Grant v Chevin [2015] NZHC 3135 (9 December 2015)

Last Updated: 16 December 2015

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-4975 [2015] NZHC 3135

UNDER	the Companies Act 1993
IN THE MATTER	of the liquidation of Blake Street Trustee Ltd (in liquidation)
BETWEEN	DAMIEN GRANT AND STEVEN KHOV AS LIQUIDATORS OF BLAKE STREET TRUSTEE LTD (IN LIQUIDATION) Plaintiffs
AND	PETER LOUIS CHEVIN First Defendant ANNE-MARIE CHEVIN Second Defendant PETER ROSS HILL Third Defendant

Hearing:	9 December 2015
Counsel:	B J Norling and A Cherkashina for Plaintiffs E Grove for First and Second Defendants
Judgment:	9 December 2015

_{JUDGMENT OF BREWER J}

Solicitors: Waterstone Insolvency (Auckland) for Plaintiffs

_{Carson Fox Bradley Ltd (Auckland) for First and Second Defendants}

GRANT AND KHOV AS LIQUIDATORS OF BLAKE STREET TRUSTEE LTD (IN LIQUIDATION) v

CHEVIN [2015] NZHC 3135 [9 December 2015]

[1] Civil litigation is very often a contest between two parties over which party should pay the other money. The underlying proceeding is one of those. It is complicated to an extent by the fact that the plaintiffs are the liquidators of a company and so there is a mass of law, both statutory and common law, which sets out their rights and obligations. Of significance to the matter before me is the position that the liquidators are not bringing their action on their own behalf but on behalf of the creditors of the company in liquidation.

[2] It sometimes happens, and in my experience more often in situations involving insolvency, that the defendants from whom money is sought have no interest whatsoever in taking part in the Court process. Quite frequently they obfuscate, delay and do their best to frustrate the processes of the Court. In this case, the first and second defendants, Mr and Mrs Chevin, have acted in such a way.

[3] Matters got to the point where the plaintiff liquidators applied to the Associate Judge who had the management of the case for an “unless” order. The application was expressed in terms of seeking orders that unless an amended statement of defence and answers to interrogatories were filed by a specified date, the defence would be struck out and Mr and Mrs Chevin would be debarred from further defending the claims against them. Instead, the liquidators would be able to prove the quantum of their claim by way of formal proof.

[4] That application came before Associate Judge RM Bell on 24 July 2015. At the outset of the hearing, the solicitors acting for Mr and Mrs Chevin sought and were granted leave to withdraw on the basis that they were without instructions. Associate Judge Bell recorded:

[6] This proceeding has not progressed as other proceedings would, because of delays by the first and second defendants. They delayed in filing their first statement of defence. They were ordered to file and serve a more explicit statement of defence but delayed in doing so. They have been difficult to serve. The plaintiffs have had to apply for substituted service. Mrs Chevin did not file a sworn affidavit of documents. Now that they have ceased instructing lawyers, I have no confidence that they will continue to run their defence in an orderly fashion.

[7] They have been given warnings in the past as to failure to comply with court directions. It has reached the stage where the first and second defendants can no longer ask for further indulgences.

[8] I direct the first and second defendants to file and serve a statement of defence by 14 August 2015 and to respond to interrogatories required by the plaintiffs. Their deadline for doing so is 14 August 2015.

[9] If they do not carry out both steps by 14 August 2015, the plaintiffs will be entitled to proceed against them on an unopposed basis.

[10] If that situation arises, the plaintiffs will not be able to seal judgment by default. Their claims are not liquidated demands under r 15.7 of the High Court Rules. Instead, they should ask the Registrar to allocate a date for a formal proof hearing. They should file evidence by affidavit for that hearing.

[5] Subsequently, Mr and Mrs Chevin did file an amended statement of defence within the period allowed. They also filed a signed response to interrogatories, although it was not sworn. Sworn answers to the interrogatories were provided shortly after the stipulated date and there was no substantive difference between the sworn and unsworn responses.

[6] The liquidators were of the view that Mr and Mrs Chevin were in further default and therefore the order by Associate Judge Bell that they could proceed against Mr and Mrs Chevin on an unopposed basis should stand. On 31 August

2015, Associate Judge Bell refused that submission and permitted the case to proceed. The liquidators now apply for review of that decision. The principal submission is that Associate Judge Bell was simply wrong to exercise his discretion in favour of Mr and Mrs Chevin.

[7] The argument before me has proceeded on the assumption that the order made by Associate Judge Bell was an “unless” order. I am not sure that it was because there was no indication of a peremptory outcome independent of any further hearing. The Associate Judge did not use the wording commonly used for “unless” orders, and indeed did not use the wording as sought by the liquidators. However, in his subsequent decision the Associate Judge referred to the leading authority on “unless” orders and applied its principles. In any event, I think this is a possible distinction without a difference and that it is common ground that whether or not it was an “unless” order, the Associate Judge had a discretion to permit Mr and Mrs Chevin to continue with their opposition on the merits. The issue before me is whether the Associate Judge exercised his discretion within proper bounds.

