HUNG AND ANOR V TSE AND ORS HC AK CIV 2008-404-8568 [2009] NZHC 228 (26 February 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                  CIV 2008-404-8568



                BETWEEN                       SIKWING HUNG ALSO KNOWN AS
                                              NORMAN
HUNG
                                              First Applicant

                AND                           TRUSTEES OF THE
MAY FAMILY
                                              TRUST
                                              Second Applicant

 
              AND                           KEUNG TSE
                                              First Defendant

           
    AND                           KEUNG TSE ALSO KNOWN AS DAVID
                                              TSE AND SHUN HING LEUNG
TSE
                                              Second Defendants

                AND                           CHRIS M WALKER
LAWYERS
                                              Third Defendant


Hearing:        9 February 2009

Appearances: Evgeny Orlov
for Applicants
             Paul Murray for First and Second Defendants

Judgment:       26 February 2009



                   
        JUDGMENT OF HARRISON J


                  In accordance with R11.5 I direct that the Registrar
                     endorse
this judgment with the delivery time of
                             2:00 pm on 26 February 2009




_________________________________________________________________________________

SOLICITORS
Dennis J Gates Lawyers (Whangaparaoa) for Applicants
DLA Phillips Fox (Auckland) for First and Second Defendants


HUNG
AND ANOR V TSE AND ORS HC AK CIV 2008-404-8568 26 February 2009

[1]     This proceeding was listed for mention before me in the
Duty Judge list on
9 February 2009.        It is described as a `notice of originating application'.   The
document seeks relief
under the Companies Act 1993 authorising the applicants,
described as Sikwing Hung, also known as Norman Hung, and the `Trustees
of the
May Family Trust', as first and second applicants respectively, to conduct a
derivative action in the name of Parts Imports
Co Ltd (in liquidation) in the form of a
draft amended statement of claim.         The parties apparently held interests in the
company.


[2]     The document seeks directions prohibiting Parts from entering into
negotiations with the nominated first defendant, Keung
Tse, `on matters concerning
the release and disbursement of funds held in trust by DLA Phillips Fox on behalf of
[Mr Tse] until the
conclusion of the proceeding'; prohibiting Mr Tse from disbursing
funds in a separate proceeding (CIV 2007-404-006648) (the 6648
proceeding); and
joining the two applicants as additional plaintiffs in the 6648 proceeding; and that
the application be part of
the 6648 proceeding. Mr Tse's counsel, Mr Paul Murray,
advised that the 6648 proceeding is extant, and relates to disputes arising
from Parts'
liquidation. The draft amended statement of claim in this proceeding is a discursive
document but as far as can be ascertained
makes wide ranging allegations of
misconduct against Mr Tse in his former capacity as managing director of Parts.


[3]     At short
notice Mr Murray filed a memorandum advising that Phillips Fox
had received the documents by fax from the applicants' counsel on
about 5 February
(immediately before the long weekend) without inquiry as to whether or not the firm
was authorised to accept service.
Nevertheless, Mr Murray appeared for the first and
second defendants on 9 February. There was no appearance for the third defendants,
a firm of solicitors.


[4]     In the short time available Mr Murray has identified these defects in this
proceeding: (1) the trustees
of the relevant trust, not the trust itself, should be the
proper party listed as second applicant; (2) the applicants have not joined
Parts as a
party to this application; (3) the derivative action which the applicants seek to bring
is already the subject of an ongoing proceeding in 6648; (4) the notice of application
fails to disclose the grounds on which the applicants should be granted
leave to bring

a derivative action (s 165 Companies Act 1993); (5) the notice seeks orders against
Parts' liquidators without joining
them; and (6) the applicants have not obtained
leave to apply for directions against the liquidators (s 284 Companies Act).


[5]
   Mr Murray's memorandum also pointed out that this is the third application
by the applicants to become involved in the liquidators'
proceedings. The 6648
proceeding is the principal one. Another, CIV 2008-404-6716, was discontinued
with an unpaid order of costs
against the applicants. And in the third, CIV 2007-
404-3902, the applicants have failed to pay a costs order of $11,528.54.


