Evers v Healthier Homes Ltd (in Liquidation) [2017] NZHC 1332 (16 June 2017)

Last Updated: 17 July 2017

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2016-470-196 [2017] NZHC 1332

BETWEEN	DAVID JOSEPH EVERS Appellant
AND	HEALTHIER HOMES LTD (IN LIQUIDATION) Respondent

Hearing:	23 May 2017
Counsel:	G C McArthur for Appellant S W Greer for Respondent
Judgment:	16 June 2017

_{JUDGMENT OF BREWER J}

This judgment was delivered by me on 16 June 2017 at 3:00 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Sandford and Partners (Rotorua) for Appellant

Quinn Law (Auckland) for Respondent

EVERS v HEALTHIER HOMES LTD (IN LIQUIDATION) [2017] NZHC 1332 [16 June 2017]

Introduction

[1] On 26 October 2016, Judge TR Ingram entered judgment against Mr Evers in the sum of $188,161.¹ Mr Evers appeals that decision. His case is that Judge Ingram should have adjourned the hearing when asked to do so on 25 October 2016.²

[2] It is submitted by Mr McArthur on behalf of Mr Evers that a miscarriage of justice has occurred. Mr Evers’s case was not, for acceptable reason, ready to proceed on 25 October 2016. As a result of the refusal to adjourn, Judge Ingram decided the claim against Mr Evers having heard only from the plaintiff’s counsel and having considered only the plaintiff’s evidence. Mr Evers submits that he has a good defence to the claim.

Preliminary matters

[3] On 13 December 2016, this appeal came before Heath J for case management. Justice Heath ordered (inter alia):³

Mr McArthur shall file and serve a case on appeal in the form required by Schedule 6 to the High Court Rules, a notice of application for leave to adduce further evidence, affidavits in support of that application (including those he wishes to use on the appeal) and substantive submissions on both the application and the appeal. They shall be filed and served on or before

10 February 2017.

[4] Mr Evers did not comply with this direction. Applications to extend Heath J’s timetable for filing and serving documents, and for leave to adduce further evidence, were not filed until 8 May 2017. An affidavit by Mr Evers in support of the appeal was sworn and filed on 9 May 2017 and an affidavit by an accountant, Mr Thomas, was sworn and filed on 12 May 2017.

[5] The respondent filed a notice of opposition to these applications on 18 May

_{2017. However, by the time I came to hear the appeal on 23 May 2017, Mr Greer for}

¹ _{Healthier Homes Ltd v Evers [2016] NZDC 24817.}

2. Healthier Homes Ltd v Evers DC Tauranga CIV-2015-070-175, 25 October 2016 (Memorandum).

³ Evers v Healthier Homes Ltd HC Tauranga CIV-2016-470-196, 13 December 2016 (Minute), at

[4][b].

the respondent had had second thoughts. As I recorded at the time,⁴ Mr Greer responsibly acknowledged that I will have to have regard to the substantive merits of Mr Evers’s case in deciding whether to uphold Judge Ingram’s decisions. Of course, Mr Greer’s concession was without prejudice to costs.

[6] I granted Mr Evers’s applications at the outset of the appeal hearing and I will have regard to the two affidavits.

Background

[7] The respondent was incorporated on 21 July 2010. It carried on business as a residential builder. Mr Evers was at all material times a director and shareholder. From 3 January 2012, he was the sole director. The company did not prosper. On

1 May 2014, Mr Grant Reynolds was appointed as its liquidator.

[8] At Mr Reynolds’s request, Mr Evers provided him with documents which included a draft set of financial accounts for the respondent for the year ended

31 March 2014. Mr Evers explained that these accounts had been prepared under his supervision by his “in house accountant”. The accounts show an outstanding current account debt owing by Mr Evers to the respondent as at 31 March 2014 in the sum of

$188,161.13.

