IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-002295

BETWEEN	STEPHEN PETER CROW Appellant

AND	CALVISTA AUSTRALIA PTY LIMITED Respondent

Hearing:	25 August 2010

Counsel:	Appellant in Person
M C Brugeyroux for Respondent

Judgment:	8 September 2010

JUDGMENT OF POTTER J

In accordance with r 11.5 High Court Rules
I direct the Registrar to endorse this judgment
with a delivery time of 2.30 p.m. on 8 September 2010.

Solicitors:	Wynyard Wood, P O Box 2217, Auckland 1140

Copy to:	S P Crow, 27 Northwood Avenue, Albany, North Shore City 0632

CROW V CALVISTA AUSTRALIA PTY LIMITED HC AK CIV-2010-404-002295  8 September 2010

Introduction

[1]       In a judgment dated 30 March 2010 in the District Court at Auckland (“the judgment”) Judge David J Harvey ordered the judgment obtained by default by the respondent Calvista Australia Pty Limited (“Calvista”) against the appellant, Mr Crow, for the sum of A$39,897.36 together with interest, a total of A$53,363.88, plus costs be set aside subject to payment into Court by Mr Crow of the sum of A$39,897.36 by 22 April 2010.  The judgment recorded that failure to make payment would mean that the order to set aside would lapse at 4 p.m. on 22 April 2010 and
the judgment would remain in force.

[2]       The appeal by Mr Crow is against the condition imposed by the Judge.  His stated grounds are:

a)        He  satisfied  the  criteria  in  the  judgment  in  Russell  v  Cox   in explaining the reason for the delay in filing the statement of defence;

b)	He satisfied the criteria that he has an arguable defence;

c)        Setting aside  the judgment  will  not  result  in  irreparable injury to Calvista  because  the  matter  is  still  the  subject  of  litigation  or resolution in another manner;

d)        He is not able to meet the condition to make payment into Court as ordered   which   effectively   prevents   him   from   defending   the proceeding;

e)	The delay in the filing of his statement of defence was minimal;

f)	The late filing of the statement of defence was non-compliance with a

Registrar’s timetable direction.

[3]	Calvista opposes the appeal.   It says the appeal is against the exercise of a discretion by the Judge and that in exercising his discretion the Judge:

a)	Did not act on a wrong principle;

b)	Did not fail to take into account some relevant matter;

c)	Did not take account of some irrelevant matter;

d)	Was not plainly wrong.

Background

[4]	The background to this appeal is as follows:

•   On 11 September 2009 Calvista filed summary judgment proceedings against Mr Crow.   It claimed that Mr Crow was the guarantor of payment of A$39,897.36 in respect of goods supplied in 2009 by Calvista to a company called Vixen Direct Limited.

•   Subsequently it was agreed that the summary judgment proceedings would be withdrawn and Mr Crow was directed to file a statement of defence within fourteen days of 23 February 2010, that is by 9 March 2010.

•   He failed to do so, and on the following day, 10 March 2010, judgment was entered against Mr Crow for the sum of A$39,897.36 together with interest and costs.

•   On the following day, 11 March 2010, Mr Crow filed an application to set aside the judgment with a supporting affidavit.

•	The judgment followed on 30 March 2010 after a hearing on that date.

•   On 1 April 2010 Mr Crow filed a memorandum seeking an extension of time for payment of the A$39,897.36 into Court, which was declined by Judge Harvey.

•   On 20 April 2010 Mr Crow filed a notice of appeal against the judgment, which is the matter now before the Court.

•   On 22 April 2010 Mr Crow applied for a stay of the judgment pending the hearing of the appeal, which was granted by Cooper J on 1 July 2010.

The judgment

[5]       After summarising the relevant background, Judge Harvey said the classic test applicable to an application to set aside a judgment is set out in Russell v Cox.
First, whether the defendant has a substantial ground of defence.  Second, whether the delay by the defendant in filing his statement of defence has been reasonably explained.  Third, whether the plaintiff will suffer irreparable injury if the judgment is set aside.

[6]       The Judge referred to communication difficulties between Mr Crow and his lawyers, including apparent confusion relating to a payment required from Mr Crow by  his  lawyers.    He  noted  that  as  soon  as  judgment  was  entered  Mr  Crow immediately took steps to protect his interests and performed with a high level of diligence to progress the application to set aside judgment, to hearing.   The Judge
found himself satisfied that the delay was reasonably explained.

[7]       As to whether Mr Crow has a substantial ground of defence, the Judge noted Mr Crow’s argument that the company invoiced, Vixen Direct Limited (No 514467), is not the same company as a previous company which bore that name and in relation to the performance of which, Mr Crow had given a performance guarantee to Calvista as far back as the 1990s.  He said, Mr Crow’s argument is that although he

guaranteed the debts of the earlier company (No 608726), the entity which entered into the contract with Calvista in February 2009 for the supply of goods was an entirely different corporate entity in respect of which he has no personal liability. The Judge said the problem seemed to be that when the order was placed in February
2009, Calvista revived the earlier credit arrangements it had with Vixen Direct Limited (No 608726) and treated the company with which it entered into a contract in 2009 (No 514467) as one and the same entity.

