JNJ HOLDINGS LTD v KENT SING TRADING COMPANY LTD [2019] NZHC 369

JNJ HOLDINGS LTD v KENT SING TRADING COMPANY LTD [2019] NZHC 369 [7 March 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2015-404-000099[2019] NZHC 369BETWEEN JNJ HOLDINGS LIMITEDPlaintiffAND KENT SING TRADING COMPANYLIMITEDFirst DefendantQUOC THAISecond DefendantLE QUAN WUThird DefendantCIV-2018-404-001839UNDER The Insolvency Act 2006IN THE MATTER OF the bankruptcy of LE QUAN WUBETWEEN JNJ HOLDINGSL IMITEDJudgment CreditorAND LE QUAN WUJudgment DebtorHearing: 18 February 2019Appearances: M C Black for the Defendants/ApplicantsP F Dalkie and S M Bhanabhai for the Plaintiff/RespondentJudgment: 7 March 2019JUDGMENT OF ASSOCIATE JUDGE H SARGISSONThis judgment was delivered by me on 7 March 2019 at 4.00 pmpursuant to Rule 11.5 of the High Court Rules.Deputy RegistrarIntroduction[1] Two applications are before the court:(a) In the proceeding filed under CIV-2015-404-99 the defendants seek anorder for stay of execution and enforcement of a judgment pendingappeal; and(b) In a related bankruptcy proceeding filed under CIV-2018-404-1839 thejudgment debtor seeks an order setting aside a bankruptcy noticefounded on the judgment pending appeal.[2] The application for a stay is opposed. But if a stay is granted, it is commonground that pending the outcome of the appeal, a related costs judgment should alsobe stayed and the application to set aside the bankruptcy notice should be adjourned.If a stay is not granted, it is agreed that the application to set aside ought to bedismissed.The judgment(s) under appeal[3] In a judgment given by this Court on December 21, 2017 Moore J madefindings of liability against the three defendants (principally for wrongful terminationof a lease) in a proceeding brought by JNJ Holdings as lessor of commercial premisesknown as The Metro Centre located in the Auckland CBD.1 Judgment was enteredagainst, Kent Sing Trading Company Ltd, as lessee and against its directors, QuocThai and Le Quan Wu, as sureties. His Honour also entered judgment against all threefor $215,048.42 plus interest of $49,484.49, and he disallowed a counterclaim broughtby them and a further party, General Goods Ltd. In a costs judgment made on9 August 2018, JNJ Holdings was awarded indemnity costs (on a reduced basis) of$61,146.18 on its claim and scale costs of $21,491.10 on the failed counterclaim.21 JNJ Holdings Ltd v Kent Sing Holdings Ltd & Ors [2017] NZHC 3274.2 JNJ Holdings Ltd v Kent Sing Holdings Ltd & Ors [2018] NZHC 2022.[4] On 19 January 2018 the defendants and General Goods lodged an appealagainst the substantive judgment.3 It is not the only appeal. JNJ Holdings lodged anappeal against the costs judgment on 4 September 2018. It has been agreed that bothsides' appeals will be heard at the same time and the date for the hearing has beenfixed for 24 June 2019.[5] It is not in dispute that the defendants acted conscientiously to get the appealsready for hearing as quickly as possible. Any delay is, counsel agree, attributable tothe fact that the parties needed to wait for the judgment on costs.Bankruptcy proceedings and first stay application[6] No proceedings have been commenced against Kent Sing Trading Company toenforce the substantive judgment under appeal, but not long after the costs judgmentwas issued, JNJ Holdings served bankruptcy notices on Quoc Thai and Le Quan Wu.Service was effected on or about 3 and 11 September 2018.[7] Quoc Thai did not take steps to have his bankruptcy notice set aside, but on20 September 2018 Le Quan Wu made a combined application for orders to set asideher bankruptcy notice and for a stay.4 The application for stay was made in relianceon r 17.29 of the High Court Rules.5[8] The combined application was before Associate Judge Smith on11 October 2018. His Honour enquired whether the application to set asidethe bankruptcy notice was possibly misconceived. He also observed that if the basisfor the stay was that there was an appeal pending, and the debtor's rights should notbe lost while the appeal remained extant, the application for a stay should be madeunder r 12 of the Court of Appeal (Civil) Rules 2005. Directions were fixed for further3 The defendant and General Goods Ltd are referred to collectively as the defendants in thisjudgment.4 An act of bankruptcy will not found an application for adjudication unless it has been committedwithin a period of 3 months before the filing of the application: s 13 Insolvency Act 2006. ThoughQuoc Thai did not comply with or apply to set aside his bankruptcy notice, thereby committing anact of bankruptcy, JNJ Holdings is out of time to make an application for adjudication in relianceon that particular act of bankruptcy.5 Rule 17.29 allows a liable party to apply for a stay of enforcement or other relief against thejudgment to prevent a substantial miscarriage of justice.documents to be filed and served should the defendants wish to make a new stayapplication and for the allocation of a fixture if needed.The second application for a stay and the parties' positions[9] On 11 October 2018, the defendants filed an application for a stay pendingappeal pursuant to r 12 of the Court of Appeal (Civil) Rules 2005. At a mentionshearing on 29 November 2018, counsel for the defendants advised that the applicationto set aside the bankruptcy notice would not be withdrawn and Moore J directed thatboth matters – the new stay application and the application to set aside – were to belisted for the hearing on 18 February 2019.