LAND TRUST LIMITED v WAM PROPERTY LIMITED [2019] NZCA 573

LAND TRUST LIMITED v WAM PROPERTY LIMITED [2019] NZCA 573 [20 November 2019]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA425/2019[2019] NZCA 573BETWEEN LAND TRUST LIMITEDFirst AppellantSTEPHEN ROBERT KELLY andCITILOFTS (TRUSTEE) LIMITED ASTRUSTEES OF THE 44 KEMPTHORNETRUSTSecond AppellantsWESTMINSTER FINANCIAL SERVICESLIMITED as trustee of The 44 KempthorneTrustThird AppellantAND WAM PROPERTY LIMITEDRespondentHearing: 8 October 2019Court: Brown, Simon France, Hinton JJCounsel: M G Locke for AppellantsD K Wilson for RespondentJudgment: 20 November 2019 at 12.30 pmJUDGMENT OF THE COURTA The appeal is allowed.B The order made in the High Court refusing to reinstate the appellants' claimis quashed; the claim is reinstated and the orders of Whata J are alsoquashed, subject to the conditions set out below.(i) The appellants are to pay security for costs to the Registrar of theHigh Court at Auckland in the sum already ordered of $35,000,within one week of the date of this judgment.(ii) The appellants are to pay further security for costs into the High Courtin the sum of $35,000 within three weeks of the date of this judgment,unless they confirm in writing before then that their claim is limitedto return of the deposit, interest and costs. In that event, the furthersecurity is reduced to $20,000, inter alia to reflect a reduction inestimated hearing time from four to two days.(iii) The appellants must ensure that the trust has validly appointedtrustees within four months of this judgment, obtaining an order fromthe High Court if necessary.C If any of these conditions is breached, the claim is dismissed and the ordersof Whata J reinstated.D Costs on the appeal are to lie where they fall.____________________________________________________________________REASONS OF THE COURT(Given by Hinton J)[1] The appellants breached an unless order, resulting in dismissal of their claim.In a Minute dated 23 August 2019 Associate Judge Bell refused their interlocutoryapplication for reinstatement.1 The appellants appeal against that refusal.Background[2] The first appellant agreed to purchase the respondent's Eden Terracecommercial property at a price of just over $6 million. It then nominated the second1 Land Trust Ltd v WAM Property Ltd HC Auckland CIV-2017-404-1014, 23 August 2019[Reinstatement decision]. We use "appellants" throughout this judgment to refer principally tothe first and second appellants, who were involved in this litigation from the beginning.appellants, the trustees of The 44 Kempthorne Trust, as purchasers. A deposit of$600,000 was paid and several extensions of time for settlement agreed.[3] On 8 June 2016 the appellants gave notice to cancel the agreement on the basisof an alleged misrepresentation by the respondent's agent that the property had46 carparks when only eight had legal access.[4] On 23 June 2016 the respondent gave notice to cancel the agreement on thebasis of the appellants' non-compliance with its settlement notice. The respondentsays that the first appellant bought with knowledge of the carparking issue and theappellants' notice to cancel was invalid.[5] To enable the respondent to on-sell, its solicitors undertook to hold the sum of$600,000 in trust "pending determination of the substantive claim" and the appellantslifted a caveat lodged by them.[6] The appellants issued this proceeding in May 2017, claiming return of thedeposit, wasted expenditure and loss of development profit. The respondentcounter-claimed for forfeiture of the deposit and damages for loss on re-sale.[7] Mr Kelly was the sole shareholder of the first appellant anda trustee/beneficiary of the trust. On 31 October 2017 Mr Kelly was adjudgedbankrupt. A few weeks later, Associate Judge Bell issued a Minute in which theappellants were given until 28 February 2018 to organise themselves and appoint freshdirectors and trustees.2 At a further case management conference, they were givenmore time to obtain representation.3[8] A hearing to fix security for costs was scheduled for 29 October 2018.However, counsel filed a consent memorandum agreeing security in the sum of$35,000. Somewhat surprisingly that was not to be paid into Court until the close ofpleadings date, which was 17 June 2019. The parties also agreed directions through2 Land Trust Ltd v WAM Property Ltd HC Auckland CIV-2017-404-1014, 24 November 2017.3 Land Trust Ltd v WAM Property Ltd HC Auckland CIV-2017-404-1014, 10 April 2018 perAssociate Judge Smith.to trial. Venning J made orders accordingly. The trial was ultimately scheduled forfour days from 9 to 12 September 2019.[9] Security was not paid by 17 June 2019. Lang J issued a Minute extending timeto 31 July 2019.4 He directed that if security was not paid by that date, the appellants'claim would be dismissed and the matter would proceed to trial on the respondent'scounter-claim only. The unless order was made following the appellants' first breachof the security order, but the appellants had been given a long time to pay and thepayment deadline was very close to the hearing.