Home
| Databases
| WorldLII
| Search
| Feedback
High Court of New Zealand Decisions |
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).
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/cases/NZHC/2016/357.html