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McKay v Johnson [2016] NZHC 357 (4 March 2016)

Last Updated: 10 March 2016


IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY



CIV-2014-404-2511 [2016] NZHC 357

UNDER
Part 19 of the High Court Rules and s 34
of the Receivers Act 1993
IN THE MATTER
of H B Garments Limited (in liquidation and in receivership) and HAD Garments Limited (in liquidation and in receivership)
BETWEEN
A J MCKAY Applicant
AND
C A JOHNSON First Respondent
G M SMITH Second Respondent


Hearing:
2 March 2016
Appearances:
R B Stewart QC for Applicant
No appearance for First Respondent
Second Respondent in person
Judgment:
4 March 2016




JUDGMENT OF WHATA J

This judgment was delivered by Justice Whata on

4 March 2016 at 3.00 p.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:



Solicitors:

Simpson Grierson, Auckland

Copy to:

G M Smith, Auckland






A J MCKAY v C A JOHNSON [2016] NZHC 357 [4 March 2016]

[1] This matter came before me as Duty Judge. A number of matters required attention namely:

(a) Whether Mr Smith’s “without notice” application to set aside the inspection order granted by Brewer J on 10 December 2015 (the inspection application) should be allowed to proceed and if so, how it should proceed;

(b) Whether Mr Smith’s subpoenas in respect of counsel for the applicant

are valid;

(c) Whether there should be an adjournment of a 10 March 2016 hearing date on the basis that Mr Smith was not aware that the purpose of the hearing was to resolve the substantive dispute.

[2] I:

(a) Granted leave to Mr Smith to pursue his interlocutory application dealing with the lawfulness of the inspection order and whether the evidence obtained as a consequence of the inspection is admissible;

(b) Declined Mr Smith’s oral application for an adjournment (with

reasons to follow);

(c) Set aside Mr Smith’s subpoenas;

(d) Imposed the following timetabling orders:

(i) Mr Smith is to file and serve any forensic evidence relating to the inspection by 5.00 pm Monday 7 March 2016;

(ii) Mr McKay shall use his best endeavours to file and serve reply forensic evidence by 5.00 pm Tuesday 8 March 2016;

(iii) Mr McKay must file and serve any notice of opposition and supporting affidavits in respect of the inspection application by

5.00 pm Tuesday 8 March 2016;

(iv) Mr Smith is to file and serve any reply affidavits in respect of the inspection application by 5.00 pm Wednesday 9 March

2016; and

(v) Mr Smith is to file and serve submissions on both the inspection application and the substantive matter by 5.00 pm Wednesday 9 March 2016.

[3] My reasons now follow.


Background

[4] The essential claim is helpfully and succinctly described in the oral judgment of Fogarty J of 23 February 2015.1 I repeat it here for ease of reference:

[1] This is an application for directions by receivers. At the heart of the issue between the applicants and the respondents, who are also receivers, is a contest between Westpac, as the successor to Trust Bank, and the BNZ over priority of security interests over two companies, HB Garments and HAD Garments.

[2] The Westpac argument is that there was a general security agreement executed on 22 August 1995 whereby HB Garments granted Trust Bank at the time a general security over all of its assets. That was at that time a debenture deed. Over the lapse of time, Westpac is no longer able to find and produce that deed. The missing deed is the origin of the dispute ultimately between receivers acting in the interests of Westpac and the respondent receivers acting in the interests of the BNZ.

[3] The contest is sought to be resolved by Westpac on two bases, firstly, that although they cannot produce the original debenture deed, they can prove on the balance of probabilities that it was executed, starting particularly with the personal guarantees executed at the same time which refer to the deed. And, secondly, with the registration of the interest at the same time.

[4] I have read through that argument, collected in the applicant’s synopsis of submissions. I have considered myself justified in assuming that the applicant’s synopsis of submissions has reliably collected the relevant

1 McKay v Johnson [2015] NZHC 242.

information which appears in the sworn affidavits, though I have not considered it necessary to go back to the affidavits. One of the reasons why I have felt confident in approaching it this way is that the respondents, although they do not consent to the orders, do not oppose. I am satisfied that there was the original deed in 1995 and that created a priority, certainly in favour of Westpac, the successor of Trust Bank, over HB Garments, particularly because of the evidence of the guarantee at the time, which refer to it and the subsequent registration,

[5] There is a separate security over HAD Garments in favour of

Westpac but there is no challenge to that security by the respondents.

