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Thompson v Tonga Development Bank [2004] TOLawRp 3; [2004] Tonga LR 11 (1 March 2004)

IN THE SUPREME COURT OF TONGA

Thompson

v

Tonga Development Bank anor

Supreme Court, Nuku'alofa
Ford J
CV 671/2003

18 February 2004; 1 March 2004

Practice and procedure – application for stay of execution pending appeal – refused

Practice and procedure – leave to appeal to Court of Appeal – not needed for final order

On 4 December 2003 the Supreme Court made a finding in favour of the applicant liquidator and ordered, pursuant to section 275 of the Companies Act 1995, that the respondent Banks make disclosure to the liquidator of various documentation more particularly identified in the judgment and make appropriate officers available for oral examination by or on behalf of the liquidator. The respondents appealed that decision to the Court of Appeal and they sought an order to stay execution of the judgment pending the hearing of the appeal. There was a question as to whether it was necessary for the respondents to obtain leave before appealing to the Court of Appeal.

Held:

1. The term "interlocutory" was not defined in the Court of Appeal Act but, in general, it referred to any formal pronouncement by the court pending final decision. There was no other cause of action between the parties. The sole purpose of the liquidator's application was to seek an order for disclosure and oral examination against the Banks. The Court ruled that leave to appeal was not required.

2. With respect to the respondents' application for a stay of execution of judgment pending the hearing of the appeal, an appeal does not operate as an automatic stay of execution. The Court was not persuaded that any of the respondent's submissions outweighed the liquidator's rights to immediate implementation of the judgment.

3. The application for a stay was refused. Costs on the stay application were awarded to the liquidator but costs on the leave to appeal argument were awarded in favour of the Banks.

Cases considered:

Cloverbay Ltd v BCCI [1991] 1 All ER 894

First Systems Ltd (in liquidation) v Peart (CP No 148SD/99, 12 July 2000, High Court New Zealand)

Norwich Pharmaceutical Co v Commissioners of Customs & Excise [1973] UKHL 6; [1974] AC 133

Salter Rex & Co v Ghosh [1971] 2 QB 597

Statutes considered:

Companies Act 1995

Court of Appeal Act (Cap 9)

Rules considered:

Civil Procedure Rules (UK)

Supreme Court Rules 1991

Counsel for applicant: Mr Stanton and Mr Edwards
Counsel for respondents: Ms Tapueluelu

Judgment

On 4 December 2003 I delivered a judgment in this proceeding making a finding in favour of the applicant liquidator. I ordered, pursuant to section 275 of the Companies Act 1995, that the respondent Banks make disclosure to the liquidator of various documentation more particularly identified in the judgment and make appropriate officers available for oral examination by or on behalf of the liquidator.

The respondents have appealed that decision to the Court of Appeal and they now seek an order to stay execution of the judgment pending the hearing of the appeal -- likely to be in late July 2004.

On 18 February 2004 I heard oral argument from Ms Tapueluelu and Mr Edwards on the stay application. At the commencement of that particular hearing I raised with counsel an issue that had been noted on the court file in connection with the appeal itself. A query had been raised as to whether it was necessary for the respondents to obtain leave before appealing to the Court of Appeal.

At that point, Mr Edwards indicated that he would need to obtain instructions from senior counsel, Mr Stanton, in Sydney. In the circumstances, it was agreed that Ms Tapueluelu could proceed and present her oral submissions in support of the respondents' contention that leave was not required and Mr Stanton, should he take a different view, would then have time in which to file written submissions in opposition. Counsel for the respondents also undertook, if necessary, to file a formal application for leave.

Although the procedural steps agreed to in this regard were rather unusual, they were necessitated, in part at least, by Ms Tapueluelu's almost imminent departure for the USA on maternity leave.

It was agreed that I would consider and rule upon the initial query relating to leave to appeal before giving my ruling in relation to the stay application.

The contention made by counsel on behalf of the liquidator on the first point is that the judgment of 4 December 2003, which the respondents seek to appeal, was an interlocutory order and under section 10(1) of the Court of Appeal Act (Cap 9), appeals in civil cases to the Court of Appeal from interlocutory orders are able to proceed only by special leave of the judge at first instance or the Court of Appeal itself.

Counsel for the respondents takes issue with that proposition and submits that the judgment of 4 December 2003 was not an interlocutory order but a final order because there is no other issue outstanding between the parties. As I understand it, Ms Tapueluelu concedes that had the liquidator made his application in the same action as the original winding up litigation then the position would have been different.

The term "interlocutory" is not defined in the Act but, in general, it refers to any formal pronouncement by the court pending final decision. Mr Stanton submits that the order of 4 December 2003 is interlocutory on the basis that it relates to a matter of practice and procedure as distinct from involving the determination of substantive rights. It is not a final order, counsel contends, "but merely a matter requesting production of records and effectively it is not an order which finally disposes of the rights of the parties."

