TUBBS V MCKENZIE AND ORS HC CHCH CIV 2005-409-002588

TUBBS V MCKENZIE AND ORS HC CHCH CIV 2005-409-002588 4 February 2009IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY CIV 2005-409-002588BETWEEN STEPHEN JOHN TUBBS Plaintiff AND ELIZABETH JANET MCKENZIE First Defendant AND MICHAEL JOHN MCKENZIE Second Defendant AND CANTERBURY TRUSTEES LIMITED Third Defendant Hearing: 4 February 2009 Counsel: D M Lester for Plaintiff K W Clay for First Defendant Judgment: 4 February 2009JUDGMENT OF FOGARTY J[1] This is an application to set aside a judgment of this Court delivered by me on 18 April, obtained by way of formal proof. That judgment set aside a number of securities and also ordered judgment against each defendant and so including the appellant in the sum of $254,086.62. The application is made in reliance on the High Court Rules, old r 486 – new r 10.9:10.9 Judgment following non-appearance may be set asideAny verdict or judgment obtained when one party does not appear at the trial may be set aside or varied by the court on any terms that are just if there has, or may have been, a miscarriage of justice.[2] The dominant considerations tend to be whether or not the defendant's failure to appear at the trial was excusable, whether the defendant appears to have a substantial ground of defence, or whether the plaintiff would or might suffer irreparable injury if the judgment were to be set aside. [3] The application before me relies on the first and second of those two grounds but principally on the first, arguing that Mrs McKenzie's first notice of these proceedings was when judgment was sought to be enforced against her, contending that she was not served with these proceedings. [4] Mr Lester quite properly conceded from the outset that the fundamental issue is indeed whether or not the defendant was served. He anticipated that if the Court were to find as a matter of fact that service had not been proved then he could not sustain opposition to the setting aside of the judgment. Notwithstanding that there was a second argument effectively run by Mr Lester that even if she was not served, Mrs McKenzie had given instructions to Mr Cousins, the solicitor on the record for the three defendants at the time of formal proof judgment, to the effect that he could act on instructions given to him by her husband, the second defendant, in respect of herself. [5] I should say at the outset that there is no criticism of the receiver's solicitors or counsel in proceeding by way of formal proof. They were faced with firstly a letter dated 2 September from a reputable firm of process servers stating that the proceedings had been served upon Mrs McKenzie as well as Mr McKenzie and they were dealing with a statement of defence filed on behalf of all the defendants, by the firm of Cousins and Associates who had instructed Queen's Counsel and had been dealing with the Queen's Counsel until shortly before the hearing, as is reflected in the judgment following the formal proof hearings. [6] There is no formal affidavit of service on the file. There did not need to be because a statement of defence had been filed. In response to this application an affidavit was filed by a processor server, Mr Ware, in which he deposed that he recalled serving Mrs McKenzie in respect of these proceedings at 764 Colombo Street on the same day that he served Mr McKenzie.[7] The address of 764 Colombo Street was, in December 2005, both the place of business of Mr McKenzie and his residence. He had an office upstairs and on the probabilities he was residing on the premises with his partner, Ms Louise Grey. Mr McKenzie had separated from Mrs McKenzie, the first defendant, in early 2005. [8] Mr Ware's evidence was based on his memory. He deposes in paragraph 2 of his affidavit that he had been unable to locate the firm's original file in relation to the service, this being an affidavit that he swore in August 2008, nearly three years after the date on which he served Mr McKenzie. There is no doubt that he did serve Mr McKenzie. The file of his firm, subsequently located, contains a notification of service form and invoice recording service on Mr McKenzie on 1 December 2005 at 764 Colombo Street. It states the time of service and fills in other particulars. [9] On 2 December Mr Ware's principal, Mr van Beek, wrote to counsel for the liquidator of Empress Abalone Limited advising that both Michael John McKenzie and Elizabeth Janet McKenzie had now been served and saying in the second paragraph:Our Notification of Service for Michael John McKENZIE is attached herewith. You should already have received our Notification of Service in respect of Elizabeth Janet McKENZIE. As you will note, both Michael and Elizabeth McKENZIE were located and served at 764 Colombo Street, being their office premises. They did not reveal their current residential addresses but my enquiries indicate that Elizabeth Janet McKENZIE is currently residing at 78a Watford Street, Papanui, Christchurch. The residential