About Image Ltd v Advaro Ltd
[2017] NZHC 3264
•20 December 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-2183 [2017] NZHC 3264
BETWEEN ABOUT IMAGE LIMITED AND OTHERS
(as named in the amended statement of claim)
First to sixty-fourth Plaintiff
AND
ADVARO LIMITED Defendant
ADVARO FUNDING LIMITED Counterclaim plaintiff
JENNIFER DOHERTY AND OTHERS (as set out in the counterclaim against the counterclaim defendants)
First to fifty-third counterclaim defendants
Hearing: 11 December 2017 Counsel:
DM Fraundorfer and TJ Conder for plaintiffs
DH McLellan QC, JC Adams and PM Hunter for defendantsJudgment:
20 December 2017
JUDGMENT OF FITZGERALD J
This judgment was delivered by me on 20 December 2017 at 3:30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Holland Beckett, Tauranga
Simpson Western, Auckland
About Image Limited v Advaro Limited [2017] NZHC 3264 [20 December 2017]
Introduction and procedural background
[1] These proceedings arise out of the liquidation of a company called Intagr8 Ltd (“Intagr8”). Intagr8 supplied telephone, internet and other related services (“Services”). The 64 plaintiffs are generally small to medium businesses. They say they were contacted by Intagr8 and encouraged to enter into an arrangement by which they received the Services from Intagr8, in conjunction with rented telephone equipment from the defendant (“Advaro").
[2] The plaintiffs say the arrangements between each of them and Intagr8 on the one hand and Advaro on the other were in fact a composite arrangement, referred to in the pleadings as the “Tripartite Agreement”. Under this arrangement, the plaintiffs say Intagr8 provided substantial credits against its charges for the Services (“Credits”) which offset their rental payments to Advaro. The plaintiffs say without the Credits, they would not have entered into the arrangements.
[3] When Intagr8 went into liquidation in December 2015, the plaintiffs had to secure the Services from alternative providers. As a result, they no longer got the Credits. Given this, the large majority of the plaintiffs took steps to cancel their rental agreement with Advaro.1
[4] Advaro says the rental agreements remain on foot, because the plaintiffs’ purported cancellation was unlawful. It says the rental agreements are free-standing agreements which are not dependant or otherwise linked to the plaintiffs’ arrangements with Intagr8.
[5] These proceedings initially involved the 64 plaintiffs and Advaro as a single defendant. The plaintiffs sought various declarations as to the meaning and effect of the contractual arrangements, and there is also a claim under the Fair Trading Act 1986
(“FTA”).
1 A small number have taken the position that they are entitled to cancel, but pending the outcome of this litigation, continue to make rental payments.
[6] Advaro has since assigned its rights under the rental agreements to Advaro Funding Ltd (“Advaro Funding”).2 That company has now counterclaimed in these proceedings against the non-paying plaintiffs and the individuals who guaranteed each plaintiff’s rental obligations. I was informed by Mr Fraundorfer at the hearing that the counterclaim against each plaintiff is in the region of $30,000 to $60,000. Mr McLellan QC, counsel for Advaro, said the amounts were somewhat less than that, but on an aggregate basis, Advaro Funding’s counterclaims (as set out in the schedule to the counterclaim pleading) total some $1.5 million.
[7] Given the counterclaims and the resulting size of the proceedings, the plaintiffs consider they are now too large to be handled in the ordinary way.3 Earlier this year, the plaintiffs applied to strike out Advaro Funding’s counterclaims (at least as counterclaims to be heard in these proceedings), or in the alternative, sought directions that the causes of action in relation to the counterclaims be heard separately. Further, and also in the alternative, the plaintiffs suggested the claims of six plaintiffs and their associated guarantors should be determined by way of a split trial under r 10.15 of the High Court Rules 2016.
[8] The plaintiffs’ application was heard by Duffy J on 17 August 2017.4 However, through the course of oral argument, it became apparent the application was premature and that the plaintiffs needed to do further work as to the way in which they proposed to advance their claims. Duffy J also raised the possibility of a representative proceeding, which counsel for the plaintiffs, Mr Fraundorfer, indicated they were also considering.
[9] This application was subsequently filed. The plaintiffs seek orders that the proceedings continue as a representative action for the purposes of r 4.24. The representative orders are sought on two alternative bases:
(a) First, in relation to causes of action 3 to 10 in the draft second amended statement of claim filed with the application (“Claim”), namely that
2 I will refer to Advaro and Advaro Funding together as “Advaro”.
3 An eight-week hearing commencing in mid-October 2018 has been allocated, but the plaintiffs are concerned that may not be sufficient time for all claims to be heard.
4 About Image Ltd v Advaro Ltd [2017] NZHC 2017 (reasons judgment 22 August 2017).
certain plaintiffs and counterclaim defendants (the “representative plaintiffs”) are representatives in the proceedings for the remaining plaintiffs and counterclaim defendants (the “represented plaintiffs); or
(b)Second, the representative plaintiffs’ claims in relation to several issues common across all plaintiffs are heard first in a stage-one trial, with the consequent findings binding all plaintiffs.
[10] Advaro opposes the application. In relation to the first alternative, it says many aspects of the causes of action require proof as to individual issues, making them unsuitable to be heard by way of a representative action. In relation to the second alternative, Advaro says that when the so-called “common issues” are carefully analysed, they are also premised on a range of individual matters, again making them unsuitable for determination by way of a representative action or a stage-one trial. Rather, Advaro submits that all issues, in relation to all parties, should proceed to trial in the ordinary way, in the context of the eight-week fixture allocated in mid-October
2018.
[11] Further and in any event, Advaro submits that if the second alternative approach is adopted for common issues, a representative order is not in fact required. That is because all plaintiffs are already parties to these proceedings, with the result that they will automatically be bound by any findings in a stage-one trial.
The pleaded causes of action in more detail
[12] A representative order (and orders as to the determination of preliminary issues for the purposes of r 10.15) are made after careful assessment of the pleaded claims.
