Lane v Scenic Ocean Limited (in liq) [2011] NZCA 339 (22 July 2011)

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Lane v Scenic Ocean Limited (in liq) [2011] NZCA 339 (22 July 2011)

Last Updated: 26 July 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA535/2010 [2011] NZCA 339

BETWEEN WILFRED ROYCE LANE, AMELIA E URBANO AND SSD TRUSTEE COMPANY LIMITED AS TRUSTEES FOR THE MELAARON FAMILY TRUST Applicants

AND SCENIC OCEAN LIMITED (IN LIQUIDATION) Respondent

Hearing: 19 July 2011

Court: O'Regan P, Glazebrook and Wild JJ

Appearances: W R Lane (by leave, written submissions only) for Applicants R B Hucker and D L S Lang Siu for Respondent

Judgment: 22 July 2011 at 2.30 pm

JUDGMENT OF THE COURT

A The application for an extension of time pursuant to r 43(2) is dismissed.

2. Applicants to pay respondent’s costs of the application as for a standard appeal on a band A basis, with usual disbursements.
   

REASONS OF THE COURT
(Given by Wild J)

[1] Pursuant to r 43(2) of the Court of Appeal (Civil) Rules 2005 the applicants (the Trust) seek an extension of six months to apply for the allocation of a hearing date and to file the case on appeal.
[2] The appeal is against a summary judgment for $354,221.92 entered against the Trust in favour of the respondent (Scenic Ocean) by Associate Judge Christiansen in the High Court at Auckland on 23 July 2010.
[3] The notice of appeal was filed on 20 August 2010, so the six months allowed by r 40(2) for applying for a hearing date and filing the case on appeal expired on 20 February 2011.
[4] The well established, and obvious, considerations in dealing with a r 43(2) application are:

• (a) The reasons why an extension is required. The Court wants to know why a hearing date has not been applied for and the case on appeal not filed within the generous six months allowed.
• (b) The merits of the proposed appeal. The Court wants to satisfy itself that the appeal is genuinely arguable. The Court will not exercise the positive discretion r 43(2) gives it to facilitate a hopeless appeal.

[5] For the Trust Mr Lane explained in his written submissions that an extension of six months is required to enable the Trust to obtain access to the file of a proceeding heard in the High Court of Hong Kong. We understand that Mr Lane seeks the file in order to check whether Questnet Limited, an unsecured creditor of Scenic Ocean, has been paid by way of a dividend received from Scenic Ocean consequent upon a claim or claims made by Questnet against Mr Lane. Mr Lane explains that he believes access to the file will show that Questnet was paid in full and is therefore not entitled to participate in the liquidation of Scenic Ocean, including by having a representative on the committee of its creditors.
[6] Questnet was the creditor who successfully petitioned for Mr Lane’s bankruptcy in Hong Kong. Mr Lane remains a bankrupt, unable to leave Hong Kong. Mr Lane believes Questnet is ill-disposed toward him for reasons he outlined in his submissions.
[7] We accept Mr Hucker’s submission for Scenic Ocean that Questnet’s status as a creditor of Scenic Ocean is irrelevant to the present r 43(2) application, and irrelevant also to this appeal. We cannot see that Questnet’s status has any bearing on the appeal issue: did Associate Judge Christiansen err in entering summary judgment for Scenic Ocean against the Trust? Still less do we see how it assists in explaining or justifying the Trust’s delay in meeting the r 40(2) six month deadline. And, beyond what we have summarised in [5] and [6], Mr Lane does not explain these matters. We are alive to the past litigation between Questnet and Mr Lane, which has come [1]n appeal to this Court.1
[8] Mr Hucker notes that security for the costs of this appeal has not been paid. The Trust cannot apply for the allocation of a hearing date for the appeal until that security has been paid: r 37(2). Mr Lane’s submissions contain an assurance that security will be paid after the Trust has obtained access to the Hong Kong High Court file. We see no reason why the security should not have been paid long ago, if the Trust was in earnest with this appeal.
[9] We turn to the merits of the appeal. In its statement of claim in the High Court Scenic Ocean alleged that the Trust was indebted to it in the sum of $267,486 as at 31 March 2007. Scenic Ocean alleged further that Mr Lane confirmed that indebtedness on or about 21 April 2008.[2]
[10] In its notice of opposition to Scenic Ocean’s application for summary judgment, the Trust responded “that no debt is in fact actually owed to the [respondent], to begin with”.[3] The Trust advanced several reasons for this, primarily that “the monies paid to the Trust was not paid as a loan, but ... for services duly rendered and satisfied by the Trust”.
[11] In an affidavit sworn on 27 October 2009, filed in opposition to Scenic Ocean’s summary judgment application, Mr Lane deposed:[4]