defendant for Michael John McKENZIE remains unknown but I can confirm that he is no longer residing at 3 Kahikatea Lane, Fendalton, Christchurch. We are of the view that they are living apart.Mr van Beek's letter was based on information he had been provided by Mr Ware. [10] On the face of it, that letter of 2 December would suggest that Mrs McKenzie was served at a different time from the time of service of Michael John McKenzie. There is no notification of service in respect of her on the file. If she were served on that day, 1 December, it is most unusual that there be no notification of service, because as I have had occasion to refer to already, the notification of service alsodoubles as a tax invoice, and as Mr Ware explained it it is a basis in short for collecting an additional fee. [11] Mr Ware explained that he would partially complete these notification of service documents before leaving his office to attempt service. For example, on 9 May he set out to serve Mr and Mrs McKenzie in respect of a property law matter at there then address of 3 Kahikatea Lane, Christchurch. He partially filled in the form including against the lines: "Served Personally On" the names of both Mr McKenzie and Mrs McKenzie. But the notification of service on that date has Mrs McKenzie's name deleted because she was not in fact served on that date. She was served two days later and there appears on the file a separate notification of service on her in respect of the same matter. The notification of service in respect of Mr McKenzie for 1 December appears also to have been partially filled out before but whether or not it was filled out only one name is entered, Michael John McKenzie. It would appear that Mr Ware had no reason to expect to find Mrs McKenzie at 764 Colombo Street. He had been trying to serve these proceedings for some time and the fee for service was significantly higher than the normal fee. It included enquiries of $120 as a charge. [12] Mr Ware gave evidence and was adamant that he had served Mrs McKenzie on this occasion. He clearly recalled, and in my view, reliably, the layout of the premises and the fact that he was directed through to a room at the rear of the shop and through some stairs, at the top of which he found Mr McKenzie in an office. Consistent with his affidavit he said that he understood that he had been allowed in this way so that Mr McKenzie could accept service in some degree of privacy. Mr Ware's evidence was that Mr McKenzie then called out to his wife who appeared from another room and he effected service on her. [13] There is room for Mr Ware to be mistaken in two respects: either that he did actually serve papers on this person; and, secondly, whether or not this person was actually Mrs McKenzie. Mrs McKenzie was called by Mr McKenzie "Liz". His new partner at the time was Louise. Mrs McKenzie gave evidence that she was not on good terms with Louise during 2005. Mr McKenzie confirmed this in his evidence. It would be remarkable if she were on good terms.[14] Mrs McKenzie's evidence was that she attended 764 Colombo Street only rarely and usually in the presence of another member of the family and she was adamant that she had never been served. It was her belief that Ms Grey, Mr McKenzie's new partner had been living in the premises starting from the latter part of 2005, so she would have been living there in December. [15] I have given some consider as to the standard of proof that I should be applying in seeking to address the conflict of evidence in this case. There are two possible standards. One is whether or not service has been proved on the balance of probabilities and the other is a standard which reflects the language of the rule as to whether it appears to the Court that there may have been a miscarriage of justice, in other words, in this context, that there may be doubt as to whether or not Mrs McKenzie has been served. [16] I am left, at the end of the hearing of the evidence, with a real doubt as to whether or not these proceedings were served on Mrs McKenzie on 1 December at 764 Colombo Street or earlier as the letter of 2 December suggests. That doubt centres around and is riveted in place by the absence of a notification of service and tax invoice in respect of her. [17] Mr Ware gave his evidence creditably. He is undoubtedly a straight-forward and very experienced processor. I do not wish this judgment in any way to discredit him or his principal, Mr van Beek. But he was asked to recall to his mind this service when neither he nor Mr van Beek could locate the original file. He was doing it from memory some three years later. There is a real possibility that he confused meeting Mr McKenzie's partner on the premises. There is also a possibility that he had in fact served Mrs McKenzie on a date earlier than 1 December as is reflected in the language of the letter of 2 December and that there is some other reason for the absence of a notice of service form. [18] In my view the correct standard of proof to