[13] There are four primary causes of action in the Claim in respect of which the plaintiffs seek representative orders:
(a) First, that a Tripartite Agreement existed between each plaintiff, Intagr8 and Advaro;5
5 Mr Fraundorfer confirmed this is the plaintiffs’ primary cause of action.
(b)Second and in the alternative, that it was an implied term of the rental agreement with Advaro (“Rental Agreement”) that that agreement was conditional on the continued provision of the Services and Credits by Intagr8;
(c) Third and also in the alternative, the Rental Agreement was legally frustrated as a result of Intagr8 no longer providing the Services and the Credits; and
(d)Fourth and again in the alternative, the conduct of Intagr8 in marketing the arrangements (on its own behalf and as Advaro’s agent) was misleading and deceptive conduct for the purposes of the FTA.
[14] It is necessary for determining the plaintiffs’ application to set out some further detail in relation to the above causes of action and the common issue or issues proposed by the plaintiffs in relation to each.
Contractual Claim – Tripartite Agreement
[15] The plaintiffs plead that:
(a) Intagr8 would contact customers and offer to provide telephone equipment and connections;
(b)Advaro would buy the physical telephone equipment from Intagr8 and would lease it to the customer;
(c) The customer would pay lease payments to Advaro for the telephone equipment; and
(d)Intagr8 would provide the Credits against its charges for the Services in consideration for the customer entering into the arrangement.
[16] These matters are defined in the Claim as “the Arrangement”.
[17] The plaintiffs also plead what is defined in the Claim as “the Explanation”. The Explanation is said to have been given by Intagr8 before prior to the contractual documents were entered into. The plaintiffs allege that Intagr8 informed each plaintiff that:
(a) the plaintiff would pay the rental charges for the telephone equipment to Advaro;
(b)the plaintiff would receive Credits from Intagr8 which would offset the rental payments; and
(c) this would mean that the plaintiff would only make one payment for the Services and telephone equipment (provided their usage of the Services was less than a certain volume).
[18] The plaintiffs go on to plead that parties who entered into the Arrangements signed three documents:
(a) A document that was also signed by Intagr8 for the provision of the
Services (the “Connection Document”);
(b) A document signed that was also signed by Advaro (i.e. the Rental
Agreement); and
(c) A document summarising certain terms of the Rental Agreement and entitled “Understanding the Arrangements” (the “Understanding Document”).
[19] In addition to the above, and at paragraphs 49 to 63 of the Claim, the plaintiffs plead a range of factual matters which are collectively defined as the “Factual Matrix”. These largely relate to matters concerning the signing of the documents referred to at [18] above; the dates upon which those documents were signed; that the Credits set out in the Connection Document were equal to the rental charges in the Rental Agreement; and that after the documents were signed, an Intagr8 representative called to ensure the relevant plaintiff was happy with the arrangements.
[20] The plaintiffs plead the following at paragraph 65 of the Claim:
As a result of the Factual Matrix and the Explanation the Arrangements (as defined in paragraph 8) formed the basis of an agreement between Advaro, Intagr8 and [the representative plaintiffs] (the Tripartite Agreement).
[Emphasis added]
[21] A number of essential terms of the Tripartite Agreement are then pleaded, namely:
(a) Intagr8 would provide the Equipment and the Services;
(b) [The relevant plaintiff] would pay the Rental Charges to Advaro;
(c) [The relevant plaintiff] would pay the connection charges to Intagr8;
(d)[The relevant plaintiff] would receive the Credits against the connection charges.
[22] The Claim alleges the representative plaintiffs entered into the Tripartite Agreement for the purpose of reducing their overall spend on phone and internet services and the terms set out at [21] above were required to give effect to the commercial purposes of the Tripartite Agreement. It is further pleaded that the representative plaintiffs would not have entered into the Tripartite Agreement unless the Credits were part of the Tripartite Agreement, or they would not have entered into the Tripartite Agreement unless the Credits were an essential term of the Tripartite Agreement.
[23] In relation to this cause of action, the plaintiffs’ application proposes the following common issue for resolution at a stage-one trial:
Whether the terms of the Master Rental Agreement, the Connection Document, the Understanding the Arrangements document and the Factual Matrix (collectively the Contractual Matrix) create a Tripartite Agreement.
[24] It is relevant to note that paragraph 65 of the Claim (and set out at [20] above), alleges that the Tripartite Agreement came about not only as a result of the Factual
Matrix, but also because of the Explanation. The Explanation does not, however, feature in the above proposed common issue.
[25] During the course of his oral submissions, Mr Fraundorfer confirmed the Explanation would be removed from the pleading at paragraph 65 of the Claim in respect of the Tripartite Agreement.
Implied term
[26] The plaintiffs plead that the implied term set out at [13](b) above is:
(a) Necessary for the commercial purpose for the representative plaintiffs entering into the Rental Agreement, which was to reduce their total spend on telephone services; and
(b) That the term is also a necessary consequence of the Factual Matrix.
[27] The plaintiffs propose the following common issue arising out of this cause of action:
Whether the Contractual Matrix leads to an implied term that the Master
Rental Agreement is conditional on the credits.6
Frustration
[28] The Claim pleads that the proposed representative plaintiffs entered into the Rental Agreement for the purpose of reducing their overall spend on telephone and internet services. It is pleaded that this purpose depended on the continued provision of the Services and Credits by Intagr8. Given the Services and Credits are no longer provided by Intagr8, it is pleaded that the representative plaintiffs receive no value in return for the rental charges and therefore the Rental Agreement has been frustrated.
[29] In relation to this cause of action, the following common issue is proposed:
6 It is not clear whether the reference in the issue to the Contractual Matrix is correct, given the Claim refers only to the Factual Matrix as giving rise to the implied term. It may not be significant either way, however, as the only difference between the Factual Matrix and the Contractual Matrix is the terms of the relevant contractual documents, all of which are in a generic form.
Whether the Contractual Matrix means that the Master Rental Agreement was frustrated by the liquidation of Intagr8.
Fair Trading Act 1986
[30] The plaintiffs plead the following:
(a) Intagr8 marketed the Agreement on behalf of Advaro.
(b) Intagr8 was the agent of Advaro.
(c) In marketing the Arrangement, Intagr8 provided the Explanation.
