Fisk v Nicholls [2012] NZHC 2507 (1 October 2012)

Last Updated: 8 October 2012

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2010-485-002242 [2012] NZHC 2507

UNDER section 292 of the Companies Act 1993

IN THE MATTER OF Gravitas Limited (In Receivership and In

Liquidation)

BETWEEN JOHN HOWARD ROSS FISK AND CRAIG ALEXANDER SANSON Plaintiffs

AND MARTYN BRUCE NICHOLLS Defendant

Hearing: 25 September 2012

Appearances: R Gordon and P Roy for Plaintiffs

S McAnally and B Hojabri for Defendant

Judgment: 1 October 2012

_{RESERVED JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

[1] The plaintiffs are the liquidators of Gravitas Limited which was placed in liquidation on 25 January 2011. The defendant is a former director and shareholder in the company. On 22 and 24 April 2009 Mr Nicholls made two payments from the company bank account to himself totalling $310,300. In this proceeding the liquidators seek orders setting aside these payments and directing the defendant to repay them, under ss 292 and 294(5) of the Companies Act 1993.

[2] The liquidators filed their application on 7 June 2012 accompanied by an affidavit from Mr J H Fisk. On 12 July Mr Nicholls filed a notice of opposition and affidavits sworn by himself and by Susheel Dutt. These affidavits were sworn a few

_{days outside timetable directions made on 16 July. By the same directions the}

JOHN HOWARD ROSS FISK AND CRAIG ALEXANDER SANSON V MARTYN BRUCE NICHOLLS HC WN CIV-2010-485-002242 [1 October 2012]

plaintiff was given until 31 August to file and serve any reply affidavits and the application was set down for a half day fixture before me on 25 September 2012.

[3] On 18 September the plaintiffs filed affidavits from Mr Fisk and Mr A C Willdig totalling, with exhibits, some 469 pages. These were met with an application by Mr Nicholls for an order under r 9.76 of the High Court Rules that these affidavits not be read. He says the affidavits are not in reply, as they introduce new material.

[4] Consequently the fixture on 25 September was allocated to argument on this application. The issues before me are:

a) Are the affidavits of Mr Fisk and Mr Willdig entirely, or in part, in reply to the evidence filed by Mr Nicholls?

b) If the affidavits are not in reply, either entirely or in part, should those parts of the affidavits be struck out, or admitted with an opportunity given to Mr Nicholls to reply to those parts of the affidavits which I find to be new evidence.

[5] Rule 9.76(1)(d) provides that an affidavit must be confined, if in reply, to matters strictly in reply. Rule 9.76(2) provides that the Court may refuse to read an affidavit that, being in reply, introduces new matter.

[6] First, therefore, it is necessary to determine whether the affidavits filed are in reply to Mr Nicholls’ evidence.

[7] Mr McAnally took me through the affidavits with some care and precision, identifying by reference to groups of paragraphs in each, factual material which he said does not reply to evidence which had been given by either Mr Nicholls or Mr Dutt. Necessarily, therefore, Mr Gordon explained how those portions of the affidavits were material in reply by his witnesses. No criticism should be made of Mr McAnally’s analytical approach and I accept that it is necessary for me to review the evidence in that way in order to decide the first issue before me. However, the giving of evidence is not an imperical exercise, nor should the assessment of whether

evidence is given in reply be undertaken with the precision of a rally in a game of tennis. Rather, a firm eye must be kept by the Court on the relevance of the evidence to the issues that it will be called upon to decide when the substantive issues fall for argument, and the overriding need to ensure that each party is treated fairly and justly in the presentation of its case. At the same time the Court should bear in mind the objective of the High Court Rules, to secure the just, speedy and inexpensive

determination of any proceeding or interlocutory application.1 I am fortified in this

view by a passage from Trustees Executors Ltd v QBE Insurance (International) Ltd:2

[15] Finally, TEL calls in aid Donovan v Graham (1991) 4 PRNZ 311. There McGechan J said at 313 that, if objection is taken before trial to the admissibility of affidavit evidence, ‘the Judge must act in a manner which will best promote the overall interests of justice given the facts of the particular case’. He did so, however, subject to two notes of caution. Contested evidence, he said, must not be excluded before its full significance is known. The need to exclude irrelevant evidence inviting equally unproductive counterattack must also be balanced against the need to discourage detailed technical attacks on admissibility in advance of trial. As he said ‘there is room for pre-trial pragmatism, particularly over lesser matters’.

[16] It is in these two senses that I accept QBE’s submission that, even in an action for declaratory relief where the pleadings are complete and all the evidence is in, the full significance of challenged evidence may not be fully apparent until the issues of law are ventilated at trial. Caution is called for. I accept also that evidence that may notionally infringe need not always be excluded if it is innocuous. But there is a limit to pragmatism. Where material is obviously prejudicial s 8 imposes a duty to exclude it even before trial.