[5] Against this background the Judge granted orders sought in the notice of originating application to the effect that Westpac’s security interest under the General Security Agreement dated around 1995 (1st Westpac HB Garments GSA) and the General Security Agreement dated 22 June 2010, are valid and remain enforceable, and have priority over GFH Property Ltd’s security interests. Further, that Westpac’s security interest under the General Security Agreement, dated 26 May 2003 (2nd Westpac HAD Garments GSA) is valid and enforceable. The Judge then observed that there were two matters to be finalised before this litigation is settled, namely whether or not there is a need for the second respondents, on behalf of BNZ or BNZ Direct, to refund or pay to the applicants’ receivers and/or to Westpac moneys that they have recovered in mistake of law and fact, by reliance on the securities in their favour. There is also a second issue as to costs.

Pre hearing steps

[6] This matter has been before the Court for case management on numerous occasions since the judgment of Fogarty J was delivered. For present purposes I need only commence with orders recorded in a minute of Toogood J on 9 November

2015. By that stage this matter had been set down before him for a one-day hearing. The applicant had settled against the first respondent and both the applicant and the second respondent sought to adjourn the hearing. Toogood J made the following orders by consent:

[3] ...

[a] This proceeding is adjourned;

[b] The second respondent shall deliver to Simpson Grierson’s

offices at Shortland Street, Auckland three computers

belonging to H.B. Garments Limited (in liquidation and receivership) and HAD Garments Limited (in liquidation and receivership) (together, “the Companies”) by 5:00 pm on 17 November 2015.

[c] The second respondent consents to the applicant obtaining copies of all bank accounts with Bank of New Zealand in the name of the Companies, or Geoff Smith Liquidations Limited, or similar account names, and may correspond directly with Bank of New Zealand to obtain the same.

[d] The applicant shall provide to the second respondent by 5:00 pm on 20 November 2015 copies of:

[i] Any correspondence with Westpac New Zealand Limited relating to the applicant’s intended appointment as receiver of the Companies and any correspondence relating to the validity of his appointment in the period 6 August 2014 to

13 August 2014;

[ii] Any email correspondence between Ms Adrienne

Stone and the first respondent on or before

20 August 2014 relating to the Companies’ bank

accounts.

[iii] Any email correspondence between Ms Stone and

Ms Jane Lai.

[e] The second respondent shall file and serve any further affidavit(s) by 5:00 pm on 2 December 2015.

[f] The applicant shall file and serve any reply affidavit(s) by

5:00 pm on 16 December 2015.

[g] The application shall be listed for mention in the Duty Judge List as soon as possible after 16 December 2015 for directions for hearing.

[h] The second respondent will not appeal any matter arising out of the Minute of Wylie J dated 5 November 2015 or the mention of this application in the Duty Judge List of 5

November 2015.

[i] The orders relating to the second respondent as set out at paragraph [3] (b) and (e) above are made on the basis of “unless orders”, such that the second respondent will be automatically debarred from opposing the application further in the event that the order at [3](b) is not strictly complied with by 5:00 pm on 17 November 2015 or the order in [3](e) is not strictly complied with by 5:00 pm on

2 December 2015.

[7] The next salient step in the proceedings involved a without notice application by the applicant for orders for inspection pursuant to r 9.34 of the High Court Rules. The applicant claimed that documents relied upon by Mr Smith for opposing the applicant’s claim were:

(a) not created at the time Mr Smith deposed that he created the documents;

(b) that the documents were never sent to their alleged recipients as deposed by Mr Smith;

(c) inspection of the documents will confirm the date the documents were created;

(d) the terms of the orders for inspection will ensure that the interests of

Mr Smith are properly protected.

[8] Justice Brewer granted that order on being satisfied that the allegations made against the second respondent in the application were serious and went to the probity of the Court system as it applies to this proceeding. He was satisfied that there was a good foundation for the allegations. He was also satisfied that the interests of the second respondent particularly as to privacy were adequately protected by the measures described in the application and contained in the draft orders.

[9] The final orders made pursuant to this application relevantly included an order that the applicant may inspect the following documents including the metadata of those documents:

(a) ....

