Hsu v Moore Stephens Markhams Limited [2014] NZHC 961 (9 May 2014)

Last Updated: 19 May 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-383 [2014] NZHC 961

BETWEEN	PI-HSIUNG HSU Plaintiff
AND	MOORE STEPHENS MARKHAMS LIMITED, LIQUIDATOR OF TANG SHUO DEVELOPMENT CO. LIMITED (IN LIQUIDATION) Defendant

Hearing:	8 May 2014
Appearances:	Plaintiff in Person R J Hooker for Defendant
Judgment:	9 May 2014

_{JUDGMENT OF COOPER J}

This judgment was delivered by Justice Cooper on

9 May 2014 at 11.30 a.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

Vallant Hooker & Partners, Auckland

Copy to:

P Hsu, 31 Haseler Crescent, Howick, Auckland

HSU v MOORE STEPHENS MARKHAMS LIMITED, LIQUIDATOR OF TANG SHUO DEVELOPMENT CO. LIMITED (IN LIQUIDATION) [2014] NZHC 961 [9 May 2014]

Introduction

[1] The plaintiff in this matter effectively seeks to set aside a judgment of Master Gambrill, delivered as long ago as 6 August 1999. In the judgment, she struck out the current plaintiff ’s defence in litigation commenced against him by Tang Shuo Development Company Ltd, struck out a cause of action that he had pleaded in a counterclaim and entered judgment in favour of the company.

[2] The application is advanced on the principal ground that there was a breach of natural justice in that he was not advised of the hearing. Mr Hooker has appeared for the liquidators who are ready to distribute a small amount of funds available for distribution, assuming that the plaintiff’s application is not allowed to proceed. He submits that the application is seriously flawed and should be struck out.

[3] The strike out application is advanced by way of memorandum, Mr Hooker pointing out that the liquidators are not in a position to incur any further costs than are absolutely necessary. I have decided in the circumstances of this case that it is appropriate to deal with the matter on the basis of Mr Hooker’s memorandum and the materials that have been provided by the plaintiff.

Strike out

[4] Rule 15.1 of the High Court Rules, which rule provides:

15.1 Dismissing or staying all or part of a proceeding

(1) The 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

(b) is likely to cause prejudice or delay; or

(c) is frivolous or vexatious; or

(d) is otherwise an abuse of the process of the court.

(2) If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.

(3) Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.

(4) This rule does not affect the court's inherent jurisdiction.

No reasonable cause of action

[5] In Marshall Futures Ltd v Marshall, Tipping J drew a distinction between a pleading “which is a total write-off and one which is deficient but capable of

_{effective repair.”}¹

_{It is incumbent on a court considering strike out to determine that}

a pleading is incapable of being rendered suitable by amendment before striking it out.

[6] In the present case, it is appropriate to consider an optimistic re-statement of the plaintiff’s pleading before determining whether it is capable of strike out. This

_{requires a consideration of what the plaintiff is attempting to plead.}

[7] The plaintiff’s claim has been variously styled as a judicial review or as an application to set aside a judgment. In its most recent formulation, the application is an application for leave for judicial review. In each instance, however, the pleading seeks the same effective remedy, that the order of Master Gambrill be set aside.

[8] Such a remedy could be achieved through review under s 26P of the

Judicature Act 1908. However, r 2.3(2) of the High Court Rules provides:

2.3 Review of decision

(1) [...]

(2) Unless a Judge or an Associate Judge directs otherwise, notice of the application must be filed and served, -

(a) if it is made by a party who was present or represented when the order was given, within 5 working days of the order being made or the decision being given; or

(b) if it is made by a party who was not present or represented, within 5 working days after the receipt by that party of notice of the making of the order or the giving of the decision.

[9] The order of Master Gambrill records that it was made “UPON HEARING... Mr M Black, Counsel for the Defendant.” It also refers to, and strikes out, the statement of defence filed on behalf of Mr Hsu. There can be little doubt therefore that Mr Hsu was represented. The application for review has therefore been made over 14 years out of time.

[10] Even if Mr Hsu’s account of events are accepted unquestioningly, he says:

In April 2012, when the plaintiff applied for his distribution of shares, the defendant showed him the said Order CP98/20 wherein the plaintiff owed around $320,000 to TS and the defendant rejected the plaintiff’s request on

28/9/2013.

[11] If this is right Mr Hsu received notice of the order, probably in April 2012 or, at the latest, on 28 September 2013. Despite this the claim was not filed until 20

February 2014, well outside the 5 days contemplated by r 2.3(2)(b). No proper explanation is given for this delay.

[12] While the Court has a discretion to extend time, the principles which apply to such applications are well-known. They include:²

(a) the length of the delay; (b) the reasons for the delay

(c) the prospective merits of the claim; and

(d) the risk of prejudice to the defendant.

[13] Here, the delay is lengthy. Even if the most optimistic version of events is accepted, there is a five month delay which occurs at the end of a 14 year period. Given the need to proceed expeditiously which is implicit in such applications, a five month delay would be unacceptable even when the order was first made. After 14 years it is inevitably even more prejudicial.

