La Famia No 1 Limited (in liquidation) v Gan [2014] NZHC 3158 (10 December 2014)

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BETWEEN	LA FAMIA NO 1 LIMITED (in liquidation) Plaintiff
AND	KAIWAN GAN and JUZHEN YU First Defendants
AND	WIGRAM BASE LIMITED Second Defendant

Hearing:	1 December 2014
Appearances:	K W Clay for Applicant for new parties order (H L Wilfred) S Caradus for First Defendants/Respondents N R W Davidson QC for Second Defendant/Respondent (H D P van Schreven for liquidator of plaintiff, excused from appearing)
_Judgment:	_{10 December 2014}

LA FAMIA NO 1 LIMITED (in liquidation) v GAN [2014] NZHC 3158 [10 December 2014]

[1] Harmon Wilfred wants to replace the current plaintiff in this proceeding, La Famia No 1 Ltd (in liquidation) (LF1), with himself. He says that LF1 has assigned the benefit of the proceeding to him.

(a) the deed of assignment relied upon by Mr Wilfred is ineffective as it purports to be an assignment by the liquidator of LF1, rather than by LF1 itself (second defendant’s argument only);

(b) any purported assignment by LF1 is of a bare right of action and is void on grounds of public policy and abuse of process. The assignment is not within the exception to the rules relating to maintenance and champerty which allow an assignment if the assignee has a genuine commercial interest in taking the assignment and enforcing it for his own benefit;

(d) whereas LF1 in the proceeding pursues damages of $75,483 in relation to assets alleged to be held by one or more of the defendants, the value of LF1’s chattels was $16,000 – as such it would be an abuse of process for a plaintiff to pursue the claim;

(e) Mr Wilfred is an illegal overstayer so that it is neither necessary or desirable that he be made a party to the proceeding.

[3] New parties orders are provided for by r 4.52 High Court Rules, which relevantly provides:

(1) Subclause (2) applies if, after a proceeding has commenced, there is an event causing a change or transmission of interest or liability (including death or bankruptcy) or an interested person comes into existence, making it necessary or desirable—

(2) An application without notice may be made for an order that the proceeding be carried on between the continuing parties and the new party (a new parties order).

[4] Although r 4.52(2) permits an application to be made without notice, I directed in this case that the application proceed on notice. I did this because it was clear at that point that there was objection to the making of the desired order from at least the second defendant.¹

(a) that there has been a qualifying event (of change or transmission of interest or liability or the coming into existence of an interested person); and

The purpose of r 457 is to facilitate the carrying-on of proceedings without undue expense and delay.

To justify me in making the order asked for it must be shown that it is “necessary or desirable” that it should be made. In considering whether this has been shown, I have to exercise a discretion.

[8] The onus is upon the applicant to establish both circumstances, and the Court then retains its discretion as to whether to make an order.⁴

[9] The Court, in granting a new parties order, may impose terms, particularly where such will prevent injustice, prejudice or disadvantage to other parties.⁵In Colonial Patent Cheese Hoop Co Ltd v Alexander Harvey and Sons, the Chief Justice, Sir Charles Skerrett, explained the requirements as to absence of prejudice or disadvantage, with particular reference to costs, in this way:⁶

I think, in the first place, it is clear that the plaintiffs ought not to be discharged from the action, and so escape a possible liability already incurred by them, unless the Court is satisfied that the new plaintiff is in a financial position to bear the costs of the action from the beginning if, as a result of the proceedings, costs should be awarded against it. In the second place, I think it is clear that the original plaintiffs cannot be made liable for the costs of the action after they have ceased to be plaintiffs.

[10] In the substantive proceeding, LF1 sues the defendants on the basis that the first defendant sold assets of LF1 including chattels, software and intellectual property to the second defendant.

[11] In the judgment of Whata J on the application for an interim injunction in this proceeding, his Honour set out the background as presented by LF1 in pursuing this

⁴_{Eddowes v Slade, above n 3; Greening v Ormond
[1961] NZLR 965 (SC) at 968.}

⁵Eddowes v Slade, above n 3; Colonial Patent Cheese Hoop Co Ltd v Alexander Harvey and Sons

[1] La Famia No. 1 Limited (“LF1”) ran a restaurant business out of premises owned by Kaiwan Gan and Juzhen Yu. In July 2013 LF1 was evicted from the premises. LF1 claims that Mr Gan and Mr Yu seized LF1’s assets located at the premises. Those assets are said to include furniture, fixtures, equipment, business records, software and intellectual property. The premises were subsequently sold to Wigram Base Limited (“Wigram”). LF1 says that its assets were also sold to Wigram.

