Little v Jull HC Auckland CIV 2007-404 [2011] NZHC 1265; [2012] NZCCLR 3 (30 September 2011)

	Home \| Databases \| WorldLII \| Search \| Feedback High Court of New Zealand Decisions

This judgment was delivered by Associate Judge Gendall on 30th day of September

[1] The background to this case concerns the status of certain monies paid by investors to a company Waipawa Holdings Limited (Waipawa). At the time of the payments the defendant Mr Albert Edward George Jull was a director of Waipawa. He says he did not consider, and was so advised, that the payments were subject to the prospectus regime under the Securities Act 1978 (the Act).

[2] The plaintiff investors claim that their monies have not been repaid and are lost and that in the circumstances s 37(6) of the Act applies to require the directors at the time of the alleged subscriptions to repay those monies, together with interest.

If any subscriptions to which this section applies are not so repaid within 2 months after the date on which the subscriptions were received by or on behalf of the issuer (or, in any case to which subsection (2) of this section applies, within 5 months after the date of the registered prospectus), the issuer and all the directors thereof shall be jointly and severally liable to repay the subscriptions, together with interest at [[a rate prescribed from time to time by regulations made under this Act]] from the date on which the subscriptions were received by or on behalf of the issuer:

Provided that a director shall not be so liable if he [[or she]] proves that the default in the repayment of the subscriptions was not due to any misconduct or negligence on his [[or her]] part.

[4] The present application before the Court is one to strike out the plaintiffs‘ first and amended statements of claim, or to award the defendant summary judgment against the plaintiff with regard to their claim for payment of subscriptions not repaid to them by Waipawa or the defendant as its director at the operative time. The plaintiffs paid subscriptions to Waipawa for allotments of securities offered by it at various times in 2004. Those allotments were said to be void under s 37 of the Act as no registered prospectus was issued relating to the securities. No repayments were made. As I have noted, the plaintiffs rely on s 37(6) of the Act in their claim against the defendant director.

[5] The relevant events in question it seems occurred some years ago. The defendant maintains that, if the claim proceeds further, then other points will be in contest, not least of which will be the defendant‘s request for relief under the proviso to s 37(6) on grounds that any default in repayment is not on account of misconduct or negligence on his part.

[6] It seems to be the passage of time and the way in which the plaintiffs have made their claims which the defendant says brings into question whether they have done so in time for the purposes of s 4(1)(d) Limitation Act 1950.

[7] Further the defendant contends that the fact that he resigned as a director before any obligation to have repaid the monies now claimed arose, must throw up the additional question whether or not the defendant can have any liability here under s 37(6) of the Act at all.

[8] As I have noted, Waipawa offered debt securities to the public. It solicited subscriptions from the plaintiffs amongst others for the issuing of these debt securities.

[9] It is perhaps easiest to consider the background of this claim by way of a chronology prepared by Mr Toebes counsel for the plaintiffs.

Chronology
Before 1995	Defendant appointed director of Waipawa Holdings Limited;
Before 1995	No prospectus issued at any time by Waipawa;
27 September 2004	$3,173.60 invested by Mr and Mrs Mogey (the fourth plaintiffs) on their account styled ―Jackaroo Holdings‖;
5 October 2004	$25,000.00 invested by the fourth plaintiffs on their account styled ―Pendo Holdings‖;
10 October 2004	Date two months before defendant resigns as a director of Waipawa;
28 October 2004	$50,000.00 invested by the fourth plaintiffs on their account styled ―Tundra Holdings‖;
8 November 2004	$956.90 invested by the fourth plaintiffs on their account styled ―Cascade Holdings‖;
9 November 2004	Date six years before commencement of these proceedings by filing of Original Claim;

10 November 2004	Subscription of $43,562.33 from Mr Robert Little (the first plaintiff);
10 November 2004	Subscription of $7,568.00 from Ms Narelle Little (the second plaintiff);
24 November 2004	Subscription of $20,000.00 from Ms Penelope Chote (the third plaintiff);
26 November 2004	Date six years before filing of Amended Claim;
27 November 2004	Date two months after receipt of the fourth plaintiffs‘ subscription ―Jackaroo Holdings‖;
5 December 2004	Date two months after receipt of the fourth plaintiffs‘ subscription ―Pendo Holdings‖;
10 December 2004	The defendant resigns as a director of Waipawa;
28 December 2004	After this date, and until 25 January 2005, the two month anniversary of receipt of the plaintiffs‘ various subscriptions occurs;
13 April 2005	Date six years before filing of Second Claim.