(d) Due to the Explanation, the representative plaintiffs entered into the
Arrangement including the Master Rental Agreement.
(e) The Explanation was also set out in the Understand the Arrangements document and was also implicit in the terms of the Documents and the Factual Matrix.
(f) The conduct of Intagr8 in marketing the Arrangement was misleading and deceptive.
(i) Intagr8 was Advaro’s agent.
(ii) Intagr8 provided the Explanation.
(iii)Intagr8 did not advise that Advaro and Intagr8 were separate companies.
(iv) Intagr8 explained that the Rental Charges would be offset by the
Credits and would be a cheaper way to obtain the Services.
(v)Intagr8 did not advise that the Rental Charges would be payable even if Intagr8 failed to provide the Credits or the Services.
(g) The misleading conduct is in breach of s 9 of the Fair Trading Act 1986.
(h)As a result of the misleading conduct, the representative plaintiffs have entered into a contract which requires the payment of excessive Rental Charges.
[31] In light of this pleading, the plaintiffs advance the following proposed common issues:
Whether the Contractual Matrix amounts to misleading and deceptive conduct under the Fair Trading Act 1986.
Whether the Explanation is capable of altering the answer to the above. Whether the no-agency provision and the whole agreement clause in the
Rental Agreement prevent the plaintiffs relying on the Explanation in making
a claim under the Fair Trading Act 1986.
In the event that the answer to either of the two preceding issues is yes, does this justify voiding the Rental Agreement under s 43 of the Fair Trading Act
1986?
[32] Finally, the plaintiffs accept that the following matters arising from the Claim will require individual and separate proof:
(a) causes of action 1 and 2;7
(b)whether certain named counterclaim defendants signed a guarantee with Advaro;
(c) whether the Explanation was made to each plaintiff;
(d) whether each plaintiff relied on the Explanation; and
(e) whether and on what date each plaintiff cancelled their Rental
Agreement with Advaro.
Submissions
Plaintiffs’ submissions
[33] The plaintiffs say the representative orders sought, on both alternative bases, meet the principle and overriding objective of the High Court Rules, namely “to secure the just, speedy and inexpensive determination of any proceeding or interlocutory application”. The plaintiffs submit that having considered a range of procedural methods, the two alternative forms of representative orders are the best means to achieve this overriding objective.
[34] Mr Fraundorfer submits that, in light of the now settled principles as to the proper application of r 4.24, this proceeding is clearly one amendable to continuing as a representative proceeding. Mr Fraundorfer points to the relatively low threshold for there being a common interest for the purposes of r 4.24. He submits that most of the common issues in this case arise out of the interpretation of identical contractual documents sold in an almost identical fashion.
[35] Mr Fraundorfer also highlights that the fact there may need to be a number of individual issues dealt with in a stage-two trial is not a bar to representative orders being made. He submits that once issues relating to the contractual documents have been determined, this will establish if each represented class validly cancelled the Rental Agreement (or has the right to do so in respect of those who have not yet cancelled), or whether they remain liable to Advaro Funding. Mr Fraundorfer submits the common issues identified and set out above do not rely on any unique representation or individualised fact, or if they do, those individual facts can be proved on the basis of the uncontested documents in any event (for example many of the matters which make up the “Factual Matrix”).
[36] Mr Fraundorfer does accept, however, that the major cause of action which involves individual factual issues is the FTA cause of action. However, as set out above, if the alternative approach to the representative orders is adopted, he submits there are nevertheless some common or generic issues within the FTA cause of action which would nevertheless be useful to determine in a stage-one hearing.
[37] The plaintiffs ultimately submit that the most appropriate way forward is to have an initial trial to resolve the common issues. They say that much of the “non- legal” matters arising from those common issues could be dealt with by way of an agreed of statement of facts or at least a limited number of witnesses, which would primarily come from the Intagr8/Advaro side. Mr Fraundorfer submits determination of the common issues in Advaro’s favour will markedly assist the plaintiffs in deciding whether they can or should proceed further. Similarly, he submits determination in the plaintiffs’ favour will mean it may become unnecessary to proceed with a second stage trial comprising of much more detailed witness evidence.
[38] Mr Fraudorfer also notes that if representative orders are made, there are additional parties who wish to be joined to these proceedings. In that context, if representative orders are made, the plaintiffs seek an order that a further “opt-in” period be given to enable those additional parties to be joined as represented plaintiffs.
Mr Fraundorfer submits that a further two months from the date of making any representative order should be allowed. He also says it may also be necessary for Advaro to bring the representative proceedings to its customers’ attention.
Advaro’s submissions
[39] Mr McLellan submits the first alternative for representative orders ought to be immediately dismissed. This is because on any view, causes of action 3 to 10 contain a range of individual and fact-specific issues which means they are wholly unsuitable to proceed on the basis of a representative order. Mr McLellan also submits the alternative “common issues” option does not provide a satisfactory way forward either. He says that on close examination, many of the common issues in fact contain several sub-issues requiring determination on the basis of evidence from each plaintiff.
Mr McLellan warns that the Court needs to take care not to engage in issues which are not based on proven facts but on hypotheticals, with the Court essentially issuing an “advisory”, something which was cautioned against in Houghton v Saunders.8
Mr McLellan further submits that any savings in efficiency are likely to be illusory, given the range of individual issues which underpin the purported common issues.
[40] Mr McLellan also submits that, to the extent the implied term cause of action is predicated on the pleaded term being necessary to the plaintiffs’ commercial purpose (namely to reduce their total spend on telephone services), that is an individual issue requiring evidence from each plaintiff. So too, says Mr McLellan, is the frustration cause of action, given the Supreme Court’s observation in Planet Kids Ltd v Auckland Council that:9
… the court does not wholly disregard the intention of the parties. It will apply an objective test but will also identify and take into consideration the circumstances in which the parties intended the contract to operate.