[2] LF1 has commenced proceedings in both conversion and unlawful interference with LF1’s business against Mr Gan and Mr Yu and Wigram. LF1 now makes an application for an interim injunction seeking the following:

(a) Wigram cease trading business as a restaurateur, accommodation, bar and function centre.

[4] LF1 occupied premises at 14 Henry Wigram Drive under a sublease from La Famia No. 2 Limited (“LF2”) for the purpose of carrying on the business of a restaurant/bar/function centre and accommodation provider. By the end of 2012, however, LF2 was not able to pay rent and in February 2013 went into voluntary liquidation. LF2’s liquidator then disclaimed the lease. Nevertheless LF1 continued to occupy the premises until 1 July 2013 when it was evicted. Attempts by LF1 to avoid this outcome via proceedings in the High Court and then in the Court of Appeal have failed, thought I note that neither sought to appeal to the Supreme Court.

[5] LF1 complains that the eviction and associated trespass notices meant that it was unable to retrieve any of its business including furniture, fixtures, equipment, business records, software and intellectual property. Further, it is said that the liquidator of LF2 met with Mr Gan and Mr Yu to discuss which of the assets remaining at the property belong to LF1. It is said that a request was made that any chattels not be removed from the property until the chattel list was resolved and ownership determined. LF1 says that this never occurred and instead Mr Gan and Mr Yu assembled their own list of chattels without any involvement of the liquidator or LF1.

[6] In August 2013 Mr Gan and Mr Yu entered into an agreement for the sale and purchase of the premises with Wigram. It appears that Wigram also obtained chattels located at the premises. It is common ground that Wigram now trades as a restaurant/bar/function and accommodation centre from the premises.

[12] In February 2014, Lynda Smart and Kieran Horne were appointed as liquidators of LF1. In June 2014, Murray Allott was appointed liquidator of LF1 in their place. A month later, by the deed dated 9 July 2014 on which this application is based, Mr Allott as liquidator of LF1 purported to assign the benefit of this proceeding to Mr Wilfred in consideration of the sum of $5,000. The body of the Deed of Assignment is set out as Schedule 1 to this judgment.

[13] Mr Allott deposes that there was no money in the liquidation. The previous liquidators appointed were owed approximately $12,000 for fees and the Inland Revenue Department was a preferential creditor for approximately $90,000. As Mr Allott had no interest in continuing the proceedings as liquidator, he accepted Mr Wilfred’s offer of $5,000 so that he could complete the liquidation.

[14] Mr Gan deposes that the liquidator, in accepting Mr Wilfred’s offer of $5,000, did not seek Mr Gan’s views (Mr Gan being a creditor) nor did he enquire whether Mr Gan was willing to settle for more.

[15] The second defendant’s solicitor, Roger Brown, deposed as to discussions he had had with Lynda Smart as liquidator in which he learnt of an approach by Mr Wilfred to purchase the proceedings. He says that he told Ms Smart that she should speak with the defendants before concluding any sale of the chose in action. Mr Brown deposed that he subsequently had similar discussions with Hans van Schreven, the solicitor acting for the new liquidator, Mr Allott, before a few days later learning that the liquidator had assigned the proceedings to Mr Wilfred.

[16] Ms Smart deposed (in reply) that while she was liquidator she had discussions with Mr Brown in which she told Mr Brown that a person (whom she did not name to Mr Brown) had made an offer to purchase the proceeding. She states that Mr Brown did not take up a suggestion that the second defendant consider making an offer to the liquidator, Mr Brown saying that the proceeding was without merit.

[17] Mr van Schreven filed an affidavit in which he acknowledged that Mr Brown had spoken to him of the second defendant’s interest in acquiring the proceedings from the liquidator. He deposes that there was no discussion beyond a mere expression of interest. When Mr Brown first expressed interest, Mr van Schreven had not seen or had a chance to review the proceedings. He acknowledges that while he was still yet to review the proceedings on 2 July 2014 he received a further telephone call from Mr Brown enquiring as to progress on the matter. Mr van Schreven reviewed the proceedings the next day, 3 July 2014, and provided advice to the liquidator.

