then to establish what happened to theproceeds of the cashed cheques. The liquidators interviewed the defendant in July 2003, sought and obtained answers to a series of written questions in August 2003, and undertook an oral examination of the defendant in February 2004. The explanation given by the defendant was that: a) he was assisting a director of the plaintiff (Michael John Reid) with advice on its property transactions, including their financing; b) he received blank signed cheques, and would complete and cash them from time to time at the request of Mr Reid; and c) on Mr Reid's instructions paid tradespeople or accounts payable by the plaintiff in respect of its property transactions (amounting to perhaps 20% of the total proceeds from the cheques) and passed the balance (acknowledged to be in the order of $600,000.00) to one Jim Williams for investment. [6] The defendant told the liquidators that he did not know Mr Williams' full name and did not have an address or other means of contacting him, and that the funds were going into high risk speculative investments. [7] Unfortunately Mr Reid is suffering from Alzheimer's Disease. Not only has that led to him resigning from his position as director of the plaintiff (in October 2002), but it also restricted the liquidators' ability to obtain information from him. [8] In the examination in February 2004, the defendant also acknowledged that Mr Reid and his successor as a director of the defendant (Norman Harry Pollard) were at times trustees of two trusts with which the defendant is associated, the Humanitarian Trust (Mr Pollard) and the Alfa Trust (first Mr Reid, later Mr Pollard). It appears that neither Mr Reid nor Mr Pollard had particular business skills or experience for these roles. [9] The defendant has confirmed involvement of these two trusts, another family trust (Aotearoa Trust) and two companies associated with his family interests (Pacer Residential Limited and Platinum Residential Limited), in transactions involving the plaintiff. The Humanitarian Trust received a loan in January 2001 (via Alfa Trust) of funds raised from one of the plaintiff's properties (49A Landscape Road). Part ($20,000.00) of the proceeds of one of the plaintiff's cheques was paid into the bank account of the Alfa Trust in September 2001. Aotearoa Trust has had the benefit of funds raised by the plaintiff on the purchase of a property in May 2001. Both Pacer Residential Limited and Platinum Residential Limited were involved in finance transactions relating to 49A Landscape Road. Pacer Residential Limited provided security for borrowings by the plaintiff on-lent to Humanitarian Trust and Platinum Residential Limited lent the plaintiff $200,000.00 in October 2002 for refinancing. It is of some significance to the roles of these entities that the defendant was actively involved in their day to day business whilst an undischarged bankrupt (up until his discharge in July 2002). [10] The liquidators' efforts to trace the proceeds of the cheques have also been hampered by lack of records for the plaintiff. In the examination in February 2004 the defendant told the liquidators that some seven boxes ofdocuments were inadvertently lost in the course of moving documents to Mr Pollard's house when he took over from Mr Reid as the plaintiff's director (late 2002). Further, he told the liquidators that the Serious Fraud Office had uplifted documents from him which could have included documents relating to the plaintiff (despite telling the liquidators initially that he had no documents for the plaintiff).[3] The liquidators issued this proceeding on 2 August 2004, pleading causes of action in conversion and money had and received. Initially, the plaintiff applied for summary judgment, but that application was subsequently withdrawn.Procedural history[4] This can only be described as tortuous. There have been numerous applications by the plaintiff in respect of the defendant's discovery obligations. These have had a consequential effect in that two trial dates have had to be vacated. The following outlines relevant events to date:02.08.04 Plaintiff issued proceeding 15.11.04 Consent orders by Associate Judge Sargisson as to timetable for discovery. Both parties to complete discovery by 24.01.05 07.02.05 Plaintiff's list of documents filed. 15.02.05 Order by Associate Judge Lang (as he then was) thatdefendant file and serve list of documents by 01.03.05. 16.03.05 "Unless" order by Associate Judge Lang thatdefendant 's list of documents be filed and served by 16.04.05. 15.04.05 List of documents filed by defendant . 27.05.05 Plaintiff applied for further and better discovery to be given by defendant.14.07.05 Judgment by Associate Judge Abbott: defendant ordered to give further and better discovery by 12.08.05. Order referred to documents contained in CD-ROM of documents uplifted by Serious Fraud Office. 