[9] In April 2015, Mr Reynolds, in his capacity as liquidator, commenced proceedings against Mr Evers claiming the $188,161. The statement of claim is concise and simple. In 13 lines, allocated to six paragraphs, the relationship of Mr Evers to the respondent is identified, the operation of a current account alleged, the $188,161 is pleaded to be an overdrawn balance, and demand with failure to meet demand pleaded.

[10] On 27 May 2015, Mr Evers filed a pro forma statement of defence. Mr Evers did not file a list of documents as he was required to do by r 8.40 of the District

_{Court Rules.}

⁴ Evers v Healthier Homes Ltd HC Tauranga CIV-2016-470-196, 23 May 2017 (Minute).

[11] Thereafter, the proceeding limped towards a hearing. I will come to this in more detail later because Mr Greer submits that the history of the proceeding justified in large part Judge Ingram’s refusal of the adjournment.

[12] On 15 July 2015, the last day for compliance with an “unless order” which would have seen judgment by default entered, Mr Evers filed an amended statement of defence and list of documents. In the amended statement of defence Mr Evers denied that he operated a current account and denied that it was overdrawn. He pleaded:

3. He says further that all monies he took for his personal use from the company’s bank accounts was by way of remuneration for his services running the company and it had not been and never was agreed that those monies were a loan to him by the company, repayable on demand or otherwise.

[13] By 10 June 2016, it was recognised that the defence pleaded by Mr Evers to the effect that the money he drew from the company was remuneration and not an advance would be resolved by reference to s 161 of the Companies Act 1993. This section empowers the board of a company, subject to its constitution, to authorise, inter alia, the payment of remuneration to a director for services as a director or in any other capacity. There are formalities that must be observed, and it is common ground that none were in this case. Section 161(5) has a savings provision where the formalities have not been complied with:

... the director ... to whom payment is made ... is personally liable to the company for the amount of the payment ... except to the extent to which he or she proves that the payment ... was fair to the company at the time it was made ...

[Emphasis added]

[14] There was a tele-conference held on 10 June 2016 and it was decided to resolve the issue of whether Mr Evers could avail himself of the proviso as a preliminary point argument. Unfortunately, the directions made by Judge Ingram do not provide for briefs of evidence to be exchanged. All that is recorded is:

1. Agreed that a preliminary point argument is to take place as a short trial – half day estimated – next available date to be allocated. Not

15 July – 15 August.

2. One page outline of argument and list of authorities to be filed and served. Plaintiff within 14 days – defendant 28 days of today.

[15] By memorandum dated 12 July 2016, counsel for Mr Reynolds as liquidator asked for a further tele-conference. In the memorandum, Mr Greer set out his understanding of the situation and said:

6. The defendant is required to prove the existence of the Remuneration Agreement and will presumably need to call one or more witnesses to do this.

7. Accordingly, Counsel is concerned that one half day will not allow sufficient time to hear evidence and argument on the additional issue of whether the Remuneration Agreement existed and requests that one full day is allocated or alternatively that a further telephone conference is convened to resolve the issue.

[16] The further telephone conference was held on 26 August 2016. Mr McArthur did not attend. Judge Ingram simply confirmed the half-day fixture already scheduled for 25 October 2016.

[17] On 15 September 2016, Mr Greer served on Mr McArthur the affidavit of Mr Reynolds, a draft index for a common bundle, his bundle of authorities and his submissions.

[18] Nothing was filed on behalf of Mr Evers.

[19] On 10 October 2016, in response to an inquiry from Mr Greer, Mr McArthur wrote in an email as follows:

I apologise for being overdue. That has been an oversight by me. I will not be able to file the documents until the close of Wednesday 12 October at the earliest.

[20] Nothing was filed on behalf of Mr Evers.

[21] On Friday, 21 October 2016 (24 October 2016 being a public holiday, this was the last working day before the fixture), Mr McArthur filed a memorandum requesting an adjournment. He said:

3. I have not been able to get the defence witnesses ready in terms of briefs or for hearing and have not been able to do the other work necessary for trial due to a combination of events.