[18] The next day he received instructions from the liquidator to prepare documentation for what he understood to be an agreed assignment of the proceeding to Mr Wilfred for $5,000.

[19] Mr Wilfred explains his reason for taking an assignment of the interest of LF1 in this proceeding as lying in the relationship between LF1 and LF2 and his guarantee of LF2’s rental payments:

... I am being sued by the first defendants in the District Court at Christchurch on a best efforts personal guarantee which it is alleged I have breached. ... The alleged guarantee relates to the head lease for the premises which was held by La Famia No 2 Limited. La Famia No 1 Limited was obliged to pay rental for the premises to La Famia No 2 Limited. The business of La Famia No 1 Limited ensured and supported the performance of the obligations under the lease, which lease forms the basis of the claim against me personally.

[21] It is common ground between counsel that this represents the assignment of a thing in action (or, in the old terminology, a chose in action).

[22] Although the defendants had initially included as grounds of opposition the proposition that the assignment did not fall within the exception to the rules relating to maintenance and champerty, and was void as a purported assignment of a bare right of action, counsel withdrew reliance on that ground of opposition at the hearing. Mr Caradus acknowledged that the statutory position of the liquidator established his entitlement, in the same way as applies to an assignee in bankruptcy,

[23] For the first defendants, Mr Caradus’s submissions did not build on the ground of opposition which asserted that Mr Wilfred is an illegal overstayer, therefore it is neither necessary or desirable that he be made a party to the proceeding. Mr Wilfred had taken issue with the suggestion that he is an illegal overstayer.

[24] Even had Mr Caradus pursued submissions in this regard, I would not have found that either the evidence or logic supported this as a valid ground of opposition. The civil jurisdiction of the Court is a fundamental aspect of the rule of law, enabling people of whatever background to come to the Court for the civil resolution of disputes. The first defendants’ objection based on Mr Wilfred’s rights or lack of rights of residency is groundless.

[25] In his oral submissions, Mr Caradus accepted that the “illegal overstayer” allegation was not so much a ground of opposition in its own right but rather a matter relevant to threshold considerations which arise in relation to the potential for incurring undue costs as a consequence of this litigation.

[27] There are two aspects to costs in this proceeding. First, when the plaintiff failed on an interim injunction application, the Court awarded costs in favour of the second defendant,⁹with costs subsequently determined to be on a 2B basis together

with disbursements as fixed by the Registrar.¹⁰Mr Caradus informs me that the

order for those costs, which has not been met, is on the point of being sealed (with only one item relating to a conference remaining in issue). Mr Clay indicated that Mr Wilfred would accept as a condition of any new parties order a requirement that the awarded costs and disbursements be paid within 10 working days of my judgment.

[28] Secondly, Mr Caradus filed for the hearing a calculation of the remaining costs of the proceeding, through to a hearing of three days, calculated on a 2B basis. He calculated costs for the first defendants, if successful, at $38,805. Mr Davidson provided a similar schedule for the second defendant’s costs totalling $34,427.

[29] Mr Clay did not provide an alternative analysis. The defendants’ sets of calculations appeared realistic.

[30] At the hearing, Mr Clay did not go so far as to submit that the threshold for security for costs (based on reason to believe that the plaintiff will be unable to pay costs if unsuccessful)¹¹is not made out in relation to Mr Wilfred’s proceeding. Rather, Mr Clay indicated that, in addition to satisfying the previous costs award, the

_{plaintiff could provide a larger sum for security if allowed time to
arrange payment.}

[31] Counsel did not seek leave at the hearing to subsequently file additional evidence or submissions on the costs position. Nonetheless, an affidavit of Mr Wilfred sworn 2 December 2014 (the day after the hearing) was filed on 3 December

2014 with a request by Mr Clay that leave be granted to read Mr Wilfred’s additional affidavit, given that “the issue was discussed in the Court hearing yesterday”. As the second defendant’s costs calculations were filed on the day of the hearing, it is appropriate that Mr Wilfred have the opportunity to present evidence specifically on security for costs issues.

(a) the Court should take into account the strength of his case as a serious issue to be tried;

(c) that as assignee Mr Wilfred will be significantly affected in his opportunity to properly fund legal counsel for the proceeding if security is ordered.

