MEMELINK v HAINES [2023] NZHC 1711

MEMELINK v HAINES [2023] NZHC 1711 [31 July 2023]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2021-485-459[2023] NZHC 1711UNDER Part 15 High Court Rules 2016IN THE MATTER OF A Strike Out of a Statement of ClaimBETWEEN HARRY MEMELINK AND CISCAFORSTER as trustees of the LINK TRUSTNO. 1.PlaintiffsAND QUENTIN STOBART HAINESFirst DefendantBPE TRUSTEES (NO. 1) LIMITEDSecond DefendantEASTLIGHT ASSET TRADING NO. 5LIMITEDThird DefendantSTOBART HOLDINGS LIMITEDFourth DefendantHearing: 3 July 2023Appearances: J D Haig for the Respondent/Plaintiff (in receivership)j d Dallas for the Applicants/DefendantsMr Memelink in person for the trusteesJudgment: 31 July 2023JUDGMENT OF GRICE JThis judgment was delivered by me on 31 July 2023 at 4.45 pm pursuant toR 11.5 of the High Court Rules..Registrar/Deputy RegistrarIntroduction[1] The defendants in this matter have applied to strike out the proceedings on anumber of bases, including that the claims contain no cause of action or causal linkbetween the plaintiff and the first, second and fourth defendants, there is no case toanswer in respect of any of the defendants and the plaintiff has failed to prosecute thisclaim for over a year.[2] The Link No 1 Trust (the Trust) is currently in receivership, with receivershaving been appointed to the Trust on 31 May 2022 by Churchman J.1 The ordersappointing the receivers were varied in December 2022 to include a stay ofproceedings by or against the Trust for the period of the receivership unless thereceivers agree or the Court otherwise orders.2[3] In the course of the hearing, a question arose as to the Court's jurisdiction tostrike out the proceedings, given the stay that is in effect. I allowed the parties to filefurther submissions on this matter following the hearing, which they did.[4] While for the reasons submitted by Mr Haines and the receivers for the Trustthe Court may have inherent jurisdiction to strike out the proceedings despite thereceivership stay, I conclude that this is not an appropriate case in which to exercisethat discretion.Background[5] These proceedings came before the High Court on 15 March 2022, when theTrust was seeking an order that a caveat not lapse. The caveat in question was over aproperty at Eastern Rise in Manakau. Relief was also sought by way of an interimorder that the caveat not lapse if the substantive application could not be determinedby a certain date. The application was dismissed by Churchman J on 23 March 2022.31 Body Corporate 81012 v Memelink [2022] NZHC 1244.2 Body Corporate 81012 v Memelink [2022] NZHC 3307 [stay of proceedings decision]; and seeForster v Haines HC Te Whanganui-a-Tara | Wellington CIV-2021-485-459, 21 Māehe | March2023 (minute of Grice J re general case management conference held 6 March 2023) [general casemanagement conference minute] at [1] and [4].3 Forster v Haines [2022] NZHC 549.[6] In his judgment, Churchman J set out the background to the claim.4 Insummary, it involved a series of dealings between Mr Memelink on behalf of the Trustand Mr Quentin Haines and entities related to him. They had previously been friendsbut had fallen out. Mr Haines was previously a solicitor and had provided litigationservices to Mr Memelink.[7] His Honour described the arrangement for Mr Haines' professional services ashaving some "highly unorthodox components", including the provision ofprofessional services by Mr Haines in return for various financial accommodations byMr Memelink or his interests.5[8] By way of brief and simplified summary, the transaction in issue in theseproceedings related to a loan secured by first mortgage registered against the Manakauproperty then owned by Mr Haines' trust, the QSH Trust, the trustees of which wereMr Haines and the second respondent. The loans to the Haines interests secured bythe mortgage were guaranteed by the Memelink interests. In a series of transactions,the property first went to mortgagee sale and was bought by Mr Haines or his interests.That sale, however, was cancelled, apparently due to Mr Memelink's intervention.The first mortgagee then assigned its rights in respect of the mortgage to Eastlight, acompany controlled by a friend of Mr Haines. The amount paid to redeem themortgage by Eastlight's lawyers was $764,225.45. Eastlight, exercising its mortgageesale powers, sold the property to a third party (the legal purposes), called SolutionsGroup Investments Ltd (Solutions), for the sum of $813,000, settling on 20 May 2019.The sale was by way of private contract rather than auction. Mr Haines then rentedthe property from Solutions for 12 months with the right to purchase it at theconclusion of that period. Mr Haines' father, Mr Haines (Snr), purchased the propertythrough a company, the fourth respondent, Stobart Holdings Ltd. The property wasthen rented to Mr Haines.6[9] Mr Memelink lodged a caveat over the property and sought an order that thecaveat not lapse as well as orders restraining the fourth respondent from disposing of4 At [4]–[37].5 At [5].6 At [7]–[37]the property or entering into any security arrangements in respect of it. Both the caveatapplication and the injunction application were unsuccessful.7[10] Other proceedings filed in this court, under CIV 2020-485-497 (the 497proceedings), also deal with the financial transactions between the Haines andMemelink interests. Those proceedings were commenced by way of summaryjudgment. In those proceedings, summary judgment for liability was granted in favourof the Trust and a hearing as to quantum has been set down in February 2024.8 Thefirst and second defendants in those proceedings are also the first and seconddefendants in these proceedings.