[10] By letter to the High Court dated Saturday 3 August 2019, not received untilWednesday 7 August, Mr Nguy of Jesse & Associates provided an undertaking thatsecurity of $35,000 was held in trust.5 The letter was not forwarded to the respondent.It was brought to the attention of Associate Judge Bell, but as an unless order takeseffect immediately on breach, he issued a Minute recording that the claim had beendismissed.6[11] On 15 August 2019 Associate Judge Bell issued a further Minute givingtimetabling directions for an application for reinstatement. The appellants filed anapplication within time, which was heard on 23 August 2019. By this stage the hearingdate was looming.[12] Associate Judge Bell refused the application to reinstate.7 The 9 Septemberhearing was to proceed in respect of the respondent's counter-claim only, essentiallyby way of formal proof. The appellants enquired of Associate Judge Bell whether theywere therefore precluded from defending the counter-claim. He responded to theeffect that they were.4 Land Trust Ltd v WAM Property Ltd HC Auckland CIV-2017-404-1014, 4 July 2019.5 Inquiries of the Registry subsequent to the hearing reveal the later date of receipt. Jesse &Associates had apparently acted for Mr Kelly, although they were not solicitors on the record inthis proceeding.6 Land Trust Ltd v WAM Property Ltd HC Auckland CIV-2017-404-1014, 9 August 2019.7 Reinstatement decision, above n 1.[13] On 12 September 2019, Whata J made declarations that the respondent hadvalidly cancelled the agreement and was entitled to forfeit the deposit of $600,000.8The appellants appeared at the hearing, but took no part.[14] In the course of a telephone conference before Brown J a few days before the9 September hearing, the parties agreed that the $600,000 sum was not to be disbursedpending determination of this appeal.The decision refusing to reinstate[15] Associate Judge Bell began by considering Mr Kelly's position as anadjudicated bankrupt and the fact that Citilofts (Trustee) Ltd, one of the trusteeappellants, had been removed from the Companies Register. He then observed that ifhe were to reinstate the proceeding, he was not confident that a fair trial would bepossible on 9 September 2019. The earliest available alternative date he had beenprovided with was October 2020. The Associate Judge said "a worrying factor overall this is Mr Kelly's bankruptcy" and that Mr Kelly was acting in breach of therestrictions under s 149 of the Insolvency Act 2006.9 He referred to the public interestin ensuring that justice is administered without unnecessary delay and the hardship tothe injured party in terms of delay and wasted costs. The Associate Judge madepassing reference to the appellants' submission that it is a strong call to deny a partya hearing on the merits, and then concluded that he was not satisfied it wasan appropriate case for reinstatement.10The relevant law[16] Relevant principles can be drawn from this Court's decision in SM v LFDB:11[31] (d) Justice may require that the party in default be relieved of theconsequences of the unless order where the Court is satisfiedthat the breach resulted from something for which that party8 Land Trust Ltd v WAM Property Ltd [2019] NZHC 2292.9 Reinstatement decision, above n 1, at [13].10 At [14]–[15].11 SM v LFDB [2014] NZCA 326, [2014] 3 NZLR 494.should not be held responsible. The party should not assumethat belated compliance will suffice.(e) Where the unless order has been deliberately breached – thatis, flouted – it is difficult to conceive of any situation wherethe interests of justice would require granting the flouter relieffrom the sanction imposed, notwithstanding belatedcompliance with the order.(f) In deciding whether or not to excuse breach of an unless orderthe question for the Judge is: what does justice demand in thecircumstances of this case? Considerations in answering thatquestion include:(i) The public interest in ensuring that justice isadministered without unnecessary delays and costs.(ii) The interests of the injured party, in particular interms of delay and wasted cost.(iii) Any injustice to the defaulting party, although thatconsideration is likely to carry much less weight inthe circumstances than considerations (i) and (ii).Analysis[17] SM v LFDB was a different category of case to this one. It involved a deliberateflouting of an unless order to pay costs, in the context of a history of failure to complywith earlier orders. The High Court had erred in treating belated payment of costs inthose circumstances as purging the contempt. The Judge had also erred in taking intoaccount the potential procedural difficulties of a trial without the respondent'sparticipation.[18] In this case there was some history of failure to comply with earlier orders, butnot in the league of SM v LFDB. While time has clearly been lost as a result of delays,this litigation (which has been on foot since May 2017) has not been unduly protracted.[19] This is also not a case of a deliberate flouting of the unless order. To someextent the breach is explained by serious health concerns of people close to Mr Kellyand to the solicitor formerly acting for the appellants. The extent of the excuse islimited, given that these circumstances seem to have prevailed or been reasonablyknown at the time of the default in payment in June 2019. The predominant reasonfor non-compliance seems to have been ineptitude and delay on the part of Mr Kelly,and no doubt great difficulty in raising funds, which is understandable in thecircumstances.[20] We note that when the breach was remedied, the appellants purported to do soin different terms to the order. This was unimpressive. However, the breach wasremedied, at least in substance, within about a week of the deadline. We have topresume Mr Nguy's undertaking was sound.