[33] Mr Clay submits that, in the event the Court makes a new party order, there should be no condition attaching to it as to security for costs.

[34] The discretion under r 4.52 must be exercised in the light of the purpose of the rule (as identified in Smytheman v Clark)¹²that is to facilitate the carrying-on of proceedings without undue expense or delay.

[36] I find that it counts against the exercise of a discretion that there is a real issue as to the correct construction of the deed of assignment. The avoidance of “undue expense or delay”, as identified in Smytheman v Clark, is unlikely to be achieved if the very instrument or event upon which the applicant for a new parties order relies is of debatable meaning or effect. The defendants, upon learning of the purported assignment, raised the question of validity at the earliest point. If the intended construction of the deed of assignment is precisely as Mr Wilfred contends, the Court and the other parties might reasonably have expected that Mr Wilfred would approach the liquidator and obtain an amended or fresh deed which no longer permits a contrary construction argument to be made.

[37] In my judgment the defendants are entitled in these circumstances to submit that Mr Wilfred’s reliance on the present deed of assignment is likely to result in the defendants incurring undue expense and delays. If I were to make a new parties order, notwithstanding the defendants’ construction argument, there would flow rights of review of my decision to this Court and thereafter a right of appeal to the Court of Appeal. The concern arises because the drafting of the deed of assignment has left room for argument (notwithstanding that there may be significant strength in Mr Clay’s submission that there has been a valid assignment).

[39] It is common ground between counsel that the assets of LF1 (including the proceeding which has been purportedly assigned) remained at all times after the appointment of the liquidators in the ownership of LF1 itself. Mr Clay accepted that the liquidator himself could not assign the proceeding.

[40] In this case, the deed of assignment (as set out in Schedule 1) identifies in capital letters the Assignor as MURRAY GEORGE ALLOTT, and then identifies him as “... of Christchurch, Chartered Accountant as Liquidator of La Famia No 1

Ltd (In Liquidation)”. The fact that the draftsperson of the deed was intending to identify Mr Allott as the party to the deed is then reinforced by the first recital which states:

The assignor is the Liquidator of La Famia No 1 Ltd (in Liquidation) following his appointment on Monday the 9^thof June 2014 as a replacement Liquidator.

SIGNED BY ) MURRAY GEORGE ALLOTT ) as Liquidator of La Famia No 1 ) Limited (In Liquidation) ) as Assignor ) in the presence of: )

[41] Mr Clay submitted that there were two bases upon which Mr Wilfred was clearly entitled to the assignment under the deed, namely through correct construction of the deed or through rectification. (Mr Clay in his submissions devoted to two sentences to rectification, submitting that it is available and would require only the change of the operative words in cl 1 whereby the assignor assigns all the assignor’s interest to the assignee to read that the assignor assigns all “the company’s interest”).

[42] While there may have been some strength in that submission if Mr Wilfred and/or the liquidator had given evidence particularly addressing an oral agreement which was reached which was then misrecorded, evidence to that effect was not submitted. Mr Allott gave evidence as to what he was prepared to do and speaks of instructing his solicitors to prepare the deed of assignment. Mr Wilfred’s evidence is simply to the effect that he entered the deed of assignment on the basis that it was a deed which was going to effect an assignment, rather than that he and the liquidator had reached an agreement of assignment which was then misrecorded in the deed.

[43] Mr Clay’s focus was rather on the construction of the deed. He submitted, and I recognise there is strength in the submission, that an ambiguity runs through the deed. He submits that the defendants would have the Court adopt a very strict interpretation of the words in the deed.

[44] Mr Clay invokes the principles of contractual construction which require the Court, in the event that wording contains ambiguity or is otherwise susceptible of two interpretations, to adopt the interpretation which best accords with common

sense.¹³Mr Clay relies on observations in Vector Gas Ltd v Bay of Plenty Energy Ltd for the right of the Court to go outside the terms of the written instrument to reach a construction which does not flout business common sense.¹⁴

[45] I was referred to a number of cases in which the Court was concerned with the construction of terms and conditions of contracts. Mr Clay did not refer me to any authority in which the modern approach to construction evident in cases such as Vector Gas has been applied to deal with an uncertainty in relation to the identity of a party. It cannot be assumed that the same principles apply. In Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) Lord Millett stated:¹⁵

The identity of the parties to a contract is fundamental. It is not simply a term or condition of the contract. It goes to the very existence of the contract itself. If it is uncertain, there is no contract.