16.08.05 Defendant filed a further list of documents. 26.09.05 Order by Venning J vacating trial date. Allocated for week commencing 31.10.05, on plaintiff's application. Late discovery by defendant given as grounds for application. 01.11.05 Telephone conference before Associate Judge Abbott. Noted that plaintiff identified two outstanding discovery matters, one relating to defendant's discovery. Trial date allocated for week commencing 17.07.06.30.06.06 Plaintiff applied for adjournment of trial on grounds including defendant's failure to comply with discovery obligations. 06.07.06 Order by Cooper J vacating trial. 17.08.06 Order by Associate Judge Abbott as to CD-ROM of documents uplifted by Serious Fraud Office, defendantto file a further list of documents, listing all relevant documents in the CD-ROM by 29.12.06. 16.11.06 Further list of documents filed by defendant . 18.12.06 Plaintiff's application to strike out defence filed. 19.12.06 Defendant's notice of opposition filed.[5] Before leaving the procedural history, it is appropriate to set out the relevant portion of Associate Judge Abbotts order of 17 August 2006. As it refers to his earlier judgment of 14 July 2005 the relevant portion of that judgment should be set out first.Judgment of 14 July 2005[27] I make the following orders: In respect of the application for particular discovery against the defendant: a) The defendant is to file and serve by 12 August 2005 a verified list of documents correcting or supplementing his list of documents sworn on 15 April 2005 by reference to, and incorporating, relevant documents contained in the CD-Rom prepared from the documents uplifted by the Serious Fraud Office, particularly those relating to the use of the proceeds of the cheques and any documents coming within the following classes of documents: i) Any bank statements for the period from May 2001 to April 2003 for bank accounts in the defendant's name, or in the name(s) of (the trustees of) Alfa Trust, Humanitarian Trust or Aotearoa Trust, or in the names of Pacer Residential Limited or Platinum Residential Limited; and ii) Any documents recording or identifying transactions between the plaintiff and any one or more of Alfa Trust, Humanitarian Trust, Aotearoa Trust, Pacer Residential Limited or Platinum Residential Limited and between the defendant and any one or more of Alfa Trust, Humanitarian Trust, Aotearoa Trust, Pacer Residential Limited and Platinum Residential Limited. b) The defendant is to file and serve by 12 August 2005 an affidavit stating whether the following documents are or have been in his control, and if they have been but are no longer in his control, statingwhen to the best of his knowledge and belief they ceased to be in his control and the person who now has control of them: i) Any bank statements for the period from May 2001 to April 2003 for bank accounts in the defendant's name, or in the name(s) of (the trustees of) Alfa Trust, Humanitarian Trust or Aotearoa Trust, or in the names of Pacer Residential Limited or Platinum Residential Limited; and ii) Any documents recording or identifying transactions between the plaintiff and any one or more of Alfa Trust, Humanitarian Trust, Aotearoa Trust, Pacer Residential Limited or Platinum Residential Limited and between the defendant and any one or more of Alfa Trust, Humanitarian Trust, Aotearoa Trust, Pacer Residential Limited and Platinum Residential Limited. Case Management Conference Minute of 17 August 2006[9] I make the following timetable orders as discussed with counsel today: a) The plaintiff is to provide the defendant (through Mr Gould) with a copy of the CD-ROM of documents uplifted by the Serious Fraud Office by the end of the day tomorrow, 18 August 2006. b) The defendant is to file and serve a further affidavit of documents listing all relevant documents within the CD-ROM by 29 September 2006. The law: r 258[6] Rule 258 is headed "Enforcement of Interlocutory Order" and provides that if a party fails to comply with an interlocutory order the Court may make any order that it thinks just. Rule 258(2) gives examples of the orders that may be made. Rule 258(2)(b) provides that if the party in default is a defendant, the Court may order that the defence be struck out and that judgment be sealed accordingly. InCommonwealth Reserves I, LC & Others v Chodar 1 at [25], Glazebrook J commented on the Court's jurisdiction as follows:1 Commonwealth Reserves I, LC & Others v Chodar HC AK CP73-SW/00There is no doubt that the Courts are reluctant to order that a defendant's defence be struck out as it involves dealing with a case otherwise than on the merits. The conduct has to come within the category of "contumaciousness or contumelious conduct" as was put by Young J in Lees Trading Co (NZ) Limited v Loveday & Others (HC Christchurch, CP 70/96, 3 June 1998) or there must be some substantial prejudice to the applicant through the non- compliance – see The Ship "La Bonita" v Parker Engineering Co Ltd(CA 123/85, 3 July 1986, McMullin, Summers and Casey JJ). On the other hand in appropriate cases the Courts have not hesitated. It is clear, however, that such an order cannot be made to punish the defendant. In many cases the first step should be an "unless" order.