[10] As recorded above, the first, second and third plaintiffs‘ initial statement of claim was filed on 9 November 2010 (the first claim). That statement of claim pleads (in summary):

(a) Waipawa offered debt securities to the public by did not provide a registered prospectus relating to the security;

(d) The allotment was invalid and of no effect because of the failure to provide a registered prospectus;

(e) As a result, the defendant, as a director of the Waipawa, the issuer, was liable to repay the subscriptions, together with interest at the prescribed rate from the date on which the subscriptions were paid.

[11] The pleadings did not, however, particularise: (a) The amounts of the subscriptions;

[12] Instead, paragraph 4 of the first claim refers to an ―attached schedule‖ which apparently contains dates of payments. With regard to (a) and (c) in [11] above, the plaintiffs particularised those aspects in their prayer for relief.

[13] Further, an address for service was also omitted at the end of the statement of claim.

[14] On 26 November 2010 the plaintiffs filed an amended statement of claim (the amended claim). In that pleading it seems the same errors were continued, although it also added the fourth plaintiffs to the claim. An address for service was also omitted in the amended claim.

[15] On 13 April 2011, the plaintiffs filed a second amended statement of claim (the second claim). Paragraph 4 was amended in that claim. Rather than referring to an attached schedule, para 4 specifically pleaded the dates and amounts of each subscription in question. On this occasion, an address for service was included in the statement of claim.

(2) The Court may give judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff‗s statement of claim can succeed.

Where the defendant applies for summary judgment, the position is rather different from an application by the plaintiff. A defendant‘s application is similar to a striking- out application in that the defendant has to show that the plaintiff cannot succeed. The difference between an application for summary judgment and an application to strike out is that the summary judgment application requires affidavit evidence to be provided. It will therefore be possible to obtain judgment on the basis of material other than that contained in the pleadings. As in the case of an application by the plaintiff, if there are material disputes of fact which cannot be resolved on affidavit, summary judgment will have to be refused.

The Courts have noted the similarity between the two types of application and the difficulty of succeeding where there is a material dispute of fact: Ferrymead Tavern Ltd v Christchurch Press Ltd (1999) 13 PRNZ 616. In A-G v Jones (2001) 15 PRNZ

347 (CA), the Court of Appeal adopted a robust approach to disputes of fact, and held that summary judgment ought to have been granted. The Privy Council overruled the Court of Appeal (A-G v Jones [2003] UKPC 48; (2003) 16 PRNZ 715 (PC)) on the basis that there was a hypothetical scenario in which the factual differences might make a defence arguable. The decision emphasises the need to avoid factual disputes if judgment is to be obtained.

Summary judgment will not be appropriate where it is possible for the plaintiff to amend its claim so as to remedy the defects relied on by the defendant; it should be used only where the defendant has a clear answer to the plaintiff which cannot be contradicted: Westpac Banking Corp v M M Kembla NZ Ltd [2000] NZCA 319; [2001] 2 NZLR 298, (2000) 14 PRNZ 631 (CA); A-G v Jones [2003] UKPC 48; (2003) 16 PRNZ 715 (PC). Where the claim is untenable as a matter of law, it will generally be appropriate to apply to strike it out: Bernard v Space 2000 Ltd (2001) 15 PRNZ 338 (CA).

The defendant has to show that none of the plaintiff‘s causes of action can succeed. While the plaintiff may obtain summary judgment on one of several causes of action, the defendant must be able to knock out the entire claim in order to be able to apply for summary judgment. If the defendant is only able to show that some of the causes of action cannot succeed, the proper course will be to apply for striking out.

[18] Essentially, r 12.2(2) permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer so that the proceedings can be summarily dismissed. Caution should be exercised, however, in using the procedure to dispose of novel or developing points of law.2 And, the application of r 12.2(2) is clearly unsuited to situations where

there are material disputes of fact.3 Further, while it is generally accepted that a

_{court, on a plaintiff‘s application for summary judgment,
may grant summary}

1 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at [HR12.2.07].

