Sullivan v Wellsford Properties Limited [2018] NZHC 708 (18 April 2018)

Last Updated: 24 May 2018

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY I TE KŌTI MATUA O AOTEAROA WHANGĀREI TERENGA PARĀOA ROHE

CIV-2016-488-35 [2018] NZHC 708

BETWEEN	PETER ANTHONY SULLIVAN First Plaintiff PORT ALBERT INVESTMENTS LIMITED Second Plaintiff
AND	WELLSFORD PROPERTIES LIMITED First Defendant GARRY EDWARD HANNAM Second Defendant SUMPTER BAUGHEN CHARTERED ACCOUNTANTS LIMITED (Discontinued) Third Defendant

Hearing:	On the papers
Counsel:	P Dale and A Steel for the Plaintiffs J Golightly and D Reeves for the Defendants
Judgment:	18 April 2018

JUDGMENT OF GORDON J

[Application for stay of costs award pending appeal]

This judgment was delivered by me on 18 April 2018 at 1.00 pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors: Stafford Klaassen, Epsom, Auckland

Marsden Woods Inskip Smith, Whangarei McElroys, Auckland

Counsel P J Dale, Auckland

SULLIVAN v WELLSFORD PROPERTIES LTD [2018] NZHC 708 [18 April 2018]

Introduction

[1] In my judgment dated 8 December 2017,¹ I determined that the plaintiffs failed entirely in their claims against the first and second defendants² which arose out of a purchase by the second plaintiff of a multi-tenanted commercial property from the first defendant.

[2] Subsequently, I held in my judgment as to costs dated 14 February 2018 (the costs judgment) that the defendants were entitled to costs and disbursements of
$87,997.97.³

[3] The plaintiffs now apply for an order staying execution of the costs judgment on the condition that the sum of $87,997.97 be held in an interest-bearing deposit in the first defendant’s solicitor’s trust account pending agreement of the parties, further order of the court, or the disposal of the plaintiffs’ pending appeal against my judgment of 8 December 2017.

[4] The defendants oppose the application. They propose that most of the award, namely $57,997.97, should remain secured in their solicitor’s trust account pending determination of the appeal, while the remaining $30,000 should be released to them.

[5] The parties are content for the application to be dealt with on the papers.

Evidence on the application

[6] The plaintiffs and defendants each filed affidavit evidence in support of, and in opposition to, the application.

[7] Noel Chandler, one of the plaintiffs’ witnesses in the substantive hearing, deposes that:

3. The Court fixed costs in this matter in the sum of $87,997.97. PAIL accepts that those costs must be paid, but is concerned that it is at risk

¹ Sullivan v Wellsford Properties Ltd [2017] NZHC 3047.

2. I will use the term ‘the defendants’ to refer to the first and second defendants. As is apparent from the entituling, the plaintiffs’ claim against the third defendant was discontinued (following settlement).

³ Sullivan v Wellsford Properties Ltd [2018] NZHC 129 at [59].

of not being able to recover those costs in the event that the appeal is allowed. That is because of uncertainty about the financial position of Wellsford Properties Limited.

...

9. The primary concern, and which is noted in the attached correspondence, is that if the plaintiffs’ appeal is successful WPL will be called upon to refund not just the costs that have been paid but a substantial sum for damages.

[8] Garry Hannam, the second defendant and sole director of Wellsford Properties Limited (WPL), deposes that:

5. [The commercial building] was WPL’s sole asset. Its only business was as a landlord of this property. This investment in land was a legacy of the service station businesses that my partners and I held through NDS Fuel Ltd, which we sold in 2013.

6. It was always our intention to wind WPL up in an orderly way following sale. The company has no connection to our other investments, and its purpose had come to an end.

7. Following settlement with the second plaintiff on 26 August 2014, distribution was made to WPL shareholders as anticipated. Distribution was effected well before these proceedings issued. WPL has not traded since that time. Its only activity has been as a defendant in these proceedings.

8. The legal fees and other expenses incurred in defending these proceedings have been met by the shareholders introducing funds to WPL. These have exceeded the costs awarded in the High Court by more than double.

...