[7] Earlier, in Hopman v Peka and Hopman 2 at [11], Cartwright J stated:While the Courts will be very reluctant to strike out defences, except on the merits, there will be occasions when that step is justified where there is clear evidence of excessive and unreasonable delay in complying with requests and orders for discovery and inspection. Such evidence may include the history of interlocutory steps, orders and directions and the actions of counsel to obtain discovery or inspection informally.Has the defendant failed to comply with discovery orders?[8] The plaintiff claims that the defendant has failed to comply with the order made by Associate Judge Abbott on 17 August 2006 (in particular in relation to the CD-ROM) and that he has "wilfully and contumeliously" failed to comply with Court orders. I am satisfied that the defendant has failed to comply with orders for discovery. That is evident from the procedural history set out in [4]. The defendant did not comply with the consent order made on 15 November 2006. He did not comply with the order made by Associate Judge Lang (as he then was) on 15 February 2005. He filed a list of documents in response to the "unless" order made on 16 March 2005, but that list was hopelessly inadequate. He did not comply with the orders made by Associate Judge Abbott on 14 July 2005 insofar as they related to the CD-ROM. [9] The defendant was required to list all documents that are relevant to a matter in question in the proceeding. Relevant documents include information that may either directly or indirectly enable a party to advance its own case or damage the2 Hopman v Peka and Hopman (HC AK CP132/94, 24 April 1998)opposing party's case. A document is relevant if it may fairly lead to a train of inquiry which may have either consequence. 3[10] The "matters in question" in this proceeding are not confined to the plaintiff's two pleaded causes of action, as Mr Gould submitted. They include the defendant's pleading in his statement of defence that he paid the proceeds of the bearer cheques to "various persons and entities on the instructions of Mr M J Reid" and that he "did not retain the proceeds of the bearer cheques". I therefore accept the plaintiff's submission that the defendant's listing of five documents from the CD-ROM does not constitute compliance with Associate Judge Abbott's order of 17 August 2006. [11] In short, the defendant has failed to comply with orders as to discovery. In light of the fact that the terms of each order were clear, so that the defendant can have been in no doubt as to his discovery obligations, and the considerable delays, I am satisfied that his non-compliance was wilful and contumelious.Has there been serious prejudice to the plaintiff?[12] The purpose of discovery is to enable each party to assess the strengths and weaknesses of the other's case at a relatively early stage of the proceeding. Mr Gould submitted that the plaintiff was not prejudiced, because it has the CD-ROM in its possession, as a result of a direct approach to the Serious Fraud Office. He submitted that the plaintiff, therefore, already has the documents it complains that the defendant has failed to list. [13] The plaintiff's response was that it is plain from documents on the CD-ROM that there are other relevant documents which it does not have in its possession, and which should have been listed by the defendant. The plaintiff's preparation for trial is prejudiced by its not knowing the nature or extent of any such documents, [14] I accept the plaintiff's submission that the plaintiff has not been able to assess the strength or weakness of the defendant's defence, because the defendant has failed to comply with his discovery obligation. Further, the plaintiff has been obliged to3 Compagnie Financière et Commerciale du Pacifique v Peruvian Guano (1882) 11 QBD 55, 63apply twice for an allocated fixture to be vacated, by reason of the defendant's non- compliance. [15] In Caribbean General Insurance Ltd v Frizzell Insurance Brokers Ltd 4 the English Court of Appeal held that delay of a trial (two trial dates had been vacated) constituted prejudice. In that case it was also held that the defendants had been prejudiced by the plaintiff's failure to comply with Court orders, in having had to prepare for trial on a piecemeal fashion. In the present circumstances I am satisfied that the plaintiff has suffered serious prejudice as a result of the defendant's failure to comply with the discovery orders.Should the defendant's defence be struck out?