apply is one that there may have been a real possibility that these proceedings were not served and that being the case a real possibility of a miscarriage of justice. I have also taken into account whether or not these concerns can be assuaged by accepting Mr Cousins' evidence, to adegree supported by Mr McKenzie, and indeed by some of Mrs McKenzie's evidence. It is common ground from all three witnesses that Mrs McKenzie attended a meeting in Mr Cousins' office at the end of 2004 by which time I would note that Empress Abalone was in both receivership and liquidation. It is common ground that she was signing a large number of documents in those proceedings and got unsettled or upset during that. The difference in the evidence is that Mr Cousins says that she gave him oral authority to act on the instructions of her husband in all matters relating to these commercial affairs. Mr McKenzie cannot recall that but was not prepared to contradict Mr Cousins and Mrs McKenzie denies it. Mr Cousins did not make a note of the instructions. [19] Whether or not Mrs McKenzie gave those instructions, and I proceed on the basis she may well have done so, in my view it was not appropriate for Mr Cousins to have relied upon them when these proceedings commenced about a year later in 2005, which proceedings not only sought to set aside certain securities but also sought significant sums in damages against Mrs McKenzie personally. The instructions Mr Cousins received were received before the litigation commenced, without Mrs McKenzie having an opportunity to fully understand the ramifications of that, and at a time when she had not separated from her husband. Mr Cousins learned later of the separation and he was acting, therefore, at a later stage on oral instructions, given before the reality of these proceedings and after the couple had separated. [20] These events only serve to add to my disquiet and to increase what may appear to have been a miscarriage of justice. Now I use that phrase "a miscarriage of justice" in a strictly procedural sense. As is obvious from the judgment of this Court which I wrote following hearing the evidence, I was satisfied that the liquidator's claim was meritorious. [21] There is an argument advanced by Mr Clay that some of the information before the Court was erroneous and again that is not criticism of the liquidator but alleging an incomplete set of information available at the time to the liquidator.[22] Whether or not Mrs McKenzie has a meritorious defence is something of which I have no opinion upon and in respect of which I do not express an opinion. I have, to a degree, been invited to examine by Mr Clay whether or not there is an arguable defence, but in a matter of this complexity in my view it is dangerous to do so. But more importantly, in my view, it is a basic principle that a party should be served and given an opportunity to run a defence and then to be judged later on whether the defence is meritorious. For that reason I agree completely with Mr Lester's opening submission that the fundamental issue is service. Given that I now have real doubts as to service I am left with the conclusion that this application must and will succeed in respect of Mrs McKenzie. [23] I now wish to hear from Mr Lester as to whether it follows it should also succeed against the second defendant, Mr McKenzie. My recollection of the judgment and I stand to be corrected, is that the third defendant, Canterbury Trustees, did not oppose judgment. [Discussion with counsel] [24] Mr Lester has confirmed that the third defendant offered no opposition to judgment. In respect of Mr McKenzie I understand he is bankrupt but such are the intricacies of this matter that he may be able to argue, or the Official Assignee argue, that if Mrs McKenzie has a meritorious defence then so does he or his estate. As a precaution then I reserve leave for Mr McKenzie or the Official Assignee to apply to the Court to set aside judgment, but again, to give the liquidator some certainty I would indicate that this Court is unlikely to be receptive to such an application if it is not made within one calendar month of this judgment. [25] I now turn to the question of costs. Mrs McKenzie is entitled to costs but Mr Clay correctly classified them as 2B vis-à-vis himself and the liquidator but there is an issue as to whether non-parties should be responsible for costs in this case. To that end costs are reserved I require counsel to either file a joint memorandum or separate memorandum within one calendar month, either making submissions on costs inter partes or advising and making appropriate applications as the case may be for any non-party to pay costs. In the event of the submissions for costs being interpartes the submissions should be limited to five pages each and drafts exchanged so they are filed simultaneously.Solicitors: Tomlinson Paull, Christchurch, for Plaintiff (Counsel: D M Lester) Kenneth G Marshall, Christchurch, for First Defendant (Counsel: K W Clay)