(i) the Second Respondent’s letter dated 21 December 2013 addressed to Westpac (Section 305 Notice), annexed marked “Westpac 2” to the “Statement of Facts Presented as an Affidavit in apportion to orders originating application by Plaintiff” sworn by the Second Respondent on 6 November

2015 and filed in this proceeding (November Smith Affidavit) and annexed marked “D” and “F” to the “Statement of Facts Presented as an Affidavit in opposition to orders originating application by Plaintiff No 2” sworn by

the Second Respondent on 3 December 2015 and filed in this proceeding (December Smith Affidavit); and

(ii) the Second Respondent’s letter dated 14 August 2014 addressed to Ms Adrienne Stone, annexed marked “Stone 2” to the November Smith Affidavit (Stone Letter),

On any computer or tablet device (Device) at the property at 12

Travers Road, Te Kauwhata, being the residence of the Second

Respondent, Geoff Smith (Premises);

[10] The orders also provide that the applicants’ computer forensic expert Mr Brent Whale may enter and search the premises for any devices, may make clones of any devices and/or if unable to take clones of any devices may remove them from the premises for the purposes of cloning.

[11] There are other related orders to secure the safety and confidentiality of the devices and the material contained in them. There are directions to the second respondent to co-operate and to not obstruct the applicants and Mr Whale in any way. Mr Jason Goodall, a barrister, is directed to supervise the carrying out of the orders as independent barrister and required to report back to the Court at a hearing on a date to be allocated by the Court following the execution of the orders.

[12] Order 4 (k) then states:

[A]t that hearing, the Court will consider a report on the search from Mr Goodall. The Applicant, the Second Respondent and Mr Goodall are entitled to be heard at that hearing. The Court will also consider the following:

(i) what is to happen to any clones taken from the Devices at the premises, or if applicable, the Devices themselves;

(ii) how the confidentiality of the Second Respondent is to be maintained;

(iii) any claim to privilege by the Second Respondent; (iv) any application by any party; and

(v) any issue raised by Mr Goodall.

[13] The inspection was undertaken on 14 December 2015 with Mr Goodall present. On 15 December, Mr Smith lodged with the Court a document entitled “Notice of Illegal Search”. The matter then came before Duffy J on 17 December

2015. There is a dispute between the parties as to what occurred at the conference before her (and I will return to this below). Relevantly timetable directions were made as follows:

[1] ...The forensic expert’s report and the evidence of Mr McKay, the

applicant in this proceeding, is to be filed and served by 5.00 pm 5 February

2016. Mr Smith is to file his affidavit evidence in response, if any, by 5.00 pm 19 February 2016.

[2] The registry is to allocate a one day hearing for the substantive application at the earliest opportunity.

[3] Mr Smith has appeared today and indicated that he will be filing an interlocutory application on Monday 21 December 2016. If he does so than [sic] the applicant will file a notice of opposition and any affidavits in support by 27 January 2016.

[4] The matter is to be called in the Duty Judge list for mention on

Wednesday 3 February 2016.

[14] Mr Smith did not file an application by Monday 21 December 2015. Instead, he communicated to the Court that there would be at least four applications filed when the Court opens in January. Mr Smith was advised by the Registry that Mr McKay did not agree to any extension and that he reserved all of his rights. There is then further correspondence from Mr Smith stating that there was no intent to ask for an extension of time. Rather, that the only intent was to notify the Court that he would not be filing the applications until January. The Court was also copied into correspondence between Mr Smith and Mr Caird (of Simpson Grierson), but the contents are irrelevant for present purposes.

[15] On 14 January 2016, the Court advised the parties that this matter had a one- day hearing on Thursday 10 March 2016 at 10.00 am and that it had been listed for call in the Duty Judge List on Wednesday 3 February 2016. A further reminder was then given on 25 January 2016. In response Mr Wiseman for Simpson Grierson, advised that Mr McKay was not available on 10 March and requested that the hearing be vacated. Mr Smith replied that he would be opposing any change of date of the hearing. There is then also correspondence from the Registry noting that Mr Smith needed to file subpoenas in respect of his “witness notice” emails. Mr Smith responded that “the without notice interlocutory application he will file on Thursday” (4 February 2016) will change the need for the 10 March hearing.

[16] On 2 February 2016 the applicant filed a memorandum seeking that the call in the Duty Judge List be vacated and that the one-day hearing set down for 10

March be rescheduled. The memorandum also records:

Duty Judge List

2. Justice Duffy ordered (in her Honour’s minute dated 17 December

2015) that the matter be called in the Duty Judge List, in circumstances where Mr Smith, the Second Respondent, had indicated he would be filing

an interlocutory application by 21 December 2015. No such interlocutory

application (or any other application) has been filed by Mr Smith.

3. Additionally, Messrs Smith and McKay’s evidence and the substantive hearing have already been timetabled (see Duffy J’s minute dated

17 December 2015).

4. In consideration of the above circumstances, counsel for Mr McKay consider that the call in the Duty Judge List is no longer necessary, and may be vacated.

