Delegat v Norman [2013] NZHC 3485 (17 December 2013)

Last Updated: 20 February 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-004444 [2013] NZHC 3485

BETWEEN JAKOV NIKOLA DELEGAT aka JIM DELEGAT as trustee of the Jim Delegat Business Trust

First Plaintiff

BOAT 93 HOLDINGS LIMITED (In liquidation)

Second Plaintiff

AND CHRISTOPER JOHN NORMAN Defendant

AND JULIE ANNE SALTHOUSE Third Party

Hearing: 11 October 2013

Appearances: P Davison QC and CT Patterson for Plaintiffs D Chisholm QC and T Mullins for Defendant E Werry for Third Party

Judgment: 17 December 2013

JUDGMENT OF WOOLFORD J

_{[Re: application to recall judgment of 4 December 2012]}

This judgment was delivered by me on Thursday, 19 December 2013 at 2.30 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors: Jones Young, Auckland Lowndes Associates, Auckland Simpson Dowsett Mackie, Auckland LeeSalmonLong, Auckland

P Davison QC, Auckland

D Chisholm QC, Auckland

C T Patterson, Auckland

G P Blanchard, Auckland

DELEGAT & ANOR v NORMAN & ANOR [2013] NZHC 3485 [17 December 2013]

Introduction

[1] On 4 December 2012, I issued a judgment in which I dismissed a claim by the plaintiffs against the defendant. Over nine months later, on 18 September 2013, the plaintiffs filed an application for recall of my judgment and an order that the proceedings be reheard.

[2] The application arose in the following way. In my judgment of 4 December

2012, I noted that costs should follow the event and if counsel were unable to agree I would receive memoranda. Counsel were unable to agree and during the course of negotiation, counsel for the defendant provided counsel for the plaintiffs with a copy of extracts from counsel’s time and attendance records. Counsel’s time and attendance records allegedly disclosed that:

(a) The third party’s primary brief of evidence was briefed and prepared in whole or in part by counsel for the defendant. That work was undertaken at the defendant’s cost and with the defendant’s approval and with the knowledge and involvement of the third party’s counsel;

(b) Junior counsel for the defendant, when briefing and/or preparing the third party’s brief of evidence, communicated directly with her regarding the contents of her affidavit sworn 14 May 2010, the contents of which were materially unfavourable to the defendant and which the third party recanted in her brief of evidence;

(c) During the hearing itself, counsel for the defendant continued to draft supplementary evidence for the third party and, together with the defendant, met with the third party and her counsel to discuss the third party’s evidence and trial strategy; and

(d) Settlement discussions occurred between the defendant and the third

party at the conclusion of the third party’s oral evidence.

[3] During the hearing itself, the third party was asked, when under cross- examination by counsel for the plaintiffs, whether the defendant’s lawyers had

prepared her brief of evidence at some point or had some input into it. The third party responded denying any such involvement. She was also asked whether she had any assistance with her brief of evidence to which she responded that her counsel had advised her on what she should and should not put in her evidence. Finally, she was also asked at what stage she realised that her 14 May 2010 affidavit evidence was incorrect. The third party responded that she only realised that her affidavit evidence was incorrect when she reread the affidavit one week to ten days prior to the trial.

[4] Counsel for the plaintiffs allege that the third party’s responses were materially incorrect and misled both the Court and counsel for the plaintiffs into believing that counsel for the defendants had no involvement in the briefing and/or preparation of her evidence. It is also alleged that the third party knew or ought to have known that her responses were materially incorrect and that they were likely to mislead the Court and counsel for the plaintiffs.

[5] Counsel for the plaintiffs allege that if the third party had disclosed the involvement of counsel for the defendant in the briefing and preparation of her evidence, the nature, extent and materiality of that involvement would inevitably have been investigated by counsel for the plaintiffs. This could have been assessed and considered by the Court during the hearing, together with any consequent impact on the credibility of the evidence given by the third party and the defendant.

[6] Instead, it is alleged that counsel for the plaintiffs was denied the opportunity to question the third party regarding, and assess the nature and extent of, the involvement of counsel for the defendant in the preparation of her evidence. The Court was denied the opportunity (if it had considered it was necessary) to question counsel for the defendant and/or counsel for the third party directly regarding the nature and extent of their involvement in the preparation of the third party’s evidence.

[7] It is also alleged that the Court was denied the opportunity to investigate and assess any potential for such involvement by counsel for the defendant to have

influenced the third party’s evidence. Counsel for the plaintiffs was denied the opportunity to make submissions in relation to the matter.

[8] Finally, it is alleged that the Court was denied the opportunity to investigate and assess the extent to which the defendant was involved in the preparation by counsel for the defendant of the third party’s brief of evidence and/or the extent to which (if at all) the defendant influenced the content of the third party’s evidence.