[41] Mr McLellan also says the proposed common issues in relation to the FTA claim involves matters requiring individual proof, primarily the characteristics of the person or persons said to have been affected by the alleged misleading and deceptive conduct. This is said to be so given the Supreme Court’s observations in Red Eagle Corporation Ltd v Ellis that those matters need to be taken into account when considering claims pursuant to s 9 of the FTA.10 Mr McLellan also submits that the basis upon which Intagr8’s conduct in marketing the arrangement is said to be misleading and deceptive is inherently individual nature, as it will depend on whether certain pleaded statements or representations were actually made to each individual plaintiff.
[42] Given the plaintiffs’ confirmation that the “Explanation” is to be removed from the pleading in relation to the Tripartite Agreement, Mr McLellan does accept that particular issue may now be capable of being categorised as a common issue.
Mr McLellan, rightly in my view, also acknowledged that each of the matters pleaded in relation to the “Factual Matrix” are likely to be able to be dealt with on the basis of the documents and/or an agreement statement of facts. However, other than this particular issue, Mr McLellan submits there are no other truly common issues. Given this, he says the proper course is to proceed to the full eight-week hearing in the
ordinary way.
9 Planet Kids Ltd v Auckland Council [2013] NZSC 147; [2014] 1 NZLR 149 at [52].
10 Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492.
Legal principles
[43] The approach to representative orders is now well-settled, having been considered on a number of occasions by the Court of Appeal and Supreme Court. The key principles were very recently summarised by the Court of Appeal in Cridge v Studorp Ltd as follows:11
(a) The rule should be applied to serve the interests of expedition and judicial economy, a key underlying reason for its existence being efficiency. A single determination of issues that are common to members of a class of claimants reduces costs, eliminates duplication of effort and avoids the risk of inconsistent findings.
(b) Access to justice is also an important consideration. Representative
actions make affordable otherwise unaffordable claims that would be beyond the means of any individual claimant. Further, they
deter potential wrongdoers by disabusing them of the assumption that
minor but widespread harm will not result in litigation.
(c) Under the rule, the test is whether the parties to be represented have the same interest in the proceeding as the named parties.
(d) The words “same interest” extend to a significant common interest in the resolution of any question of law or fact arising in the proceeding.
(e) A representative order can be made notwithstanding that it relates only to some of the issues in the claim. It is not necessary that the common question make a complete resolution of the case, or even
liability, possible.
(f) It must be for the benefit of the other members of the class that the plaintiff is able to sue in a representative capacity.
(g) The court should take a liberal and flexible approach in determining whether there is a common interest.
(h) The requisite commonality of interest is not a high threshold and the court should be wary of looking for impediments to the representative
action rather than being facilitative of it.
(i) A representative action should not be allowed in circumstances that would deprive a defendant of a defence it could have relied on in a separate proceeding against one or more members of the class, or conversely allow a member of the class to succeed where they would not have succeeded had they brought an individual claim.
[Footnotes omitted]
[44] The approach to whether there should be a pre-trial determination of a separate question or questions is also reasonably well settled. A reasonably cautious approach is adopted, to gauge whether there will, in a real and practical sense, be time and cost savings in determining some matters first. In a recent judgment, Katz J summarised the overriding approach as follows:12
Although each case will turn on its own merits, some of the issues commonly considered when determining whether there should be a pre-trial determination of a separate question are:
(a) Will there be difficult demarcation between those issues to be addressed at the first trial and those left for the second?
(b) Will the proceedings be brought to an end?
(c) What potential time saving does the separate question offer? (d) How will appeals be dealt with?
(e) Are there any other practical considerations tending one way or another?
[Footnotes omitted]
Analysis
Introduction and summary of findings
[45] Despite the relatively low threshold for a representative order being made, I do not consider one is appropriate or necessary in this case. Although I accept the proposed representative plaintiffs have a sufficiently similar common interest in the proceedings to meet the threshold for a representative order, all the proposed represented plaintiffs are already parties to these proceedings. Representative orders are therefore not required in order to bind each of them to findings made in these proceedings. Rather, and as emerged during the hearing of the plaintiffs’ application, the real issue is whether there are sufficient common issues to make a stage-one trial appropriate.
[46] In my view, there are. I am also satisfied it is in the interests of justice to hear the common issues first, with individual matters to be dealt with separately. I set out my reasons for reaching this conclusion in the following paragraphs.
What are the common issues?
[47] I have set out the plaintiffs’ proposed common issues in a schedule to this judgment.13
[48] In relation to whether a Tripartite Agreement came into effect between each plaintiff and Intagr8 and Advaro (and with the Explanation having been removed from paragraph 65 of the Claim), that cause of action turns largely on the proper interpretation of the generic contractual documents. While the pleading at paragraph
65 of the Claim also relies on the Factual Matrix, both Mr Fraundorfer and
Mr McLellan accept that most if not all of the matters pleaded as making up the Factual Matrix are themselves common issues, or ought to be able to be determined on the basis of the relevant documents themselves.
[49] The exception to this is paragraphs 62 and 63 of the Claim, in which the plaintiffs plead the following:
62.Intagr8 also called both [representative plaintiffs] once after the Documents were signed to confirm that they were happy with the Arrangements.
63.During these phone-calls the Intagr8 Representative referred to the amount of the Rental Charge and the amount of the Credit that applied to [the representative plaintiffs].
[50] However, there are transcripts available of the telephone conversations between Intagra8 and most if not all the individual plaintiffs. As such, the content of these telephone conversations ought to be able to be the subject of an agreed statement of facts. Nevertheless, Mr McLellan says Advaro is concerned these matters might “bleed” into highly individual issues, to the extent it will be suggested that particular plaintiffs relied on or held a certain belief as a result of the content of the telephone conversations. Mr McLellan points to the current form of the statement of claim, in which these telephone conversations are in fact pleaded as representations made to each plaintiff and which are said to have instilled a particular belief on the part of each plaintiff.
[51] Countering this point, Mr Fraundorfer confirms it is only the fact these telephone calls were made by Intagr8, and their content, which is relied on in relation to the Tripartite Agreement. In other words, he confirmed the plaintiffs do not plead, as part of the Factual Matrix, any particular effect or belief instilled in any plaintiff as a result of the telephone conversations.