10 March 2016 Hearing Date

5. Mr Smith has previously indicated that he intends to cross-examine Mr McKay at the substantive hearing of the matter. The Court Registry advised on 14 January 2016 that the proceeding has been allocated a one day fixture on 10 March 2016.

6. Mr McKay is due to be in Invercargill between 9 March 2016 and 13

March 2016 participating in the New Zealand Age Group Track Cycling

Championships as both a competitor and as part of team management.

7. Accordingly, it is respectfully requested that the 10 March 2016 date be vacated and a new hearing date be allocated by the Court.

8. To assist the Court in allocating a new hearing date (should that be granted), counsel for Mr McKay advise that:

(a) Mr McKay will be unavailable on 17 March 2016 (due to a mediation) and between 23 April 2016 to 29 April 2016 (as he will be attending a conference overseas); and

(b) Mr Stewart QC is unavailable from 14 March 2016 to 17

March 2016 and from 1 April 2016 to 19 April 2016.


[17] Mr Smith opposed the proposed adjournment.

[18] The call was vacated, but Heath J issued a minute confirming the 10 March date hearing though accommodating Mr McKay’s evidence by directing that it be given in anticipation of the hearing and for it to be recorded visually. Directions were also made that:

[a] Written submissions in support of the application shall be filed and served on or before 24 February 2016. At the same time, counsel for the applicants shall file and serve a paginated bundle of all documents to which reference will be made at the hearing at the same time.

[b] Mr Smith shall file and serve written submissions in opposition to the application on or before 4 March 2016.

[19] Mr Smith advises that he then attempted to file his interlocutory application seeking to have Brewer J’s inspection order set aside. He says that his application appeared to sit in the Court’s Registry unattended until he raised his concerns about the lack of action on it. He says it was not properly processed by the Registry until late February.

Without notice application to set aside inspection order

[20] Mr Stewart emphasised that Duffy J had clearly ordered that any application dealing with the inspection order had to be filed by 17 December 2015. He says that it is now too late for Mr Smith to pursue this aspect of the matter.

[21] Mr Smith responds that while he did not comply with Duffy J’s order, he signalled that he intended to file the application, that he did file it in early February but that the Registry refused to action it, causing unnecessary delay. He submits that the inspection was undertaken unlawfully as r 9.34 does not provide jurisdiction for a search and that the r 33 process should have been adopted. This process he says involves a higher threshold than that contemplated by r 9.34. He also complains that he can show that Westpac and its then solicitors were aware of the s 305 notice in May 2014 so that the inspection was unnecessary and improperly sought. He attaches a copy of a letter from Minter Ellison dated 5 May 2014 which he says responds to the s 305 notice. He says that the current solicitors and counsel must have known about this and deliberately misled the Court by not referring to it.

[22] I dismiss any suggestion that the Registry is to blame for Mr Smith’s failing to comply with timetabling orders. In my view Mr Smith should have acted more diligently in pursuing his application if it was a matter of serious concern to him. He is plainly out of time.

[23] I am satisfied, however, that the issue as to jurisdiction and impropriety should be ventilated and resolved. I understand that the material discovered as a consequence of the inspection suggests that Mr Smith may have manufactured correspondence. As Brewer J stated, it goes to the probity of the Court system. An opportunity to rigorously test the legality of an ex parte inspection order leading to such damning evidence is appropriate.

[24] As to the timing for hearing the application, Mr Stewart did not want to lose the hearing date on the substantive application on 10 March 2016. Given the delay in bringing this matter to a close, I resolved that Mr Smith’s challenge to the inspection order should be heard at the same time as the remainder of the substantive claim. If the Judge concludes that the inspection order was invalid and the consequential evidence improperly obtained, then he or she can exclude that evidence and resolve the substantive application without it. My timetabling orders, therefore, incorporate this application into the hearing on the substantive matters and include an opportunity for Mr McKay to respond to Mr Smith’s claims.

[25] For completeness I record that Mr Smith was unable to elaborate before my why the threshold tests for r 33 were materially different from the threshold tests for a r 9.34 inspection. He was plainly in no position to argue the merits of his challenge. I indicated to him that he would be wise to seek legal advice, but as a minimum he needed to be ready to argue why the inspection order was unlawfully obtained and why the Judge should exercise his or her discretion to exclude any evidence obtained as a consequence of the order.