[8] At the hearing on 31 August 2015, the Associate Judge recorded the Chevins’

response to his order as follows:

[3] ... Since then, this has happened. The Chevins filed and served statements of defence on 13 August 2015. They served on the plaintiffs signed and unsworn answers to interrogatories. On 17 August 2015

Mr Chevin served sworn answers to interrogatories. On 25 August 2015

Mrs Chevin served sworn answers to interrogatories. There was no difference in substance between the unsigned answers served on 13 August and the sworn versions.

[4] In these circumstances the plaintiffs say that the order I made on

24 July 2015 has operated and the plaintiffs are now entitled to have the matter go ahead on an unopposed basis against Mr and Mrs Chevin.

[9] The Associate Judge then went on to identify the question for the Court as being whether it should exercise its discretion to excuse the Chevins for their non- compliance.

[10] The Associate Judge turned to the decision of the Court of Appeal in SM v LFDB,¹ which is the leading authority in this area. He noted the points made by Mr Norling for the liquidator. These went to the public interest in ensuring that justice is administered without unnecessary delays and costs, and to the plaintiffs’ interests in terms of delay and wasted costs. Mr Norling traversed the history of the proceeding to this point, with emphasis on the continuing defaults by Mr and Mrs Chevin in complying with directions of the Court. Mr Norling acknowledged

that the defaults in the present case are relatively minor, but he submitted that it is the cumulative effect of continuing defaults that counts. That is the main thrust of his submission to me today also.

[11] The Associate Judge concluded:

[7] ... The potential injustice to the Chevins is that if they were not granted relief this court will hear the case on the basis that they are already presumed to be liable and the enquiry will be only as to the quantum of the plaintiffs’ loss. At the end of the day, it is still a very serious matter to debar a defendant, even one in default, from being heard on the merits of a claim. It is that injustice that concerns me.

[8] While the Chevins have tried the patience of the court, the requirements of justice that is to allow them to be heard on the substantive

¹ SM v LFDB [2014] 3 NZLR 494, [2014] NZCA 326.

merits of the case, do in my view count against refusing to excuse their breach of the orders. The breaches themselves are relatively minor in that unsigned versions of the interrogatories were delivered within the deadline, although signed sworn versions were delivered afterwards. The delay afterwards was not great.

[12] In deciding to allow the Chevins to continue to contest liability, the Associate Judge compensated the liquidators by an award of costs with a 50 per cent uplift on category 2. He directed Mr and Mrs Chevin to pay not only those costs but the unpaid costs already ordered by 14 August 2015. He stipulated that Mr and Mrs Chevin would only be able to take any further steps in the proceeding if they complied with that direction. I have been advised that the costs were paid.

[13] Mr Norling’s point is that Associate Judge Bell was simply wrong to exercise his discretion in the way that he did. He submits that the Associate Judge did not take proper account of the public interest and did not take proper account of the interests of the plaintiffs in bringing the case to an efficient conclusion. His submission is that even at the hearing before the Associate Judge on 31 August 2015, a full statement of defence had not been filed.

[14] Counsel then appearing for Mr and Mrs Chevin, Mr Patterson, had only recently been instructed and, having obtained leave to continue to defend the case, sought and was granted leave to file a fresh statement of defence.

[15] In Mr Norling’s submission, this was a clear case where indulgences had been granted, delay and obfuscation had been chosen, and in the situation where an “unless” order (or something similar) was made, no further indulgence should have been granted. It was simply outside the discretion of the Associate Judge to do that in a situation where two years had gone by without a proper progression of the case.

[16] I have not called upon Mr Grove for Mr and Mrs Chevin to respond to Mr Norling’s oral submissions. I have read his written submissions. The reason I have not called upon Mr Grove is that I have a clear view that this was an inappropriate application by the liquidators.

[17] The decision of SM v LFDB sets out the applicable legal principles against failures to comply with “unless” orders that were contumacious. Here, the Judge made an order saying that a particular consequence would flow if his order was not complied with. The order was substantially complied with. The only lack of compliance was that the responses to interrogatories were signed but not sworn. That technical defect was remedied promptly and no particular prejudice is identified by the liquidators.

[18] The point for the Associate Judge, as recognised by the Court of Appeal, is that in deciding whether or not to excuse breach of an “unless” order, the question for the Judge is – what does justice demand in the circumstances of this case? It is true that considerations in answering that question are said by the Court of Appeal to include:

(1) The public interest in ensuring that justice is administered without unnecessary delays and costs.

(2) The interests of the injured party, in particular in terms of delay and wasted cost.

(3) Any injustice to the defaulting party, although that consideration is likely to carry much less weight in the circumstances than considerations (1) and (2).

[19] Associate Judge Bell was well aware of these considerations.

[20] Here, there was no further delay of any substance. The position of the liquidators was taken into account by the award of costs and by ensuring that all outstanding costs were brought up to date. The Associate Judge was satisfied that it would be an injustice to the defaulting parties if they could not address the merits of their case.

[21] In my view, it would be an extraordinary thing if I were to conclude that in these circumstances the Associate Judge did not exercise his discretion appropriately.

In other words, to decide he was plainly wrong in the exercise of his discretion having identified and weighed the considerations that the law required him to identify and weigh. The application for review is denied.

[22] As is usually the case, costs must follow the event. I award costs against the liquidator on a 2B basis.

Brewer J