About Image Limited v Advaro Limited

[2017] NZHC 2017

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2016-404-2183 [2017] NZHC 2017

BETWEEN

ABOUT IMAGE LIMITED AND

OTHERS Plaintiffs

AND

ADVARO LIMITED Defendant

ADVARO FUNDING LIMITED Counterclaim plaintiff

JENNIFER DOHERTY AND OTHERS Counterclaim Defendants

Hearing:

17 August 2017

Counsel:

D Fraundorfer and T J Condor for plaintiffs

D H McLellan QC & P Hunter for defendant/counterclaim plaintiff

Result:

17 August 2017

Reasons:

22 August 2017

REASONS JUDGMENT OF DUFFY J

This judgment was delivered by me on 22 August 2017 at 4.00 pm pursuant to

Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Solicitors: Solicitors/Counsel: Holand Beckett, Tauranga

Simpson Western, Auckland

ABOUT IMAGE LIMITED AND OTHERS v ADVARO LIMITED [2017] NZHC 2017 [17 August 2017]

[1]      At the hearing on 17 August 2017 I adjourned the plaintiffs’ application for strike-out of part or division of the proceeding and awarded costs against the plaintiffs.  My reasons now follow.

[2]      This is a dispute about termination of an agreement to rent physical telephone equipment.

[3]      The sixty-four plaintiffs are all small businesses of some description.  They rented telephone equipment from the defendant (Advaro), which carries on business as a financier. Advaro would buy the equipment from a company called Intagr8 Ltd, and then lease it to the customer.   The customer would make lease payments to Advaro under the lease contracts.   On 17 December 2015, Intagr8 was placed in liquidation and it ceased providing services.   The majority of the plaintiffs then ceased making automatic payments to Advaro.

[4]      Advaro considers the lease contracts are still enforceable.   It commenced separate  proceedings  in  the  District  Court  against  each  lessor  under  the  lease contracts and against their guarantor/s.  Some if not all of the lessors responded by issuing the present proceeding in this Court against Advaro.

[5]      In their amended statement of claim (dated 27 April 2017), the plaintiffs plead various causes of action, including breach of contract, frustration of contract, and  misleading  and  deceptive  conduct  under  the  Fair  Trading Act  1986.    The plaintiffs in their statement of claim are separated into two categories (Category One and  Category Two),  but  Category Two  only  refers  to  two  plaintiffs.    The  vast majority are therefore in Category One.

[6]      Advaro  counterclaims  against  all  the  plaintiffs  (except  for  five  named plaintiffs) saying that they breached their agreements with Advaro by failing to pay outstanding rental instalments.   It claims judgment for to the total amount due by each plaintiff on termination, with interest and costs.

[7]      Advaro also counterclaims against fifty-three counterclaim defendants, all of whom are individuals who, Advaro says, personally guaranteed the due payments by

the relevant plaintiff to Advaro (the counterclaim defendants/guarantors).   Advaro seeks judgment for the total amount due by each counterclaim defendant on termination, with interest and costs.   By this process Advaro seeks to obtain from this proceeding the same outcomes that it hoped to achieve with the proceeding filed in the District Court.

[8]   Now that Advaro has counterclaimed against the counterclaim defendants/guarantors, the plaintiffs have become concerned that the present form of the proceeding will be too unwieldy to be dealt with in a single trial.  Accordingly, the plaintiffs have applied to strike out Advaro’s counterclaim against the counterclaim  defendants/guarantors.     In  the  alternative,  the  plaintiffs  sought directions that the causes of action in relation to the counterclaim defendants/guarantors are heard separately and subsequently to the causes of action which relate to the plaintiffs.  In support of their application the plaintiffs say:

(a)      the counterclaim defendants/guarantors are, for the most part, not represented by the same solicitors as the plaintiffs;

(b)dealing with both categories of claim together will cause undue delay and difficulty in the proceeding;

(c)      it is in the interests of justice that the different categories of claim be heard separately; and

(d)it is in the interests of justice that the claims relating to the plaintiffs be heard first, as they may be capable of resolving all the issues in the proceeding.

[9]      The plaintiffs relied on rule 5.57(6)(a) of the High Court Rules 2016 in submitting  that  the  defendant’s  counterclaim  against  the  guarantors  should  be severed from the present proceedings.

