MEDTRONIC NEW ZEALAND LIMITED v GREGORY DALE FINCH [2013] NZHC 1253

MEDTRONIC NEW ZEALAND LIMITED v GREGORY DALE FINCH [2013] NZHC 1253 [29 May 2013]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2012-004-7408[2013] NZHC 1253BETWEEN MEDTRONIC NEW ZEALANDLIMITEDPlaintiffAND GREGORY DALE FINCHDefendantHearing: 8 May 2013Counsel P F Dalkie for PlaintiffP Rice for DefendantJudgment: 29 May 2013JUDGMENT OF KATZ J[Application for freezing order]This judgment was delivered by me on 29 May 2013 at 4:30 pmPursuant to Rule 11.5 High Court RulesRegistrar/Deputy RegistrarSolicitors:McDonald Law, AucklandCarter & Partners, AucklandIntroduction[1] Medtronic New Zealand Limited ("Medtronic") sells medical items anddevices, including orthopaedic implants. Gregory Finch is an orthopaedic surgeon. Medtronic alleges that Mr Finch is indebted to it in the sum of $1,080,633.08 and has issued these proceedings to recover that debt.[2] Mr Finch's defence is that he didn't contract with Medtronic personally. Hesays it was his company, Finch Orthopaedics Limited (now Redding ServicesLimited) ("Company") that was the contracting party. It is therefore the Company that owes the outstanding debt to Medtronic. However, the Company is in liquidation.[3] On 19 April 2013 Medtronic applied for freezing orders against Mr Finch. To preserve the position pending the full hearing of that application, the orders sought were made by consent on 24 April 2013. The interim freezing orders restrained Mr Finch from:(a) dissipating the net proceeds of sale of the family home in Parnell to the extent of $1,080.633.08;(b) selling, disposing, pledging or encumbering the 200 shares in AOG Holding Limited held in his name; and(c) dissipating all money held in bank accounts held in his own name with the ANZ bank.[4] Following a full hearing of the freezing order application I must now decide whether those orders should be extended or not.Freezing orders – general principles[5] The jurisdiction to make freezing orders1 is derived from s 16 of the Judicature Act 1908. Rule 32.2 of the High Court Rules recognises the jurisdiction and addresses various procedural aspects.2 It provides that a freezing order may restrain a respondent from removing any assets located in or outside New Zealand or from disposing of, dealing with, or diminishing the value of, those assets. It is now well established that in order to obtain a freezing order:3(a) The applicant must establish a good arguable case.(b) There must be a risk that the assets will be dissipated or disposed of, the consequence of which will be to defeat in whole or in part theapplicant's ability to execute any judgment.(c) The applicant must provide a meaningful undertaking as to damages.(d) The applicant must make full and accurate disclosure if the application proceeds on a without notice basis.[6] These requirements are now effectively codified in Part 32 of the High Court Rules.4 Ultimately the Court must consider where the overall interests of justice lie. In doing this it must balance the need to protect the plaintiff (so as to ensure any judgment is not rendered barren) against any prejudice or hardship to the defendant and to third parties.51 Formerly known as a Mareva injunction, derived from Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213 (CA). In New Zealand, the jurisdiction is derived from s 16 of the Judicature Act 1908; see also Hunt v BP Exploration Co (Libya) Ltd[1980] 1 NZLR 104 (HC).2 The High Court Rules now contain detailed provisions dealing with such matters as the power to make ancillary orders (r 32.3), orders in respect of judgment debtors, prospective judgment debtors and third parties (r 32.5) and the form and content of orders (rr 32.6–32.8).3 Bank of New Zealand v Hawkins (1989) 1 PRNZ 451 at 452 (HC); Shaw v Narain [1992] 2 NZLR 544 at 5484 A good arguable case: r 32.5(1)(b); assets in or outside New Zealand; r 32.2(2); risk of dissipation: r 32.5(4); provision of an undertaking: r 32.2(5); full disclosure: r 32.2(3).5 Bank of New Zealand v Hawkins at 452.Are freezing orders appropriate in this case?[7] Mr Finch concedes that there is an arguable case against him. He also concedes that there is a risk of dissipation, despite earlier protestations (through his solicitors) that he was not intending to move to Australia. Indeed Mr Finch concedes that all of the requirements of a freezing order are satisfied. The only issue thereforeis determining the scope of the assets on which any freezing orders can "bite."[8] Mr Finch says the only such assets (of those specified in the application) are any bank accounts in his sole name at the ANZ. It is not clear that any such accounts actually exist, let alone whether they have any funds in them. It is probably a reasonable inference, particularly given that this application proceeded on notice, that Medtronic will receive little comfort in that quarter.