HOSBON TRUST LIMITED as trustee of the HOSBON TRUST v WALLIS [2022] NZHC 1402

HOSBON TRUST LIMITED as trustee of the HOSBON TRUST v WALLIS [2022] NZHC 1402 [15 June 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2021-404-000919[2022] NZHC 1402BETWEEN HOSBON TRUST LIMITED as trustee ofthe HOSBON TRUSTPlaintiffAND RICHARD DIGBY WALLISDefendantHearing: 1 June 2022Appearances: D Beissell for the PlaintiffP Murray for the DefendantJudgment: 15 June 2022JUDGMENT OF TAHANA JThis judgment was delivered by me on 15 June 2022 at 2.30pmPursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors/Counsel:Duncan Cotterill, AucklandClaymore Partners Limited, AucklandShortland Chambers, AucklandIntroduction[1] This matter was set down for a formal proof hearing on 1 June 2022. In May2021, Hosbon Trust Ltd as trustee of Hosbon Trust (Hosbon Trust), filed its claimagainst Mr Wallis seeking repayment of monies owing under a loan. No defence wasfiled and on 25 February 2022, Hosbon Trust sought a formal proof hearing.[2] On the day prior to the formal proof hearing, Mr Wallis filed an application forleave to file a statement of defence. That application was accompanied by an affidavitof Mr Wallis sworn on 31 May 2021 exhibiting, among other documents, an intendedstatement of defence.[3] Hosbon Trust opposes the application for leave to file a statement of defenceand wishes to proceed with the formal proof hearing.Application for leave to file a statement of defence[4] Rule 15.9(3) of the High Court Rules states that once a formal proof hearinghas been set down, a statement of defence cannot be filed without the leave of a Judge.The Judge may grant leave if there will, or may, be a miscarriage of justice if judgmentby default is entered, and leave will be on terms that the Judge thinks fit.[5] I must therefore be satisfied that there is no miscarriage of justice if I refuse togrant leave to file a statement of defence and judgment in default is granted. Inconsidering whether there will be a miscarriage of justice, relevant factors include:1(a) whether the defendant has a substantial ground of defence;(b) whether the delay is reasonably explained; and(c) whether the plaintiff will suffer irreparable injury if leave to defend isgranted.1 Russell v Cox [1983] NZLR 654 (CA) as cited in Shoye Venture Ltd v Wilson & Anor [2013] NZHC2339 at [13]; and Neumayer v Kapiti Coast District Council [2014] NZHC 417 at [7]–[8].[6] I consider each of the above issues below.Background[7] Ms Gagan is the sole director and shareholder of Hosbon Trust Limited, thetrustee of Hosbon Trust.[8] The terms of the loan are alleged to be contained in emails between Ms Gaganand Mr Wallis dated between 27 February and 4 March 2019, as follows:(a) The amount of the loan was $530,000;(b) Mr Wallis was to repay $100,000 on or by 31 March 2019;(c) Mr Wallis was to repay the balance of the loan on or by 31 March 2021;(d) Interest on the loan was payable monthly at a rate of 5.01% per annum;and(e) The loan was to be secured against Mr Wallis' interest in a property at46-48 Palm Road, Waiheke (the Waiheke Property), with Mr Wallisexecuting a transfer of his interest, which could be registered in theevent Mr Wallis defaulted on repayment of the loan.[9] In the emails referred to at [8], Ms Gagan asked Mr Wallis about documentingthe loan in an agreement. Mr Wallis said he would draw something up, but he neverdid. The emails also record that the purpose of the loan was to pay for Mr Wallis'father to go into Logan Campbell retirement village in an apartment.[10] On 4 March 2019, Mr Wallis also sent an email to his solicitor requesting that: you please prepare a transfer of my 12/25 interest in the Waiheke bach toJosephine Bernadette Gagan today.[11] Ms Gagan has filed evidence showing that the loan principal of $530,000 wasdebited on 4 March 2019 from a bank account in the name of Hosbon Trust. The bankstatement records "Transfer Apartment Logan Campbell".[12] On 16 August 2020, Ms Gagan emailed Mr Wallis setting out a summary ofpayments by Mr Wallis for "the loan against the Hosbon Trust for the previousfinancial year". Ms Gagan noted that the November interest payment had not beenmade and requested that Mr Wallis ensure payment. On the same day, Ms Gagan senta separate email following up on the loan document and requesting that Mr Wallis lether know if the document was ever drawn up so that it could be forwarded to her.