MONASTERIO AND MOYA V BUJAK AND ORS HC CHCH CIV 2008-409-001901 [2009] NZHC 238 (3 March 2009)

IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY
                                                               CIV 2008-409-001901



               BETWEEN                    MARCOS ERIK MONASTERIO AND
                                          MARIA JOSE MARCOS
MOYA
                                          Plaintiffs

               AND                        SLAWOMIR RYSZARD BUJAK
    
                                     First Defendant

               AND                        DANUTA ALEKSANDRA
              
                           ZALWOWSKA-SPISAK
                                          Second Defendant

               AND      
                 HUGH SHEARER
                                          Third Defendant


Hearing:       3 March 2009

Counsel: 
     E Orlov for Plaintiffs
               G E Slevin for First Defendant

Judgment:      3 March 2009


                       
   JUDGMENT OF FOGARTY J



[1]    The subject matter of these proceedings is a common law claim action for a
home suffering defects
consequent upon water damage. The home in question was
originally in the name of the first defendant's wife, the second defendant.
She sold it
to the plaintiffs. The third defendant is an engineer who supported an application to
the Christchurch City Council for
a permit to do some alteration work, the first cause
of action against the first defendant.


[2]    The statement of claim pleads
that when the plaintiffs were being shown
through the house by the first defendant and a real estate agent that the first
defendant
represented to the plaintiffs that minor alterations to the house had been

MONASTERIO AND MOYA V BUJAK AND ORS HC CHCH CIV 2008-409-001901
3 March 2009

carried out by him personally to a high standard and that the house had no significant
defects.


[3]    The statement
of claim contends that those were not only false statements,
but that the first and second defendant intended the plaintiffs to rely
on them. This
will be strenuously disputed at the trial.


[4]    The second cause of action against the first and second defendants
is for
negligence in failing to discharge a duty of care to prospective purchasers ensuring
that the works that were carried out
were carried out to the standard of competent
tradesmen and that as a result of not exercising due care that the building was not
up
to such a standard and they had failed to warn the plaintiffs that consent had not been
retained for all works.


[5]    This
is also going to be strenuously defended, in part, in reliance on the
agreement for sale and purchase which has two special conditions
which I
summarise here:


       1.      That the sales person has not made any representation as to the
               structural
integrity and water tightness issues; and


       2.      That the agreement was conditional upon the purchasers arranging
    
          within seven working days for an extension to examine the structural
               integrity of the property including
any structural problems not limited
               to water tightness.


[6]    On 2 September last this Court granted ex parte orders
providing for
substituted service of the proceedings in respect of the second defendant on the first
defendant, the second defendant
having left the country and, secondly, granting
Mareva injunction against the first defendant.


[7]    Today I have heard two applications
by the first defendant, one to set aside
the order for substituted service, the other to set aside the set of Mareva orders.
I have
also had an informal application by the plaintiffs' counsel for an affidavit of

disclosure of financial information to be appended
to the Mareva orders by way of
bill of disclosure. I can say at the outset that I do not entertain that application today
as it has
not been made on notice and I have not asked, let alone had the benefit of, a
reply from Mr Orlov for the first defendant in respect
of that matter.


[8]      I turn then to the two matters that were argued today and start with the
question for substituted service.


[9]      Essentially, Mr
Orlov based his argument for setting aside these orders on
r 6.8:

         6.8     Substituted service

         If reasonable efforts
have been made to serve a document by a method
         permitted or required under these rules, and either the document has come
to
         the knowledge of the person to be served or it cannot be promptly served, the
         court may--

         (a)    
direct--

                 (i)     that instead of service, specified steps be taken that are likely
                         to
bring the document to the notice of the person to be
                         served; and

                 (ii)    that the document
be treated as served on the happening of a
                         specified event, or on the expiry of a specified time:

    
    (b)     when steps have been taken for the purpose of bringing, or which
                 have a tendency to bring, the document
to the notice of the person on
                 whom it is required to be served, direct that the document be treated
          
      as served on that person on a specified date:

         (c)     subject to any conditions that the court thinks just to impose,
                 dispense with service of a document on a person and give to the
                 party by whom the document is required
to be served leave to
                 proceed as if the document had been served.