[52] Based on Mr Fraundorfer’s confirmation set out above, I am satisfied the telephone conversations pleaded at paragraphs 62 and 63 of the Claim do not mean the proposed common issue for this cause of action is not in fact common. Accordingly, I am satisfied the issue set out at paragraph (c)(i) of the plaintiffs’ application is indeed a common issue.
[53] I am also satisfied the issue set out at paragraph (c)(ii) of the plaintiffs’ application is a common issue. In particular, the pleaded implied term does not turn on any individual issue, for example each plaintiff’s stated purpose for entering into the arrangements.
[54] I am not satisfied, however, that the proposed issue in relation to the frustration cause of action is a common issue. I accept Mr McLellan’s submission that given the Supreme Court’s observations in Planet Kids, the parties’ mutual knowledge, expectations, assumptions and contemplations (to the extent they can be objectively determined) are relevant to whether a contract is frustrated. Accordingly, while the proposed common issue for this cause of action only relies on the Contractual Matrix, the resolution of that matter as a common issue may not have any real utility, given a somewhat broader inquiry is mandated for a finding of frustration.
[55] In relation to the FTA cause of action, the proposed common issue is as follows:14
Whether the Contractual Matrix amounts to misleading and deceptive conduct under the Fair Trading Act 1986.
[56] However, this issue does not “match” the pleaded FTA cause of action, and in particular, what is said to amount to misleading and deceptive conduct (namely the
manner in which Intagr8 marketed the arrangements).15 Nevertheless, I am satisfied there are aspects of the FTA cause of action which are common issues:
(a) Paragraph 113 of the Claim states that Intagr8 marketed the agreement on behalf of Advaro.16 Whether Intagr8 marketed the Rental Agreement on behalf of Advaro is a narrow issue which does not require the calling of, for example, all 60-odd plaintiffs. Further, it is an issue common to all plaintiffs.
(b)The same comments apply in relation to paragraph 114 of the Claim, namely that Intagr8 was Advaro’s agent. Again, this is a narrow factual issue common to all plaintiffs.
[57] Paragraph 115 of the Claim states that “in marketing the Arrangement, Intagr8 provided the Explanation described in paragraph 48 above”. At first blush, this pleading could be said to be analogous to to the “strategy” pleaded in the Southern Response case, namely a generic “marketing approach” adopted by Intagr8.17 On reflection however, I accept Mr McLellan’s submission that the plaintiffs’ pleading in this context is different to that in Southern Response. Rather than an internal generic strategy, the Explanation is a pleading of actual statements having been made to each of the plaintiffs in question. It is therefore “outwards” focussed, and turns on whether the material particulars of the Explanation (as pleaded at paragraphs 48(b) to (c) of the Claim) were actually said to each plaintiff. As noted at (d)(iii) of the plaintiffs’ application, that is an individual issue which requires separate proof.
[58] For that reason, paragraph 115 of the Claim does not give rise to a common issue. My view in this regard is reinforced by the particulars of the alleged misleading and deceptive conduct, which include that Intagr8 did not advise that Advaro and Intagr8 were separate companies; that Intagr8 explained the rental charges would be
offset by the Credits and would be a cheaper way to obtain the Services; and Intagr8
15 Set out at [30] above.
16 It is not entirely clearly what “agreement” is being referred to here, but presumably it refers to the
Rental Agreement.
17 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group
[2017] NZCA 489 at [44].
did not advise that the rental charges would be payable even if Intagr8 failed to provide the Credits or the Services. Again, those aspects of the pleaded misleading and deceptive conduct depend on whether those individual matters were in fact said to each plaintiff.
[59] Nevertheless, whether Intagr8 did market the Rental Agreement on Advaro’s behalf and/or was Advaro’s agent is likely to be of real assistance in either narrowing any remaining issues on the FTA cause of action, or finally determining that cause of action altogether. In this context, Mr McLellan notes the FTA cause of action is only relevant if the Tripartite Agreement cause of action does not succeed, and if the Tripartite Agreement cause of action fails, it is likely that the no-agency clause in the Rental Agreement will have been found to have been effective.
[60] I accordingly do not consider paragraphs (c)(vi) and (vii) of the plaintiffs’ application for directions to be common issues. I do, however, accept issue (c)(viii) is a common issue, given it turns entirely on the proper interpretation and effect of certain (generic) contractual terms. A finding that the whole agreement clause prevents the plaintiffs from relying on the Explanation in making a claim under the FTA would obviously resolve that cause of action in its entirety.
[61] Finally, proposed common issue (c)(v) of the plaintiffs’ application18 does not relate to any particular cause of action or pleading in the Claim. Mr McLellan says it is presumed to refer to s 37 of the Contract and Commercial Law Act 2017, namely cancellation of a contract if the cancelling party was induced to enter into the contract by way of a pre-contractual representation. However, a common issue cannot arise from a non-existent pleading.
How should any common issues be resolved?
[62] I am satisfied there are sufficient common issues to make a stage-one trial appropriate and useful. An examination of the pleadings demonstrates there are a
18 Currently framed as “Whether clause 2 of the ‘Important Acknowledgement by the Renter in the MRA’ (the no-agency provision) and clause 26 of the MRA (the whole agreement clause) mean that the plaintiff cannot rely on the representations in making a claim under Part 2, Subpart 3 of Contract and Commercial Law Act 2017.”
range of common threads running through the pleaded claims that are common to all plaintiffs. That is particularly so in relation to the contractual issues identified above, but also those facts comprising the “Factual Matrix”. Those issues will not require evidence to be given by every plaintiff, and I consider much ought to be able to be dealt with through an agreed statement of facts.