[21] We note also that when we discussed with counsel the feasibility of an increasein security, if ordered, and dates for payment, Mr Locke candidly advised that Jesse &Associates were no longer holding funds. While permissible given the claim had beendismissed, this was an unwise step in a context where the appellants are seekingan indulgence.[22] By the time the application for reinstatement was heard, it was reasonable forthe Associate Judge to conclude that reinstatement would lead to an adjournment ofthe hearing. Certainly the appellants' then proposed timetable, which gave therespondents three days to file briefs in reply, was unrealistic and unacceptable.[23] However, in the above circumstances, we consider the Associate Judge placedtoo much weight on the likely adjournment and on Mr Kelly's history with the courts,and gave insufficient weight to the overall justice of the case.[24] There is no significant prejudice to the respondent from the delay.The respondent was able to on-sell the property for $5.5 million, within a year afterboth parties gave notice to cancel, by virtue of the agreement reached with theappellants, which included holding the $600,000 deposit in trust. That sum is oninterest-bearing deposit, admittedly at a low rate. The prejudice to the respondenthowever would be substantially remediable by payment of additional costs, whichcould be protected to at least some extent by payment of additional security.[25] On the other hand, the appellants appear to have an arguable claim with respectto the deposit paid by them, and stand to lose a substantial sum if their case remainsdismissed. Whata J in his judgment noted that the appellants may have had a defenceif they were able to submit evidence to support it:12As it was entitled to do, WPL elected to cancel the agreement and to forfeitand retain the deposit for its own benefit. LTL's foreshadowed defence isbased on an alleged misrepresentation about the car parks. Vendor'smisrepresentation provides a proper basis for avoiding a vendor's cl 10.1remedy. But there is no evidence to support either the existence of arepresentation or the failure to meet it.[26] Mr Kelly's history with the courts, his bankruptcy, and the unsatisfactoryposition with the second appellant trust clearly strongly influenced the AssociateJudge. We understand his concerns. It would seem fairly clear that for all practicalpurposes, it is Mr Kelly who is effectively running this proceeding and acting as trusteeof the trust while a bankrupt. Mr Locke advises that the third appellant has beenappointed as sole trustee of the trust. If so, that would seem to have involved Mr Kellyexercising his sole power of appointment while a bankrupt. There are real questionmarks over the legality of some of Mr Kelly's actions.[27] Nonetheless, there are beneficiaries of the trust other than Mr Kelly, and evenif the trust fails, there may still be claims on the part of Mr Kelly's creditors to beweighed up against those of the respondent. We consider the Associate Judge placedtoo much weight on issues regarding the status of the trust, a matter that can beaddressed by suitable conditions. Also, the legality of Mr Kelly's actions can be dealtwith in another forum.[28] Weighing all of these matters, we consider this was a case where reinstatementshould have been allowed, albeit on strict conditions to offset the prejudice to therespondent and ensure proper representation of the appellants.Result[29] The appeal is allowed.12 Land Trust Ltd v WAM Property Ltd, above n 8, at [20] (footnotes omitted).[30] The order made in the High Court refusing to reinstate the appellants' claim isquashed; the claim is reinstated and the orders of Whata J are also quashed, subject tothe conditions set out in [31]–[33] below.[31] The appellants are to pay security for costs to the Registrar of the High Courtat Auckland in the sum already ordered of $35,000, within one week of the date of thisjudgment.[32] The appellants are to pay further security for costs into the High Court in thesum of $35,000 within three weeks of the date of this judgment, unless they confirmin writing before then that their claim is limited to return of the deposit, interest andcosts. In that event, the further security is reduced to $20,000, inter alia to reflecta reduction in estimated hearing time from four to two days.[33] The appellants must ensure that the trust has validly appointed trustees withinfour months of this judgment, obtaining an order from the High Court if necessary.[34] If any of these conditions is breached, the claim is dismissed and the orders ofWhata J reinstated.[35] Costs on the appeal are to lie where they fall. The appellants have succeeded,but this is one of those situations where they have been granted an indulgence andcosts are not appropriate.13 Further, we consider the respondent has acted responsiblythroughout.Solicitors:Ponsonby Law Ltd, Auckland for AppellantsWhaley Garnett, Auckland for Respondent13 Court of Appeal (Civil) Rules 2005, r 53F(g); Holdgate v Holdgate HC Auckland CP303/96,24 September 1996 at 3; Roberts v A Professional Conduct Committee of the Nursing Council ofNew Zealand [2014] NZCA 141, (2014) 21 PRNZ 753 at [24]; and Cunningham v Butterfield[2014] NZCA 213, (2014) 22 PRNZ 521 at [52].