As the Tongan Supreme Court Rules are silent on the point, it is appropriate to have regard to the relevant English rules of procedure. The difference between an interlocutory order and a final order has been well canvassed by the English authorities over the years. Under the new (UK) Civil Procedure Rules the distinction between an interlocutory order and a final order is no longer relevant for the purposes of permission to appeal to the Court of Appeal but that does not lessen in any way the relevance and force of earlier categorisations of the different types of orders.

In Salter Rex & Co v Ghosh [1971] 2 QB 597, 601, Lord Denning MR said:

This question of "final" or Interlocutory" is so uncertain that the only thing for practitioners to do is to look at the practice books and see what has been decided on the point. Most orders have now been the subject of decision."

Before going on, I should record that in my judgment of 4 December 2003 I referred to the judgment of Sir Nicholas Browne-Wilkinson VC in Cloverbay Ltd v BCCI [1991] 1 All ER 894, 899 where the learned Vice-Chancellor likened an order for production of documents under the Companies Act to a general order for discovery. It seems to me, with respect, that there is considerable substance in that analogy and so in considering the relevant UK authorities on final and interlocutory orders the position in relation to discovery assumes some significance.

Up until the mid-1980s the question of whether an order was final or interlocutory was determined by case law but in 1988 it became governed by O.59, r 1A of the Rules of the Supreme Court. The Supreme Court Practice (1991) the "White Book" noted at 59/1/28:

"In r.1A(5) there is a list of specified types of orders which are to be treated as final for the purposes of appeals to the Court of Appeal, and in r.1A(6) a long list of orders which are to be treated as interlocutory. There is a general test in r.1A(3) and (4) which deals with any types of order which are not included in either of the specific lists."

Of particular relevance to the present case are the rules relating to discovery and winding up. They read (p.902) as follows:

"Rule 1A (5).... the following orders shall be treated as final –

(a) an order for discovery of documents made in an action for discovery only ....

(d) an order for the winding up of a company.

Rule 1A (6). . . . the following judgments and orders shall be treated as interlocutory –

(a) ....

(p) subject to paragraph (5) (a), an order for or relating to the discovery or inspection of documents ...

(ee) without prejudice to paragraph (5) (d), an order made in the course of or by way of regulation of a liquidation and any other order analogous to or consequential on a winding up order."

The references to winding up and ancillary orders have no application in the present case because the application before the court was not made in the original winding up action but as a new and separate proceeding.

Likewise, it is clear that the reference to discovery in paragraph (6) (p) is to the process of discovery as part of an existing or proposed cause of action. In the present case there is no other cause of action between the parties. The sole purpose of the liquidator's application was to seek an order for disclosure and oral examination against the Banks.

In these circumstances, the category of order in O.59 r 1A most analogous to the present case is that described in paragraph (5) (a), viz, "an order for discovery of documents made in an action for discovery only."

A note in the White Book (59/1A/8), referring to this type of order, states:

" . . . an order made in an action for discovery only (ie an action founded on Norwich Pharmaceutical Co v Commissioners of Customs & Excise [1973] UKHL 6; [1974] AC 133, H.L.) is a final order."

In the Norwich case, the House of Lords reaffirmed that no independent action for discovery lies against the party against whom no other reasonable cause of action can be alleged but the judgment acknowledges that there can be exceptions to the general rule. Rule 1A (5) (a) simply confirms that an order made in one or other of those exceptional cases is to be treated as a final order.

The present case does not come within the category of "exceptional case" envisaged in Norwich because here there is a specific statutory power allowing the liquidator to seek the orders in question. The principle, however, is the same. Whereas interrogatory and discovery orders relating to an existing or contemplated cause of action are to be regarded as interlocutory, a discovery order sought in a proceeding initiated for the sole purpose of discovery is to be regarded as a final order.

That being the case, I rule that leave to appeal is not required.

I turn now to the respondents' application for a stay of execution of judgment pending the hearing of the appeal.

An appeal does not operate as an automatic stay of execution. Halsbury, 4th ed. Vol 37para 699, sums the position up as follows:

"Two principles have to be balanced against each other as to whether a stay of execution pending the appeal should be granted: first, that a successful litigant should not be deprived of the fruits of his litigation, and secondly, that an appellant should not be deprived of the fruits of a successful appeal."

And in Vol 17 at para 455:

"The court has an absolute and unfettered discretion as to the granting or refusing of the stay, and as to the terms upon which it will grant it and will, as a rule, only grant the stay if there are special circumstances."