[46] In my own research since the hearing I have identified passages in Australian authorities in which the Courts have approved the admission of evidence to identify the parties to a contract.¹⁶

[47] A particular difficulty which arises in this case is that there is room for argument on the face of the deed that the intending parties to the deed were Mr Allott and Mr Wilfred. The fact that they may have decided on that approach as a result of mistake does not alter who the parties to the deed were. It is one thing, when ambiguity or misstatement arises in a contract, to effectively reinterpret or amend the words used: it is an entirely different proposition (short of rectification) to treat the parties as being misstated.

[48] In the absence of cited authority, I gave counsel a short period after the hearing to provide to me with any authorities specifically of assistance in relation to the approach to identifying the parties to the contract. Counsel did not provide any

¹⁴Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [11], [22] and

¹⁵Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12, [2004] 1 AC 715 [The

¹⁶Gilberto v Kenny (1983) 48 ALR 620 (HCA) at 623; Roman Catholic Trusts Corp v Van Driel

[49] The issues which arise in relation to the identity of the parties to the contract reinforce my conclusion that a new parties order is likely to lead not to a swift resumption of the progress of this proceeding towards a trial but to the prospect of delay and expense through interlocutory proceedings whether for summary judgment, strike out or otherwise.

Issue 2 – did the liquidator act reasonably and efficiently in assigning the proceedings

[51] First, Mr Caradus refers to the well-settled position that a liquidator ought not to traffic in frivolous or vexatious proceedings.

[52] Mr Caradus referred to Callis v Pardington.¹⁷Callis v Pardington was an appeal to the Court of Appeal from a judgment of the High Court in which Barker J declined an application for leave to sue a company under statutory management.¹⁸

The intended defendants took issue with the decision of the Official Assignee to assign the rights of a bankrupt and companies in liquidation to the intending plaintiff.

[53] The Court of Appeal upheld the High Court judgment. The Court of Appeal framed the issue as whether the Official Assignee’s action was in all the circumstances, including an absence of consultation with creditors and receivers, unreasonable. McKay J, delivering the judgment of the Court, stated:¹⁹

We accept that there will be cases where the Official Assignee may properly decide that he should not pursue a disputed claim because the likely cost is disproportionate to the possibility of benefit to creditors. In such a case, it may be proper for the Official Assignee to assign the cause of action to a party willing to take the risk at that party’s own expense while undertaking to account for part of the proceeds if successful. We do not see how the Official Assignee can properly make such decisions without first evaluating both the strength of the claim and its likely result. That evaluation must be undertaken with such advice as the Official Assignee requires, and incurring such expense as the Official Assignee feels justified. The Court is not going to reverse the decision merely because it disagrees with it. A decision made

without any attempt at evaluation and without advice, however, is likely to be unreasonable. We think counsel was right to exclude the assignment of frivolous and vexatious causes of action, even where there is no cost to the Assignee or the estate, and where there is a theoretical possibility of ultimate gain. Frivolous and vexatious proceedings are an abuse of the process of the Court, and it is no part of the proper carrying out of an Assignee’s or liquidator’s functions, as officers of the Court, to traffic in such proceedings.

We think Barker J adopted a correct approach in considering the assignments. He was entitled to infer from the limited material put before him that the Official Assignee had acted solely on the advice of his office solicitor as to the legal power to assign. The Official Assignee apparently did not refer to the previous correspondence or take into account the earlier letters sent from his office to allay the receiver’s concerns. These included the office solicitor’s assurance that any question of claims would be within the control of the Official Assignee, and the Official Assignee’s own communication of his decision that he would not sue the receivers. The question is not, as counsel suggested, whether the Official Assignee was bound by that decision. Whether or not he was bound, the fact that he did not even consider it was one of the circumstances relevant to the question whether his decision to execute the assignment was unreasonable. The Official Assignee, so far as the evidence shows, consulted neither any of the creditors nor the receivers. He made no investigation or evaluation of the claims proposed by Mr Callis, and sought no legal advice as to whether they had any valid foundation. In this situation, we do not see how Barker J could have reached any other conclusion than he did, namely that the Official Assignee had acted unreasonably in assigning to Mr Callis his rights in any causes of action which he had.