4. I received the plaintiff’s brief and draft bundle of documents on

15 September 2016.

5. I was required to attend to defence documents thereafter.

6. For the last four weeks about I have been suffering from a debilitating flu which has not gone away until the last 3 days.

7. As well I moved house in the weekend of 3 September and in the course of that was moving my motorbike. Whilst doing that I stupidly lay my bike down, it was meant to go on its stand, but the stand was tucked away. Both I and the bike fell onto the hard garage surface with the bike landing on top of me, crushing my inside leg and thigh. I had difficulty walking for a couple of weeks.

8. Then on about 17 September as I was lifting an empty cardboard box there were multiple jabs of pain through my back. All the time I was in acute pain. I went to a chiropractor on 19 September and he has helped it over time. But I still have pain although it is manageable. I am still seeing him.

9. I have sent him an email so he can confirm in writing the treatment I have been receiving from him and as soon as I have it I will forward it to the court and Mr Scott.

10. Over this time because the chiropractor’s treatment was not working as quickly as I needed it to I had weekly massages by a Thai therapeutic masseuse. The masseuse told me the accident with the bike probably triggered the back problem.

11. In short it has been a difficult month and a half. It has meant that I have just not been able to get this matter ready for trial. I apologise for that to the court and I apologise to Mr Scott.

12. The matter is set down for a half day. If it proceeds I am simply not ready and injustice may well be suffered by the defendant. Any delay will not overly prejudice the plaintiff and it will not alter the result for the plaintiff except that it will be a properly argued matter in terms of the defence being properly represented.

13. Any expense incurred by the plaintiff due to this request should it be granted can be awarded against the defendant.

[22] Mr Greer at once filed an opposition to the adjournment request.

[23] Judge Ingram responded to the situation, on the same day, by directing that a telephone conference be convened at 9:15 am on 25 October 2016.

[24] The telephone conference was duly convened and Judge Ingram heard Mr McArthur’s application for an adjournment. He declined it. In his Memorandum giving his decision, Judge Ingram said:

[3] The defence history of failing to comply with both the rules and timetable orders is appalling. The defendant has been barred from disputing quantum for persistent failure to comply with timetabling orders, and has delayed the proceeding repeatedly and unnecessarily over the last 12 months. In particular, the matter was set down for this hearing as long ago as the 10^th of June 2016, and orders made requiring that the defence file briefs, a bundle and submissions within 14 days of the plaintiff’s documents being filed. The plaintiff filed and served its documents on the 15^th of September 2016, and nothing has been filed by the 30^th of September. Those timetabling orders notwithstanding, and despite communications between Counsel around the

7^th of October on these issues, the defence has filed nothing at all.

[4] On the last working day before the hearing, defence Counsel sought an adjournment on the basis that he has previously had the flu and suffered an injury. None of that would have prevented the defence from preparing the matter over the Labour weekend break.

[5] I accept the plaintiff’s submission that there has been a consistent pattern of non-compliance on behalf of the defendant with timetable orders, with the defence asking that the matter be set down for a hearing on the issue of security for costs, then taking no steps on the application, and requesting additional time to provide particulars as to quantum and then not complying. There is a substantial risk that the defendant will use any further delay to divest himself of assets to frustrate the liquidator’s efforts to recover the monies claimed.

[6] The matter is an issue of simple and straight forward fact. It is a matter of evidence, and there have been discussions between the parties and the Court for a period of at least nine months as to what evidence would be required and how the hearing should proceed. There are no legal or factual complexities.

[7] In the circumstances, I have reached the view that any further delay will be inimical to the interests of justice, and that the defendant’s application for adjournment must be declined.

[25] The hearing proceeded as scheduled at 2:15 pm that afternoon. Mr McArthur attended but took no active part. Essentially, the plaintiff was put to formal proof.