[8]       The Judge said that further details relating to the relevant transactions would be revealed upon discovery, but he reached the view that Mr Crow’s argument provided him with an arguable defence, which should be followed as far as the test in Russell v Cox is concerned.

[9]       Turning  to  the  third  limb  of  the  test,  whether  the  plaintiff  would  suffer irreparable injury if the judgment were set aside, he noted that the litigation was still at large but he expressed concerns that the plaintiff is an Australian company which has chosen to bring its proceedings in New Zealand (although the Australian Courts may well have had jurisdiction).  He considered Calvista should be protected in the event of judgment being entered against Mr Crow so that it “... will have at least
some prospects of recovery in the final analysis”.

[10]     He said that it was not unusual in cases such as this for an order to set aside to be made subject to certain conditions.   He considered in the circumstances of this case, and having regard to the history of the case, that some security should be made for proper performance in the event that judgment was entered against Mr Crow.

[11]     Thus, having found himself satisfied concerning the first and second tests in Russell  v  Cox,  he  granted  Mr  Crow’s  application  subject  to  the  condition  for payment into Court of A$39,897.36 to meet the irreparable damage limb in Russell v Cox.

Mr Crow’s submissions

[12]	Mr  Crow  presented  succinct,  competent  submissions  both in  writing and orally at the appeal hearing.

[13]	He submitted that the Judge failed to take sufficiently into account that:

•	The judgment resulted from a failure by his then lawyers to comply with the

Registrar’s direction and he had no part in that fault.

•   He has a strong defence to Calvista’s claim.   He referred to a new claim which appears to have been raised by Calvista on appeal.   It involves an allegation that the company invoiced is a “phoenix company”, as defined in s 386B of the Companies Act 1993, and accordingly under ss 386A and 386C Mr Crow would have personal liability for its debts.  Mr Crow noted those provisions were inserted in the Companies Act on 1 November 2007.   He submitted they do not apply because they do not have retrospective effect.

•  He is not insolvent but the requirement to pay A$39,879.36 into Court “constitutes a burdensome and harsh penalty for a trivial (in terms of its effect on the respondent) oversight”.   In oral submissions Mr Crow emphasised it was not the position that he could not pay, but that he has chosen not to pay because the imposition of the condition is unjust and wrong.

•   The respondent does not suffer any irreparable damage as the result of the judgment being set aside without payment into Court, since the matter is at large and can be still resolved by litigation or in another manner.

•   The effect of the condition imposed by Judge Harvey is to place Calvista in a better position than had it successfully sought a Mareva injunction or pre- judgment charging order, although there is no evidence that would support such orders.

•	The condition requiring payment into Court is unjust and should be set aside.

Calvista’s submissions

[14]	Calvista submitted that the issues for determination on appeal are:

•   Whether the Judge erred in ordering Mr Crow to pay A$39,897.36 into Court as a condition of his setting aside application being granted.

•   Whether the Judge’s requirement to pay A$39,897.36 into Court was made on a principled basis and in accordance with authority.

•   Whether  this  Court  should  interfere  with  the  Judge’s  exercise  of  his discretion.

[15]	Calvista submitted that:

•   Mr Crow’s argument presumes that judgment has not been obtained, which is not the situation here.  Calvista has obtained judgment and would be entitled to enforce that judgment unless the Court in the exercise of its discretion, having balanced the competing interests of the parties, orders the judgment to be set aside on conditions that the Court considers appropriately meets those interests.

•   The strength of Mr Crow’s defence is not in issue on appeal.   The Judge found that he has an arguable defence and that aspect of the test in Russell v Cox is satisfied.

Discussion

[16]	Rule 473 of the District Court Rules provides:

Judgment may be set aside or varied -

Any judgment obtained by default may be set aside or varied by the Court on such terms as it thinks fit if it appears to the Court that there has been, or may have been, a miscarriage of justice.

[17]     In  the  exercise  of  his  discretion,  the  Judge  determined  to  set  aside  the judgment obtained against Mr Crow by default, provided that A$39,879.36 was paid into Court.  He considered that condition was necessary and appropriate to meet the risk of Calvista being deprived of the fruits of a judgment it had already obtained, noting  that  Vixen  Direct  Limited  (No  608726)  and  Vixen  Direct  Limited  (No
514467) have been placed in liquidation as a result of their inability to pay their debts as they fall due.

[18]     The  Judge  was  exercising  an  unfettered  discretion  under  r  473.    The principles in May v May are applicable.  This Court should not intervene on appeal unless it can be shown that the Judge acted on a wrong principle, or that he failed to take into account some relevant matter, or that he took into account some irrelevant matter, or that he was plainly wrong.

