NZ MINT LTD v GREYS AVENUE INVESTMENTS LTD [2016] NZHC 2165

NZ MINT LTD v GREYS AVENUE INVESTMENTS LTD [2016] NZHC 2165 [13 September 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-001747[2016] NZHC 2165BETWEEN NEW ZEALAND MINT LIMITEDPlaintiffAND GREYS AVENUE INVESTMENTSLIMITEDDefendantHearing: 25 August 2016Appearances: A R B Barker for the PlaintiffS McAnally and B Hojabri for the DefendantJudgment: 13 September 2016JUDGMENT OF HINTON JThis judgment was delivered by me on 13 September 2016 at 4.00 pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarCounsel/Solicitors:Andrew Barker, Barrister, AucklandKeegan Alexander, Auckland[1] In what circumstances should a party who has breached timetable orders and been debarred from defending, be allowed back in?[2] In this case, the defendant had been debarred and the substantive proceeding set down for a formal proof hearing. The defendant then applied to rescind the debarring order.[3] At the plaintiff's request, it was agreed that the formal proof hearing shouldbe vacated and the defendant's application for rescission (and extension of time)heard in its place. The rescission application is the subject of this judgment.Background[4] The defendant is the plaintiff's landlord in respect of a number of floors of a property at 48 Greys Avenue, Auckland City. The plaintiff is suing the defendant for a breach of a clause in the lease prohibiting a transfer of the shares in the defendantwithout the plaintiff's consent. The clause states that its intent is that the effectiveownership and/or control of the landlord company is not to be varied while the tenant has the right of first refusal in relation to the property, as set out in the lease.[5] As I understand it, there is no dispute that the no-transfer clause was breached. The real area of contest is the consequence flowing from that breach. The plaintiff seeks, inter alia, an order that the property be transferred to it on certain terms as to calculation of payment.[6] On 20 August 2015, very shortly after this proceeding was filed, the defendant applied to strike out the plaintiff's claim on the grounds that there is noarguable cause of action; the remedies sought are untenable; and that the plaintiff acted frivolously in commencing the proceeding.[7] By decision dated 13 November 2015, Edwards J declined the defendant's application, finding the plaintiff's case was reasonably arguable.[8] The first case management conference was held on 8 March 2016. Timetable orders were made by consent, requiring the parties to exchange affidavits of documents, together with electronic discovery, by 8 April 2016. The matter was set down for a five-day trial commencing 21 November 2016.[9] On 8 April 2016, the plaintiff served its affidavit of documents. The defendant did not.[10] On 4 May 2016, Keegan Alexander, solicitors for the defendant, were granted leave to withdraw as solicitors on the record, having served statutory demands for unpaid legal fees back on 11 April 2016.[11] The defendant did not appear in the Duty Judge list on 19 May 2016. Lang J gave the defendant a further opportunity to meet its discovery obligation by 7 June 2016, saying:In the event that the defendant has not taken any step to comply with the directions, it is likely to be debarred from defending the proceeding further.[12] The matter was called again in the list on 9 June 2016. The defendant had still not met the discovery timetable order. Brewer J made interlocutory orders that the defence be struck out and the defendant debarred from defending the application. Brewer J noted that there was no appearance by or on behalf of the defendant in the call of the case that morning, but that the Registry had received an email from a Mr Coupe, principal of the defendant, saying he was in Singapore but would respond"to the plaintiff's documents in detail next week". Mr Coupe confirmed that the defendant intended to defend the proceedings. Mr Barker drew to the Court'sattention a further email from Mr Coupe earlier that morning, which said in part:Due to commitments made prior to these proceedings I cannot afford a representation at present. This will be the third proceeding within 18 months with NZ Mint and the costs are getting excessive. I can provide any discovery items required myself to the court and will appoint representation in August.[13] Brewer J noted that the flow of a case through the Court must be at the pace directed by the Court and not at the pace which might suit individual litigants, adding:In this case, the defendant has been given more than one chance to make good its default. It has not made good its default and, as I read the emails of Mr Coupe, no real assurance is given that the default will be remedied within a reasonable period of time.[14] The 9 June 2016 Minute of Brewer J was forwarded by the Court to the defendant on 9 June 2016, such that the time limit for the application to rescind expired around mid-June.[15] The proceeding was set down for formal proof, to be heard on 25 August 2016.[16] On 12 August 2016, a Mr Colin Douglas Theyers, by then director of the defendant, filed a notice of change of representation and address for service of the defendant. The solicitor for the defendant was again noted as Mr McAnally of Keegan Alexander.[17] On 19 August 2016, only six days before the formal proof hearing, the defendant filed this application for an order rescinding Brewer J's orders, and extending time to bring the application.The defendant's application[18] The defendant's application for rescission is made under r 7.49 of the High Court Rules. It provides:7.49 Order may be varied or rescinded if shown to be wrong(1) A party affected by an interlocutory order (whether made on a Judge'sown initiative or on an interlocutory application) or by a decision given on an interlocutory application may, instead of appealing against the order or decision, apply to the court to vary or rescind the order or decision, if that party considers that the order or decision is wrong...