12. I am advised that there will be a significant deficit between the costs awarded if WPL succeeds in resisting the appeal, and WPL’s actual costs in doing so, and that WPL will receive no costs if the plaintiffs succeed. Either way, shareholders will be left partly or wholly out of pocket for funds they introduce into WPL.

[9] In relation to his own financial position, Mr Hannam deposes:

3. ... My personal assets include the family home I share with my wife, Sarah. I do not believe the plaintiffs have queried, or have good grounds to query, my ability to repay (part of) any reversed costs.

Principles

[10] Rule 12 of the Court of Appeal (Civil) Rules 2005 provides:

• (1) None of the matters referred to in subclause (2) operate as—

(a) a stay of a proceeding in which a decision was given; or

(b) a stay of execution of that decision.

(2) The matters are—

(a) an application for leave to appeal; or

(b) the giving of that leave; or

(c) an appeal.

(3) Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application, —

(a) order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or

(b) grant any interim relief.

(4) An order or a grant under subclause (3) may—

(a) relate to execution of the whole or part of the decision or to a particular form of execution:

(b) be subject to any conditions that the court appealed from or the Court thinks fit, including conditions relating to security for costs.

(5) If the court appealed from refuses to make an order under subclause (3), the Court may, on application, make an order under that subclause.

(6) If the court appealed from makes an order under subclause (3), the Court may, on application, vary or rescind that order.

(7) The Court may, at any time, vary or rescind an order made by it under this rule.

[11] The starting point is that a successful party is entitled to the fruits of its judgment.⁴ Therefore, the plaintiffs must show why the usual consequences of the judgment should not follow.⁵ As the Court of Appeal recently explained in Brook Valley Community Group Inc v Brook Waimarama Sanctuary Trust:⁶

[10] ... The court will need to balance the competing rights of the party who has obtained judgment against the need to preserve the appellant's

4. Brook Valley Community Group Inc v Brook Waimarama Sanctuary Trust [2017] NZCA 377 at [10].

⁵ Brook Valley Community Group Inc v Brook Waimarama Sanctuary Trust, above n 4, at [10].

⁶ Brook Valley Community Group Inc v Brook Waimarama Sanctuary Trust, above n 4.

position in the event of the appeal succeeding. The factors to be taken into account in the balancing exercise when a stay or interim order are sought include:

(a) whether the appeal may be rendered nugatory by the lack of a stay;

(b) the bona fides of the appellant as to the prosecution of the appeal;

(c) whether the successful party will be injuriously affected by the stay;

(d) the effect on third parties;

(e) the novelty and importance of questions involved;

(f) the public interest in the proceeding;

(g) the overall balance of convenience; and

(h) the apparent strength of the appeal. (Citations omitted)
[12] In SKIDS Program Management Ltd v McNeill,⁷ Woodhouse J emphasised that these are amongst the factors that the Court is likely to consider.⁸ The list is not determinative.⁹ Ultimately, each case must be determined on its own circumstances.

[13] The plaintiffs have appealed my judgment dated 8 December 2017.¹⁰ Although the plaintiffs have not appealed the costs judgment, they seek a stay of that judgment.

[14] The question arises whether a party can apply to stay a judgment under r 12 that they have not appealed. It is not immediately apparent that r 12 does apply in those circumstances. If not, can the Court rely on its inherent jurisdiction?

[15] I note the view of Smellie J in Pinson v Pinson that this Court has inherent jurisdiction to stay any judgment where justice demands it.¹¹ Smellie J referred to the McGechan commentary that the Court “has jurisdiction to make any order necessary

7. SKIDS Program Management Ltd v McNeill HC Auckland CIV-2010-404-1696, 20 December 2011.

⁸ At [9].

⁹ At [9].

¹⁰ Sullivan v Wellsford Properties Ltd, above n 1.

¹¹ Pinson v Pinson (1991) 5 PRNZ 177 (HC) at 178.

to enable it to act effectively even in respect of matters regulated by rules of Court so long as it does not contravene those rules”.¹²

[16] There is a more recent discussion of this Court’s power to stay a decision of the District Court under its inherent jurisdiction in Shafik v Makary.¹³ There, Mander J said:

[18] While powers arising from the Court’s inherent jurisdiction are wider than those contained in the rules and are capable of filling gaps that may arise in respect of those rules, where an issue before the Court is already the subject of prescription, the Court will rarely choose to exercise its inherent powers. The jurisdiction should only be developed and exercised in harmony with relevant legislation.