[11] The 497 proceedings were due to go to hearing but were adjourned pendingthe outcome of the application to appoint receivers to the Trust. The judgmentappointing the receivers was also the subject of a notice of appeal, which wasultimately dismissed, as well as various applications for stay, which were alsodismissed.[12] At the case management conference held on 6 March 2023, the receiversindicated their consent to the continuation of the 497 proceedings in order to quantifythe amount of the claim that was the subject of that proceeding. Timetable orders weremade by consent in relation to the 497 proceedings. As I noted, three days have beenset for that hearing in February 2024.[13] The receivers indicated at the case management conference that they did notconsent to the lift of a stay in relation to this proceeding. The respondents indicatedthey would be applying for leave to bring an application for consolidation with the497 proceeding. The 497 proceeding did not involve the third or fourth defendants inthese proceedings. An application seeking an order for consolidation with the 497proceedings was filed and set down for hearing on 8 June 2022.[14] On the morning of the hearing, in the face of the opposition of the receivers togranting a waiver of the stay and also contesting the merits of the consolidation7 At [112].8 Forster v Haines [2021] NZHC 1992.application, the respondents withdrew the application for consolidation. Theyindicated that they would instead bring a strike out application in relation to the presentproceedings and an application for costs. At that time, it was unclear as to whetherthat application would be opposed. Therefore, the matter was set down for a one-hourhearing. However, Mr Memelink appeared for the trustees and indicated they opposedthe strike out application.[15] Mr Haig for the receivers indicated that he did not waive the stay and if thecourt considered it could proceed despite the stay or waive the stay, the receiverscontested the costs sought by the defendants if the strike out was successful.Strike out application[16] As noted, the application for strike out was set down for a one-hour hearing on3 July 2023 on the basis that it would be straightforward. No application for leave hadbeen filed at the time of the strike out application.[17] Mr Memelink appeared at the hearing to oppose this application and filed amemorandum by way of email opposing the strike out application.[18] By way of introduction, Mr Haines, the first defendant, outlined the argumentsthat would be pursued in relation to the application to strike out. The first groundrelates to an abuse of process, based on the argument that there is a duplication of theclaim with the claims made by the same plaintiff in the 497 proceeding. The secondground is that the claim is frivolous and vexatious, in that it made unsubstantiatedallegations of fraud which had been already dismissed by Churchman J in the caveatjudgment. The third ground is that, given the receivers do not intend to pursue thisclaim, there is a stay in place and no steps have been taken on it for over a year, theproceedings should be struck out for want of prosecution.[19] The respondents seek costs on a 2B basis with uplifts for discovery to a band2C allocation and an uplift of 50 per cent because of the allegations of fraud, as wellas an allocation for preparation for hearing "in recognition of the preparationperformed over the last 20 months".[20] The respondents have already been awarded two sets of costs in this proceedingin connection with two interlocutory hearings. First in a judgment of Churchman Jdated 6 May 2022, costs were awarded in favour of the Haines interests for theunsuccessful application to maintain the caveat, which included an uplift in relation tothe fraud claims of 50 per cent.9 In addition, the respondents were awarded costs in ajudgment issued by Churchman J on 26 June 2023 in relation to costs on a furtherinterlocutory application made by the applicants seeking leave to appeal the earlierinterlocutory application for injunction, and a stay to sustain the caveat.10 The costsawarded again included a 50 per cent uplift for the allegations of fraud. Therefore, theonly costs not quantified, should the defendant be successful on the strike outapplication, are the general costs of the proceedings, which would usually await theoutcome of the proceeding.