[63] Further, while the Explanation itself is not a common issue, the facts underlying it (i.e. rather than what the Intagr8 representatives might have said to each plaintiff) are also likely to be evident from the documents themselves. For example, the following matters ought to be capable of proof from the documents/financial records and thus able to be agreed:
(a) That the plaintiffs paid the rental charges for the telephone equipment to Advaro;19
(b)That the Credits paid to the plaintiffs by Intagr8 were in the same amount as the rental charges paid to Advaro, so in that way at least, “offset” the rental payments.20
[64] Given the extent of common issues identified above and/or factual matters that are capable of proof from the documentary records, findings at a stage-one trial in favour of Advaro may well mean the proceedings come to an end. Alternatively, findings in favour of the plaintiffs will significantly narrow the remaining matters in issue. As Mr Fraundorfer notes, findings against the plaintiffs on whether there was a Tripartite Agreement will give the plaintiffs a good sense whether the can or ought to proceed with any remaining individual issues. Further, findings at a stage-one hearing may enable the parties to look to negotiate a pragmatic resolution of the outstanding issues. Or failing that, they may be able to agree an efficient mechanism for resolution of any remaining issues, for example through the appointment of an arbitrator to determine the remaining individual issues, or a mediation of those matters. These types of dispute resolution mechanisms could be considerably quicker and more cost
effective than having a stage-two trial.
19 See paragraph 48(a) of the Claim.
20 See paragraph 48(b) of the Claim.
[65] I am reinforced in my view that a shorter stage-one hearing is appropriate by the amounts in issue compared to the length of hearing required to determine the entirety of the claims. That is currently set at eight weeks. Mr Fraundorfer expressed some concern as to whether even that will be sufficient. As noted above, the sums in issue on the counterclaim (thus the “flip side” of the declarations sought by the plaintiffs) are around $1.5 million. Whilst obviously significant at an individual level, pursuit of that amount through an eight-week trial is unlikely to be particularly economical.
[66] I therefore grant the plaintiffs’ application, to the extent it seeks determination of a number of common issues at a stage-one trial. I have set out my observations on the proposed common issues, and in particular, which issues (or facts) are indeed common. As discussed at the hearing, the common issues for determination at a stage- one hearing ought now to be finalised. The plaintiffs are to amend the proposed common issues as set out in their application in light of this judgment, and provide those to Advaro for comment and hopefully agreement. In the event the parties are unable to settle the final list of issues, I am going to direct the Registry to allocate a one hour face-to-face case management conference before me on the first available date once sittings resume in the New Year, to finalise that list. I will also expect the parties to have considered what time is required for the stage-one trial. Depending on the time required, it may be possible to obtain a fixture in advance of the current hearing commencing in mid-October 2017.
Joint and several costs/further “opt in” time for additional plaintiffs
[67] To the extent representative orders were made, Mr Fraundorfer accepted the representative and represented plaintiffs ought to be jointly and severally liable for costs. Advaro had flagged that if representative orders were made, an application for security for costs may be necessary. However, given Mr Fraundorfer’s confirmation at the hearing, Mr McLellan noted that any application for security for costs would be held over pending taking further instructions.
[68] I have not made representative orders. Accordingly, the default position in relation to the plaintiffs’ liability for costs applies, namely subject to any order by the Court, they are liable on a joint and several basis.21
[69] Finally, the plaintiffs’ application sought a direction that if representative orders were made, a further (at least) two months was given to enable other parties to “opt-in” as represented plaintiffs.
[70] Again, I have not made a representative order and accordingly this point does not directly arise. However, it is appropriate to record my view that had I made a representative order, I would not have directed a further opt-in period. There has been a significant amount of time already for parties interested in joining this action to join. Further, the plaintiffs consented to an order earlier this year that any further plaintiffs to be joined were to be joined by 28 April 2017. It would therefore have been inappropriate to revisit the Court’s earlier order in this regard had a representative order been made.
Defendant’s discovery application
[71] The discovery process is largely complete. There are three outstanding issues in relation to which Advaro now seeks orders:
(a) First, an order setting aside the plaintiffs’ claim to privilege in relation to a certain group of documents;
(b)Second, an order debarring two plaintiffs from being permitted to continue as plaintiffs in these proceedings, given they have still not given discovery; and
(c) Third, that what is referred to as “the master list” (being a compilation of the individual discovery affidavits sworn by each plaintiff) be verified as an accurate compilation by a person having appropriate
knowledge and involvement in the compilation process.
21 High Court Rules, r 14.14.
Order that privilege claim be set aside
[72] By consent, tailored discovery was ordered in this case. The issue over privilege arises out of a tailored discovery request made by Advaro of the plaintiffs in the following terms:
Any correspondence that plaintiffs and/or counterclaim defendants have had with any person (including a party to this proceeding other than Advaro Ltd or Advaro Funding Ltd) relating to either the agreements with Intagr8 … or to the rental agreements with Advaro Ltd referred to in the schedule to the counterclaim.
[73] That is a very broad request. However, rather than disputing the breadth of the request, the plaintiffs have given discovery of what it considers to be relevant documents in response to the request, but then made a global claim to privilege, pursuant to s 56 of the Evidence Act 2006 (“litigation privilege”), in respect of all documents which are responsive to the request but which post-date Intagr8’s liquidation.
[74] In an affidavit sworn in opposition to Advaro’s application for an order setting aside the privilege claim, a director of one of the plaintiffs, a Mr Preston, explains the steps taken by him and a Mr Ian Lind (also a director of a plaintiff in these proceedings) to organise the plaintiff group of companies. Mr Preston also confirms the nature and type of documents in respect of which litigation privilege is claimed, noting that the communications were almost exclusively directed to Mr Lind and himself. He confirms they each fall into one or more of the following five categories:
(a) New inquiries – companies who had heard about the group and who emailed Mr Preston and/or Mr Lind giving a brief summary of their situation and asking for help;
(b)Organisation – emails, mostly between Mr Preston and Mr Lind, about how they proposed to organise the group to get the best result;
(c) Information gathering – related to (b) above, emails between plaintiff companies and third parties to get information, for example about the telephone equipment and its value;
(d)Updates – emails sent out to the group by Mr Preston and/or Mr Lind to update it on progress and to pass on legal advice which they had received; and
(e) Voting emails – emails to and from the group posing a question as to how to proceed, and members’ responses with their preference of how to proceed.
[75] Mr Preston further says that from the time of Intagr8’s liquidation, legal proceedings were reasonably apprehended by the plaintiffs and that communications between the plaintiffs from that time were for the purpose of those anticipated proceedings.
