SUNDBERG & ANOR v MALLEY & CO LAWYERS [2020] NZHC 1789

SUNDBERG & ANOR v MALLEY & CO LAWYERS [2020] NZHC 1789 [22 July 2020]IN THE HIGH COURT OF NEW ZEALANDTIMARU REGISTRYI TE KŌTI MATUA O AOTEAROATE TIHI-O-MARU ROHECIV-2018-476-000039[2020] NZHC 1789BETWEEN JANINE NORA SUNDBERG and LINDABEVERLY SUNDBERGApplicantsAND MALLEY & CO LAWYERSRespondentHearing: 22 July 2020Counsel: J L Bates for the ApplicantsM McKay for the RespondentJudgment: 22 July 2020JUDGMENT OF DOOGUE JThis judgment was delivered by Justice Doogueon 22 July 2020 at 5.45 pmpursuant to Rule 11.5 of the High Court Rules.Registrar/ Deputy RegistrarDate:Solicitors:Brown & Bates Ltd, NapierMalley & Co, ChristchurchIntroduction[1] The applicants are the registered proprietors of separate half shares in theproperty with identifier CB40B/659, Canterbury Land Registry District (the property).[2] The Sheriff of the High Court has fixed an auction of the property pursuant tosale orders, for midday this Friday 24 July 2020.[3] The applicants have filed an application for an order staying sale. They seek aone month stay in order to pursue a prospective private sale of the property.[4] The applicants claim that a substantial miscarriage of justice would be likelyto result if the order for sale of the property were enforced.[5] The judgment debt leading to the order for sale arises from services providedto the applicants by the respondent, a firm of solicitors (Malley & Co), which they saywere professionally negligent.[6] As at 21 July 2020, the applicants were jointly and severally liable to payMalley & Co the sum of $127,677.11 (together with the costs of sale regarding theproperty), being:(a) a principle sum of $119,858.16 (including interest from 1 August 2018to 21 July 2020 of $7,167.38);(b) the costs award on the interlocutory application for renewal of saleorders of $4,121.18 (including interest from 30 September 2019 to 21July 2020 of $93.18);(c) the costs award on the interlocutory application for renewal of chargingorders with interest up to 27 August 2020 of $3,697.77 (includinginterest from 26 February 2020 to 21 July 2020 of $39.17); and(d) costs of sale associated with the auction.[7] The applicants say they will be rendered homeless and without funds if theauction proceeds and the property is sold by that process.Background[8] On 9 June 2017 the applicants were served with proceedings seeking judgmentfor their unpaid legal fees owed to Malley & Co.[9] On 4 July 2017 the applicants filed a statement of defence and counter-claim(including allegations of professional negligence).[10] On 13 December 2017 Malley & Co applied to strike out the statement ofdefence and counter-claim, and the applicants took no steps to oppose theirapplication. The applicants' proceedings were duly struck out.[11] On 22 February 2018 Malley & Co obtained judgment against the applicantsin the District Court for the sum of $110,338.67 following a formal proof hearing inrespect of which the applicants were given advance notice but did not attend.[12] On 1 March 2018 the District Court granted Malley & Co charging orders overthe applicant's respective half shares in the property and the charging orders were dulyregistered with Land Information New Zealand.[13] On 8 August 2018 the judgment (and charging orders) were transferred fromthe District Court to the High Court and judgment was entered for $112,690.78.[14] During February 2019 to late May 2019, Malley & Co, PGG Wrightson and anAshburton valuer engaged on their behalf (Alister Wing) attempted to makearrangements with the applicants to facilitate an orderly inspection of the property forvaluation purposes. On 26 February 2019 the applicants responded saying they wouldbe in Wellington on 28 February 2019 and were unable to give access to the propertyon that date. Subsequent attempts to reschedule a site inspection were unsuccessful.[15] On 23 September 2019 Dunningham J made an order on an unopposed basis(the application having been served) extending the sale orders.[16] On 13 December 2019 the Sheriff of the High Court at Christchurch conductedan auction of the property, but the property was passed in for sale is it did not meet thereserve. The applicants did not apply for stay regarding the sale orders before the firstauction.[17] The property was offered to the market by way of auction on13 December 2019 and there was a challenge made minutes before the auction was tocommence regarding the GST position by a solicitor claiming they were acting for theapplicants. This challenge was made publicly, and the sale process was delayed bysome 20 minutes. It was clear that upon commencement of the auction this challengeand the delay to the sale process made purchasers even more cautious and they wereless intent to bid with confidence. The property was withdrawn from sale with thereserve not being met.[18] On 13 December 2019, after the auction, Arrowsmith Law emailed Malley &Co and advised that they were meeting with the applicants the following week andwould recommend that the judgment be addressed by the amount being met.[19] On 16 January 2020 Malley & Co wrote to Arrowsmith Law and sought theapplicants' consent to a renewal of the charging orders.[20] On 20 January 2020 the registrar advised Malley & Co by email that theproperty could be relisted for sale by auction with a proposed date of 6 March 2020.[21] On 21 February 2020 Associate Judge Lester further extended the chargingorders.[22] On 3 March 2020 Malley & Co sent the applicants a sealed copy of the orderas to the extension of the charging orders.[23] On 10 March 2020 the applicants advised they would be travelling the nextweek to meet with a senior solicitor in Wellington. They said the solicitor would berepresenting them and would be instructed to make immediate contact with Malley &Co. They claimed to have a proposed purchaser poised to purchase the property.