[13] On 28 October 2020, the solicitors for Hosbon Trust sent a letter to Mr Wallissetting out the terms of the loan and requesting that Mr Wallis:(a) repay the amount outstanding of $480,000 by 31 March 2021; and(b) execute and return by no later than 6 November 2020 an authority andinstruction form authorising the transfer of Mr Wallis' 12/25 share inthe Waiheke Property to the Hosbon Trust.[14] On 3 December 2020, a caveat was lodged by Hosbon Trust Limited ascaveator against Mr Wallis' interest in the Waiheke Property. The interest claimed wasan agreement to mortgage dated March 2019 between Mr Wallis (as mortgagor) andHosbon Trust Limited (as mortgagee).[15] As set out in Schedule 1 of the statement of claim, Mr Wallis made almostmonthly payments under the loan between April 2019 and January 2021 and then thepayments stopped. The balance was not paid by 31 March 2021. Hosbon Trust is nowclaiming $434,817.24 (plus further interest).[16] Mr Wallis does not dispute that he owes monies under the loan. Rather,Mr Wallis says Ms Gagan and not Hosbon Trust lent him the monies.[17] Mr Wallis then says he has an equitable set-off against Ms Gagan becauseMs Gagan obtained an interlocutory decision and a judgment of the Family Court byalleged fraud, which has deprived him of the property at 11 Kimberley Road, Mr Eden.[18] Mr Wallis has provided a copy of the statement of claim he filed on 13 August2021 in this Court (CIV-2021-404-1674) which forms the basis of his equitable set offdefence. In that claim, Mr Wallis seeks damages and orders declaring the followingjudgments a nullity, as having been vitiated by Ms Gagan's alleged fraud:(a) Family Court judgment dated 15 May 2014; and(b) reserved judgment of the Family Court dated 11 December 2015.2[19] Ms Gagan has applied to strike out Mr Wallis' claim in CIV-2021-404-1674 ona number of grounds, including that the declarations sought would be moot. Ms Gaganhas filed an affidavit in support of the strike out application, which indicates that thesubstantive Family Court decision was appealed to the High Court. The appeal wassettled, and the Family Court decision of 11 December 2015 was set aside by consenton 26 July 2016. The consent orders included an order that Ms Gagan pay to Mr Wallisthe sum of $1,375,000 on or before 29 July 2016.AnalysisDoes the defendant have a substantial ground of defence?[20] Mr Wallis says at the time the loan was agreed in March 2019, he dealt withMs Gagan in her personal capacity and the loan was therefore with her personally.Mr Wallis relies on the emails between himself and Ms Gagan in support of hisdefence and says there is no reference to the Hosbon Trust or Hosbon Trust Ltd in theemails. Mr Wallis also refers to an email he wrote to his solicitors instructing them toprepare a transfer of his interest in the Waiheke Property to Ms Gagan.[21] Ms Beissel for the plaintiff says Hosbon Trust is the correct party to the loanand Ms Gagan was acting in her capacity as a director of Hosbon Trust Limited.2 Wallis v Gagan [2015] NZFC 9596.Ms Beissel referred to Ms Gagan's affidavit dated 1 February 2022 which exhibits abank statement showing that $530,000 was debited from Hosbon Trust's account on4 March 2022. Ms Beissel also says that the interest rate for the loan is the interestrate for an overdraft facility in the name of Hosbon Trust and says affidavit evidencecould be provided to this effect.[22] There is subsequent correspondence to Mr Wallis regarding the loan in 2020that directly refers to Hosbon Trust, as follows:(a) email from Ms Gagan to Mr Wallis dated 16 August 2020 referring topayments by Mr Wallis against the "Hosbon Trust"; and(b) letter from the solicitors for Hosbon Trust dated 28 October 2020requesting repayment of the loan by 31 March 2021 and for Mr Wallisto sign an authority and instruction form for the transfer of the WaihekeProperty.[23] Hosbon Trust Limited (as trustee of Hosbon Trust) is also the caveator on thecaveat that was lodged on 3 December 2020.[24] Mr Murray for Mr Wallis says that the source of the funds (being Hosbon Trust)is not necessarily determinative of the party to the loan agreement as Ms Gagan wasfree to source the funds from any third party.[25] Mr Wallis in his affidavit filed in support of the application, also says that theissue of who he has been dealing with in relation to the Mt Hobson property (which isowned by the Hosbon Trust) is the subject of a Tenancy Tribunal appeal. He says thatallowing this issue to be dealt with by default would open up the possibility ofconflicting judicial decisions on the same issue. I was not provided with anydocumentation in relation to the Tenancy Tribunal appeal, so it is unclear whether theissues are the same. The issue here relates to the correct parties to the loan and not theownership of the property or the relationship of landlord and tenant, so I do not seethe possibility of conflicting judicial decisions on the same issue. Mr Murray did notadvance any submissions on this point.