Submissions
[76] Mr McLellan (rightly) notes that the plaintiffs’ stated basis upon which privilege has been claimed in relation to these documents has shifted over time. Initially, it seemed privilege was claimed on the basis of litigation privilege, common interest privilege and/or solicitor/client privilege. Subsequently in correspondence between the parties and in a memorandum to the Court, litigation privilege alone was asserted.
[77] Mr McLellan submits the following:
(a) To the extent litigation privilege is claimed, this cannot be justified on the materials currently before the Court. First, litigation needs to be reasonably apprehended by the particular party giving discovery.
Mr McLellan says that Mr Preston cannot depose to this fact on behalf of each individual plaintiff.
(b) Further and in any event, based on the materials before the Court
(including newspaper advertisements placed by Mr Preston and
Mr Lind seeking support for their group), it is highly unlikely that litigation was reasonably apprehended at the point of Intagr8’s insolvency. Mr McLellan highlights that the test for proceedings being
reasonably apprehended is that litigation is probable and not simply possible.22
(c) Further, Mr McLellan notes that even if proceedings were reasonably anticipated from that time, it cannot be the case that every document prepared from that point was prepared for the dominant purpose of those proceedings. Mr McLellan notes that joint and equal purposes will not satisfy this threshold.
(d)To the extent settlement privilege is claimed, Mr McLellan submits it is very different to see how this privilege could apply to communications passing between former Intagr8 customers.
(e) To the extent that common interest privilege is claimed, Mr McLellan (rightly) notes there is no such thing as “common interest privilege”, at least as a free-standing ground of privilege. Rather, documents must be privileged in and of themselves pursuant to the established categories of privilege and set out in the Evidence Act. Where a document which is already privileged is provided to a party with a common interest, there may be a basis upon which to argue that privilege has not been waived as a result of disclosure in such circumstances. In this way, common interest privilege is merely a defence to waiver of privilege, rather than a basis for creating privilege in an otherwise unprivileged document.
(f) Finally, and anticipating the plaintiffs’ submissions at the hearing,
Mr McLellan says that it cannot be the case that all the documents are irrelevant in any event. He says they are responsive to a tailored discovery request and therefore are relevant on that basis.
[78] At the hearing, and somewhat contrary to the plaintiffs’ prior stance in relation to these documents, the plaintiffs’ primary basis for objecting to the order sought by
22 Guardian Royal Exchange Assurance of New Zealand Ltd v Stuart [1985] 1 NZLR 596 (CA) at
606, Pernod Ricard New Zealand Ltd v Lion – Beer, Sprits & Wine (NZ) Ltd [2012] NZHC 2801 at [33].
Advaro was that the documents are simply irrelevant to issues arising on the pleadings.
Mr Fraundorfer points to the very broad scope of the tailored discovery request and submits that, in reality, it is a “fishing” expedition. He further explained that, despite the documents being irrelevant, and out of an abundance of caution, litigation privilege was claimed in relation to any remaining documents which may be deemed or considered to be relevant. That is on the basis of the matters set out in Mr Preston’s affidavit and summarised above.
Analysis
[79] First, it is trite that documents must be relevant before they are required to be discovered. I do not accept Mr McLellan’s submission that so long as a document is responsive to a tailored discovery request, it will be “relevant” and therefore discoverable. Ultimately, tailored discovery requests ought to only seek documents relevant to issues arising on the pleadings. Only on the basis they do will a document responsive to a tailored discovery request be relevant and discoverable.
[80] A number of authorities confirm that relevance to issues arising on the pleadings is still a key touchstone for discovery even in the context of tailored discovery requests, including, for example, ASB Bank Ltd v Commissioner of Inland Revenue23 and Commerce Commission v Cathay Pacific Airways Ltd.24 In the latter case, Asher J said the following:25
The starting point in such a consideration of appropriate tailored discovery orders must be an analysis of the issues. Discovery categories will reflect the issues and will only be ordered for the discovery of documents that are relevant to those issues. Except in exceptional circumstances, these issues will be discernible from a review of the pleadings. Discovery orders that are essentially of a “fishing” nature are not part of tailored discovery. Orders will not be granted where the categories do not relate to a pleaded relevant issue, but rather a non-pleaded issue which might be pleaded should discovery reveal documents that support such a pleading.
[81] I respectfully agree with and fully endorse his Honour’s observations.
23 ASB Bank Ltd v Commissioner of Inland Revenue [2014] NZHC 2184, (2014) 26 NZTC 21-098 at [7]-[8].
24 Commerce Commission v Cathay Pacific Airways Ltd [2012] NZHC 726 at [13]. See also Nathans
Finance New Zealand Ltd (in rec) v AIG Insurance New Zealand Ltd [2013] NZHC 3137 at [34].
25 At [13].
[82] I accept Mr Fraundorfer’s submission that on the basis of the categorisation of the documents in issue and set out at [74] above, many if not most are likely to be irrelevant to issues arising on the pleadings. Ultimately, Mr McLellan accepts that documents which deal solely with organisational matters (for example how to organise the group and “get the best result”) would not be relevant. The same will be the case in relation to communications that are purely updates to the group on progress generally. I add that this will also be the case in relation to voting emails, which simply put various recovery and/or litigation proposals to the group seeking a vote in that regard. Ultimately, and as Mr Preston deposes, other than emails which are categorised as “New Inquiries” all of the emails seem to be about getting the group organised and “taking the fight to Advaro”. On this basis, I accept that the large majority of the documents in issue are likely to be irrelevant.
[83] Nevertheless, I accept Mr McLellan’s submission that, to the extent a document sets out a summary of a particular plaintiff’s position in a manner which is relevant to an issue in the proceedings, the document would be relevant and ought to be discovered. In this context, Mr McLellan took me to a document that has been discovered by the plaintiffs, being a communication between a plaintiff and the Commerce Commission. The email sets out that plaintiff’s position and views in relation to Advaro and the collapse of Intagr8. Particularly given the FTA cause of action, Mr McLellan submits, and I accept, that that email would be relevant (being a document on which Mr McLellan may wish to cross-examine) and discoverable. On that basis, the documents in issue cannot, globally at least, be said to be irrelevant. Rather, each will need to be considered on its own merits in the ordinary way to assess whether it is indeed relevant to an issue arising on the pleadings.