[10] Counsel for JNJ Holdings acknowledges fairly that if the defendants hadrequested a stay (formally or informally) in relation to the substantive judgment earlyin the piece, JNJ Holdings would have agreed, on provision of a reasonable sum byway of security for a portion of the judgment debts. He adds that even after thebankruptcy notices were served JNJ Holdings would have been amenable to a stayprovided its actual costs incurred in relation to the notices were also met. But that isin the past. There is no agreement relating to a stay, and JNJ Holdings would prefernow to simply enforce the judgments in its favour. Counsel submits that when all therelevant factors in support of and against a stay are weighed, there is nothing thattrumps its entitlement to enforce those judgments. He submits the decisive factor isthat the defendants' appeal is patently weak – indeed hopeless – but he adds that if theCourt is minded to order a stay, security of at least $100,000 should be required plusa sum to indemnify JNJ Holdings for its wasted costs relating to the bankruptcy noticesand the combined application.[11] The defendants' appeal does not operate to stay enforcement of the judgmentsin JNJ Holdings' favour, and there is no express agreement between the parties thatmight have dispensed with the need for a formal stay. Counsel for the defendantsacknowledges as much, but says there was an understandable (if unfortunate)assumption there would be no need to secure either a stay or an agreement, as counselwere co-operating and focussed on getting the appeals to a hearing. It was only whenthe bankruptcy notices were served that it dawned on the defendants they had actedon a wrong assumption. He submits it would be unduly harsh not to grant a stay now,as the preparation for hearing has been completed, the hearing is so close, and theconsequences for the defendants of a stay would be dire. The defendants accept theymust provide some security, but submit a lenient approach relating to quantum wouldbe appropriate. They say they have few assets left between them, and if permitted tokeep aside $15,000 for legal costs for the appeal they could put up $85,000 for security.They accept they must also make some contribution to costs incurred so far in thebankruptcy proceeding.The appeal grounds relied upon by the defendants[12] The appeal grounds are largely factual in nature. As such, they are of a kindthat is generally difficult to pursue to a successful conclusion. But in this case somerelated legal issues arise, particularly in relation to whether JNJ Holdings deliberatelywithheld documents it should have discovered and whether the withholding of suchdocuments materially affected the trial judge's findings of fact; and whether the trialjudge failed to attach sufficient weight to unchallenged evidence of the defendants.Issues of statutory interpretation relating to the giving of notice under the PropertyLaw Act 2007 also arise.Principles on which a stay should be granted[13] The stay application is brought under r 12(3) of the Court of Appeal (Civil)Rules 2005. In determining whether to grant a stay the court must weigh factors "inthe balance" between the successful litigant's rights to the fruits of a judgment and"the need to preserve the position in case the appeal is successful."6[14] The factors conventionally identified as those the court will take into accountin this balancing exercise were listed in Dymocks Franchise Systems (NSW) Pty Ltd vBilgola Enterprises Ltd. They include:76 Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 87.7 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (CA)at [9].(a) If no stay is granted, whether the applicant's right of appeal may berendered nugatory;(b) the bona fides of the applicants as to the prosecution of the appeal;(c) whether the successful party will be injuriously affected by the stay;(d) the effect on third parties;(e) the novelty and importance of questions involved;(f) the public interest in the proceedings; and(g) the overall balance of convenience.[15] These factors are not comprehensive. The court in Dymocks observed:8A review of them serves merely to show the breadth of the matters which, inany given case, may have to be addressed by a Court to balance the overallinterests of justice.[16] The courts have on occasion added as an additional factor:9 (to the extent that it can be measured), the question whether there is anarguable appeal point and, if so, its likely strength.