[8] It must also be remembered that evidence in reply is not confined merely to acceptance or rejection of evidence given in opposition. The latter is the factual basis of a respondent’s case, disclosed formally for the first time. It may well be necessary, therefore, and is permissible to file evidence which is new, in the sense that it was not part of the applicant’s original evidence, but presents the applicant’s factual material relevant to the respondent’s evidence. Plainly, therefore, it can potentially be extensive. Assessment of whether it is in reply rests not on its extent, nor whether it is original, but on whether it relates to the evidence of the respondent,

_{and is relevant to the issues.}

1 _{Rule 1.2.}

2 Trustees Executors Ltd v QBE Insurance (International) Ltd HC Auckland CIV-2009-404-1165,

15 September 2009, Keane J.

Mr Willdig’s affidavit

[9] Mr McAnally dealt first with the affidavit of Mr A C Willdig, who is a manager of the Strategic Business Services – Risk Management Team of the Bank of New Zealand.

[10] At paragraphs 5 to 27 Mr Willdig set out a brief history of advances made to Gravitas and a summary of its 2006 and 2007 annual accounts. Mr McAnally submitted that these paragraphs record matters of historical fact which are not in issue. I agree. In my opinion they provide context for the substantive dispute but are unlikely to be facts which are, in the final analysis, material to the decision of the Court on that dispute. It would have been preferable, if they were to be advanced at all, for them to have been included in an affidavit filed with the application. But evidence directed precisely to the issue can sometimes be assisted by an understanding of context and this material is not so objectionable as to warrant it being struck out.

[11] In paragraphs 28 to 36 Mr Willdig gives detailed evidence from the bank’s files of the state of the account between February and April 2009, including communications from Mr Nicholls, his arrangements to sell a substantial portion of the stock of the company through an agent, at substantial discounts, and the state of the advances to Gravitas up to a point a few days before Mr Nicholls withdrew the sums in issue, but after substantial credits to the account from the fire sale (as Mr Nicholls had called it) of stock. Mr Willdig says how the debit balance in the company’s Rapid Repay account had decreased with the lodging of funds from the stock but increased again to within about $75,000 of its limit when the debits were made. He responds to Mr Nicholls’ assertion that the company had a healthy cash flow, and was in one of the best financial positions it had ever been in, accordingly.

[12] I accept Mr McAnally’s submission that some of this material might appropriately have been placed in the initial affidavits for the liquidators, but having read Mr Nicholls’ evidence and this evidence I am satisfied that it is an analysis of the financial position leading Mr Willdig to a conclusion that he does not agree with

the assertions about the company’s financial position, made by Mr Willdig. It is properly clarified as evidence in reply.

[13] Mr McAnally criticises small portions of this evidence as hearsay and opinion. I am not prepared to reject one specified email as hearsay, nor to reject a statement by Mr Willdig starting with the words “It is in my view completely unsustainable ...” on the basis that it is opinion evidence. Mr McAnally was in these respects taking far too fine points. At the substantive hearing he may wish to submit that this evidence should be given diminished weight for the reasons he gave, though I express doubts about the substance of his concerns. For now I see my task as dealing with the broader picture of whether this evidence is properly in reply. I find that this it is.

[14] At paragraphs 39 to 49 Mr Willdig gave evidence on events after the cash payments were made. Primarily Mr McAnally submits that the evidence was not relevant, and he also said that if it was believed by the liquidators to be an essential part of their case it should have been in their initial affidavits.

[15] Mr Gordon said the evidence was admissible because it was part of the evidence showing a straight downhill slide for the company between late 2008 to its ultimate receivership, then liquidation, which contrasted with the considerably more rosy picture painted by Mr Nicholls in his affidavit of a company in trouble in 2008, but revived by the fire sale in 2009 and a conditional contract for the sale of the assets of the company. I have reviewed the evidence Mr Nicholls gives in his affidavit. I make no comment on whether his view of the position of the company in April 2009 will ultimately find favour with the Judge who decides the substantive issues in this case, but I am satisfied that he raised a number of issues about the state of the company in support of his position, and the liquidators are entitled to lead evidence in reply. I find that the evidence in relation to the remainder of 2009 is part of that sequence of evidence; in the end the Judge determining the case may find that limited if any assistance can be derived from the evidence relating to the period after the payments but I am satisfied it should remain before the Court. At the very least it may assist the Court with determining whether the alleged resurgence in the company’s financial position, on which Mr Nicholls places significant reliance, was

in reality a resurgence or not. And Mr Nicholls’ evidence sufficiently raised the issue of the company’s financial position throughout the period to entitle the liquidators to reply as they have.

[16] The balance of Mr Willdig’s affidavit is devoted to 2010. At paragraphs 56 onwards, Mr Nicholls gives evidence of his view of the BNZ’s actions over this time. Again, the extent to which this will be seen to be relevant by the Judge deciding the case remains for that Judge, but the evidence given by Mr Willdig is, more or less, in reply to this evidence. I say more or less because I need not analyse it on a line by line basis. I am satisfied that as Mr Nicholls has sought to give evidence on this period, the bank is entitled to respond to it in a way which it considers meets that evidence and advances its case. This evidence may remain.