[16] It is clear on the authorities that the discretion to strike-out for non- compliance with interlocutory orders will not be exercised readily. I note the comment of William Young J in Prokofyev v A O Karelrybflot 5 that:Judges should regard the procedures of the Court as a means to an end not as an end in itself.[17] The jurisdiction exists, however, and in appropriate cases it is to be exercised. In Butler v Li6 Giles J commented that:All judicial officers are conscious of the need to keep the interests of justice paramount, but justice delayed is justice denied and the procedure requirements of the Rules have as their very purpose the object of ensuring that the substantive merits are addressed sooner rather than later.[18] In that case Giles J allowed an appeal against a Master's order dismissing the plaintiff's claim, but on strict terms including the payment of a substantial sum in costs. [19] In Prokofyev William Young J considered that non-compliance over a period of some five months was close to the line of wilful default, but that the serious prejudice could be addressed short of a strike-out.4 Caribbean General Insurance Ltd v Frizzell Insurance Brokers Ltd [1994] 2 Lloyd's Rep 325 Prokofyev v A O Karelrybflot (1998) 12 PRNZ 510, 5126 Butler v Li (1997) 12 PRNZ 23, 25[20] In Hopman v Peka, Cartwright J granted the plaintiff's application to strike out both defendants' defences. In that case there had been default in compliance with two orders for discovery and inspection over a period of some three years. The Judge found that the plaintiff's proceedings were at an impasse unless she could have full discovery and inspection. She did not consider the matter could be dealt with by orders including the payment of costs, and ordered that the defences be struck out. In her judgment the Judge noted: 7There are good reasons for requiring greater discipline in complying with orders for discovery and inspection from parties and counsel. First, it is important to emphasise that orders of the Court should not lightly be ignored. Secondly, the cost to the parties of obtaining discovery when it is resisted can become overwhelming and a disincentive to continuing to seek legitimate resolution of disputes. Passive resistance by defaulting parties should not result in advantage for them. Then it is in the interests of all litigants that all discovery of relevant material pre-trial be available thereby limiting the issues to be determined at trial, and keeping the cost of litigation to a minimum.[21] In Commonwealth Reserves v Chodar, Glazebrook J struck out the third defendant's defence on the basis of its failure to attempt to give discovery, its clear disregard of the Court's processes, and persistent failure to comply with Court orders. The fourth defendants' defence was not struck out, as there was some explanation (albeit unsatisfactory) for non-compliance, and some proposal for compliance. "Unless" orders were made against the fourth defendants. [22] Mr Gould submitted that the defendants had complied with discovery orders, and that strike-out should be ordered only where there was no compliance, and a blatant disregard for the Court orders. The present case, he said, was distinguishable because the plaintiff already has the CD-ROM in its possession. [23] I do not accept that submission. The defendant's discovery obligations remain whether or not the plaintiff is, independently, in possession of certain documents. Further, the instances where strike-out has been ordered are not limited to those where there has been no discovery at all: see for example, Hopman v Peka.7 See fin 2, at 14[24] I have considered whether the defendant's default can be addressed by an order short of strike-out. I have concluded that it cannot. The defendant's response to date to orders of the Court (in particular his response to the "unless" order made in March 2005) gives me no confidence that he would comply with a further order. [25] This proceeding was commenced at the beginning of August 2004. As a result of the defendant's defaults it is still at the stage of discovery. Two allocated fixtures have had to be vacated. It is in the interests of all litigants, and in the proper administration of litigation, that the defendant not be granted a further indulgence.Result[26] I order that the defendant's statement of defence be struck out. [27] The plaintiff in its application sought an order that the defendant's defence be struck out and that judgment be sealed accordingly. The plaintiff's statement of claim does not specify the amount for which judgment is sought. The form of the judgment the plaintiff seeks to be sealed against the defendant was not made clear at the hearing. The plaintiff's counsel is to submit a memorandum as to the form of judgment sought. If necessary, a hearing may be allocated for the purpose of formal proof. _____________________________ Andrews J