[10]     In the alternative, the plaintiffs relied on rule 10.15 in submitting that the counterclaim against the guarantors should be resolved separately from the plaintiffs’ claims, in split trials.

[11]   Finally, as a third alternative, the plaintiffs submit that the claims and counterclaim should be determined together, but that the claims of six plaintiffs (and the associated guarantors) should be determined first by way of a split trial under rule 10.15.  In fact it appears that this is the plaintiffs’ preferred approach.

[12]     The plaintiffs advanced each application on the same ground, namely that the orders would allow for a more efficient, speedy and cost-effective determination of the proceeding.  This, the plaintiffs submitted, is largely the purpose of the Rules. Particularly in relation to the third alternative, the plaintiffs contended that the first case (involving six specified plaintiffs and their associated guarantors) would operate as a ‘test case’ and as a result it is likely that most of the other claims could then be resolved by consent.

[13]     Advaro opposes the plaintiffs’ applications.   It contends that separate trials will only add to the complexity of this litigation, particularly because determinations made at the first trial will not result in res judicata findings that will determine the issues  finally  as  between  Advaro  and  the  remaining  plaintiffs  and  guarantors. Further, Advaro submits that matters that would be traversed at the separate trials are likely to substantially overlap  given that the liability of each plaintiff is a pre- requisite for the liability of the relevant counterclaim defendants/guarantors. Advaro also argues that it is not possible to separate issues which would need to be determined at the first and subsequent trials, given that the plaintiffs’ liability under the rental agreements is a pre-requisite for the guarantors’ liability.  Advaro further argues hearing the guarantee counterclaims in later separate trials will not offer any savings in terms of time, and will lead to inevitable inefficiencies in counsel and the court reacquainting themselves with the case as it cannot necessarily be assumed the same judge will deal with all trials.

[14]     Advaro maintains the subject contracts are legally enforceable.  If it succeeds at  trial  it  wants  to  be  in  a  position  where  the  determination  recognising  the

enforceability of the contract binds the counterclaim defendants/guarantors as well as the plaintiffs, so that Advaro can then move to effect a speedy recovery from either or both those parties.

[15]     At the commencement of the hearing I raised with the parties the possibility of the claim being brought as a representative proceeding pursuant to r 4.24 of the High Court Rules.  The advantage of a representative proceeding would be that if there were staged trials, judicial determinations on issues in common in one trial would bind the parties in subsequent trials.  This approach seemed to me to be one way that may achieve the desired trial efficiencies without leading to some of the problems Advaro had identified as reasons for not allowing the plaintiffs’ present applications.

[16]     The  plaintiffs’ counsel  advised  me  that  the  plaintiffs  were  considering  a representative proceeding.   Rule 4.24 allows for that either: (a) when  the other persons having the same interest (in this case the plaintiffs and the guarantors) agree; or (b) on direction from the court following application by those wanting such representation.

[17]   Advaro submitted that there may be difficulties with a representative proceeding.   However, it was in no position to comment on this approach as the plaintiffs’ ideas in this regard were not well advanced.

[18]   At the hearing I was informed that to date, 29 of the counterclaim defendants/guarantors have filed statements of defence.  Of those, 25 are represented by the same solicitors and counsel.    The remaining 30 counterclaim defendants/guarantors have yet to file their statements of defence.   The time for doing so has not yet expired.   Accordingly, no-one presently knew the extent to which those counterclaim defendants/guarantors may engage common or separate representation.

[19]     This is relevant because to date the plaintiffs have filed the proceeding with their number and until Advaro introduced the counterclaim defendants/guarantors to the  present  mix,  the  plaintiffs  had  not  been  daunted  by  the  number  of  parties

involved or the potentially adverse impact this might have on completing the proceeding in one trial.  Advaro’s stance is that the proceeding is still manageable with the addition of the counterclaim defendants/guarantors, so it should continue in its present form.