3 Attorney-General v Jones [2003] UKPC 48, [2004] 1 NZLR 433, (2003) 16 PRNZ 715.

judgment for part of a plaintiff‘s claim,4 on the wording of r 12.2 there is no such

[19] Under r 15.1(1) this Court may strike out all or part of a pleading if it –

(a) discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or

[20] The authors of McGechan on Procedure provide the following helpful summary of the principles relevant to r 15.1(1):5

The established criteria for striking out was summarised by the Court of Appeal in A-G v Prince [1998] 1 NZLR 262, (1997) 16 FRNZ 258, [1998] NZFLR 145 (CA) at 267, and endorsed by the Supreme Court in Couch v A-G [2008] NZSC 45 at [33], per Elias CJ and Anderson J:

(a) Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.

(b) The cause of action for defence must be clearly untenable. In Couch Elias CJ and Anderson J, at [33], said: ―It is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed.‖

reflects the Court‘s reluctance to terminate a claim or defence short of trial.

(d) The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.

(e) The Court should be particularly slow to strike out a claim in any developing area of the law, perhaps particularly where a duty of care is alleged in a new situation. In Couch, at [33], Elias CJ and Anderson J said:

―Particular care is required in areas where the law is confused or developing.‖ There is considerable authority that developments in negligence need to be based on proved rather than hypothetical facts.

4 Raptorial Holdings Ltd (in rec) v Elders Pastoral Holdings Ltd (2000) 14 PRNZ 663 (CA).

[21] In order to succeed in striking out a cause of action as statute-barred, the defendant must satisfy the Court that the plaintiff‘s cause of action is so clearly statute-barred that the plaintiff‘s claim can properly be regarded as frivolous, vexatious or an abuse of process.2 Tipping J went on to say in Murray v Morel & Co Ltd:6

In the end the judge must assess whether, in such a case, the plaintiff has presented enough by way of pleadings and particulars (and evidence, if the plaintiff elects to produce evidence), to persuade the court that what might have looked like a claim which was clearly subject to a statute bar is not, after all, to be viewed in that way, because of a fairly arguable claim for extension or postponement. If the plaintiff demonstrates that to be so, the court cannot say that the plaintiff‘s claim is frivolous, vexatious or an abuse of process. The plaintiff must, however, produce something by way of pleadings, particulars and, if so advised, evidence, in order to give an air of reality to the contention that the plaintiff is entitled to an extension or postponement which will bring the claim back within time.

[22] It is appropriate here to consider first the defendant‘s application for strike- out. Mr Macfarlane, for the defendant, argued that the plaintiffs‘ first two statements of claim should be struck-out on the basis of breaches of form in terms of rr 5.26 and

5.44. He said that compliance with those rules is mandatory and without compliance an action cannot have been commenced. That is, Mr Macfarlane argued because r 5.25(1) requires that a ―proceeding must be commenced by filing a statement of claim in the proper registry of the court‖. Mr Macfarlane did acknowledge the effect of r 1.5 is that a failure to comply with the High Court Rules is an irregularity and does not automatically nullify the proceeding, but that sub-r (2) of r 1.5 provides:

(2) Subject to subclauses (3) and (4), the court may, on the ground that there has been a failure to which subclause (1) applies, and on any terms as to costs or otherwise that it thinks just,—

(iii) any document, judgment, or order in the proceeding in which the failure occurred; or

(b) exercise its powers under these rules to allow any amendments to be made and to make any order dealing with the proceeding generally as it thinks just.

[23] Accordingly, Mr Macfarlane invited this Court to set aside, either wholly or in part those statements of claim which do not comply with these rules. In response, Mr Toebes for the plaintiffs contended that the present proceedings are not a nullity, and that any irregularities were cured by the filing of the second claim. He suggests that the strike-out application is accordingly otiose.

[24] Mr Macfarlane then went on to consider limitation questions. On this, he noted that time for limitations purposes does not stop until a statement of claim has been filed in the proper substantive form. For that proposition, he relies on Pratt v Hawkins,7 Re Burgee Investments Ltd8 and Mountain Road (No 9) Ltd v Michael Edgley Corporation Pty Ltd.9 The effect that Mr Macfarlane says this has on these

proceedings is that, if the first claim and amended claim are struck-out, time for limitations purposes does not stop. As the second claim was filed after time had expired for limitations purposes, summary judgment should be awarded against the plaintiffs as their claims are time barred. Mr Toebes argued that the defendant cannot rely on any limitations defence in an interlocutory application when it is not pleaded at the time of the application in any statement of defence.