[24] On 20 March 2020 Malley & Co emailed the applicants and soughtconfirmation of the applicants' Wellington-based solicitor and the name of theproposed purchaser. On the same day the applicants responded by email advising theproposed purchasers were "a Mr and Mrs Kean" and that discussions were ongoing.They did not provide the name of their Wellington-based solicitor.[25] On 25 March 2020 Malley & Co emailed the applicants asking for the name oftheir Wellington-based solicitor and the first names of the proposed purchasers. Theapplicants did not respond to this email.[26] On 20 May 2020 Malley & Co wrote again seeking the requisite details. Malley& Co also advised the applicants that unless matters were promptly resolved byagreement they would be listing the property for sale by the Sheriff with the auctiondate likely to be 3 July or 10 July 2020.[27] On 25 May 2020 the applicants emailed Malley & Co and advised that oncethey had set new counsel in place that they would make contact with Malley & Costraight away. Counsel did not contact them.[28] On 9 July 2020 Malley & Co wrote to the applicants enclosing a copy of theadvertisement of the notice of sale assigned by the Sheriff dated 19 June 2020 and theassociated auction terms. The applicants responded to that letter, acknowledging itsreceipt.[29] Now the property is being reoffered to the market by way of auction with thefurther terms of sale supporting a clearer GST position. Interested buyers have soughtlegal advice and conducted due diligence at a substantial cost to them. The sales teamhandling the sale have been focusing on creating competition to maximise marketvalue with 28 sets of auction particulars being distributed to date. If there was to be afurther delay, the evidence suggests most potential purchasers may withdraw from anyfurther process thereby minimising competition and subsequently decreasing anyrealised value.[30] For completeness, while the applicants initially sought an order setting asidethe judgment debt, Mr Bates advised the Court the applicants no longer seek to do so.Rather, they will take recourse against Malley & Co for their alleged professionalnegligence by separate proceedings.Applicants' case[31] The applicants engaged Malley & Co in respect of the estate of the lateCaitriana Mackay Beatock Baker, and claim Malley & Co were professionallynegligent in their failure to pursue the removal of a fellow trustee.[32] In an affidavit dated 20 July 2020, the first applicant said the applicants arecurrently completing redecoration of the interior of the homestead and had in facthoped to have the property on the market at the end of the summer in 2019/2020. Shesaid this was not possible due to COVID-19 restrictions. Further she said they wishto complete the redecorating work when the warmer weather returns, and put theproperty on the market in summer 2020/2021. In addition, she said they have partiesinterested in purchasing the property when the redecoration work is completed.[33] Today Mr Bates was instructed to advise the Court the applicants are inconfidential negotiations with a prospective purchaser who would likely payconsiderably more than would be realised under the proposed auction and that thispurchase could be concluded within a month.Respondent's submissions[34] Malley & Co does not accept the claim that the firm's services wereprofessionally negligent.[35] Malley & Co said that they will suffer extreme prejudice if even a temporarystay is granted because:(a) the current sale orders expire on 10 September 2020 and cannot befurther renewed as per 17.24(3) of the High Court Rules 2016;(b) in order for a sale order to be fully executed, there may well have to bepayment over of the sale proceeds by the sheriff to the executioncreditor;1(c) accordingly, in order for a further auction to be complete under theSale Orders, it is not sufficient that the auction be held before10 September 2020, but that the sale settle before 10 September 2020;(d) if a three-week marketing campaign (the bare minimum and notrecommended) is held for a further auction, it would, therefore, need tocommence on 19 August 2020 (less than four weeks away);(e) put another way, it is not possible to have a further auction (other thanon 24 July 2020), and a six week stay under the sale orders;(f) in the event the property is not sold by private treaty with a promptsettlement date, a temporary stay will increase the costs of sale incurredby Malley & Co and those costs may not be recoverable (in practicalterms) from the applicants;(g) as at 21 July 2020, a total of $167,131.68 is owed by the applicants toMalley & Co, being:(i) judgment sums of $127,677.11; and(ii) costs of sale of $39,454.57 (including GST);(h) given PGG Wrightson appraised the property on 21 July 2020 as havinga market value under a Court ordered sale of between $345,000.00 to$375,000.00 including GST (if any), it is not clear that there will beenough equity in the property to cover the applicants' debt to ANZ andMalley & Co, as well as the costs of sale.1 Charles Rich Antiques Ltd v Rudyard Developments Ltd [1979] 2 NZLR 724 at 728 per Barker J.The law[36] The application is brought pursuant to r 17.29 of the High Court Rules 2016.It provides as follows:17.29 Stay of enforcementA liable party may apply to the court for a stay of enforcement or other reliefagainst the judgment upon the ground that a substantial miscarriage of justicewould be likely to result if the judgment were enforced, and the court maygive relief on just terms.