(3) Notice of an application under subclause (1) must be filed and served,—(a) if it is made by a party who was present or represented when the order was made or the decision given, within 5 working days after the order was made or the decision was given:(b) if it is made by a party who was not present and not represented, within 5 working days after receipt by the party of notice of the making of the order or the giving of the decision, and of its terms.(4) The application does not operate as a stay unless a Judge so orders.(5) Unless a Judge otherwise directs, the application must be heard by the Judge who made the order or gave the decision.(6) The Judge may,—(a) if satisfied that the order or decision is wrong, vary or rescind the order or decision; or(b) on the Judge's own initiative or on the application of a party,transfer the application to the Court of Appeal.[19] Rule 7.49 provides an alternative to appealing an interlocutory order to the Court of Appeal, and, although not apparent on the face of the rule, it has been interpreted to cover a wide variety of circumstances.[20] The rule is typically engaged:1(a) when there was not full argument at the initial hearing;(b) if some relevant point of evidence was overlooked;(c) if there has been a material change of circumstances; or(d) some other special circumstance has arisen.[21] The grounds upon which the defendant's rescission application is made are that:(a) Brewer J's orders were made when the defendant was not legallyrepresented, and was unable to secure alternative legal representation.1 See Carter v The Coroner's Court at Wellington [2015] NZHC 2998 at [11].(b) There has been a material change in the defendant's position in terms of its directorship (Mr Theyers has replaced Mr Coupe) and ability to obtain and retain legal representation.(c) The overall interests of justice favour the defendant's applicationbeing granted because there is a tenable defence, and (other than delay) there is no prejudice to the plaintiff if the application were granted.[22] In terms of the extension of time, the defendant says that the breach of time limit was not excessive and, in light of the explanation given, was reasonable.[23] In an affidavit dated 19 August 2016, Mr Coupe explains that the defendant was represented by Keegan Alexander during the early stages of this proceeding, including filing a defence for the company; representing it at the strike-out hearing and at the first case management conference. The defendant was also a party to six other proceedings last year, three of which involved the plaintiff and were ongoing at the same time. During all of this, the defendant was unable to pay legal costs and became heavily indebted to Keegan Alexander. Mr Coupe explains:What led to the parting of the ways that caused [the defendant] to be unrepresented in this proceeding was my failure to take steps to insist that Keegan Alexander were paid first and buying time with it by only, at any given time, letting them know part of the picture of just how dire [thedefendant's] situation was. In particular, in early 2016 as they pressed forpayment I told them I would be able to take out a second mortgage that would be more than sufficient to cover accrued costs and those going forward. I passed on the email communications I had with the company that was exploring the possibility of being that second mortgagee but did not inform [Keegan Alexander] when those negotiations started falling apart. Instead I asked for a statutory demand to be served in respect of the outstanding legal costs. My intention was to take that to the BNZ to try and secure some cash flow from it to meet these kinds of costs.The plan backfired completely. The statutory demand was served and BNZwas not prepared to advance further funds The statutory demand expiredand Keegan Alexander terminated its retainer with [the defendant] and applied to be removed as its solicitor liquidation proceedings werebrought not long afterwards by Keegan Alexander.[24] Mr Coupe says he "never gave up on the hope" of being able to payKeegan Alexander legal costs and "to persuade them" to resume acting for thedefendant. Between May and August 2016, payments were apparently made which fully satisfied the debt owing and liquidation costs.[25] Mr Coupe adds:Turning to this proceeding, I fully accept that my emails to the Court were not helpful as was the decision not to obtain alternative representation while things with Keegan Alexander were sorted out It was not my wish to be obstructive and, again, if that has been the effectthen for that too I apologise. The bottom line, however, is that I did not know how to deal with the Court issues without representation, had been told I could not represent the company in the High Court as its director in any case and was completely out of my depth and, if nothing else, needed to buy sufficient time to try and achieve the goal outlined above.[26] Mr Coupe confirms that the state of affairs has changed since Brewer J'sorders were made. He resigned from his directorship on 5 August 2016 because of the possibility of being banned from acting as a director due to his having personally faced a prosecution and because he was not capable of managing the defendant.[27] By an affidavit dated 17 August 2016, Mr Theyers confirms he is now the sole director of the defendant company and has been since 5 August. He is a professional director and is not known to Mr Coupe personally. Mr Theyers says he believes the defendant company has been mismanaged. He says he re-engaged solicitors to represent the defendant in this proceeding "armed with comfort" he received from BNZ that he has "the bank's full support" and based on his ownassessment of the company's cash flow.Should the Court rescind the orders of Brewer J?[28] Mr Barker, for the plaintiff, submits that the application must be declined. He says that Lang J's Minute of 19 May 2016 was analogous to an "unless order"and the same principles should apply.