[9] Mr Finch says that the other assets which Medtronic seeks to restrain are not in fact his. Rather, they are assets which he simply holds the legal title to (solely or with others). However, he says, the relevant assets are held on trust. It would not therefore be appropriate to grant a freezing order in respect of them.When (if ever) is it appropriate to grant a freezing order in respect of assets held on trust?[10] The focus of argument at the hearing was whether this is a case in which a freezing order over trust assets may be justified, given that Mr Finch appears to have very few (if any) personal assets of any substance.[11] It is well established that there is jurisdiction for the court to grant freezing orders against assets held by or on behalf of third parties, or assets held on trust, in appropriate cases. Medtronic submitted that this was such a case. Rules 32.4 and 32.5 of the High Court Rules expressly provide for the making of a freezing order or an ancillary order against a third party.[12] Medtronic relied in particular on Shaw v Narain6 and Allen v Commissioner of Inland Revenue7 in support of its submission that such an order was appropriate in this case. In Shaw v Narain the Court of Appeal observed that an injunction may extend to property in the name of a non-party, although in most circumstances joinder will be required when true ownership of the property in an issue or a claim is made upon the non-party.8[13] The Court of Appeal held that Mrs Shaw had an arguable case for relief against Mr Narain under s 44(2)(c) of the Matrimonial Property Act 1976 (it was argued that he had received an interest in matrimonial property otherwise than in good faith and for valuable consideration). There was no dispute that if the Mareva injunction were discharged the disputed funds would be removed from the jurisdiction. Although there was a risk of injustice to Mr and Mrs Narain if the funds were frozen (because they would be denied the use of their money for a period) the overall interests of justice favoured Mrs Shaw and the Mareva injunction was continued.[14] In Allen v CIR the Court of Appeal posed the following question:9What if the third party owes the defendant money and has assets within the jurisdiction against which that debt can be enforced? Is it appropriate to use a Mareva injunction to freeze those assets within the jurisdiction?[15] The Court observed that if the third party is closely associated with the defendant, the defendant may be able to preclude later effective enforcement of any judgment simply by removing the underlying asset from the jurisdiction of the New Zealand courts. In such circumstances the Court concluded that "it may verywell be fair and reasonable to make orders which ensure that the assets which underlie and underpin the value of any debts owed to the defendant remain under the control of the New Zealand courts".[16] The Court noted that many of the cases involve defendants who have sought judgment-proof status:106 Shaw v Narain [1992] 2 NZLR 5447 Allen & Anor v Commissioner of Inland Revenue (2004) 21 NZTC 18, 718 (CA).8 At 548.9 At [108].Assertions of such status often do not withstand scrutiny when all the facts are known. Underpinning that status may be transactions which are intended to defeat creditors and are voidable under s 60 of the Property Law Act 1952 or are able to be set aside under insolvency legislation. There seems to us to be no reason why assets which are potentially subject to such claims should not be the subject of a Mareva injunction.[17] The Court further observed that third parties who have become mixed up in adefendant's attempt to defeat execution of any later judgment are likely to receivescant sympathy in the context of a freezing order application.The evidence relating to the assets held on trust[18] Mr Baird is Mr Finch's accountant. He filed an affidavit in support of Mr Finch's opposition to the freezing order application. Mr Baird's evidence was that the Parnell property was acquired by the trustees of the Lesley Larson Family Trust ("Trust") "more than five years ago". He provided a copy of a sale and purchase agreement dated 2 December 2005. He further deposed that the trustees were registered as the fee simple owners of the property on 9 April 2008 and attached a copy of the certificate of title to verify that. Mr Baird further deposed that the property had recently sold (on 26 April 2013) and that:There is no debt owed to the defendant by the Trust. The only liability of the Trust was to the ANZ bank.