Case for the appellant

[26] Mr McArthur’s principal submission is that Judge Ingram was wrong to hold that the interests of justice required the hearing to proceed. In his submission, the interests of justice required an adjournment:⁵

29. Here a proper evaluation of the issues raised by the request for adjournment ought to have led to an adjournment being granted because:

• Counsel’s ill health was a reasonable basis for the request.

• The request was not due to the fault of the appellant in any way.

• The refusal of an adjournment prevented the appellant’s case

being considered at all.

• There was no prejudice which would have been suffered by the plaintiff should the adjournment have been granted. The only prejudice was the time the plaintiff’s counsel had spent in preparation for that trial which would have had to be done again on an adjourned trial. This was not a large amount (described in his memorandum opposing the adjournment found at page 159

Vol 1 of the ABD) and that could easily have been dealt with by a costs award.

• There was no risk of the appellant divesting himself of assets should an adjournment have been granted. He had earlier provided the plaintiff with a full and detailed declaration as to his assets which showed that he had none, and there was no evidence to the contrary provided on the adjournment application or at any time (his declaration is found at page 4-23

Vol 2 of the ABD).

[27] Before me, Mr McArthur advised that he had not interpreted Judge Ingram’s directions in the 10 June 2016 telephone conference as requiring him to call evidence at the 25 October 2016 preliminary point hearing. He thought it was intended that there would be a legal argument:

The proposition of law was whether, if there was a contract for remuneration or an agreement for remuneration between the company and Evers, one of the directors, whether that would base a ground for a defence despite s 161, even though it wasn’t written or no resolutions.

⁵ Synopsis of submissions on behalf of the appellant, dated 12 May 2017.

[28] In short, Mr McArthur advised me that up to 25 October 2016 he had taken no steps at all to brief any evidence and could not have done so over Labour Weekend because an accountant’s evidence was necessary.

[29] Mr McArthur does not accept Judge Ingram’s more florid criticisms of the conduct of his client’s case. He does accept that there were failings, but submits that none were intentional.

[30] It would have been better if Mr McArthur had filed an affidavit and other counsel had represented Mr Evers. That is because Mr McArthur’s actions are at issue. But I accept that the cost would have been prohibitive for Mr Evers and I accept also that Mr McArthur is not only a senior practitioner but that he was entirely candid. His position is summarised in the following extract from the transcript:

THE COURT:

I think I now understand the Judge’s reasoning and the background. I

understand why you say that the adjournment should have been granted. Is there anything you want to add to inform my understanding of why you say the adjournment should have been granted? Essentially you are saying you were sick, you’d done your best, it’s not your client’s fault, the Judge was wrong to use the history of the proceeding to that point because, firstly, this was never intended to be a hearing that had evidence in it; second, you didn’t know there was going to be any evidential issues until middle of September; third, you don’t accept the Judge’s criticism about this simply being the latest in a series of frustrations of timetable orders and delay; and, finally, you don’t see any real prejudice because it’s only a claim for money by a liquidator.

MR MCARTHUR: Yes.

THE COURT:

Is there anything I should add to that?

MR MCARTHUR:

No. If I may just emphasise – he ought to have just looked at the issue of what was the reason for this application and if it was genuine, in the absence

of prejudice, granted it, and that’s what makes it plainly wrong in my

submission. By looking through the history of what had gone before, that was really nothing to do with that particular application. I say that even if he

was entitled to look through the history of the proceeding he was wrong.

Discussion

[31] Whether to grant an adjournment in a civil proceeding is a matter of discretion on the part of the Judge. I will not disturb Judge Ingram’s decision unless I decide he exercised his discretion in error.

[32] Judge Ingram declined the adjournment because:

(a) His view was that the conduct of Mr Evers’s case was (putting it

mildly) dilatory;

(b) Further delay would risk assets being divested;

(c) The issue of fact was simple and Mr Evers had had plenty of time to prepare his case.