         (Emphasis added)


[10]     He argued
that the plaintiffs have not discharged the legal notes to show that
reasonable efforts had been made to serve the proceedings on
his wife who is now
overseas. In an affidavit filed by the plaintiffs there is annexed correspondence
between the plaintiffs' solicitors,
Wynn Williams and Co, and a Polish law firm,

particularly an advocate of that firm, Mr Janusz Tomczak. On 22 January this year
Mr Tomczak said to Wynn Williams:

       What we could do is assist you in locating [the second defendant]. We
       could check
in the Ministry of Interior and Administration Registry
       Ms Zalwowska-Spisak's [the second defendant's] registered address.
To be
       able to obtain that information from this registry we would have to prove a
       legal interest and we would need
a power of attorney.

[11]   It would appear from the table in McGechan that New Zealand has a
convention with Poland for service
abroad. Mr Slevin quite properly informed the
Court that their firm has decided not to expend the cost of retaining Mr Tomczak's
firm for this purpose pending seeing whether or not they could resist the application
to set aside substituted service.      The
substituted service order was made by
Chisholm J relying on an affidavit by a private investigator, Mr van Beek. It is
apparent from
that affidavit that the facts that Chisholm J relied on were that the first
and second defendants had been married on 22 April 2005
and have a three year old
child. Mr van Beek also deposed that the second defendant had left New Zealand.


[12]   Chisholm J was
plainly relying on a likelihood that the first defendant, as
father, would stay in touch with his wife in order to maintain contact
with his child
and for that reason it would be sensible for him to be the subject of a substituted
service order.    In my view there
continues to be merit in that proposition. It is
reinforced by the fact that the first defendant holds a power of attorney over his
wife's co-interest in certain properties. However, notwithstanding those facts, as the
rule makes plain, there must first be reasonable
efforts to locate the second defendant
directly, before there be a substituted service order.


[13]   I have learned from the bar,
from Mr Orlov, that the second defendant left the
country because her residency permit was withdrawn by the Government and the
context
of that seems to be the continuing application by the State of Poland to
extradite the first defendant.


[14]   I am satisfied on the facts before me that the plaintiffs ought
to bear the cost,
which appears to be less than or about $1,000 NZ, to give authority to the Polish
lawyers and ask them to check
in the Ministry of Interior and Administration

Registry in Poland to see if they have the second defendant's registered address.
It
does seem likely that she will have returned to Poland although of course she could
be anywhere in Europe.


[15]    Mr Slevin
asked for the substituted order to be suspended rather than set
aside. I am satisfied, approaching the matter de novo, that the substituted
service
order should be set aside on the facts that have been placed before me, but with leave
to reapply for a new substituted service
order against the first defendant upon
demonstration that the plaintiffs have made a reasonable effort to see whether the
Ministry
does have the second defendant's registered address.       That effort will be
regarded as discharging reasonable efforts. It is
not necessary for them to instruct a
private investigator to search otherwise for the second defendant in Poland or
elsewhere in
Europe.


[16]    Accordingly, the application to set aside the substituted service order
succeeds subject to the leave that I have
just reserved.


[17]    I turn then to the second application which is to set aside the Mareva
injunction orders.


[18]    The
first defendant is subject to extradition proceedings as I have just noted.
It appears likely that he will be forced to leave New
Zealand. That is not a certainty.
Mr Orlov's principal argument to set aside the Mareva injunction today is that there
is no evidence
against his client that he would seek to remove assets from the New
Zealand jurisdiction in order to defeat the existing proceedings.
         The second
argument is that there is no case disclosed on the pleadings against his client.


[19]    Since the recent review
of the High Court Rules the High Court Rules on
Mareva orders have now changed and such orders fall within the broader group of
orders
called freezing orders. (When I refer to Mareva orders I am referring to the
extant orders made by Chisholm J under the old rules.
When I refer to freezing
orders, I am referring to orders to be made, or varied under the new Rules.) The
relevant rule is r 32.2:

       32.2    Freezing order

       (1)     The court may make an order (a freezing order), on or without notice
           
   to a respondent in accordance with this Part.