Mr Fisk’s affidavit

[17] Section 296(3) provides that a court may not order the recovery of property by a liquidator where the person who received the property acted in good faith, and the court finds that a reasonable person in his position would not have suspected, and the person did not have reasonable grounds for suspecting, that the company was, or would become, insolvent. It must also be shown that the person who received the property either gave value for it or altered his position in the reasonably held belief that the transfer of the property to him was valid and would not be set aside.

[18] Mr McAnally submits that some of the evidence in Mr Fisk’s affidavit could only be explained on the basis that Mr Fisk expects Mr Nicholls to rely on a defence under this section. He specifically disavows doing so, saying that the sole issue for the Court to ultimately determine is whether the company was at the time the payments were made, able to pay its due debts.

[19] This issue arose because Mr Fisk produces as exhibits to his affidavit, and comments on, certain public statements he has found Mr Nicholls to have made before and around the time of the payments in question, which are generally to the effect that prior to the fire sale of stock the company was in a parlous state. Mr McAnally says that is not relevant given that no reliance is placed on s 296(3).

Accordingly Mr McAnally says I should strike out paragraphs 1 to 16 of Mr Fisk’s

affidavit.

[20] Mr Gordon says that Mr Nicholls’ case is that the fire sale of the stock fixed everything financially; as that is the case being put up in defence of the application, the liquidator was entitled to answer it. The Court would need to examine whether the alleged resurgence was real or not. He says the evidence of contemporaneous statements would assist the Court comparing the actual state of affairs of the company with the way Mr Nicholls thought it was at the time. He said that the Court is being asked to accept Mr Nicholls’ present view of what the fire sale of the wine achieved and the liquidators are entitled to reply to it by showing what he said at the time.

[21] In my view the evidence about statements made publicly by Mr Nicholls as produced by the liquidators is of scant relevance to the issue which will come before the Court, given that s 296 is not relied on. On the other hand I do not see it as being particularly prejudicial. If I was prepared to comb through the evidence clause by clause assessing relevance in advance of the hearing, this passage of the evidence may struggle to survive. However, I do not see that as my task. A submission can be made to the Judge determining the application that this evidence does not advance matters; similarly the liquidator may seek to argue that it does. It is perhaps stretching the concept of evidence in reply to thus classify these paragraphs, but taking a broad view of the case in the interests of justice, as I have determined is appropriate, I am prepared to leave these paragraphs in evidence.

[22] Mr McAnally then takes issue with a number of the remaining paragraphs in Mr Fisk’s affidavit. I have read Mr Nicholls’ affidavit and considered the evidence of Mr Fisk in his affidavit, up to the point where he turns to the evidence of Mr Dutt. Throughout this portion of the affidavit he specifically refers and responds to Mr Nicholls’ affidavit. I am satisfied that this evidence is properly classified as evidence in reply.

[23] In relation to Mr Fisk’s evidence on Mr Dutt’s affidavit, I agree with

Mr McAnally that some criticism can be levelled at the inclusion in Mr Fisk’s

affidavit of evidence relating to Mr Dutt’s professional past. The matters raised may go to the weight to be given to Mr Dutt’s evidence where it conflicts with the evidence by or for the liquidators but the appropriate way for it to be introduced is by way of cross-examination. In the context of the present application, the evidence replies to Mr Dutt’s accreditation of himself as an expert and is within the ambit of an affidavit in reply accordingly.

[24] I have reviewed the balance of the response given by Mr Fisk to Mr Dutt’s affidavit. In my view all of the evidence given is properly classified as being evidence in reply. Mr McAnally appears to accept that, but criticises it on the basis that it was related to what he submits is the inappropriate criticism of Mr Dutt’s professional expertise or integrity. I do not read it that way. I find the balance of Mr Fisk’s affidavit in relation to Mr Dutt’s evidence is acceptable evidence in reply.

Outcome

[25] As I have found all the evidence given for the liquidators to be evidence in reply, I need not advance to the second issue identified in paragraph 4.

[26] The application is dismissed. The substantive application is to be allocated a fixture, one day reserved.

[27] The applicants are to file and serve a paginated bound indexed bundle containing copies of all relevant pleadings and affidavits filed by the applicants and the respondent, together with the applicant’s synopsis under r 7.39 ten working days before the hearing and the respondent is to file and serve a synopsis five working days before the hearing.

[28] The liquidators have been successful in defending the application. In assessing costs I think it just to take into account the late filing of the reply evidence. It is easy to envisage the consternation which the service of nearly five hundred pages of material, just a few days before the allocated fixture and outside the timetable set by the Court, must have caused. There was little time to assimilate evidentiary material of this extent, and I have little doubt that a request for an

adjournment would have been favourably considered. Overall I find the justice of the case is met by awarding the liquidators 50 per cent of costs on a 2B basis, plus

_{full disbursements fixed by the Registrar.}

J G Matthews

_{Associate Judge}

Solicitors:

MinterEllisonRuddWatts, DX CP20009, Wellington. Email: [e-mail] [e-mail]

Keegan Alexander, PO Box 999, Auckland 1140. Email: [e-mail]