[21] During the course of the hearing, in view of the receivers' lack of consent tolifting the stay and there being no application for waiver of the stay before the court, Iindicated to Mr Haines that there was some difficulty with the defendants pursuing astrike out application. Mr Haines sought the opportunity to file further submissionson whether the application for stay and costs application could proceed in the face ofthe stay. Mr Haig did not oppose that course. Accordingly, I granted leave for theparties to file further submissions limited to whether or not the stay of the proceedingsextends to strike out and consequential costs applications. The parties duly filedmemoranda on the question as to whether the court can strike out proceedings whenthe matter is stayed.Submissions of the parties[22] Mr Haines submits there is no legal impediment to the Court striking outproceedings that are subject to a stay. He points out that a stay does not conclude aproceeding and that while a stay prevents the substantive matter from beingprogressed, there is a clear exception for strike out applications11 and that matterswhich are subject to a stay are frequently subsequently struck out. Moreover, he saysthe Court has inherent jurisdiction to strike out proceedings and does not require a9 Trustees of the Link Trust No 1v Haines [2022] NZHC 957.10 Trustees of the Link Trust No 1 v Haines [2023] NZHC 1594.11 And unless orders.formal application to do so. Mr Haines submits the Court could strike out theseproceedings based on the grounds and submissions already canvassed in submissionsat the hearing, and there would be no prejudice to the trustees in doing so, given thatonce the trust exits receivership, there may be a possible path for the trustees to filethese proceedings again, as long as the trustees take various appropriate steps tocomply with the current grounds for the strike out.[23] The receivers accept the Court has inherent jurisdiction to strike outproceedings and it may, if it is so minded, exercise its power to do so without anapplication.12 The receivers say the circumstances in this case are unusual, given thatthe orders staying proceedings were "bespoke" and imported from s 248(1)(c) of theCompanies Act 1993, which in this context in fact means that proceedings brought bythe Trust are also stayed, with the effect that defendants to proceedings brought by thetrustees before the receivership remain exposed to those claims when the receivershipcomes to an end. The receivers suggest it is therefore possible that the circumstancesin this case are sufficiently rare, and that the effect on the defendants of the stay couldbe categorised as an "abuse of the processes of the court", so that the Court couldexercise its inherent jurisdiction to strike out the proceedings.[24] Mr Memelink, however, opposes the application to strike out the claim.13 Hesays the trustees can continue with their claims and have the means to continue theseproceedings when allowed to do so (that is, when the Trust is no longer inreceivership). He refutes all the points made in the submissions on this aspect both ofMr Haines and those of the receivers. He submits the trustees have standing to opposethis strike out application and he is affected by any decision regarding a strike out, ashe is a Trust beneficiary.Legal position[25] The principles relating to strike out of proceedings are well-established. Underr 15.1(1) of the High Court Rules, the Court may strike out all or part of a claim if it(a) discloses no reasonably arguable cause of action, (b) is likely to cause prejudice or12 Siemer v Stiassny [2011] NZCA 1.13 Again, much of Mr Memelink's submissions on this narrow issue was misdirected and repeatedsubstantive matters which were not relevant to the specific question at issue.delay, (c) is frivolous or vexatious, or (d) is otherwise an abuse of the process of thecourt. The established criteria for striking out a claim are the following:14(a) Pleaded facts, whether admitted or not, are assumed to be true (apartfrom allegations which are entirely speculative and withoutfoundation).(b) The cause of action or defence must be clearly untenable — the Courtmust be certain that it cannot succeed.(c) The jurisdiction is to be exercised sparingly, and only in clear cases.(d) The jurisdiction is not excluded by the need to decide difficult questionsof law, requiring extensive argument.(e) The Court should be particularly slow to strike out a claim in anydeveloping area of the law.[26] In considering whether to strike out a claim, in particular considering whetherthe proceeding is an abuse of process, it is important to preserve freedom of access tothe courts, but equally the court must be alert to misuse of its processes, and beprepared to strike out a proceeding where the interests of justice demand it.15 Anapplication to strike out may be made at any stage of the proceeding.16[27] The Court's authority to strike out a claim derives from the court's inherentjurisdiction, and under r 15.1(4) the Court expressly retains inherent jurisdiction tostrike out a claim, although given the express power to do so under the High CourtRules, resort to the inherent jurisdiction ought to be rare.17 Nevertheless, the Court of14 Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267, endorsed in Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33] per Elias CJ and Anderson J.15 Although in reference to a permanent stay, as opposed