[29] He points to the now settled law that the setting aside of unless orders will be allowed only in very limited circumstances, referring to the Court of Appeal decisionof SM v LFDB.2 In particular, where an unless order has been deliberately breached, or flouted, it would be a very rare occurrence for relief to be granted, notwithstanding belated compliance with the order.[30] However, there was no actual "unless order" made by Lang J and so the approach to an unless order is not directly applicable here. An unless order has to be clear and unambiguous. The defendant was not on clear notice here of the consequences of default.[31] However, I agree with Mr Barker that, for similar reasons to those applicable in SM v LFDB, a party who has been struck out for default, nonetheless has a high hurdle to overcome to rescind that order. This is a matter of public interest, as much as the interests of the injured party. Orders of the Court have to be taken seriously. If they are not, the justice system is frustrated.[32] I have decided, by a narrow margin and on conditions, to allow the applications for extension of time and for rescission of the orders of Brewer J in this case. The defendant was not represented in the Duty Judge list on 19 May 2016 or on 3 June 2016, and was not on clear notice that no further time would be allowed. The defendant says, and I have to accept, that it had real funding difficulties and therefore no lawyer at the time. It had been told it could not self-represent. The application to strike out was made orally, following a relatively short history of default, rather than the long history of default that typically precedes a debarring order.3 There is also, arguably, a change in circumstances in terms of renewed ability to pay and hence re-engagement of the defendant's solicitors. A delay of two months is not inordinate in this context.[33] I also consider it significant that the defendant is genuine in its defence and put material and timely resources into that defence, up to the fallout with its solicitors. I consider it relevant also that the pleaded consequences of the breach could be serious for the defendant and that the parties are apparently engaged in2 SM v LFDB [2014] 3 NZLR 494, [2014] NZCA 326 at [31]. See also Ko v Ko (2000) 14 PRNZ 362 (HC).3 In both Ko and SM v LFDB, above n 2, the Courts commented on the long history of breaches of timetable and other orders.litigation battles beyond this one. The defendant did not just take no steps at all. He wrote to the Court, albeit ineffectually and discourteously. This is not a case of adefendant who is "playing some protracted game of chicken with the court".4[34] Further, while the plaintiff is undoubtedly prejudiced by the delay, I do not consider the plaintiff has established special prejudice, in terms of the alleged effect of delayed investment decisions.[35] I should add that I do not agree with the defendant that a change in directorship, or the personal problems of a particular director, are relevant. That would give a corporate defendant a greater armoury of excuses than an individual. A company has to stand or fall on the actions of its directors at any one time. Much of the defendant's affidavit evidence is therefore irrelevant.[36] I also agree with Mr Barker that, again drawing an analogy with the "unless order" cases, the defendant should have come to Court armed with its list of documents so that it was, at the very least, in a position to immediately remedy its default. It is highly unsatisfactory that discovery by the defendant, due in April 2016, should, in September 2016, still be outstanding.Indemnity costs[37] In the course of submissions, Mr Barker sought indemnity costs from the date of the appearance before Lang J on 19 May 2016 through to and inclusive of this hearing.[38] In this sort of case, indemnity costs are clearly appropriate.5[39] The plaintiff has been significantly inconvenienced and should not have to incur extra costs, just because in effect, the defendant did not have sufficient funding at an earlier point, and therefore failed to comply with Court directions. While, in terms of the present application, the defendant has succeeded, the plaintiff acted with entire justification in opposing the application; the outcome was marginal and it is an4 To borrow from Ellis J in SM v LFDB [2013] NZHC 3150 at [10].5 High Court Rules, r 14.6.indulgence.6 Mr Barker advised that the plaintiff's costs to 19 August 2016, the date of filing of the rescission application, totalled $5,415.53. Mr McAnally, while opposing indemnity costs, had to acknowledge that quantum was more than reasonable. The plaintiff is to notify Mr McAnally immediately of its further actual costs, from 20 August 2016 down to, and inclusive of, this hearing, to be calculated on the same hourly basis as the $5,415.53 sum.[40] Given the marginal nature of this decision and my wish to ensure there are no repeated defaults occurring at the defendant's convenience, and at the inconvenience of the plaintiff and the Court, I am imposing conditions on the reinstatement of the proceeding. I add that I expect the defendant's list of documents to be thorough.[41] I therefore order as follows:(a) The orders made by Brewer J on 3 June 2016 are rescinded on the condition that the defendant must, by 28 September 2016, file and serve an affidavit of documents (and provide those documents electronically), and pay costs to the plaintiff on an indemnity basis for the period from 19 May 2016 up to and inclusive of 13 September 2016.(b) The substantive proceeding is set down for a five-day hearing commencing Monday, 1 May 2017.(c) Counsel are to confer on and agree a timetable up to the hearing.(d) The matter is to be placed in the Duty Judge list on 3 October 2016, to monitor compliance and resolve any timetable issues.------------------------------------------------Hinton J6 See Cunningham v Butterfield [2014] NZCA 213 at [52]. See also, High Court Rules, r 14.1.