[84] I also observe that the current global listing of litigation privilege does not comply with the basis upon which documents may properly be listed by group. For example, only like documents are to be group-listed, and at the least, there ought to be an description of the parties to the communications and a date range.
[85] In all of the circumstances, I do not consider it appropriate to simply set aside the plaintiffs’ privilege claim. Given my view that the tailored discovery request set out at [72] above is too broad, Advaro ought to reframe that request in a manner which
seeks only documents relevant to an issue or issues arising on the pleadings. The plaintiffs and their legal advisers will then need to consider the documents in question and whether any of them are responsive to the narrowed request, and if so, give discovery of them in the ordinary way.
[86] If any relevant documents are considered privileged, then the listing of those documents in respect of which privilege is claimed will need to comply with the High Court Rules. Further, to the extent a document has been created by a particular plaintiff and litigation privilege is claimed, that plaintiff will need to depose as to their belief as to proceedings being reasonably apprehended at the relevant time and the dominant purpose for which the document in question was prepared. It is quite possible that with an appropriately narrowed discovery request, and given my earlier observations (and Mr McLellan’s proper acknowledgements) as to what documents will not be relevant, any documents which need to be dealt with in this way will be limited in number.
[87] Advaro is therefore to propose a narrowed discovery request on or before 24
January 2018. To the extent there is any dispute over the scope or relevance of the narrowed discovery request, and/or the parties cannot agree the timing of any resulting discovery to be given by the plaintiffs, leave is reserved for any party to raise that matter with the Court in the New Year, upon which I will make directions as to resolution of any residual issues.
Order debarring plaintiffs
[88] I do not consider it appropriate, at this time at least, to make an order debarring the final two plaintiffs who are yet to give discovery from being permitted to remain as plaintiffs in this proceeding. I do not consider that to be an appropriate approach without a prior warning to those plaintiffs of such a potential consequence, and in the absence of any evidence of real or significant prejudice to Advaro from the delay in those plaintiffs completing discovery.
[89] However, the two plaintiffs concerned26 need to understand that being a plaintiff to High Court proceedings, even as part of a “group” of plaintiffs, comes with significant obligations. The Court has made orders as to the timing of discovery and it is unacceptable for parties to effectively ignore timely compliance with those Court orders.
[90] There is accordingly an “unless order”, namely that unless the seventh and seventeenth plaintiffs have given discovery on or before 9 February 2018 they are debarred from continuing as plaintiffs in these proceedings.
Verification of master list
[91] I am not convinced that an order that the master list be verified by a solicitor involved in the compilation is necessary in this case. Each plaintiff has given discovery and produced their own affidavit of documents. In that sense, the plaintiffs are not required to do anything further by way of discovery, such as compiling and/or verifying on affidavit a master list.
[92] Nevertheless, the plaintiffs consent to an order that the master list be verified, but not by a solicitor, but by Mr Preston or Mr Lind. An order is accordingly made to that effect. The deponent will need to set out the steps that have been taken to ensure the master list is indeed an accurate compilation of the plaintiffs’ separate affidavits of documents.
Result
[93] For the reasons given in this judgment:
(a) I decline to make the representative orders sought.
(b)I nevertheless grant the plaintiffs’ application to the extent it seeks the determination of certain common issues at a stage-one trial.
26 The seventh plaintiff, Build People Ltd, and the seventeenth plaintiff, J&R Slecht Ltd.
(c) The Registry is to allocate a one hour face-to-face case management conference before me on the first available date once Court sittings resume in the New Year for the purposes set out at [66] above.
(d)The defendant’s application to set aside the plaintiffs’ privilege claims is declined.
(e) The defendant is to provide a reformulated tailored discovery request in accordance with [85] above on or before 24 January 2018.
(f) An order is made against the seventh and seventeenth plaintiffs that unless they give discovery on or before 9 February 2018 they are debarred from continuing as plaintiffs in this proceeding.
(g)An order is made that the master list be verified in the manner set out at [92] above.
Costs
[94] Costs on the plaintiffs’ application ought to be determined now. The parties are to file memoranda in relation to costs within 15 working days of this judgment. Each may file a memorandum in response within five working days of the other party’s memorandum. Absent a request for a hearing, I will then determine costs on the
papers.
Fitzgerald J
Schedule
1.The Plaintiffs and Counterclaim Defendants will … apply to the Court for directions that:
…
(c) In the alternative that the Representative Parties are representatives in this proceeding for the Plaintiffs and Counterclaim Defendants in relation to the following Alternative Common Issues:
(i)Whether the terms of the Master Rental Agreement (the MRA), the Connection Document, the Understanding the Arrangements Document and the Factual Matrix (collectively the Contractual Matrix) create a Tripartite Agreement;
(ii)Whether the Contractual Matrix leads to an implied term that the MRA is conditional on the Credits;
(iii)Whether the Contractual Matrix means that the MRA was frustrated by the liquidation of Intagr8;
(iv)Whether the pleaded Explanation is capable of altering the answers to (i), (ii) or (iii) above;
(v)Whether clause 2 of the “Important Acknowledgement by the Renter” in the MRA (the No Agency Provision) and clause 26 of the MRA (the Whole Agreement Clause) mean that the Plaintiffs cannot rely on the Representations in making a claim under part 2, subpart 3 of the Contract and Commercial Law Act 2017;
(vi)Whether the Contractual Matrix amounts to misleading and deceptive conduct under the Fair Trading Act 1986;
(vii) Whether the Explanation is capable of altering the answer to
(vi) above;
(viii)Whether the No Agency Provision and the Whole Agreement Clause prevent the Plaintiffs relying on the Explanation in making a claim under the Fair Trading Act 1986;
(ix) In the event that the answer to (vii) or (viii) above is yes, does this justify voiding the MRA under s 43 of the Fair Trading Act
1986;
(x) Whether the guarantors who signed the guarantees with Rent Plus Ltd, so named, should be released from the guarantees under either equitable discharge of the Fair Trading Act 1986.
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