[33] I have gone through the chronology of the steps in the case. While I accept Mr McArthur’s submission that there was no deliberate campaign of delay and frustration, and while I accept that Judge Ingram’s description of the conduct of Mr Evers’s case is overstated, I also accept that the Judge was quite within his discretion to criticise the conduct of the case and to want to avoid further delay.

[34] There is no evidence of Mr Evers divesting assets. However, in a case like this there is always the risk of delay being used to put assets beyond the reach of creditors. It is a matter that may properly be considered, but it is not a weighty matter in the absence of evidence.

[35] The major issue to be decided by the Judge was whether Mr Evers’s conduct of his case leading to the hearing justified an adjournment. That required an analysis of compliance with pre-hearing orders and the reasons given for the adjournment request.

[36] On its face, Mr Evers had continued the pattern of being late, or doing nothing. Nothing had been filed. Nothing had been done to prepare for the hearing.

The application for adjournment came on the last working day before the hearing.

Nothing was put before Judge Ingram as to the merits of Mr Evers’s case.

[37] Mr McArthur told me that he had not anticipated calling evidence. But:

(a) It is difficult to understand how, in a case that had commenced in April 2015, 18 months before, no steps had been taken to brief evidence.

(b) Mr Greer’s memorandum of 12 July 2016 raised squarely the need to

call evidence.

(c) No objection was taken by Mr McArthur, and as late as 10 October

2016 Mr McArthur was promising to file documents.

(d) This was not a ground put forward in support of the application for adjournment.

[38] The main ground for adjournment was Mr McArthur’s health problems. However, counsel can take other steps to ensure clients are represented. Further, Mr McArthur took no steps at all and raised his health problems at the last minute.

[39] I conclude that on the material before him, Judge Ingram was well within his discretion to refuse an adjournment.

[40] There is a final point for me to consider. If the affidavits so belatedly filed in support of this appeal raise a strong case for Mr Evers, then I would have to take that into account on an interests of justice basis. The existence of a strong case would not be conclusive, of course, but I would have to consider it in the context of the decision not to adjourn resulting in Mr Evers’s case not being heard.

[41] I have concluded that the affidavits do no more than raise an arguable case that some of the payments made to Mr Evers might have been fair to the company at the time they were made. However, the affidavits lack the detail to enable a decision to be made as to what payments, if any, would be in this category.

[42] Mr Evers’s affidavit is to the effect that he drew money from the company to pay his living costs and there was supposed to be a squaring up at the end of the financial year. If there was a profit, then he would get more. If a loss, then he would have to refund money. Mr Evers was responsible for running the business of the company.

[43] Mr Evers denies that he went through the accounts he provided to Mr Reynolds and says he did not agree to the $188,161 being treated as a debt owed by him.

[44] There is nothing in Mr Evers’s affidavit about the financial demise of the company, the amounts he drew and when, or whether, he took any steps to monitor the liquidity of the company. He does not say that he repaid money when it was clear the company was making a loss.

[45] The affidavit of Mr Thomas, an accountant, is not substantially helpful to Mr Evers’s case. He deposes that Mr Evers’s arrangement for taking drawings and having a square-up at the end of the year is not unusual. But that, of course, begs the s 161(5) question. There will be personal liability except to the extent Mr Evers could prove that the payments taken by him were fair to the company at the time they were taken. Mr Thomas’s affidavit does not address this issue.

Decision

[46] Judge Ingram did not err in deciding to refuse the adjournment. The affidavits filed in support of the appeal do not show, indeed they do not come close to showing, that because Mr Evers’s case was not heard his appeal should be granted on an interests of justice basis.

[47] The appeal is dismissed.

[48] I am inclined to award the respondent costs on a 2B basis. Counsel are to file

_{memoranda – the respondent by 30 June 2017 and the appellant by 7 July 2017.}

Brewer J