[19]     In  Austin,  Nichols  &  Co  Inc  v  Stichting  Lodestar,  the  Supreme  Court provided direction on how an appellate court is to approach general rights of appeal. However, at [17] of the judgment the Court distinguished decisions involving the exercise of a discretion from the judgment under appeal in that case.  The Court of Appeal  has  subsequently  confirmed  that  in  cases  involving  the  exercise  of  a discretion the appeal court must be satisfied that the Judge in the lower court erred in law, took into account irrelevant factors, failed to take account of relevant factors or
was plainly wrong.

[20]     The emphasis placed by Mr Crow on the very brief period of delay in filing the statement of defence that allowed judgment by default to be entered is relevant in considering the second test in Russell v Cox, whether the delay is reasonably explained. Likewise, the strength of his defence is relevant to the first test.   But, those tests being satisfied, the Court must balance the interests of the parties and cannot ignore that an enforceable judgment exists.

[21]     The  Judge  clearly and  carefully applied  the  tests  in Russell  v  Cox.    He weighed and balanced the competing interests of the parties.  He did so in light of the relevant factor that judgment had been obtained against Mr Crow, which of course gave rise to his application to set aside.

[22]     The judgment in Sandall v Cardno  has many similarities with the present case.  Hardie Boys J in the High Court considered an application under the relevant High Court Rules to set aside judgment for a sum of about $53,000 and costs.  The dispute between the plaintiffs and the defendants arose over cherries purchased by the defendants from the plaintiffs.   Judgment by default had been obtained by the plaintiffs against Mr Cardno on the first day, and against Mrs Cardno on the second day, after expiration of the thirty day period allowed for filing the statement of defence.

[23]     The Judge said:

The Court has a discretion, the test being whether it is just in all the circumstances to set the judgment aside, and if so, whether terms should be imposed.

[24]     He referred to the three factors in Russell v Cox, and said:

... the question of prejudice [to the plaintiffs] is to be addressed not on the basis of what the position would have been had judgment not been entered, but on the basis that judgment has been obtained, and so the relevant inquiry is as to the prejudice likely to be suffered if, having been obtained, it is now set aside.

[25]     The Judge concluded that justice required the judgment be set aside but on terms that as far as possible protected the plaintiffs’ position as well.  He made it a condition of the order setting aside the judgment that the defendants pay into Court the sum of $53,363 or provide security for that sum to the satisfaction of the plaintiffs’ solicitor.

[26]     The approach of this Court in Sandall v Cardno is instructive.  In this case judgment was obtained by Calvista, so the application to set judgment aside cannot be approached on the basis of what the situation of the parties might have been had judgment not been entered, as Mr Crow seems to argue.  The fact that judgment has been  obtained  must  be  taken  into  account  in  balancing  the  parties’  respective interests and weighing the interests of justice.  The condition imposed by the Judge is not a “burdensome and harsh penalty” as Mr Crow contends, but a condition of a dispensation sought from the Court.

[27]     I am satisfied the Judge did not err in principle and was not plainly wrong in exercising his discretion to set aside the judgment but as a condition to require payment into Court, not of the full amount of the judgment debt, but of the amount invoiced for the goods supplied by Calvista which forms the basis of its claim against Mr Crow.

[28]     Mr Crow said in the course of oral submissions, that to provide the sum of A$39,879.36 in cash would be burdensome and disadvantageous for him because he would need to access the funds through a family trust or trusts.  I therefore propose to allow him a slightly longer period from the date of this judgment than did Judge Harvey, to make payment of the sum into the District Court at Auckland.

Result

[29]     The appeal is dismissed.

[30]     The appellant is to pay the sum of A$39,879.36 ordered by the District Court as a condition of the setting aside of the judgment against the appellant, by 17
October 2010.  In terms of the judgment, failure to make payment by that date will mean that the order to set aside will lapse at 4 p.m. on that date and the judgment against the appellant will remain in force.

Costs

[31]     Calvista seeks costs on the appeal and on “Mr Crow’s abandoned application to stay as per the minute/direction of His Honour Judge Harvey” (at paragraph 38 submissions of Calvista.  I am unclear about the reference in quotation marks).

[32]     The proceedings have been categorised as category 2 for costs purposes..3

[33]     Calvista would be entitled to costs on this appeal.  If he were not a litigant in person Mr Crow would be entitled to costs on his successful application for stay in accordance with the judgment of Cooper J.   But as a litigant in person he is not entitled to claim costs.    In those circumstances I consider the interests of justice may best be served by costs on both matters being left to lie as they fall.   The successful party in each case would be entitled to the reasonable disbursements.

[34]     However, I have not received submissions from the parties as to costs.  If the parties wish to make submissions they may do so by brief memoranda to be filed in this Court and served on the other party, Calvista by 22 September 2010 and Mr Crow in response by 29 September 2010.

[35]     Issues of costs in the District Court are best addressed by that court in the context of the continuing litigation.

Next steps

[36]     The matter is to be listed for a telephone conference by the Registry at the Auckland District Court so that timetable orders can be made to advance the proceedings to trial.