[6]
   When the proceeding was called, Mr Orlov advised that after conferring with
Mr Murray the applicants wished to `remove' the names
of the first and second
defendants and substitute the name of McDonald Vague, a firm of insolvency
practitioners. Partners in that
firm are apparently the liquidators of Parts. He said
the wrong parties were cited because of an intituling error in his office during
his
absence due to illness. Mr Orlov made an oral application for substitution. He
submitted that the proceeding should be referred
to Associate Judge Doogue.


[7]    Although not so articulated, Mr Orlov's application was for an order granting
leave (1) to strike
out the names of the first and second defendants and (2) to
substitute McDonald Vague or its partners: r 4.56. Mr Murray consented
to the
former but opposed the latter. He also sought costs. I reserved judgment given the
constraints imposed by a busy Duty List.
I must observe, though, that Mr Orlov's
explanation of an `intituling' error leading to the incorrect nomination of Mr Tse
instead
of McDonald Vague is not easily reconcilable with the sustained allegations
made in the draft amended statement of claim of fraudulent
misconduct by Mr Tse
personally prior to the liquidators' appointment.


[8]    On 17 February 2009 Mr Orlov filed and signed a document
described as a
`Notice of Withdrawal of Application'.        The facing sheet nominates `Alastair
McLymont' (presumably as the instructing
solicitor) whose name had not previously
appeared on documents in this proceeding.           I shall return to this point.   The
document states:

          The Applicant hereby withdraws the Originating Application that was filed
          by the Counsel for
the Applicant on 19 December 2008.

[9]       I assume that this document is intended to be a notice of discontinuance:
r 15.19(1)(a).
If so, it must be filed in accordance with form G24 and, specifically,
be signed either by the plaintiff or the solicitor for the
plaintiff. I pointed out to
Mr Orlov during the hearing on 9 February that a party had no right to withdraw, just
an entitlement
to discontinue or to apply to strike out.


[10]      The originating application was filed in the name of `Evgeny Orlov, barrister
for the applicants, under instructions from DJ Gates Lawyers'. The address for
service is given as `the offices of Equity Law' at
44 Khyber Pass Road, Auckland.
The draft statement of claim is to the same effect.


[11]      Rule 44 High Court Rules (now r 5.44)
which was then in effect materially
stated:

          At the end of the first document filed by a party there shall be a
      
   memorandum stating--

          (a)     That the document is filed by the party in person, or by the
          party's solicitor,
as the case may be; and

          (b)    Where it is filed by a solicitor,--
                    (i) The name of the solicitor;
and
                    (ii) If the solicitor is a member of a firm or practises under a firm name,
                         the
name of the firm ...

          [Emphasis added]

[12]      Mr Hung's notice of originating application does not comply with r 44.
The
document must be filed in the names either of Mr Hung or his solicitor, whose
names are to be included. Mr Orlov is not the applicants' solicitor. He is described
as Mr Hung's barrister (that is, he acts on instructions from Mr Hung's solicitor).
Mr Orlov submitted that the Rules entitle a barrister
to file documents `but there
must be a solicitor's address on the front'. He said the registry had confirmed his
view.


[13]   
  Part 5, subpart 7, dealing with a solicitor's authority to act in proceedings
filed in this Court, is a central part of the Rules.
A solicitor pays an important part in

the orderly conduct of litigation. He or she is responsible to the Court for the due
prosecution
of the case and is obliged to apply his or her own mind to its viability;
going on the record is not just a formality: Harley v McDonald
 [1999] 3 NZLR 545
(CA) at [84]. Filing a document constitutes a warranty to the Court and all parties
that the solicitor is authorised `by the party
on whose behalf the document purports
to be filed, to file the document': r 5.37. While the strict view that a proceeding
commenced
without a solicitor's warranty of authority is a nullity no longer prevails,
it is a serious irregularity which justifies a stay
of proceedings until it is cured:
Edwards & Hardy Hamilton Ltd v Woodhouse  (1990) 3 PRNZ 362; Hubbard
Association of Scientologists v Anderson (No 2)  (1971) VR 577.