[19] The starting point is that this Court will retain an inherent jurisdiction to stay proceedings, where the justice of the case so demands, save where that jurisdiction has been abrogated expressly, or by necessary implication. This fundamental position is exemplified by the Court’s jurisdiction to prevent abuses of its own process.

(Citations omitted)

[17] The relevant section which refers to the inherent jurisdiction of this Court is now s 12 of the Senior Courts Act 2016 rather than s 16 of the Judicature Act 1908. However, there is no relevant change for the purpose of the issue I am considering.

[18] Nor do I consider material, the fact that in the two cases I have referred to above, this Court was considering the stay of a judgment of a lower court, rather than a judgment of this Court.

[19] Without deciding whether r 12 in fact applies, I proceed either under r 12 or if it does not apply, under this Court’s inherent jurisdiction. In any event, I apply the relevant Brook Valley factors.

12. At 178; citing Andrew Beck and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR1.19.02].

¹³ Shafik v Makary [2015] NZHC 2194 at [15]- [32](d).

Submissions

[20] The plaintiffs submit they have legitimate concerns that the first defendant will not be able to repay the order for costs in the event the appeal is successful. This would effectively render the appeal nugatory.

[21] The defendants, on the other hand, submit that the plaintiffs have only addressed the alleged adverse effect on themselves of making payment of the judgment costs. They have not addressed the balancing exercise that the Court is required to undertake.

[22] In terms of the balancing exercise, the defendants submit that the factors identified in [10](a), (c), (d), (g) and (h) of Brook Valley are of particular relevance in this case.

Analysis

Render the appeal nugatory?

[23] The defendants submit that the appeal will not be rendered nugatory by the lack of a stay. They submit there is a distinction between cases where the right to relief sought on appeal is rendered nugatory by the lack of a stay and cases where the appellant will become unable to exercise its right to bring or progress an appeal if it is forced to pay a money judgment.

[24] The defendants further submit there is no serious suggestion that the plaintiffs cannot bring or progress their appeal if part of the costs awarded against them remain unsecured. The plaintiffs are not facing bankruptcy or liquidation upon their appeal, which might otherwise render the appeal nugatory.

[25] The plaintiffs, on the other hand, rely on the following comments of Associate Judge Bell in Wiltshire Investments Ltd v Symons:¹⁴

[10] ... what is important is that the plaintiff has obtained a judgment money [sic] against the defendants. In Contributory Mortgage Nominees Ltd v Harris Road No. 10 Ltd HC Auckland CIV-2005-404-3078, 31 January 2006

¹⁴ Wiltshire Investments Ltd v Symons HC Auckland CIV-2010-404-1572, 8 October 2010.

at [8], Associate Judge Faire recognised that in appeals against money judgments, the general approach is that an order staying execution will be granted upon payment by the defendant to the plaintiff of the money in question, with the plaintiff giving security for payment.

[11] There is old authority for this approach. It is found in the decision of Williams J: McLeod v New Zealand Pine Co Ltd (1892) 11 NZLR 493. At 494-495, Williams J said:

The judgment of Lord Justice Bowen in The Annot Lyle 11 PD 114, seems to show what the principle is. He says:

There is no reason why we should make a practice of depriving a successful litigant of the fruits of his litigation and locking up funds to which prima facie he is entitled for a long time because they are secured by the bail bond. We cannot assume that it is a matter of small importance to a successful party to go without his damages for a long time.

The right of plaintiff in the present case is an absolute right to have his money at once. The right of defendants is the right of appeal, and the right in some way or other to have it made certain by this Court that that appeal shall not be fruitless. The duty of this Court is, I think, to reconcile as far as possible the conflicting rights of the plaintiff and the defendants. The way to do that is to follow the English cases, and to say that an order staying proceedings shall be made on payment by the defendants to the plaintiff of the money in question, the plaintiff giving security for the repayment.

[12] While that is an old case, that principle remains applicable today. It is important to recognise that the plaintiff in this case, as judgment creditor, is entitled to the fruits of its judgment now ... The point is that the plaintiff has now obtained judgment and is entitled to enforce the judgment now.