[19] In relation to the 200 shares in AOG Holding Limited, Mr Baird deposed that these are held by Mr Finch on trust for the beneficiaries of the Trust.[20] Given that no accounts or other financial records of the Trust were provided I expressed some concern during the hearing that this case may fall within the category of cases the Court of Appeal were referring to in Allen v CIR, where the Court observed that assertions by a defendant of "judgment proof" status (because all relevant assets are held in trust) often do not withstand scrutiny when all the facts are known. As the Court further observed in that case, underpinning any "judgment proof" status may be transactions which are intended to defeat creditors. The Court concluded that there was no reason why assets which are potentially subject to such10 At [109].claims should not be the subject of a Mareva injunction (now called a freezing order).[21] Mr Finch accordingly offered to file further evidence, subsequent to the hearing, to address this concern. He did so and Medtronic was given an opportunity to comment on that further evidence. Ultimately three further short affidavits were filed by or on behalf of Mr Finch (one from Mr Baird and two from Mr Finch). Mr Baird's further evidence was that, to his knowledge, there have never been anyloan or gifts made by Mr Finch to the Trust (apart from the initial $100.00 settlement). Conversely, there has never been any debt owed by the Trust to Mr Finch.[22] Mr Finch's evidence was that:(a) He has never made any loan or gift to the Trust, apart from the initial $100.00 settlement. There is not now, and never has been, any debt owing to him by the Trust.(b) He did not contribute at all to the Trust's purchase of the property in Parnell. The acquisition of that land and the construction of the residential dwelling upon the land were wholly funded by a loan to the Trust from the ANZ Bank.(c) He has not paid mortgage instalments on the loan to the Trust, save for the period following the liquidation of the company on 24 August 2011 when he paid the mortgage interest for a few months in exchange for occupying the property.(d) The loan was paid by the Trust, funded by monthly deposits of $15,000 from the Company. From time to time the Trust increased the mortgage to repay the Company for the payments it made on behalf of the Trust.(e) He did not pay anything for the shares in AOG Holding Limited. The shares have been held by the Trust since 2007. There is no debt owing to Mr Finch.Discussion[23] The purpose of a freezing order is to prevent a defendant from disposing of his or her assets so as to frustrate the process of the Court by depriving the plaintiff of the fruits of any judgment obtained in the action. In some cases freezing orders will also be made in respect of third party assets or assets held on trust. In such cases however the orders are made because of an apparent link between the defendant and the relevant assets. Examples include where a third party owes the defendant money, or where it is arguable that although assets are held on trust the defendant may have some form of ongoing interest in the trust assets (for example because there is a debt owing by the relevant trust to the defendant).[24] In light of the further evidence that has been filed in this case, however, Mr Finch does not appear to have any identifiable interest in the assets of the Trust. If Medtronic were to succeed at trial there is no basis, currently apparent, on which it could enforce that judgment against the assets of the Trust. The evidence is that Mr Finch has never made any loans or gifts to the Trust. Apart from a relatively brief period following liquidation of the Company, Mr Finch did not meet the Trust'smortgage obligations in respect of the Parnell property. Rather, the mortgage payments were met by the Company. There is no evidence that Mr Finch has anypersonal interest in the Trust's assets, other than perhaps as a discretionary beneficiary. In such circumstances there is no proper basis for continuing thefreezing orders over the Trust's assets.Result[25] I discharge the current freezing orders, as set out at paragraphs [3] to [10] of my Minute of 24 April 2013, in respect of the following assets:(a) the net proceeds of sale of the real property situation at 22A Brighton Road, Parnell, to the extent of $1,080,633.08;(b) the 200 shares in AOG Holding Limited held in the respondent'sname.[26] The freezing orders, as set out in my Minute of 24 April 2013, in respect of the following personal assets are extended, until further order of the Court:(a) all money in bank accounts in the respondent's sole name held byANZ Bank Limited (and formerly National Bank of New Zealand Limited).[27] Costs are reserved.____________________________Katz J