[26] Mr Wallis also pleads equitable set off as against Ms Gagan. This defence onlyapplies if the loan is with Ms Gagan. The matters giving rise to any equitable set offagainst Ms Gagan are currently before this Court in another proceeding. It would bewrong to pre-empt consideration of that claim in this judgment. I also note that thisdefence only applies against Ms Gagan and not Hosbon Trust.[27] Given the matters set out above, I accept that to determine the defence offeredby Mr Wallis may require further evidence and cross-examination as to thecircumstances in which the loan was entered. While the subsequent correspondencereferring to Hosbon Trust goes to that issue, it is not determinative. This is an issuethat requires substantive not summary determination. This is important becauseMr Wallis also claims that Ms Gagan owes him money so that it is inappropriate topre-empt the outcome of another proceeding in this judgment. In these circumstances,I accept that there is a substantial ground of defence.Is the delay reasonably explained?[28] Counsel for Mr Wallis accepted there was delay and says, in reliance onNeumayer v Kapiti Coast District Council3, that the Court may disregard the delaygiven Mr Wallis is willing to meet the reasonable costs of Hosbon Trust.[29] Ms Beissel for Hosbon Trust submitted that the delay was not reasonable asMr Wallis was able to spend time filing other documents, including the statement ofclaim dated 13 August 2021, seeking to nullify the Family Court decisions. It is thatstatement of claim Mr Wallis now relies on as a basis for a potential defence ofequitable set off against Ms Gagan. Mr Wallis has delayed filing a statement ofdefence for many months. It is now over one year since the statement of claim wasfirst filed.[30] I do not accept that the delay can be reasonably explained. Makingsubmissions on matters of public interest is not an excuse for ignoring Court deadlines.Mr Wallis was also a barrister and solicitor, so is aware of the importance of meetingCourt deadlines. This limb is not satisfied.3 Neumayer v Kapiti Coast District Council [2014] NZHC 417.[31] I also acknowledge that Kós J in Neumeyer v Kapiti District Council 4 acceptedthat failure of the second limb could be disregarded if the first and third limbs aresatisfied. I now turn to the third limb.Is there irreparable damage to the plaintiff if leave is granted?[32] I accept that if Mr Wallis pays the costs caused by his delay, this willcompensate Hosbon Trust for the delay. Ms Beissel for Ms Gagan did not advancesubmissions of irreparable damage and acknowledged that this is a matter for theCourt.Costs[33] In terms of costs, Ms Beissel confirmed that Hosbon Trust seeks costs andreferred to Schedule 1 to her submissions in support of the application for formalproof. Ms Beissel confirmed that costs are sought except for commencement of theproceeding, the sealing order and service of the proceeding. This leaves the followingcosts on a category 2B basis:DisbursementsService of notice of hearing on defendant (copy of invoicedated 12 May 2022 attached and marked "B")$241.50$241.50Total: $11,594.004 Neumayer v Kapiti Coast District Council [2014] NZHC 417 at [12].SCHEDULE 1Costs (Category 2B proceedings at $2,390 per day)Filing memorandum for formal proof hearing (11) 0.4 $956.00Filing application and supporting affidavits (37) 2.0 $4,780.00Preparation of written submissions (40) 1.5 $3,585.00Preparation by plaintiff of bundle for hearing (41) 0.6 $1,434.00Appearance at hearing for principal counsel (42) 0.25 $597.50$11,352.50Conclusion[34] Given the first and third limb are satisfied, the application for leave to defendis granted but with conditions as follows:(a) Mr Wallis is to pay costs together with disbursements as set out in [33]above within 10 working days. On payment of that sum, Mr Wallismay defend the proceeding.(b) A statement of defence is to be filed by Mr Wallis within 10 workingdays.(c) Hosbon Trust is to file any reply to the statement of defence within10 working days after the day on which the statement of defence isserved in accordance with rule 5.62 of the High Court Rules.______________________Tahana J