MUNFORD v M R & L E MUNFORD LIMITED [2019] NZHC 1192

MUNFORD v M R & L E MUNFORD LIMITED [2019] NZHC 1192 [29 May 2019]IN THE HIGH COURT OF NEW ZEALANDPALMERSTON NORTH REGISTRYI TE KŌTI MATUA O AOTEAROATE PAPAIOEA ROHECIV-2018-454-92[2019] NZHC 1192BETWEEN MICHAEL RICHARD MUNFORDPlaintiffAND M R & L E MUNFORD LIMITEDFirst DefendantHAYDEN TRAVIS RANKINSecond DefendantJANARA NZ LIMITED andJANARA ENTERPIRISES LIMITEDThird DefendantsCounsel: J Mahuta-Coyle for plaintiffJ Grace for first second and third defendantsJudgment: 29 May 2019JUDGMENT OF ASSOCIATE JUDGE JOHNSTON[On the papers][1] The background of this litigation and the contentions of the parties werecanvassed in my interim judgment dated 1 April 2019.1 That interim judgment shouldbe read together with this final judgment. I do not propose to reiterate the backgroundhere.[2] The Court is, or rather was, being asked by the plaintiff to make an orderprecluding the same solicitors and counsel from acting for both the second defendant,Mr Hayden Rankin, and the first defendant, M R & L E Munford Ltd, essentially onthe basis that their interests conflict.1 Munford v M R & L E Munford Ltd [2019] NZHC 636.[3] In my interim judgment, I concluded that there was no reason why Mr Rankinand the company should not be represented by the same solicitors and counsel inrelation to what I identified as the first and second limbs of the claim (pleaded in thefirst, second and third causes of action), but that their interests conflicted in relation tothe third limb of the claim (pleaded in the fourth cause of action).[4] Rather than make a blanket order precluding the same solicitors and counselacting for Mr Rankin and the company, I suggested that another approach might be forthe first and second limbs of the claim to be severed and go to trial, leaving the thirdlimb to be resolved if necessary at a later stage.[5] Because that was not something that was explored during the course of thehearing, I invited counsel, Mr Mahuta-Coyle for the plaintiff and Mr Grace for thedefendant, to provide further submissions on that point.[6] They have done so by memoranda.[7] For the plaintiff, Mr Mahuta-Coyle opposes any order for severance. Hesubmits that the causes of action that make up the first and second limbs of the claiminvolve allegations by the plaintiff against Mr Rankin rather than the company andtherefore that the company need not be represented. He then submits that in any eventthe company is not in a position to engage solicitors to act for it in this litigation. Inrelation to this his contention is that the organ of the company with authority to engagesolicitors is the board, the board consists of two directors, Mr Munford and Mr Rankin,and that, as they have directly opposing interests, the board is deadlocked.[8] On those bases, Mr Mahuta-Coyle contends that the company's resourcescannot be expended to meet the costs of this litigation.[9] Mr Mahuta-Coyle continues:22 the plaintiff asks the Court to resolve the interlocutory applicationpresently before it by making the following [slightly] amended orders:22.1 an order that the second defendant's solicitors andcounsel cease taking steps in the litigation on behalf of thefirst defendant company; and22.2 an order that the second defendant account to the Courtand to the first defendant for any monies hitherto used for thesecond defendant's legal representation in relation to theseproceedings, but that were provided by the first defendant orpaid from its accounts.23 If the Court is not minded to resolve the application as the plaintiffcontends, the plaintiff opposes an order of severance, and withdrawsany opposition to the continuation of the defendants' existingrepresentation arrangements.[10] On behalf of Mr Rankin, the company and the third defendants, Mr Gracesupports the severance of the third limb of the claim from the first and second. Hesubmits that severance would enable J H West and him to continue to act for bothMr Rankin and the company in relation to the first and second limbs.[11] Mr Grace submits that whilst it may be correct that the plaintiff makes noallegations against the company in the first and second limbs of his claim, the companynevertheless has an interest in the outcome of those claims because they concerncompany property.[12] Insofar as the first and second limbs of the claim are concerned, the view I takeis that the important point is not so much against whom the plaintiff levels anyallegations of wrongdoing but rather whether the company — as opposed toMr Rankin — has an interest in the outcome. Clearly it has. If the Court were toconclude that the plaintiff had made out the first and second limbs of the claim, oneoutcome of this would be to denude the company of a substantial asset, that is to saythe property at 92 Tararua Road.[13] Turning to the ability of the company to engage solicitors and participate in thelitigation, I should first say that the argument now advanced by Mr Mahuta-Coyle onthe plaintiff's behalf that the company is deadlocked at board level is not one thatreceived any attention in the affidavit evidence or was advanced in argument at theoriginal hearing on 18 March 2019.22 There was one sentence in Mr Mahuta-Coyle's written submissions dated 11 March 2019 thatquestioned how the company could have resolved to instruct lawyers at all, but the matter was notexplored beyond that.[14] In those circumstances, I do not think it would be appropriate for me to reachany concluded view on the point.[15] I propose to resolve this matter by reference to and in reliance on r 5.36(1)(a)of the High Court Rules 2016. In short, the defendants' solicitors having filed andserved defences, instructed counsel and engaged in the litigation purportedly on behalfof all three defendants, the Court is entitled to assume, without further enquiry, thatthey are authorised to act for those parties.[16] That approach may be open to the criticism that it is artificial in the face of theargument that is now developed by Mr Mahuta-Coyle in his memorandum as towhether J H West (and Mr Grace) could have been instructed by the company.However, in the circumstances, the Court is left with no choice but to approach matterson that basis.[17] It follows that I am not prepared to make the orders now sought by the plaintiffand described in paragraphs 22.1 and 22.2 of Mr Mahuta-Coyle's memorandumquoted above.[18] In those circumstances, Mr Mahuta-Coyle says that the plaintiff withdraws hisoriginal application.[19] However, that leaves two points unresolved.[20] First, although I have relied on r 5.36(1)(a) to resolve the immediate questionbefore the Court, that does not deal with the underlying issue of whether or not J HWest (and Mr Grace) have been properly instructed by the company. As I see it, thatis a matter for them to consider. If it transpires that the company has not instructed JH West (and Mr Grace), then there will certainly be ramifications in terms of whetherthe company's resources have been or can be properly expended in defending thisclaim.[21] Second, even if the company is in a position to and has engaged J H West toact for it in this litigation, the difficulty I referred to in my interim judgment thatMr Rankin's interests and those of the company conflict in relation to the third limbof the claim means that the same solicitors and counsel cannot act for both parties inrelation to that issue. As I see it the only practical option is therefore to order theseverance of the third limb of the claim from the first and second, and I make such anorder pursuant to r 10.15 of the High Court Rules.[22] The Registrar is to liaise with counsel to arrange a case managementconference to deal with any outstanding interlocutory matters, set the first and secondlimbs of the proceeding down for trial and make any necessary pre-trial directions.[23] Costs are reserved. If counsel are unable to resolve costs — as the Court wouldexpect them to be able to do — they may come back to me by memorandum.Associate Judge JohnstonSolicitors:Integra Law Ltd, Paraparaumu for the plaintiffJ H West, Paraparaumu for the first, second and third defendants