       (2)     A freezing order may restrain a respondent from removing any
  
            assets located in or outside New Zealand or from disposing of,
               dealing with, or diminishing the value
of, those assets.

       (3)     An applicant for a freezing order without notice to a respondent must
               fully and
frankly disclose to the court all material facts, including--

               (a)     any possible defences known to the applicant;
and

               (b)     information casting doubt on the applicant's ability to
                       discharge the obligation
created by the undertaking as to
                       damages.

       (4)     An application for a freezing order must be made
by interlocutory
               application under Part 7 or originating application under Part 19,
               which Parts apply
subject to this Part.

       (5)     An applicant for a freezing order must file a signed undertaking that
               the applicant
will comply with any order for the payment of damages
               to compensate the respondent for any damage sustained in
  
            consequence of the freezing order.

       (Emphasis added)


[20]   I observe first that there is nothing in the rule
which requires proof that it is
the intention of the party to the proceedings to remove the assets. The current rule as
to freezing
order did, it is true, develop from the recognition of the inherent
jurisdiction of the Court to protect the removal of property from the jurisdiction
before judgment, commencing
in the famous case of Mareva Compania Naviera SA
v International Bulkcarriers SA [1975] 2 Lloyd's Rep 509. It is also true that in
many of the cases the enquiry by the Court has been to examine whether or not there
are reasonable grounds to perceive a risk that
the defendant will, because of the
litigation, remove assets from the jurisdiction.


[21]   I am not aware of any decision which
says that the risk that needs to be
shown has to be risk of deliberate removal of assets in order to defeat the
proceedings. I would
be surprised if there was such a rule. The origins of this
remedy are directed to securing justice between the parties. On the facts
of this case
the future risk is that if the first defendant is extradited from the country then in the

natural course of things,
quite independently of the litigation, one would expect him
to liquidate assets in New Zealand, it being the country he is extremely
unlikely to be
allowed to return to.


[22]   Accordingly, if there is an extradition order, it will follow that there will be a
serious risk the assets will be removed from the jurisdiction and it will follow that
that will have the consequence, whether intended
or not, of depriving the plaintiffs of
the benefit of those assets should they succeed in litigation. That in my view is
sufficient
to show risk and is sufficient in this case. I do not rely on the reasons the
State of Poland is advancing for the extradition orders,
which are under dispute. I do
not think it is necessary to do that.


[23]   That is not sufficient, however, to justify a freezing
order. It is also necessary
to justify that there is a good arguable case. As I have already indicated, Mr Orlov
has argued strenuously
against this focussing particularly on the pleadings of deceit.
It always has been part of our law of a civil procedure, which we
have inherited from
the British side of our tradition, that any allegation of dishonesty has to be made with
as much particularity
as is possible in order to ensure that the subject of an allegation
of dishonesty has the best opportunity to argue against the proposition.


[24]   I do not think it is necessary for me to go into the detail of the argument of
Mr Orlov or pleadings. I am satisfied that
the pleading as to deceit can be improved
upon. Certainly the broad outlines of the pleadings present the framework of the
allegation.
The allegation is two fold:


       1.      That the first defendant did say that there were no problems with the
             
 house; and


       2.      When he said that he must have known there were problems with the
               house.


[25]   Mr
Slevin said the first defendant and his wife had occupied the house for a
couple of years. During the period of time that his clients
were occupying the house
the house basement has been flooded regularly following severe weather storms.

Accordingly, such flooding
must have occurred while the first and second defendants
were in occupation and so had the first defendant said, all was well, that
would have
to be false statement.


[26]    That appears to me, after hearing oral argument, to be the gist of the
allegations of
falsehood but it is certainly not pleaded with anything like that
particularity at the present time. I would expect if the pleading
of deceit is to be
continued the pleadings will be re-pleaded. It does not follow, however, that the
present deficiencies in the
pleading means that there is not a good arguable case, let
alone, there is not a good arguable case for breach of a duty of care
or, including as
his pleading, a duty to warn.