[55] The circumstances in which the decisions to assign the claim to Mr Wilfred and to set the consideration for the assignment were arrived at are disquieting. Given the interlocutory context, I will refrain from firm conclusions as to the reasonableness of the liquidator’s actions in entering into the deed of assignment. Such conclusions will be more appropriately expressed in a substantive context following production of more detailed evidence. In the present context it is sufficient to note a number of matters which raise serious issues as to the reasonableness of the assignment:

(a) The claim which Mr Wilfred seeks to pursue was filed by LF1 as a claim for sums totalling $1,125,483 (or alternatively the return of a business to the plaintiff), whereas the liquidator has seen fit to sell the

liquidator had evaluated the very substantial claim and found it to be of very modest worth or had not evaluated the claim and was therefore not in a position to demand its true worth.

(b) The evidence adduced by Mr Wilfred as to any process of evaluation by the liquidator is thin. It is such as to be suggestive of a lack of true evaluation. Mr Allott deposes that he had no information from the former liquidators in respect of the proceedings so he had his solicitor review the same to determine essentially whether or not he should continue the proceeding as liquidator for the benefit of the company. Because of the debts owed by the company (including previous liquidators’ expenses and preferential debt owing to the Inland Revenue Department) Mr Allott deposes that he “had no interest in continuing the proceedings as liquidator”. There is accordingly no evidence of any evaluation by the liquidator himself.

(c) The evidence from Mr van Schreven, the solicitor, does not significantly assist Mr Wilfred. Mr van Schreven deposes that as at 2

July 2014, he had not reviewed the proceedings nor had he received full instructions from the liquidator. He deposes that on the following day he received “details of the proceedings”, reviewed the same, and provided advice to the liquidator. The advice given has not been disclosed. Mr van Schreven deposes that on the following day he received instructions from the liquidator to prepare the assignment deed based on payment of $5,000 by Mr Wilfred. If there had been any analysis of evidence on which LF1’s claim was based, one would have expected Mr Allott or Mr van Schreven to be asked to indicate the material reviewed and briefly explain the reason for evaluating the claim as being worth $5,000. Mr van Schreven’s specific reference to “the details of the claim” rather than to the evidence supporting may suggest that he was not given the material which would have enabled the sort of investigation or evaluation of claims which the Court of Appeal in Callis v Pardington regarded as of fundamental importance.

(d) The simple statement provided in evidence that “Mr van Schreven provided advice to the liquidator” cannot significantly assist Mr Wilfred. When the Court of Appeal in Callis v Pardington found the Official Assignee’s actions unreasonable on the grounds both of a lack of evaluation and a lack of advice, the Court cannot be taken to have been meaning that a liquidator’s actions, regardless of whether he or she accepted such advice, could be justified merely by the fact that advice had been taken. In this case, the Court is given no information as to the advice provided by Mr van Schreven. For all the Court knows the advice may have indicated that there was little or no substance to the claim.

(e) Mr Allott’s reference to the fact that Mr Wilfred eventually offered him $5,000 which he was prepared to accept so that he (Mr Allott) could complete the liquidation is also disquieting. It points to the possibility that there may be some strength in the defendants’ proposition that the consequence of the liquidator’s approach is that there has been, in the terms used by McKay J in Callis v Pardington, a trafficking in a proceeding in which the liquidator could see little or no merit.

[56] In a situation where the liquidator’s decision may be capable of being set aside as unreasonable, I am not satisfied that the issues arising from the way the assignment came about allow a conclusion that the order sought by Mr Wilfred will facilitate the carrying on of this proceeding without undue expense or delay.

[57] Mr Caradus took me to some limited evidence before the Court which might be taken to suggest that LF1’s chattels claim (for $75,483) is grossly inflated. He referred to evidence which might suggest that at most the chattels claim could be in the order of $16,000.

[58] There is not the detailed evidence before the Court to enable me to reach any reliable view as to the merits of the quantum of the chattels claim. Mr Clay on the

other hand placed emphasis upon the judgment of Whata J in the interim injunction proceeding. His Honour found that there was a serious issue to be tried in relation to LF1’s chattels because “there is a plausible evidential foundation for the conclusion that LF1 left some chattels on the property and that these chattels have not been accounted for”.²¹Of course, that is not a finding of the strength of the case but simply of a plausible evidential foundation.