[9] The plaintiffs submit that having regard to the context of the evidence given by the third party and the changes made by her in her evidence before the Court, as contrasted with the account contained in her affidavit sworn 14 May 2010 and as pleaded in her statement of defence, the issue was material and of vital significance to the issues to be determined by the Court in the proceeding.

[10] In the plaintiff ’s application for recall, complaint was also made about contact between counsel for the defendant and two witnesses who were called to give evidence under a subpoena, Ms Emma Tallentire and Mr Stephen Bates. Counsel’s time and attendance records allegedly disclosed that:

(a) Junior counsel for the defendant had a discussion with Ms Tallentire’s solicitor about the possibility of Ms Tallentire being paid to assist the defendant in the preparation of his evidence; and

(b) Junior counsel also emailed portions of the defendant’s brief of

evidence to Mr Bates and telephoned and met briefly with Mr Bates.

Legal principles

[11] The leading statement of the law in New Zealand on the recall of judgments is Horowhenua County v Nash (No 2):¹

Generally speaking, a judgment once delivered must stand for better or worse subject, of course, to appeal. Were it otherwise there would be great inconvenience and uncertainty. There are, I think, three categories of cases in which a judgment not perfected may be recalled – first, where since the hearing there has been an amendment to a relevant statute or regulation or a

¹ Horowhenua County v Nash (No 2) [1968] NZLR 632 (SC) at 633.

new judicial decision of relevance and high authority; secondly, where counsel have failed to direct the Court’s attention to a legislative provision or authoritative decision of plain relevance; and thirdly, where for some other very special reason justice requires that the judgment be recalled.

[12] The only ground that could be invoked by the plaintiffs is the third category set out above, namely, where for some other very special reason justice requires that the judgment be recalled. The threshold for such an application is a high one. I accept the submissions of counsel for the defendant that even fraud or perjury is of itself not enough. A plaintiff seeking to recall a judgment on the grounds of fraud must give full particulars of the fraud and prove it to a high standard. There must be an evidential foundation sufficient to establish a prima facia or arguable case. In

Shannon v Shannon² the Court of Appeal set out the basis upon which a judgment

may be recalled on the grounds of fraud in England. There must be: (a) Evidence newly discovered since the trial;

(b) Evidence that could not have been found by the time of the trial by exercise of reasonable diligence;

(c) Evidence so material that its production at the trial would probably have affected the outcome; and, when the fraud charged consists of perjury, then

(d) The evidence must be so strong that it would reasonably be expected to be decisive at a re-hearing and if unanswered must have that result.

[13] In other words, the fraud must go to the heart of the judgment. Courts will not be sympathetic to applications for recall that simply amount to attempts to re- litigate matters that have already been considered by the Court in reaching the

_{original decision.}

² Shannon v Shannon [2005] NZCA 83; (2005) 17 PRNZ 587 (CA) at [104].

Discussion

[14] Much of the argument during the course of the hearing focused on the law relating to dealings with witnesses as, in essence, counsel for the plaintiffs alleged that the actions of counsel for the defendant resulted in witness collaboration and/or collusion and/or coaching, all of which were said to be improper.

[15] Counsel for the plaintiffs acknowledged that issues relating to dealings with witnesses do not appear to have been considered in any reported cases in New Zealand, although they have been the subject of academic writing. Australia has, however, regulatory prohibitions on group briefings of witnesses and counsel was only able to find express consideration of the propriety of such conduct in Australian case law. After referring to a number of Australian cases, counsel for the plaintiffs submitted that the issues which have arisen in the present case represent a far more serious departure than in the cited Australian cases. While counsel for the plaintiffs acknowledged that there was (unlike in Australia) no express rule in New Zealand prohibiting the conduct at issue, it was, in counsel’s respectful submission, nonetheless clearly improper. Counsel for the plaintiff referred to the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Client Care Rules) and its requirement that lawyers are obliged to facilitate the administration of justice and have an obligation not to act in any way that undermines the processes of the Court. Reference was also made to counsel’s absolute and overriding duty of honesty to the Court, in that they must not mislead or deceive the Court or be complicit in the Court being misled or deceived.

[16] Counsel for the defendant submitted that any improper conduct would not, without meeting the high threshold for recall of judgments, be a sufficient ground, in itself, to justify recall, but submitted that it was apparent that there was nothing improper in the dealings with the witnesses in any event. Counsel for the defendant also referred to the Client Care Rules, noting that there is no prohibition on interviewing witnesses of another party nor assisting witnesses to prepare briefs of evidence nor testing evidence proposed to be given by pointing out inconsistencies with the evidence of other witnesses. On the contrary, counsel for the defendants submitted that the Client Care Rules expressly provide for such conduct. Counsel

also submitted that these rules must also be viewed against the fundamental and longstanding rule that there is no property in a witness.