11. On the 6th October 2009, I made enquiries with the Accountants for the Trust and learned that, despite our instructions that this did not represent a loan to the Trust, it was reported and advised this way for reasons which are privileged tax matters. Nevertheless, it is now clear that the Accountants, the Trustees, and more importantly, even the Creditor itself, The Company, by its director, have all confirmed that it is not a loan owed to the Company by the Trust. It appears that as the Liquidators have not been working hand in hand with the Directors of the Company, in their liquidation process, that this suit brought before the Court was unduly influenced by the ‘bias Questnet’ and should be dismissed with judgment against the Plaintiff’s ...

[12] Mr Lane’s reference in that paragraph to confirmation from a director of Scenic Ocean is a reference to a statement he annexed to his affidavit. This statement, addressed “to whom it may concern” and dated 21 October 2009, purports to be by Mrs Sisi Jayati Rinck, a director and shareholder of Scenic Ocean. She states that her role, prior to the liquidation of Scenic Ocean, was management of its day to day operations, including authorising payments to the Company’s creditors and service operators. She then states this:[5]

One such service operator was the Melaaron Family Trust at New Zealand (“the Trust”), whom, as I recall, rendered consultancy services to the company, and were duly paid for their services. I understand that the liquidators for our company are suing the Trust for the recovery of monies that were in fact diligently earned by them and duly paid the Trust, by the Company. No loan was granted the Trust by the company, nor is there any loan agreement to this effect in the company’s records. I am left to assume that the Liquidators, WHO HAVE NOT PROVIDED US WITH ANY PERIODIC REPORTS regarding their liquidation progress, have been misinformed by a unrelated third party.

This statement is signed, but is not in the form of a statutory declaration or affidavit. It is a hearsay statement the admissibility of which was governed by s 18 of the Evidence Act 2006.

[13] In response to an order for discovery the Trust’s accountant, Mr B K Rowe, filed an affidavit in the High Court on 12 May 2010. Mr Rowe deposed to the following sequence of events, annexing to his affidavit the supporting primary documentation from his firm’s records:

• (a) $267,485.83 was deposited into the Trust’s current account with Kiwibank on 22 August 2006.
• (b) On 3 March 2008, in response to a query from Mr Rowe, Mr Lane advised him by e-mail:[6]

1. The NZ$267,485 received in the 01 account on 22/08/07, was the Sponsors loan made to the Trust, from the Sponsor, which was US$173,000. This was an interest free loan, to help us make the most recent property acquisition which settled in October 2006 (see NWS attached for date of acquisition), at 02 Cobham Lane, Whitianga. ...

(c) Mr Lane provided him with a copy of a Sponsorship Agreement between Scenic Ocean (described as “the sponsor”) as one party, and the Trust and Mr Lane as the counterparties. The Agreement is dated 7 July 2006 and provides that the sponsor is to pay $US8,000 per month plus expenses when Mr Lane was on tour for the sponsor,[7] that sum “payable on the last working day of month by way of wire transfer to the designated bank account for the Trust”.[8]
(d) Based on Mr Lane’s advice, Mr Rowe prepared financial statements for the Trust for the year ended 31 March 2007. The statement of financial position showed the loan from Scenic Ocean as a current liability. Mr Lane co-signed that statement of financial position and a resolution of the trustees adopting those financial statements, both on 31 March 2008.
(e) On 5 April 2008 Mr Lane emailed Mr Rowe advising:[9]

By the way, my sponsors have just turned that US$172K loan to the Trust into pre-paid monthly Sponsorship of US$8K, plus US$3K monthly expenses (US$11K total), for the next 15 months from 1/2/08. I suppose this only relates to the 2007/08 period, but letting you know anyhow.

(f) On 6 May 2008 Mr Lane wrote to Mr Rowe advising:[10]

In page 6 of the 2006/07 accounts, there is a liability shown as owing to Scenic Ocean Ltd. Given that Scenic is now in liquidation and given that our bank statements would have not shown funds deposited by Scenic Ocean Ltd, we are not sure as to how the Trust owes them any liability. As they were our Sponsors up to end of Feb 2007, how do monies paid under contract for services rendered by the Trust, becomes a liability of the Trust please?

As advised by email (but could have arrived after you finalised the accounts), the US$172,000. Loan advanced by our sponsors, KORE, has, and became an advance paid sponsorship/earnings of the Trust for 21 odd months effective 1st February 2008 onwards. Hence, although this is not within the 2006/07 period, should it still be listed as a liability owed by the trust? Given that our bankers are presently being rather vigilante, should we not reveal the truthful position? Our email about this also enclosed the written agreement entered into, by the Sponsors confirming this prepayment, which can be sent again if you didn’t receive it.