[14]   The applicants have not taken any steps to cure their defect in filing this
proceeding in breach of r 5.44. The facing sheet
of the `Notice of Withdrawal'
nominates `Alastair McLymont' whose contact details are provided. This is an
apparent representation
that Mr McClymont (his name is misspelled on the
document) is now the solicitor on the record. But, if that is so, Mr McClymont
should
have taken the appropriate steps for that purpose: r 5.40.


[15]   The pleadings suffer from further significant defects. The second
applicant is
described as the `trustees of the May Family Trust'. A trust is not a legal entity
which can sue or be sued. Proceedings
must be issued by nominated trustees.


[16]   I requested Mr Orlov to identify the trustees whom he represented. Initially
he said
that he was not in a position to provide those details.        When pressed
Mr Orlov advised that the trustee was `the wife of Mr
Andrew Yong' whom he did
not identify. He said he `understood' that a solicitor was also a trustee. He said
`their names will be
added; it is just a question of intituling'.


[17]   Mr Orlov's explanation reflects a misunderstanding of a lawyer's role and is
unacceptable. A solicitor issuing proceedings in the names of trustees must, for
obvious reasons (such as liability for costs), have
authority from each. I do not
accept Mr Orlov's representation of authority and instructions from the trustees to
act for them as
applicants in this proceeding.

[18]   Mr Orlov is apparently responsible for the carriage of this proceeding. The
originating documents
are filed in Mr Orlov's name, rather than the name of a
solicitor as required by the Rules, with reference to a firm of solicitors.
The so-
called `Notice of Withdrawal' is signed by Mr Orlov but not by the applicants or
their solicitor and purports to be in the
name of a solicitor who has not been
previously nominated as the solicitor on the record. And neither the originating nor
terminating
document complies with the wording and spirit of the Rules.


[19]   I am treating the steps taken by Mr Orlov as notice that the
applicants do not
wish to continue with a proceeding which was improperly commenced. I order that
the proceeding be struck out on
the ground that it does not disclose a reasonably
arguable case appropriate to the nature of the pleadings given Mr Orlov's
concessions
that the first and second defendants at least are incorrectly joined:
r 15.1(1)(a). Alternatively the proceeding is struck out as
an abuse of process
resulting from the applicants' failures to comply with and rectify breaches of the
Rules: r 15.1(1)(d).


[20]
  Mr Murray applied for an order for costs. Ordinarily costs would follow the
event. However, the first and second defendants have
not taken any steps in the
proceeding. The application for costs is declined.


[21]   This narrative of events leaves me in real
doubt about whether or not a
solicitor was ever formally instructed to file or discontinue this proceeding. I direct
the registry
to send copies of this judgment to Messrs Dennis Gates and Alastair
McClymont personally. I further direct:


       (1)     Mr Gates
to file an affidavit by 4 pm on 12 March 2009 providing
               details of (a) the individual or individuals who instructed
him to file
               this proceeding; (b) the date on which those instructions were
               received; and (c) the date
on which he instructed Mr Orlov to act as
               counsel in this proceeding;


       (2)     Mr McClymont to file an affidavit
by 4 pm on 12 March 2009
               providing details of (a) the individual or individuals who instructed

              him
to act in this proceeding and (b) the date on which he instructed
              Mr Orlov to file a `notice of withdrawal'.


[22]
  Also, the breaches of the Rules outlined in this judgment are serious and fall
well below the standards expected of legal practitioners
in this Court. I am directing
the registry to send copies of this judgment to the Professional Standards Director of
the Auckland District Law Society and the
New Zealand Law Society.




                                     ______________________________________
                       
             Rhys Harrison J