[14] While there are possible reasons for the delay up until September 2013, no reasons are given for the delay beyond this point. Even if the plaintiff’s account of not knowing about the changed order until April 2012 were accepted, once he received notice of the order it was incumbent on him to act quickly. Failure to do so exposed him to the risk of losing his claim.

[15] The claim here is not well defined, but appears to rely on the most unlikely claim that he was unrepresented at the hearing. Even if it can be shown that he was unrepresented, it is clear that the order made was striking out a statement of defence he had filed.

[16] There are also strong risks of prejudice to the proper defendant. While the pleadings currently list the liquidator as the defendant, it would be necessary that the company be joined as defendant for the proceeding to continue. The defendant is in the late stages of liquidation and has limited funds. The effect of protracted litigation would significantly prejudice the creditors and shareholders of the company.

[17] For these reasons, leave to extend time could not properly be granted. Hence no application for review can be brought.

[18] The only pathway open to the plaintiff is under r 10.9 which provides:

10.9 Judgment following non-appearance may be set aside

Any verdict or judgment obtained when one party does not appear at the trial may be set aside or varied by the court on any terms that are just if there has, or may have been, a miscarriage of justice.

[19] The first requirement of this is that the party seeking to set aside the judgment must not have appeared at the hearing. This is clearly problematic for the plaintiff, who on the face of it was represented when the order was made. Even assuming this is not true, it remains for the plaintiff to show that there has been a miscarriage of justice. The test for a miscarriage of justice was set out in Russell v Cox as follows:³

The test against which an application to set aside a judgment should be considered is whether it is just in all the circumstances to set aside the judgment, and the several factors mentioned in the judgments discussed should be taken, not as rules of law, but as no more than tests by which the justice of the case is to be measured, in the context of procedural rules whose overall purpose is to secure the just disposal of litigation.

[20] The following factors have been considered relevant in determining this question:⁴

³ Russell v Cox [1983] NZLR 654 (CA) at 659, confirmed in Mathieson v Jones CA198/92, 11

_{December 1992.}

⁴ Vermeulen v Department of Health HC Whangarei A76/85, 6 December 1991.

(a) whether the plaintiff ’s failure to appear was excusable; (b) whether the plaintiff ’s defence has substance;

(c) whether the original plaintiff (the company) would suffer irreparable injury if the judgment it has obtained is set aside (for example if a witness has now died);

(d) the applicant’s overall attitude to the proceedings, particularly if it has been casual or cavalier;

(e) whether there has been delay in applying.

[21] The delay is clearly problematic for the reasons already set out above. Looking at the other factors, while the plaintiff’s failure to appear could be understood if the facts he pleads are true, there remain other major concerns. His original defence appears to have been entirely unsubstantial, as it was struck out. Further, there would clearly be potential prejudice to the creditors if the judgment were set aside, especially in light of the delay.

[22] Taken together these factors indicate that the application should be refused. There is no reasonable pleading, indeed no possible pleading, which could succeed in this case. Strike out is therefore entirely appropriate.

Abuse of process

[23] Alternatively, if the account of the plaintiff is not accepted and he was in fact represented when the order was made, then this litigation represents a clear collateral attack on that order. As such, the entire proceeding is an abuse of process and should be struck out on that basis. This was the case in Ongley v Brdjanovic where the plaintiff effectively sought to re-litigate the issue after he had chosen not to appear at the first hearing to address allegations made against him.⁵

_{[24] A similar conclusion could be reached in this case.}

⁵ Ongley v Brdjanovic [1975] 2 NZLR 242.

Companies Act leave

[25] In any event, as mentioned above, the proper defendant in these proceedings must be the company itself. That company is now in liquidation and as such, proceedings may only be commenced with leave of the Court.⁶ In Fisher v Isbey, Master Faire identified six principles to be applied in deciding whether to grant leave, those principles are:⁷

(a) Creditors should be treated equally;

(b) No creditor should, by the bringing of proceedings, be able to gain an advantage over other creditors;

(c) The assets of the company should not be dissipated in wasteful litigation;

(d) The onus is on the party seeking leave;

(e) The claim should not be clearly unsustainable; and

(f) The Court must determine whether it is appropriate to determine the claim under s 302 of the Companies Act 1993.

[26] Generally, claims that will be granted leave are claims that are necessary to establish parties entitlement under the liquidation, which cannot adequately be dealt with in any other way, which are meritorious and which do not waste the assets of the company unnecessarily.

[27] The current plaintiff faces insuperable difficulties in meeting this test. The claims he is making, both to overturn the order, and evidently once the order is overturned, to defend against the company’s original claim, are of a seriously questionable character. They are unlikely to succeed. To allow these issues to be

_{raised at this late stage would be highly prejudicial to the creditors of the company.}

⁶ _{Companies Act 1993, s 248(1)(c)(i).}

⁷ Fisher v Isbey (1999) 13 PRNZ 182 (HC) at [19] and [23].

[28] For this reason, had an application been made for leave to proceed under s 248 of the Companies Act, it would inevitably have failed.

Result

[29] Having regard to the foregoing discussion, I grant the defendant’s application to strike out the plaintiff’s application.

[30] I make an order for costs in favour of the defendant in accordance with category 2 and band B.