[37] Counsel did not dispute that the applicable principles are those set out in thejudgment of White J in Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd:2[19] As the authorities referred to in McGechan on Procedure at [HR17.29.02] and the submission for the parties confirm, the principlesrelating to the interpretation and application of rule 17.29 arereasonably well established. They may be summarised as follows:(a) The onus is on an applicant for the stay of enforcement topersuade the Court to exercise its discretion.(b) A "substantial miscarriage of justice" must be involvedbearing in mind that "substantial miscarriage" means"something more than minor or insubstantial" and that it isnot a substantial miscarriage of justice for a party that has hadthe use of another's money to be required to repay that moneyor for a creditor to be able to take whatever steps it sees fit topursue recovery:(c) A substantial miscarriage of justice must be "likely to result"if the judgment were enforced. It is not sufficient that amiscarriage of justice "might" result; it must be "likely toresult" i.e. probably result:(d) The Court must seek to recognise and reconcile theconflictions interests of both parties in such manner as willbest serve the overall interests of justice: . A balancingexercise is involved.(e) A miscarriage of justice is unlikely to result where a party isrequired to pay to another an amount that it owing to it andthe paying party is free to pursue its claim against the otherparty in the normal way:(f) Other factors which may be relevant include: the apparentstrength or weakness of the claim; the ability of the applicantfor the stay to meet the judgment that is being enforced; and2 Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd HC Napier CIV-2010-441-134, 8 June 2011at [19] (footnotes omitted).the potential bankruptcy or liquidation of a party seeking topursue an apparently strong claim: [38] I turn to consider these principles in the circumstances of this case.Analysis[39] There is no doubt that the applicants will face distress and hardship as a resultof the sale of the property, but this cannot be characterised as likely resulting in amiscarriage of justice. It is simply a result of one party owing a judgment debt that hasbeen properly obtained but not discharged. It is the law following its normal course.[40] The evidence strongly weighs in favour of Malley & Co. First, becausejudgment against the applicants was properly obtained as long ago as February 2018.[41] Secondly, since then, the applicants have had remedies available to them tochallenge that judgment. They have not done so. Similarly, they have had ample timeto pursue a claim of professional negligence against Malley & Co and have not doneso.[42] Thirdly, recent claims in the affidavit of the first applicant that the applicantshave not been served with any communications in relation to the auction date set forthe sale of the property are inconsistent with written evidence before the Court.[43] Fourthly, the claims in the first applicant's affidavit of 20 July 2020 concerningcompletion of redecoration and a plan to sell the property in the summer of 2020/2021appear to be yet another iteration of the delaying tactics that have been employed bythe applicants throughout and are chronicled in [7]-[23].[44] Fifthly, since the first applicant's last affidavit was sworn, the applicants'position has shifted yet again although no evidence was tendered to support thesubmission that the applicants were hopeful of achieving a sale to the unnamedprospective purchaser within a one- month time frame.[45] Past behaviour being the best predictor of future behaviour, the applicants'claims about actively improving and marketing the property will not likely result inthe property being put on the market or sold. Similarly, the applicants' claims aboutan active and interested buyer about whom the Court is told nothing does not buildconfidence that a private sale will be realised in short order.[46] Sixthly, the applicants have been assisted by no fewer than four lawyers in thismatter since the judgment debt was entered against them, and no substantive actionhas been taken either to apply to set aside the judgment debt or to bring a statement ofclaim of professional negligence against Malley & Co.[47] Finally, Malley & Co took the unusual but highly responsible step of offeringto contribute to the applicants' legal costs in order for them to obtain representationbefore a meeting to discuss resolution. The applicants did not take up the offer whichwas repeated in subsequent correspondence during 2019.[48] In summary, the applicants have sat on all their rights. They have not takenadvantage of such legal representation as they have had to properly prosecute theirclaims.[49] The applicants' position is analogous to the unsuccessful applicants for staysin Noe v Ratzapper Australasia Ltd,3 and Harnish v Bruce.4 In both cases, the Courtdeclined applications for stays of enforcement made in the week or so before salewhere there had been negotiations between the judgment debtor and the judgmentcreditor (which failed), and the judgment debtor had had time to sell (at least a year inNoe) to sell the relevant property, but had failed to do so.[50] The applicants have failed in the circumstances to discharge the onus on themto persuade the Court to exercise its discretion in their favour.[51] Rather than real prejudice arising for the applicants, I consider real prejudicewould occur to Malley & Co if I were to stay this sale for the reasons set out in [37].3 Noe v Ratzapper Australasia Ltd [2019] NZHC 2962.4 Harnish v Bruce [2014] NZHC 302.Result[52] The application to stay the order for sale is declined.[53] Costs in respect of this application shall issue against the applicants in favourof Malley & Co.[54] Costs are ordered on a 2B basis, together with any reasonable disbursements.Doogue J