[17] Heath J noted in Body Corporate No 188529 v North Shore City Council(No 6), rule 12 of the Court of Appeal (Civil) Rules 2005 provides first instancejurisdiction for this Court on an application for stay. If a stay were refused, there is anability to apply directly to the Court of Appeal.108 At [10].9 Body Corporate No 188529 v North Shore City Council (No 6) HC Auckland CIV-2004–404-3230, 11 February 2009 at [17]; see also Keung v GBR Investment Ltd [2010] NZCA 396, [2012]NZAR 17 at [11].10 Body Corporate No 188529 v North Shore City Council (No 6) HC Auckland CIV-2004–404-3230, 11 February 2009 at [19].Decision[18] The defendants have the onus of showing why they should not simply pay thejudgment debts in advance of the appeal hearing or, at the least, adhere to the generalrule that applicants for a stay are required to put up security to cover those debts.11At issue is whether there are features about this case (in terms for the factors outlinedin the authorities referred to) that indicate it would not be just to require payment inadvance; or whether it would be just to allow a stay in terms requiring the modestsecurity that the defendants propose.The effect of no stay: is it the case the appeal may be rendered nugatory?[19] At the hearing counsel for both sides agreed the lack of a stay would resultinevitably in the adjudication of Quoc Thai and Le Quan Wu.12 The possibility thatthe Official Assignee would be willing to prosecute the appeal for them is unlikely inthe absence of funding. But counsel for JNJ Holdings submitted the absence offunding cannot be assumed, on the basis that that the two individuals might haveaccess to significant funds, from some undisclosed source. That line of argument doesnot sit comfortably with JNJ Holdings' own choice of bankruptcy notices as theappropriate means of enforcing the judgment debts against them, or with theirevidence that their only remaining source of income is from the first defendant whichwould cease upon their bankruptcy.[20] But counsel for JNJ Holdings went further and submitted that even if it wasnot the case in fact that the directors would have a source – or be a source – of fundingfor the appeal, enforcement proceedings have not been commenced "at the moment"against the first defendant. From there he submitted the first defendant could stillproceed with the appeal even if its directors could not. The submission is notsupported by the evidence, which suggests that the fortunes of the directors and thefirst defendant are closely linked; if the directors are bankrupted, the first defendant's11 See Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [12].12 I can only assume from this that JNJ Holdings' intention would be to serve a fresh bankruptcynotice on Quoc Thai immediately if a stay is not granted, because his bankruptcy notice (servedin September 2018) is now stale and would not support an application for adjudication.operations are likely to cease, and with that, its active involvement in the appeal wouldbe terminated.[21] There is also nothing in evidence that indicates other than that General Goodslacks the ability to fund the appeal and counsel for JNJ Holdings did not argue thecontrary.[22] This state of affairs does not make it certain that the defendants' appeals willbe rendered nugatory. But it points to that outcome as being highly likely; and thatlikelihood must have a significant bearing when weighing up all of the factors, for andagainst, on whether it would be just to refuse a stay.[23] I turn then to the other factors to be weighed.The bona fides of the defendants as to the prosecution of their appeal[24] Counsel for JNJ Holdings acknowledges that there is no doubt about the bonafides of the defendants in relation to this factor.Will the successful party be injuriously affected by this stay?[25] Counsel for JNJ Holdings acknowledges this factor does not really arise.The effect on third parties[26] Counsel for JNJ Holdings acknowledges that this factor also does not reallyarise.The novelty and importance of questions involved[27] Counsel for JNJ Holdings points out that the appeal does not raise novel issuesthat could have wide significance for a large body of litigants, as for instance in someleaky building litigation.13 Further, this is not a case where the question whether there13 See Body Corporate No 188529 v North Shore City Council (No 6) HC Auckland CIV-2004–404-3230, 11 February 2009 at [21].is an arguable appeal point of likely strength is readily assessed. It is sufficient to saythat counsel's submissions focussed on the first ground of appeal which raises the notinsignificant question whether a party has deliberately flouted its discovery obligationsto conceal a true state of affairs about the leased premises. Related to the assessmentof the likely strength of that ground is an application asking the Court of Appeal toconsider whether further evidence – said to demonstrate such conduct – should nowbe allowed. Counsel for JNJ Holdings objected to my reading the affidavit in supportof that application. The consequence of that is, as counsel acknowledged, that I amunable to form any real impression on whether the proposed evidence appearssignificant, and thus whether it points to the appeal point being "likely" to be strong,or whether the proposed evidence appears insignificant. Nonetheless, as counselacknowledged, I must still treat the fact that the evidence may be of significance as afactor to be weighed in the balancing exercise.