[26] However, the defendants note that Woodhouse J in SKIDS Program Management did not consider this the “general rule”.¹⁵ Woodhouse J commented:

[13] The authors of Sims Court Practice, rather than the Judge, refer to this as a “general rule”. Where the judgment sought to be stayed requires payment of money it may often be both possible and appropriate to direct that payment be subject to the party's receiving payment providing security for repayment. But I consider it is preferable not to refer to a “general rule”. This is essentially for the reasons already noted; exercise of the discretion will depend on the particular circumstances of the particular case. The decision must be a principled one, but the discretion is not constrained by general rules.

(Citations omitted)

[27] The defendants also submit that Wiltshire Investments should be distinguished because Associate Judge Bell was balancing the interests of a successful plaintiff with

¹⁵ At [13].

those of an unsuccessful defendant, which is the reverse of this case. They further submit that as Associate Judge Bell declined to stay enforcement of the substantive decision by the plaintiffs notwithstanding the consequences of bankruptcy on the appeal, the condition requiring the plaintiffs to provide security was to this extent moot.

[28] Ultimately, the plaintiffs took the risk that the first defendant may have no assets with which to meet any judgment when it issued the proceedings. In this regard, the comments of Associate Judge Matthews in another case are similarly applicable here:¹⁶

[9] ... the present applicants took the risk, such as they may conceive it to be, of not recovering costs from the second respondents when they issued this proceeding against them and that risk is no greater now than it was when they took that step.

[29] The second defendant has deposed that his personal assets include the family home. There is no evidence as to the value of the home, nor whether there is any mortgage over the property. However, Mr Hannam does record his belief that he does not believe the plaintiffs have good grounds to query his ability “to repay (part of) any reversed costs”.

[30] In any event, the defendants’ concession creates a form of security for the plaintiffs.

Injury and effect on third parties?

[31] The defendants submit that their shareholders will be injuriously affected by a stay because it will deprive them for some time of the ability to defray in part legal expenses and disbursements brought about by the plaintiffs’ unsuccessful claim, pending the appeal.

[32] The legal expenses of defending these proceedings have been met by the introduction of funds into the first defendant by its shareholders. The commercial property, which is the subject of the proceedings, was the first defendant’s only asset.

16. Ballantyne Trustees Ltd v Papprill Hadfield & Aldous Solicitors Nominee Co Ltd [2017] NZHC 937.

[33] I accept that there is some injurious effect on the first defendant’s shareholders. The funds that would otherwise be available to reimburse them are currently unavailable.

Strength of the appeal

[34] The defendants submit that the appeal, especially against the second defendant, is not strong. As a result, the defendants submit that in carrying out the balancing exercise required, the overall justice of the case supports the reasonable compromise they have proposed.

[35] Notwithstanding the submission on behalf of the defendants, I accept that the plaintiffs are entitled to test my decision on all the causes of action.

[36] I also accept that the plaintiffs moved expeditiously in filing their appeal and that preparation of the case on appeal is underway.

Overall assessment

[37] In my view, the balance of convenience and overall justice clearly favours the defendants in this case.

[38] The plaintiffs seek to shift the risk away from themselves and place it onto the defendants. But the defendants were successful in these proceedings. They are entitled to the fruits of their judgment which includes a costs award in their favour.

[39] I note that as a result of the defendants’ concession, any risk is only for part of the costs award. The defendants are agreeable to most of the costs award remaining in their solicitor’s trust account pending determination of the appeal.

[40] That is a reasonable concession. Releasing $30,000 also allows for some form of reimbursement of the first defendant’s shareholders to take place.

Conclusion

[41] The plaintiffs’ application for a stay is declined.
[42] The defendants are entitled to enforce the costs judgment against the plaintiffs pending the plaintiffs’ appeal. However, I order that $57,997.97 of the costs award remain secured in the defendants’ solicitor’s trust account pending determination of the appeal, and the remaining $30,000 be released to the defendants.

Costs

[43] The defendants are entitled to costs on this application (their compromise position which I have upheld was offered to the plaintiffs before the plaintiffs filed their application). I encourage the parties to agree costs and to file a joint memorandum. Failing agreement, the defendants are to file a memorandum within 15 working days of this judgment, with the plaintiffs to file their memorandum within a further 10 working days.








Gordon J