[20]     Seemingly 25 out of the 29 counterclaim defendants/guarantors who have filed statements of defence have the same representation. That is likely to make their presence in the trial more manageable than if they were separately represented.  If the majority of the remaining guarantors adopt the same course of action, the result may be that the proceedings can manageably progress to one trial.  In that case there would  be  no  need  for  the  type  of  separation  the  plaintiffs  envisage  in  their application.  Obviously if the remaining 30 counterclaim defendants/guarantors (or a considerable number of them) all engage separate representation the proceeding may then become too unwieldy to continue in its present form.

[21]     On the other hand, the advent of the counterclaim, particularly that against the counterclaim defendants/guarantors, may make the proceeding too unwieldy to continue in its present form and to go to one trial.   However, before any sensible decision can be made on these questions the parties needed to be appraised of all relevant information and to have considered all relevant options.

[22]     Accordingly, it was premature to make any decisions in this regard.  Once the stance of all the counterclaim defendants/guarantors is known, the plaintiffs will then be in a better position to look at: (a) whether they apply to bring the proceeding as a representative proceeding; (b)whether    they    choose    to    pursue    their    present applications; or (c) whether the proceeding can continue in its present form and go to one trial.

[23]     Counsel for both the plaintiffs and Advaro recognised the applications were premature.    I  agreed  with  that  view.    Before  the  applications  can  proceed  the plaintiffs need to determine if they want to adopt a representative proceeding. Everyone also needs to know how the addition of the counterclaim defendants/guarantors  will  practically impact  on  the progress  of the proceeding. This will not become clear until their representation becomes known.

[24]     Further, the present application, in particular the plaintiffs’ third option, is too general.  Here the plaintiffs speak of having staged trials with six specified plaintiffs and  their associated  guarantors.   The plaintiffs  believe that  the first  trial  might operate as a test case which will resolve other claims and counterclaims as well. Advaro disputes this.

[25]     First,   I   acknowledge   there   may   well   be   issues   regarding   how   the determinations in a first trial (if r 4.24 is not invoked) might bind the remaining parties in any subsequent trials.   Secondly, before this option can be given any sensible consideration the plaintiffs need to identify who of their number will participate in the first trial.  Until the identities of the specified plaintiffs and their associated guarantors is known no-one will be in a position to make any meaningful assessment about whether the relevant factual and legal issues are capable of being dealt with as a test case by separate trial, and whether such approach would in practice lead to the efficient disposition of the proceedings.  The present arguments the plaintiffs make in this regard rely on principle and generalities.  What might look workable in theory may not be so workable in practice.  In short, the plaintiffs need to give more consideration to the present applications.  For this reason as well the applications were premature.

Costs

[26]     Advaro  sought  category  2B  costs.    The  plaintiffs  sought  to  have  costs reserved.   They argued that the application was yet to be determined and in the course of time it may be pursued successfully, or alternatively it may be abandoned and perhaps replaced by them making some alternative application.

[27]     It is now usual in interlocutory hearings to award costs rather than to reserve costs.   The plaintiffs’ have acknowledged their applications are premature, which was the responsible step to take in the circumstances.  However, the plaintiffs had sufficient knowledge to realise the applications were premature before the hearing date.  Accordingly, they could have taken steps earlier on to have the hearing date postponed.  The fact they allowed the applications to proceed to hearing and only then acknowledged it would be best if the applications were heard later on, when the

relevant information outlined above has become available, means that Advaro has been put to unnecessary trouble and cost.  Whatever may be the subsequent outcome of the present applications, Advaro’s preparation for and time spent at the hearing before me was wasted.

[28]     Accordingly I considered that Advaro was entitled to costs.   Advaro was satisfied with category 2B costs and I considered scale costs to be appropriate.

Timetable directions

1.The present application is next to be called for mention in the Duty Judge list at 10 am on Monday 11 September 2017.  By then all the counterclaim defendants/guarantors should have filed their statements of defence.  Accordingly the extent to which they will be separately represented and the impact that presence will have on the progress of the proceeding will be clearer.

2.At the mention hearing the plaintiffs are to advise the Court whether the present application is to be pursued and, if so, a hearing date should then be allocated.

3.If  the  parties  file  a  joint  consent  memorandum  relevant  to  the application before the mention date, the application may be removed from the Duty Judge list.

[29]     Leave is reserved to the parties to return to Court on this issue should the need to do so arise.