[28] I therefore find (to the extent that any assessment can be made in the contextof the present application) that the question whether there is a reasonably arguableappeal point cannot be dismissed safely. Nor can the appeal be treated safely as simplyan attempt to re-run a case that was, as counsel for JNJ Holdings submits, fact-centric.There appears to be a question that goes to the heart of a party's discovery obligationsand as to whether there has been non-compliance (or even a contempt of the Court'sprocess) that has significantly affected the findings at trial.14 These are questions thatare themselves of sufficient importance to weigh positively in the balancing exercisein favour of ordering a stay.So where does the balance lie?[29] As will be apparent from what I have said, I am satisfied that a stay ought tobe ordered so as to allow the appeal to proceed, particularly given that JNJ Holdingscannot point to any injurious effect upon it if there is a stay, and the hearing date is notfar off. The proviso is that the defendants must expect they should provide somereasonable measure of security against the possibility that the moneys remaining tothem will not be disbursed while the hearing is pending. They must also expect to14 See High Court Rules, r 8.33.make a reasonable contribution towards JNJ Holdings' costs related to the wasted stayapplication made in the bankruptcy proceeding. In relation to that proceeding I thinkit appropriate to confine costs to steps relating to the wasted stay application and onthe basis that the application was essentially interlocutory in nature. Costs related tothe bankruptcy notice served on Le Quan Wu and any future application that may befiled for her adjudication are appropriately dealt with when the bankruptcy proceedingcomes to a conclusion. The amount I propose to allow now in respect to the wastedstay application is $2,230 based on the following steps calculated on a 2B basis:(a) Filing notice of opposition and supporting affidavits 0.6 x 1 day; and(b) Appearance at hearing 0.2 x 1 day x 2.[30] I make this allowance on the basis that I am satisfied that 2B costs are adequatecompensation for the work involved. I am mindful of the submission for JNJ Holdingsthat such steps relating to the stay application could have been avoided had there beenan early request to agree to a stay and JNJ Holdings should therefore be treated ashaving been put to unnecessary costs. That may well be the case, but it is not sufficientto persuade me that I should allow indemnity costs as sought. The work in relation tothe first stay application was not wholly wasted; it was plainly very useful for thesecond application.Result[31] Weighing up the factors I am required to consider I am satisfied it isappropriate to order a stay, but on terms.[32] I make the following orders:(a) The application for a stay made by the defendants in CIV-2015-404-99in relation to the judgment issued on 21 December 2017 is grantedpending determination of the appeal against that judgment in the Courtof Appeal.15(b) The costs judgment issued on 9 August 2018 in CIV-2015-404-99 isstayed on the same basis.16(c) The application made by Le Quan Wu to set aside the bankruptcy noticein CIV-2018-404-1839 is adjourned to Thursday 6 June 2019 at10.45 am, with leave reserved to seek a further adjournment by way ofjoint memorandum pending determination of the appeal.(d) The above orders are conditional on a memorandum being filed andserved by the solicitors for the defendants on or before18 March 2019 confirming:(i) The amount of $85,000 has been paid to the Registrar to be heldas security pending further order; and(ii) Costs of $2,230 have been paid to JNJ Holdings in relation tothe wasted stay application filed in the bankruptcy proceeding,plus reasonable disbursements as approved by the Registrar.(e) Leave to apply is reserved, generally.(f) Costs on the present application are fixed on a 2B basis together withdisbursements to be fixed by the Registrar. The incidence of those costsis reserved and shall follow the outcome in the Court of Appeal. 17_____________________Associate Judge Sargisson15 JNJ Holdings Ltd v Kent Sing Holdings Ltd & Ors [2017] NZHC 3274.16 JNJ Holdings Ltd v Kent Sing Holdings Ltd & Ors [2018] NZHC 202217 Body Corporate No 188529 v North Shore City Council (No 6) HC Auckland CIV-2004–404-3230, 11 February 2009 at [21]; see also Keung v GBR Investment Ltd [2010] NZCA 396, [2012]NZAR 17 at [12].Solicitors:Dyer Whitechurch (MC Bhanabhai/LM Nicholson), Auckland, for JNJ HoldingsEugene Ou Law, East Tamaki, for the DefendantsCopy for:P F Dalkie, Auckland, for JNJ Holdings, the PlaintiffMichael C Black, Auckland, for the Defendants