[25] Thirdly, and in any event, Mr Macfarlane then invited this Court to strike out the fourth plaintiffs as claimants. He argued that no formal application was made to add those plaintiffs under r 4.56. Further, he contended that r 1.5 cannot assist the fourth plaintiffs as entry into the existing proceeding was only possible by order of this Court. Mr Toebes responded, and argued that under r 4.2, persons may be

_{joined jointly, severally or alternatively as plaintiffs where there is
commonality. No}

application is required to the Court. Or, in the alternative he suggested that r 1.5 is able to be used to cure the irregularity.

[26] I turn first to deal with Mr Macfarlane‘s argument regarding strike out of the first claim and amended claim under r 1.5(2). In Zaza v Beckett Laurenson J considered that the following matters were significant considerations in the exercise of the discretion to cure an irregularity:10

(b) Whether withholding relief would confer a benefit on the defaulting party; and

[27] It has also been said that if the irregularity can be cured, in the sense that the interests of the parties can be sufficiently protected, the discretion can be exercised.11

[28] The function of proper particulars in any pleading is to inform the other party of the nature of the case, as distinguished from the mode in which it will be proved, to prevent the other party from being taken by surprise, to enable the other party to know with what evidence he or she ought to be prepared, and to limit and define the

issues.12 While it is apparent that insufficient information was clearly contained in

the first claim, and the amended claim, I am satisfied here that the defendant has not been caused any significant prejudice. The errors were remedied by the second claim, albeit that claim was filed after the limitation period had expired. Further, while they were not particularised in the normal way, and the dates of payment of

_{the subscriptions were not stated, the amounts of the subscriptions were
identified}

11 Business Associates Ltd v New Zealand Post Ltd (1998) 12 PRNZ 497 (HC); Invercargill City

Council v Hamlin (1994) 7 PRNZ 674 (CA); Te Toki v Pratt (2002) 16 PRNZ 160 (HC).

12 Jagwar Holdings Ltd v Fullers Corporation Ltd HC Auckland CL85/87, 29 June 1990; Thomson v Westpac Banking Corporation (No 2) (1986) 2 PRNZ 505 (HC).

and the date on which Waipawa‘s obligation to repay crystallised, were also recorded. The claim in my view was therefore validly commenced.

[29] I now turn to consider the addition of the fourth plaintiffs in the amended claim. When proceedings have begun, in order to add a plaintiff an application must be made under r 4.56.13 Rule 4.2 provides guidance as to who may be joined as a plaintiff in a proceeding. Again, Mr Toebes relies here on r 1.5. While on this occasion no formal interlocutory application for joinder has since been made in these proceedings it is clear that, as the fourth plaintiffs had to be added urgently at the time, because otherwise any claim to their subscription ―Jackaroo Holdings‖ might have been limitation barred, in my view there is little, if any, prejudice caused to the

defendant here by the addition of the fourth plaintiff and, if necessary, I am minded to exercise my discretion in this case to remedy that irregularity or defect. Also, it is clear that a Court can strike out a plaintiff when that plaintiff has been added to the proceeding so as to circumvent the already arrived barrier of a pleaded to Limitation Act defence – but there can be no suggestion of that in the present case. The fourth plaintiffs could have commenced their own proceeding against the defendant on the date of the amended claim, but chose instead to add their claims to the current proceeding – such claims being in respect of the same matter, enactment and document (or lack thereof) and raising an identical question of law as those of the first, second and third plaintiffs – on this see r 4.2(1).

[30] As to Mr Macfarlane‘s limitation defence, I express no view as to Mr Toebes‘ response to that defence except to say that a statement of claim may generally be amended if validly filed before the expiration of a limitations period,14 so long as a new cause of action is not added.15 Here, as I see it, the second claim

_{merely further particularised the amended claim. No substantive claim
was added to}

13 Matthew Casey and others Sim’s Court Practice (online looseleaf ed, LexisNexis) at [HCR4.56.8];

14 See Mountain Road (No 9) Ltd v Michael Edgley Corporation Pty Ltd [1999] 1 NZLR 335 at 345.

15 Registered Securities v Jensen Davies & Co [1999] 2 NZLR 686 at 691(CA); and Law of New

Zealand Limitation of Civil Proceedings at [34]; see also Pratt v Hawkins (1846) 15 M & W 399; 153

the amended claim. As I see it therefore, it cannot be said that the plaintiffs‘ claims