[17] With respect to the detailed and meticulous submissions of both counsel, I do not think it necessary for me to determine the scope of counsel’s duties to witnesses in the context of this application. I am of the view that it is also unnecessary for me to make any findings in relation to what occurred between counsel for the defendant and the third party during the course of preparation for trial as I have formed the view that, even if the conduct of counsel for the defendant did not meet the requisite standard, whatever that may be, it still does not meet the high threshold required for recalling a judgment. That is, in essence, because, even if everything alleged by counsel for the plaintiffs did occur and I had knowledge of it during the course of the trial, it would not have made any difference to my findings of fact for the following reasons:

(a) I accepted the defendant as a credible and reliable witness on the basis of his evidence and the documentation alone. In making my assessment of the defendant’s evidence, I did not need to have reference to the evidence of the third party or to that of Ms Tallentire or Mr Bates. Although at [30] of my judgment of 4 December 2012, I did refer to the evidence of both the defendant and the third party as being mutually supportive, I would have reached the conclusion that the defendant was not a shadow or de facto director of any of the boat building subsidiaries even without the evidence of the third party or even if she had given evidence to the contrary because of the defendant’s consistently reliable account and the lack of documentation to suggest otherwise. The defendant was an impressive witness. The nature, extent and materiality of the involvement of counsel for the defendant in the preparation of the third party’s brief of evidence did not have any impact on the defendant’s credibility.

(b) Counsel for the plaintiffs had ample opportunity to cross-examine the third party on the circumstances under which she had sworn her

earlier affidavit on 14 May 2010 and the inconsistencies between it and the evidence she gave at the hearing. The third party was, however, not cross-examined on the express reasons given by her in her brief of evidence for her change of position. I therefore accepted these reasons in assessing the weight to be given to her evidence at the hearing. The reasons she gave were that at the time, she was employed by Mr Delegat’s company and was supplied with a draft affidavit from Mr Delegat’s lawyers without a recommendation for her to obtain separate legal advice on its contents. She also said she was in an emotional state and did not have access to the documentation. On the other hand, the evidence she gave at the hearing was consistent with the evidence of the defendant and with the documentation. Therefore, even if the initial draft of her brief of evidence had been prepared by counsel for the defendant, it was in my view more reliable than her earlier affidavit on 14 May 2010. An acknowledgement that a preliminary draft of the third party’s brief of evidence had been prepared by counsel for the defendant would not have made a difference to my view of her credibility and reliability.

(c) At the hearing of the application, the plaintiffs did not advance the allegations in respect of Ms Tallentire. As to the allegations in respect of Mr Bates, counsel for the defendant had previously arranged for a subpoena to be issued to Mr Bates, but it was never served because the plaintiffs subpoenaed Mr Bates and supplied a brief of evidence signed by him. In preparing for his evidence, Mr Bates was asked by counsel for the defendant to comment on portions of Mr Norman’s brief of evidence. Mr Bates confirmed that the portions in Mr Norman’s brief were accurate. In my view this is permissible in accordance with the Client Care Rules, in particular, r 13.10.8 (and footnote 24). The plaintiffs did not have the sole right to call or discuss the case with Mr Bates and there was nothing wrong or unusual in counsel for the defendants discussing the case with Mr Bates prior to him giving his evidence. There is no evidence that he was influenced in any way by counsel for the defendant. Even if

there was, his evidence was not sufficiently material to my key findings to meet the high threshold. His evidence did not contradict the evidence led by the plaintiffs. Rather, he gave additional evidence of positive sale prospects as at the end of 2009. This was an issue upon which the plaintiffs had resolved not to lead evidence.

(d) The claim against the defendant essentially alleged breaches of ss 135 and 136 of the Companies Act 1993. The central allegations were that:

(i) The defendant was a shadow director and/or de facto director of the second plaintiff;

(ii) The defendant breached his duties to the second plaintiff and its parent company, Salthouse Marine Limited, by continuing to trade those companies and/or allowing the second plaintiff and Salthouse Marine Limited, as guarantor, to incur obligations to the first plaintiff in November 2009.

The plaintiffs did not however plead that the third party, who was the sole director of the second plaintiff, was accustomed to act in accordance with the defendant’s directions or instructions, which would have made the defendant a shadow director. I also found that the matters pleaded in the statement of claim did not support the plaintiffs’ submission that the defendant was a de facto director. As far as continuing to trade was concerned, I found that the defendant had, in fact, improved the position of the unsecured creditors during the time he was a director of Salthouse Marine Limited by advancing substantial funds to the company. This was a conclusion I reached from an analysis of the financial records of the company. The plaintiffs did not produce any evidence to support submissions of fraud or dishonesty on the part of the defendant. These key findings remain undisturbed regardless of any dealings counsel for the

defendant may have had with the third party or witnesses called by the

_plaintiffs.

Conclusion

[18] The application for recall of my judgment and an order that the proceedings be reheard is dismissed. Costs should follow the event. If counsel are unable to agree I will receive memoranda.

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