Mr Smith’s subpoenas

[26] Mr Smith has sought to subpoena solicitors and senior counsel for the applicant so that he can cross-examine them, I assume, on whether they misled the Court. It appears that he initially filed witness notices, but was advised by the Registry that he needed to subpoena the intended witnesses.

[27] With respect to the Registry, the proper course, as submitted by Mr Stewart, would have been to invite Mr Smith to seek the leave of the Court to permit oral evidence as required by r 19.13 – this proceeding having commenced by originating

application. It also appears that the subpoenas were not served personally contrary to r 6.11. In addition, I agree with Mr Stewart that to issue subpoenas on counsel immediately prior to the hearing on the substantive application without clear justification is an abuse of process. I therefore set them aside.

[28] The proper way forward from here is to allow Mr McKay the opportunity to respond to the claims made by Mr Smith, including in relation to the claim of misleading conduct. Mr Smith should then assess whether or not he still wishes to require evidence from counsel. If so, he will need to persuade the trial Judge as to whether leave should be given to require such evidence. But for my part there is nothing to suggest that counsel for the applicant intended to mislead the Court and that any purpose would be served by calling them. The Minter Ellison letter attached to Mr Smith’s application does not refer to the purported s 305 notice except to make clear that the “letter does not amount to a surrender of Westpac’s securities under the GSAs in accordance with s 305(1)(c).” I, therefore, see no proper basis on the material before me for requiring the applicant’s counsel to provide evidence.

Adjournment

[29] Mr Smith submitted that he did not appreciate that the 10 March 2016 date was set down to hear the balance of the substantive application. Rather he submitted that the purpose, he thought, of the hearing was to address the process envisaged by order 4(k) (see [12]).

[30] Mr Stewart responds that Mr Smith is opportunistically seeking to put off the hearing and feigning ignorance. He says that the trail of pre-hearing steps make it plain that the 10 March date was set down to resolve the substantive application.

[31] I agree with Mr Stewart as to the clear purpose of the hearing date. The steps leading up to the scheduled hearing date are plainly designed to bring the proceedings to a conclusion:

(a) The timetable for evidence on the substantive application was

concluded with Toogood J’s orders of November, and supplemented

by Duffy J’s orders of 17 December 2015 relating to the inspection evidence.

(b) Justice Duffy enabled a separate application process to challenge the inspection order, with any such application to be filed by Monday 21

December 2015;

(c) The Registry issued the notice of hearing date in January 2016 and this could have only related to the substantive hearing as no interlocutory application had been filed by Mr Smith;

(d) Justice Heath identified what remained to be resolved in his minute of

10 February 2016, namely whether there was a need for Mr Smith to refund or pay the receivers moneys recovered under mistake of fact or law, by reliance on other securities and the question of costs. The Judge then stated:

The remaining issues were due to be heard by Toogood J on

9 November 2015. At that time the Judge was told that the proceeding had settled as against Mr Johnson but was to proceed as against Mr Smith. Following further orders of the Court, the application was set down for hearing on 10 March

2016.

(e) Arrangements were then made to have Mr McKay give his evidence in advance of the hearing so as to avoid an adjournment and timetabling orders set for exchange of submissions on 24 February and 4 March 2016;

(f) Mr Smith’s without notice application was then accepted for filing (though not fully processed until late February) two months out of time;

(g) Mr McKay gave his evidence and was cross examined by Mr Smith on the merits.

[32] I am also unable to accept Mr Smith’s confusion as a basis for an adjournment. Any confusion was plainly self-induced. Conversely, the applicant has ordered its preparation to meet the March date at the insistence of Mr Smith who opposed an adjournment. The Court has ordered its schedule to secure finality of these longstanding proceedings. All relevant evidence has been filed and served, except in relation to the inspection, which should have been filed by Mr Smith by 19

February 2016.

[33] In these circumstances, I considered it would be an abuse of this Court’s process to effectively grant an adjournment to accommodate Mr Smith’s confusion. I also see no unfairness to him. The salient issues have a narrow compass (including the issues arising from Mr Smith’s belated application) and the lion’s share of the evidence has been exchanged for some considerable time.

[34] For completeness, from the available record I conclude that the process envisaged by Order 4(k) was undertaken before Duffy J with any residual issues to be resolved via an application to be filed by Mr Smith by 21 December 2015.

Outcome

[35] The remaining substantive issues, together with Mr Smith’s application to set aside the inspection order, will be heard on March 10. Relevant timetabling orders are noted at [2](d).


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