(g) Mr Rowe concluded from this that the correct accounting treatment of the loan, now converted to an advance “paid sponsorship/earnings of the Trust for 21 odd months effective 1st February 2008 onwards”, was to treat the advance as a liability, reducing at the prescribed monthly rate over 21 months as the sponsored services were provided. Mr Rowe did not agree that the advance payments represented immediate income, and saw no justification to amend the Trust’s financial statements or tax return for the year ended 31 March 2007.
(h) Having begun preparation of the Trust’s accounts for the year ended 31 March 2008 the previous day, on 2 December 2008 Mr Rowe emailed Mr Lane seeking clarification of the $267,486 loan the Trust had received from Scenic Ocean. The same day Mr Lane responded by email:[11]

This is the first I have heard of the payments from Scenic Ocean. This is a company owned by Mr and Mrs Rinck at HK, since put into liquidation and has nothing at all to do with me. I happen to know its his company, as he once [sought] some help from me on some legal matters re this HK Company. Before answering in final and to be sure, may I ask that you carefully itemise, as you did in paragraph (3) of your 2/12/2008 letter, the actual deposits that apparently came in from this HK Company pls.

(i) On 9 December 2008 Mr Rowe emailed Mr Lane giving him full details about the loan from Scenic Ocean.
(j) On 10 December 2008 Mr Lane responded:[12]

Pls note, as earlier advised, that the US$173K has become prepayment of Sponsorship. As you would have seen for the 01 bank statements, Sponsors stopped paying the Monthly sponsorship on or about Feb 2008, and they therefore agreed to convert that to prepayment of Sponsorship. See attachment, which was agreed with the Sponsor, after they stopped the Monthly payments.

(k) Mr Rowe then completed the Trust’s financial statements for the year ended 31 March 2008, increasing the income by bringing in one month’s additional sponsorship at $US8,000 from the Scenic Ocean advance, thus reducing the loan from Scenic Ocean (shown as a current liability in the statement of financial position) to $257,408. Those accounts and a resolution adopting them were both signed by Mr Lane on 25 December 2008.
[14] The Hong Kong High Court made its order winding up Scenic Ocean on 8 August 2007. Mr Lane’s advice to Mr Rowe that his sponsors “have just turned that ... loan to the Trust into pre-paid monthly sponsorship” was on 5 April 2008, some eight months later. That conversion could not have been valid without the liquidators’ approval. Mr Lane does not depose that the liquidators gave such approval. Nothing in evidence before the Associate Judge suggested they had. On the contrary, the affidavit affirmed by one of the two joint liquidators of Scenic Ocean, Mr Bruno Arboit, on 21 August 2009 in support of the application for summary judgment deposed that the Trust owed Scenic Ocean $267,486, none of which had been repaid. The “to whom it may concern” statement we have set out in [12] above suggests that if the conversion had occurred, it was effected by one of Scenic Ocean’s directors. But, as of April 2008, the control of Scenic Ocean had long since passed to the Company’s liquidators, so conversion by a director of Scenic Ocean was ineffective.
[15] The net result is that we cannot see that the matters raised on this appeal provide the Trust with an arguable defence to the summary judgment application by Scenic Ocean’s liquidators. It follows that the appeal lacks merit.
[16] The result is that neither of the two criteria relevant to the exercise of our discretion to extend time under r 43(2) favours the Trust. Accordingly, we dismiss the application for an extension of time. The consequence is that this appeal is now treated as having been abandoned.
[17] Scenic Ocean is entitled to its costs of the application as for a standard appeal on a band A basis, with usual disbursements.

Solicitors:
Hucker & Associates, Auckland for Respondent

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[1] We refer to Lane v Questnet Ltd [2009] NZCA 578, [2010] NZAR 210.
[2] Statement of Claim at [5] and [4] respectively, Case on Appeal Vol 1 at 10.
[3] Case on Appeal Vol 1 at 16.
[4] Case on Appeal Vol 1 at 31.
[5] Case on Appeal Vol 2 at 95.
[6] Case on Appeal Vol 2 at 98.
[7] Mr Lane is an internationally competitive pool player.
[8] Clause 5 of the Sponsorship Agreement, Case on Appeal Vol 2 at 101.
[9] Case on Appeal Vol 2 at 105.
[10] Case on Appeal Vol 2 at 107.
[11] Case on Appeal Vol 2 at 109.
[12] Case on Appeal Vol 2 at 110.