[31] As for Mr Macfarlane‘s next ground in support of his present applications, it is common ground that the defendant resigned as a director before all but two subscriptions came up for repayment. Mr Macfarlane argues that s 37(6) of the Act does not apply to a past director. He says that the provision only refers to the issuer and its directors upon the expiry of the two month period after receipt of the subscriptions. He says that the Court of Appeal‘s statement in Chean v De Alwis at

2 months after the date on which the subscriptions were received by or on behalf of the issuer (or, in any case to which subsection (2) of this section applies, within 5 months after the date of the registered prospectus), the issuer and all the directors thereof shall be jointly and severally liable to repay the subscriptions, together with interest at a rate prescribed from time to time by regulations made under this Act from the date on which the subscriptions were received by or on behalf of the issuer:

Provided that a director shall not be so liable if he or she proves that the default in the repayment of the subscriptions was not due to any misconduct or negligence on his or her part.

[33] Addressing the proper interpretation of s 37(6), the Court of Appeal said in

In essence, her argument was that she should not be liable because she was not a director when the unlawful allotment which triggered the repayment obligation under s 37(6) occurred. We think it is clear that s 37(6) does not apply only to directors who were in office at the time of an invalid allotment. If the provision was limited in that way, it would say so. On any view, it is clear that s 37(6) applies to a director who is in office at the date on which the repayment obligation arises. Whether it applies to directors who were in office when the illegal allotment was made but were not in office when the repayment obligation arose is a matter to be left for another case. It may be that some clarification is required in that regard, so that liability can be sheeted home to directors in office at the time of an allotment but who have been careful enough to vacate office before the obligation to repay occurs.

[34] While a corporation is a separate legal entity, distinct from its members,17 a director is the ―directing mind or will of the company‖.18 Liability is, therefore, clearly distinct. A company is constant, whereas directors come and go. Section 37 of the Act expressly provides for different liability for an issuer and its directors (see

for example s 37(5)). Its directors do not become liable until the expiration of the two month period under s 37(6). Further, under ss 56 and 58 of the Act a director is liable for advertisements or prospectuses which contain untrue statements from the date that the advertisement/prospectus is issued. Under s 37 there is no analogous statement expressed that directors who are directors at the time a subscription was received are liable for the future. Also, I accept Mr Macfarlane‘s submission that the definition in s 2 to some extent supports his argument in that the definition suggests that the person has to be a director at the particular point in time, that is, that it is expressed in the present tense:

(a) In relation to a company, any person occupying the position of a director of the company by whatever name called:

[35] While I accept that Mr Macfarlane may well be right on this aspect, I cannot award summary judgment in the present case and so I decline to express any definitive view. As I have remedied the irregularity in the fourth plaintiff‘s claim, accepting Mr Macfarlane‘s position will not satisfy r 12.2(2): that none of the plaintiffs‘ claims can succeed. Under the Court of Appeal‘s interpretation in Chean, the defendant may well be personally liable to the fourth plaintiffs for their subscriptions ―Jackaroo‖ and ―Pendo‖.

[36] As recorded above, even where summary judgment is not available to a defendant, strike-out may be appropriate under r 15.1. While I consider that I have jurisdiction to strike out part of the plaintiffs‘ proceedings under r 15.1, if I was

_{minded to express a view on the interpretation of s 37(6), I acknowledge
the warning}

generally expressed about partial strike-out applications.19 In the present case, as the facts are broadly not in issue, and there is, primarily, only an issue of law existing, little expense would be saved by striking-out the plaintiffs‘ remaining proceedings contrasted with the benefit of full argument on the interpretation of s 37(6).

[37] For all these reasons, the defendant‘s applications in the present case are declined. In my view, there is no reason why costs should not follow the event in this case. Costs on a 2B basis together with disbursements as approved by the Registrar are therefore awarded to the plaintiffs against the defendant.

High Court of New Zealand Decisions

Little v Jull HC Auckland CIV 2007-404 [2011] NZHC 1265; [2012] NZCCLR 3 (30 September 2011)