to strike out, see Air National CorporateLtd v Aiveo Holdings Ltd [2012] NZHC 602 at [31], citing Williams v Spautz (1992) 174 CLR 509(HCA) at 519.16 A-G v London & North Western Railway [1892] 3 Ch 274 (CA).17 Robert Osborne and others McGechan on Procedure (online looseleaf ed, ThomsonReuters) at[HR15.1.11], citing CED Distributors (1988) Ltd v Computer Logic Ltd (in rec) (1991) 4 PRNZ35 (CA), where it was held (in relation to the High Court Rules as at that time): "Now that r 186of the High Court Rules provides expressly for striking out of pleadings which disclose noAppeal in Siemer v Stiassny was unequivocal that the Court's inherent jurisdiction maybe exercised irrespective of any application.18[28] Thus, it appears that the Court has jurisdiction, both under r 15.1 and under itsinherent jurisdiction, to strike out a claim, if it is minded to do so, notwithstanding theexistence of a stay of the proceedings.[29] Neither does the absence of an application preclude the Court from exercisingits r 15.1 power.19Discussion[30] As noted, all proceedings by and against the Trust are currently stayed unlessthe receivers agree or otherwise ordered by the Court.20 The orders staying theproceedings involving the Trust were made by Churchman J by way of importings 248(1)(c) of the Companies Act 1993 to apply to the receivership of the Trust.21 Inmaking this order, his Honour considered that the rationale for the rule in s 248(1)(c)of the Companies Act, namely to prevent wasteful expenditure of assets in aliquidation through litigation, applied to the Trust in this case, "as an applicable riskin the receivership of the Trust, which is to be managed as if it were a company inliquidation."22 His Honour was not satisfied that the prospect of further litigation inthe matter improving the position of the Trust had "any rational basis" and agreed withthe receivers that a stay of proceedings involving the Trust would increase thelikelihood of Trust assets being realised for the benefit of creditors.23[31] The proceedings are currently stayed and there is no application to waive thestay. I do not consider there is any reason for the Court to now lift the stay on its ownmotion. The Court's inherent jurisdiction must be exercised on appropriate principles.Generally, where there is a court-ordered stay in existence, there is no reason why thereasonable cause of action there is no need to rely upon the inherent jurisdiction in the absence ofspecial circumstances."18 Siemer v Stiassny, above n 12, at [15].19 At [14].20 Order [1(q)] of the sealed order dated 19 December 2022, pursuant to the stay of proceedingsdecision, above n 2, at [35].21 At [31].22 At [31].23 At [31]–[32].considerations that would apply to the lifting of the stay in any proceeding to whichthe receivership applied should not be considered. An important reason for the stay isso that the receivers are not diverted, that further costs in the receivership are notincurred as the result of one creditor, nor that any creditors obtain an undue advantagein the receivership. On the material before the Court, I am unable to be satisfied onthat score. Significantly, the merits of the underlying application do not support awaiver being granted.[32] In this case the strike out application is made based on claims of an abuse ofprocess and delay. The delay involved, at least over the last 12 months, is largely dueto the receivership. Therefore, this proceeding, in common with a number of others,has been the subject of delay because of the appointment of the receivers. That is notto say that in due course the delay will be such that it is unfair to allow the proceedingsto continue. However, at present these proceedings are no different than otherproceedings by or against the Trust.[33] In addition, it was clear from the submissions made by Mr Haines that theabuse of process ground is not straightforward. While it may be that some of thesubstantive allegations concerning transactions between the Haines and the Memelinkinterests are the same as those to be considered in the 497 proceedings, the additionalallegations in this claim relate to the role of Eastlight and Stobart Holdings Ltd.Churchman J analysed the transactions in light of the application to sustain the caveat.He dismissed the application to sustain the caveat but indicated that it would be amatter of evidence as to whether there was a sale at an undervalue involving Eastlight.That is a matter that would not normally be determined on a strike out application.From Churchman J's comments the amount involved is unlikely to be great ifanything. However, the relevant parties are not involved in the 497 proceedings, andin the face of Churchman J's comments it would not be appropriate to strike out thatparticular claim without a proper hearing, or at least a fuller consideration of theevidence.