[27]    I am satisfied overall that this is a genuine claim. There seems to be no
doubt
that the building does suffer damage and that the damage does come from the
inundation of water on a frequent basis. The plaintiffs
are not bringing the claim
purely out of spite. They are plainly motivated to recover damage that they have
suffered. The pleadings may have some deficiencies but
there is in my view an
arguable case, and a good arguable case against the first and second defendants, let
alone against the third
defendants. This, counsel will appreciate, is not any kind of
prejudgment as to the merit of the claim. It is merely a threshold
test as to whether
or not justice requires there to be a freezing order in the meantime. I am satisfied
that it does.


[28]    I
hope it is clear from the way in which I have reasoned this case that I have
been approaching the question of freezing orders or
not de novo and not relying on
the fact that they were granted ex parte.


[29]    For these reasons I do not set aside the Mareva
orders as such. But it is,
however, a different question as to what the continuing term of the Mareva orders
will be. Traditionally
freezing orders impose only as much restraint on the rights of
property owners as is necessary to secure justice in the civil proceedings.
A balance
always has to be taken against restraining the use and enjoyment, including the sale
and use of private property before
a judgment and on the other hand risking that
proceedings will be rendered nugatory by the removal of assets overseas.

[30]   
In this case the past occupation of the first defendant was as property
developer. This is common ground between the parties. Indeed
it is the plaintiffs'
argument that he must have some assets elsewhere as yet undisclosed, possibly under
the control of a family
trust, possibly a trust which he controls, because he has been a
successful property developer in the past. I am quite satisfied
that the freezing
orders should be as light-handed as can be consistent with preventing the removal of
assets from New Zealand in
order to free up the ability of the first defendant to
continue to trade in property as opportunities arise. Secondly, it does seem
to make
a great deal of sense that at least one of the properties be sold in order to remove the
first mortgage to the bank which
is in the order of $300,000. If that first mortgage is
not being funded, and there is some doubt about that, as to whether it is
or is not, it
will only creep up to eat away assets that otherwise may be available to the plaintiffs.


[31]    I understand that
the plaintiffs are agreeable to the sale of at least one
property in order to provide funds to discharge much if not all of the bank
debt. This
is not to their disadvantage because on any view of it the bank debt is going to have
priority ahead of any judgment creditors.
Further, it is important that where possible
the first defendant be entitled to living expenses in addition to the small amount he
receives per week from the Accident Compensation Commission for a back injury.
That would include funding enabling him to defend
this litigation and the litigation
for extradition to Poland. It is important not to create a situation whereby he is
rendered totally
impoverished by a freezing order which is granted before the final
merit of the claim is established at a trial.


[32]    I think
at this stage today it is sufficient for me to scope how I think the
Mareva orders should be amended, when they will become freezing
orders.


[33]    I will reserve leave to the parties to agree what I call a light-handed freezing
set of orders within ten working
days from today, following which either party can
submit alternative formulations of light-handed orders in the terms which I have
indicated with supporting submissions of no more than five pages. Those alternative
drafts must be circulated to each other prior
to filing and each party will have a
further five working days to submit memoranda if agreement cannot be reached.

[34]    I also
reserve leave for the first defendant to apply on 24 hours notice for
urgent relief from the existing Mareva orders in the event
of any development which
needs to be addressed within the target period of ten working days from now.


[35]    I reserve the question of costs. I would indicate that I am of the view
that it is
premature at this stage to decide whether or not either of the parties should be
entitled to the costs of today's proceedings.
To a degree, in my mind, each of the
parties have been partially successful and I am disposed to let costs lie where they
fall. However,
for the sake of finality I will reserve costs in case counsel are of the
opinion that they can persuade me otherwise.


[36]    If
the parties do wish to pursue the question of costs submissions need to be
lodged within ten working days with a right of reply in
three days on the same basis
of prior circulation of drafts.      The number of pages for the submissions should be
five pages.


[37]    That completes my judgment.




Solicitors:
Wynn Williams & Co, Christchurch, for Plaintiffs
Cousins & Associates, Christchurch,
for First Defendant