Ms Tapueluelu contends that special circumstances exist in the present case. Her principal submission under this head is that, unless the stay is granted then the respondents' rights to appeal will effectively be rendered nugatory in that the liquidator will have gained access to documents he is not otherwise lawfully entitled to and that process could never be reversed. Counsel also submitted that a refusal to grant the stay would "without doubt effectively cause irreparable damage to the respondents' rights" whereas, on the other hand the liquidator's investigations will not be prejudiced by the delay resulting from a stay order.

Counsel for the liquidator took strong exception to virtually every proposition put forward in support of the stay application and he submitted that the sole purpose of the Banks' application and "the equally hopeless notice of appeal is to delay, frustrate and obfuscate the conduct of the (liquidator's) examination."

There is authority to support the Banks' basic proposition that the court ought to see that the appeal, if successful, is not rendered nugatory. Mr Edwards did not dispute that statement of principle but he stressed that it has to be balanced against the right of a successful litigant to the fruits of his litigation and, counsel asked rhetorically, what is the "irreparable damage" the Banks would allegedly suffer if the stay application was not granted and what is it in the documents that the Banks are fearful of disclosing? Mr Edwards observed that the answers to those queries are not obvious from any of the numerous affidavits filed by the Banks in support of their application.

The queries posed by counsel for the liquidator appeared to me to call for an answer and they had obvious relevance to the exercise of my discretion. During argument, therefore, I pursued the points with counsel for the Banks and asked what objection the respondents could take to the disclosure of the documents had we been dealing with an order for discovery in existing proceedings? Ms Tapueluelu suggested that there could be a banker/client privilege involved, particularly in relation to documentation on the Coral Kingdom company file. No precise documentation was identified, however, that might fall into such a category and, in any event, given the extremely close and obviously complex historical relationship between the company in liquidation and Coral Kingdom Ltd, which is referred to in earlier judgments, I would not have been prepared to uphold such a ground of objection.

At one stage in her submissions, counsel made the point that the real significance of the appeal from the Banks' perspective was that it would enable them to obtain an authoritative ruling on the exact nature and scope of a liquidator's entitlement to disclosure under section 275. In this regard, it was noted that one of the authorities adopted in the decision under appeal, First Systems Ltd (in liquidation) v Peart (unreported) CP No.148SD/99, judgment dated 12 July 2000, was a decision of a Master of the New Zealand High Court and it had not been tested at any higher level in that jurisdiction.

I can see some merit in this submission and it would have been a relevant factor, no doubt, had it been necessary for me to determine whether or not to grant leave to appeal but, of course, that is not the issue before the court. I cannot see how the submission can be used to support the claim that an appeal would be rendered nugatory if a stay was not granted. On the contrary, the appeal could still be heard and the judgment would no doubt provide the Banks with the authoritative precedent they seek.

I suspect that counsel for the Banks must have come to that same conclusion because in her submissions in reply she seemed to resile from her earlier position and she narrowed her objection to the basic proposition set out in her written application, viz, unless a stay is granted then the liquidator will be obtaining access to documents he might not otherwise be legally entitled to.

When counsel was further pressed to explain the reference to the "irreparable damage" the Banks might suffer in that situation, a rather vague challenge was made to the liquidator's good faith. That same point, in more specific form, is contained in an affidavit filed on behalf of the Banks, where the deponent, a senior Bank Officer, states:

"29 . . . .

(VII) The Banks are of the view that the liquidator is acting solely on information provided by Mr Miller who is understood to be funding the liquidator, and that Mr Miller's counsel is also acting for the liquidator.

(VIII) this is of serious concern to the Banks and notwithstanding the liquidator's integrity, we consider this is a clear conflict of interest."

In response, the liquidator in his affidavit deposed:

"37. As to the subparagraph 29 (VIII) I regard this as an unfounded proposition. I say the examination process is there for me to gather information and I ask, or pose rhetorically to this Honourable Court, why are the Banks so concerned about this and, more importantly, what have they got to lose from an examination to be so conducted?"

In my earlier judgment I accepted that the liquidator is and at all material times has been, acting in good faith. If there is to be a serious challenge to his appointment then there is a recognised procedure prescribed for that purpose. It is not an appropriate matter to raise in support of a stay application of this nature.

There are numerous other matters deposed to in the affidavits of both parties which have more relevance to the merits of the appeal itself and to various incidental issues than to the question of whether or not it is appropriate for this court to order a stay of execution.

I have considered all the submissions advanced by counsel for the respondents but I have not been persuaded that any of them, either individually or collectively, outweigh the liquidator's rights to immediate implementation of the judgment of 4 December 2003. Indeed, the steps taken by the Banks to try and forestall the liquidator's access to the records and information he seeks are puzzling and appear to be totally unmeritorious. That is of some concern.

The application for a stay is refused. Costs on the stay application are awarded to the liquidator but costs on the leave to appeal argument are awarded in favour of the Banks. In terms of my earlier judgment, unless the matter can be resolved by agreement, leave is reserved for argument on the exact form the costs award should take.