[34] I say that not having heard the full submissions by the parties. However, I hadthe benefit of the written submissions by the defendants in this matter and oralsubmissions by Mr Haines on his own behalf. In those circumstances in a strike outapplication in the usual course, detailed consideration would be given to theallegations made in each of the proceedings and whether there was an abuse of processdue to the duplication of the proceedings if the two proceedings covered the sameground. It may well be that the analysis would indicate that an option was availablefor the plaintiff to be given the opportunity to amend the pleadings to remove theclaims which were to be dealt with in the 497 proceedings. That would still leave theclaims in relation to the sale by Eastlight, which are not covered in the 497proceedings. In addition, Eastlight and Stobart Holdings Ltd are not parties in the 497proceedings and the defendants have abandoned their application for consolidation.[35] In summary, there are matters at issue in these proceedings which indicate thatthe strike out application at this stage is not straightforward and may be premature. Inparticular, summary judgment for liability has been granted in the 497 proceedings butnot for quantum, and these proceedings involve parties not included in the 497proceedings as well as allegations regarding the sale and failure to account in relationto them which are not canvassed in the 497 proceedings.[36] It would be inappropriate to divert the receivers from their task of realising theassets without distraction by requiring them to participate in the strike out applicationon behalf of the Trust. It would not be a straightforward application and there may besome difficulties in relation to the Eastlight position. It would also put the defendantsin the position where they could quantify the costs on the strike out when othercreditors with extant proceedings cannot quantify their costs. I also bear in mind thatthe Haines interests have received substantial costs awards in relation to theinterlocutory hearings in this matter. It is merely the general proceedings for whichthey would seek costs in any event. Allowing the strike out application to proceedwould not be in the interests of justice. It would not be fair to the other creditors andwould divert the receivers from the primary task of realising the assets of the trust andalso incur further costs in the receivership.[37] Therefore, I make no determination on the merits of the application for strikeout, but the application cannot proceed due to the stay of this proceeding. There is noapplication to waive the stay but even if there was, I would have declined it in thecircumstances as outlined, and I decline to exercise any inherent jurisdiction to strikeout the proceeding.[38] The more efficacious method of dealing with this would be to await theoutcome of the 497 proceeding. That may be a more appropriate stage to make a strikeout application, which Mr Haines had in any event sought to be amended to include afurther ground of failure to pay costs, although I declined to make that amendment onhis oral application. The quantum issues would then have been determined in the 497proceedings. At that stage it would also be clearer as to the position of the Trust andits solvency.[39] At present I would be reluctant to say that the trustees have no interests beyondthe receivership. Indeed, they do have an interest, as the stay only lasts for the durationof the receivership. Whether the Trust is solvent or not will therefore be an importantfactor in determining the outcome of proceedings in which the Trust is involved at theend of the receivership. Mr Memelink, representing the residual interests of thetrustees, has indicated his strong opposition to the strike out and referred to hisbeneficial interest as a beneficiary of the Trust. It is important not to strike out theclaim without, among other things, a consideration of his (and other beneficiaries')positions as well as that of other creditors in the receivership.Conclusion[40] As Churchman J noted in granting the variations to the receivers' orders inDecember 2022, the receivership of the Trust is for the benefit of the creditors.24 Thestay does not affect Mr Haines unfairly. He is in the same position as all othercreditors. He has received judgments which he can prove in relation to applicationsin which he has succeeded in this proceeding.[41] In any event, leave to waive the stay has not been applied for, and in thecircumstances I do not consider it appropriate to waive the stay. The application forstrike out as presently formulated is not straightforward and the application may bepremature. To waive the stay under the court's inherent jurisdiction is inappropriate,24 Stay of proceedings decision, above n 2, at [31].for the reasons set out above. I am not satisfied it is in the interests of justice andfairness to the creditors and the receivership to waive the stay in order to determinethe application for strike out at this stage.[42] Accordingly, the application for strike out and costs is dismissed, there beingan order for stay of proceedings in place and no waiver of that application has beengranted.[43] If costs are sought an application should be made within five days togetherwith supporting submissions by way of memoranda, any response is to be filed andserved within a further five days and any reply within a further three days. I note thehearing took approximately one half-day.____________________Grice J