[59] In the event, I nonetheless cannot view the chattels claim as frivolous and vexatious simply by reason of the quantum evidence provided.

[60] Mr Caradus also referred to the ($1 million) claim for loss of goodwill of the business. He observed that under the lease from the first defendants to LF2 the business remained with LF2. On the other hand, Mr Clay noted that the subject of LF1’s business goodwill claim was a different business to the business the ownership of which was reserved to the lessor.

[61] If the Court were to proceed on an analysis of the documentary evidence produced on this application, there would be serious issues as to LF1’s case but the Court could not safely conclude that the proceeding was frivolous and vexatious. The defendants did not establish on the interim injunction proceeding that there was no plausible evidence to support LF1’s interim injunction application.

[62] All that said, the $5,000 agreed to by Mr Allott for the assignment of the proceeding must stand as some indication of what he considered he could responsibly accept on behalf of LF1. I do not view the evidence adduced as clearly indicating whether or not there is a frivolous or vexatious element to LF1’s claims. I do find that the very modest assignment price accepted by the liquidator impacts relevantly on the Court’s assessment of the strength of the defendant’s assertion that

Issue 4 – will there be prejudice or disadvantage to the defendants if there is a new parties order?

[63] The two aspects of potential prejudice on which the defendants rely are the two aspects of costs which I have earlier identified.²²

[64] First, there are the costs awarded against LF1 on the interim injunction application. The unpaid costs order would represent, on an unconditional new parties order, a prejudice because the new parties order will operate as a release of LF1 (replaced by Mr Wilfred). As it is, Mr Wilfred’s acceptance of a condition that the awarded costs and disbursements be paid within 10 working days of any new parties order obviates this as a consideration.

[65] The second aspect of costs relied upon by the defendants is the defendants’

[66] As noted above,²³Mr Wilfred’s additional evidence following the hearing related to security for costs issues. It is clear from that affidavit that, while he does not contest the fact that the defendants can establish that the threshold for ordering security is met, Mr Wilfred will be challenging both whether there should be an order for security and, if so, in what amount.

[67] Given the way in which Mr Wilfred’s affidavit in relation to these matters came in after the hearing, a significantly more detailed approach (than is before the Court at present) to both the evidence and submissions on issues relevant to security would be required if Mr Wilfred becomes the plaintiff.

[68] As matters stand, there will be a practical disadvantage to the defendants if there is a new parties order without security being dealt with at the same time. So long as LF1 remained the plaintiff, the evidence of Mr Allott suggests that there was little or no prospect that LF1 would continue to pursue its claims in this proceeding. The defendants would face little prospect of continuing litigation costs or litigation

_{exposure. Those previously associated with LF1, and most significantly
Mr Wilfred,}

have apparently chosen not to put the liquidator in funds to allow LF1 itself to continue the litigation, with the continuing scrutiny that the liquidator as an officer of the Court would bring to the litigation. I consider in these circumstances that a new parties order would bring a disadvantage to the defendants having regard to the costs position.

[69] I am not satisfied that it is necessary or desirable that there be a new parties order. Nor am I satisfied that, even were such an order necessary, this is an appropriate case in which to exercise a discretion substituting Mr Wilfred as plaintiff for the several reasons discussed. I firmly conclude that the avoidance of “undue expense or delay” which is the intended product of a new parties order would not be achieved in this case. Rather, the parties (including the newly constituted plaintiff) would be embarking on a new phase of litigation complicated and lengthened by the issues which I have discussed. Perhaps the most significant of those issues is the failure of the liquidator and Mr Wilfred to clearly document an assignment which would, beyond argument, transfer the right to pursue this proceeding to Mr Wilfred.

[71] As a consequence, the proceeding will remain stayed (through the plaintiff’s

[72] Costs must follow the event. It is appropriate that the categories be Scale 2 and Band B.

(b) Harmon Lynn Wilfred is to pay the costs of the first defendants and the second defendant of the application on a 2B basis together with disbursements to be fixed by the Registrar.

High Court of New Zealand Decisions

La Famia No 1 Limited (in liquidation) v Gan [2014] NZHC 3158 (10 December 2014)