Advance Apiaries Limited v Waipunga Station Limited
[2018] NZHC 2880
•6 November 2018
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE
CIV-2016-454-120 [2018] NZHC 2880
BETWEEN ADVANCE APIARIES LIMITED
Applicant
AND
WAIPUNGA STATION LIMITED Respondent
Hearing: 25 October 2018 Appearances:
Mr Nathan Gray for the plaintiff
Mr Michael Smith for the defendantJudgment:
6 November 2018
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Issue and result
[1] The issue before the Court for determination is whether arrangements put in place by the plaintiff for the funding of this litigation constitute champertous maintenance, and if so whether the claim should be struck out as an abuse of process.
[2] In my judgment, these were orthodox commercial arrangements falling well short of champerty.
Some general background
[3] The defendant applicant (Waipunga Station) owns and farms a rural property near Dannevirke. The plaintiff respondent (Advance Apiaries) owned and operated a honey producing business in the lower half of the North Island.
ADVANCE APIARIES LIMITED v WAIPUNGA STATION LIMITED [2018] NZHC 2880 [6 November 2018]
[4] On 2 September 2015, the parties entered into a written agreement described by them as a “Bee Hive Placement Agreement”. Pursuant to this, Waipunga Station effectively licensed Advance Apiaries to place hives on its property in return for an annual fee. The details of the agreement are not important for present purposes, although it should be recorded that:
(a)the term was five years with neither party having a unilateral right to terminate without cause;
(b)Advance Apiaries was only entitled to assign its rights and obligations with Waipunga Station’s consent, which could not unreasonably be withheld.
[5] Towards the end of 2016 a dispute arose between the parties. By this time, Waipunga Station appears to have come to the view that it had entered into a poor bargain because it was receiving a modest annual licence fee having regard to the potential profit that Advance Apiaries could earn, and plainly wished to extract itself from the arrangement.
[6] Things deteriorated rapidly:
(a)On 2 November 2016, Waipunga Station, through one of its directors, Mr Jason Leipst, proposed a termination of the agreement. In doing so, Mr Leipst conceded that Waipunga Station had no cause for terminating, and offered $10,000 compensation;
(b)In email correspondence that followed, Advance Apiaries, through one of its directors, Mr Lars Janson, made it clear that it would not agree to the termination of the agreement and rejected the offer of compensation;
(c)On 10 November 2016, Waipunga Station purported to cancel the agreement;
(d)Further exchanges between the parties and their solicitors failed to resolve matters, with Waipunga Station refusing to acknowledge the existence of a dispute or engage further, let alone agree to the matter being referred to mediation pursuant to the dispute resolution clause in the contract;
(e) On 15 December 2016, Advance Apiaries commenced this proceeding.
At that stage, it applied for mandatory injunctive relief that would have compelled Waipawa Station specifically to perform the agreement;
(f)In a judgment dated 20 December 2016 Clark J dismissed that application;1
(g)There has been further interlocutory skirmishing, but the position is now that both parties accept that, rightly or wrongly, the contract is at an end and Advance Apiaries is seeking damages to put it in the position it would have been in but for Waipunga Station’s allegedly unlawful termination of the agreement.
The present application
[7] That broad outline of the background brings me to the present application.
[8] Waipunga Station’s notice of application dated 27 July 2018 is for orders:
1.1 striking out the proceeding; and
1.2 costs.
[9] The grounds upon which that application is made are:
2.1 the agreement between the plaintiff and Melita Honey pursuant to which Melita Honey Ltd maintains the proceeding is in consideration for receipt of any damages award is champertous as Melita Honey Ltd does not have an appropriate interest in the Bee Hive Placement Agreement (“Agreement”) because –
2.1.1 the agreements of sale of 7 November 2016 between, first, the plaintiff and Melita Holdings Ltd, and second, Melita Holdings Ltd and Melita Honey Ltd, pursuant to which Melita Honey Ltd claims an appropriate interest by reason of the sale and assignment of the Agreement neither stipulated for the sale and assignment of the Agreement nor effected the sale or assignment of the Agreement; and
2.1.2 The defendant’s consent to assignment of the Agreement was not obtained as required by the terms of the Agreement.
[10] Advance Apiaries’ notice of opposition dated 13 August 2018 denies both the existence of a champertous arrangement and that the appropriate remedy would in any event be an order striking out the proceeding.
[11] In the hearing before me both parties relied largely on the affidavit evidence already before the Court in relation to the earlier application for mandatory injunctive relief, and for the most part on the affidavits sworn by Mr Janson on behalf of Advance Apiaries.
[12] From this material the following emerges:
(a)The Melita group of companies – particularly Melita Holdings Ltd and Melita Honey Ltd – are also in the honey producing business, although seemingly on a larger scale than Advance Apiaries formerly was. There are close links between the Melita group and Advance Apiaries. From Companies Office records before the Court it is apparent that there is some commonality of shareholders and directors. Mr Gray described the position as one involving extensive family links over the businesses and Mr Smith did not disagree with this;
(b)In November 2016, soon after the dispute between the parties had arisen but shortly before this proceeding was commenced, the Melita group and Advance Apiaries entered into certain arrangements. Mr Janson described these arrangements as involving a restructuring. I would say that the Melita group subsumed Advance Apiaries. The arrangements were as follows:
(i)On 7 November 2016, Melita Holdings and Advance Apiaries entered into a contract pursuant to which Melita Holdings acquired business assets from Advance Apiaries. Exactly what was sold and purchased is in issue and something to which it will be necessary to return;
(ii) Also on 7 November 2016, Melita Holdings and Melita Honey entered into a contract pursuant to which Melita Holdings purported to sell (assign) its newly acquired interest in the
2 September 2015 Bee Hive Placement Agreement with
Waipunga Station;
(c)On 2 March 2018, Advance Apiaries’ shareholders resolved to wind the company up and appointed Mr John Managh of John Managh and Associates Ltd as the company’s liquidator;
(d)Mr Managh in his capacity as Advance Apiaries’ liquidator has agreed to the litigation continuing and it is common ground that, since at least the date of the resolution to wind the company up, this claim in the name of Advance Apiaries has been funded by Melita Honey on the basis that that company will be entitled to any damages recovered.
[13] It is this arrangement that is the subject matter of attack on the basis that it constitutes champertous maintenance.
[14] In support of Waipunga Station’s application Mr Smith made careful submissions as to the law. For the most part his analysis was accepted by Mr Gray.
[15] The position is not complex. The champertous maintenance of litigation constitutes a tort. It is champertous to interfere with the disputes of others by assisting one party to litigation in exchange for a share of the proceeds, unless the assister has a legitimate antecedent interest in the proceeding. In First City Corporation v Downsview Nominees Ltd, Gault J put the position in these terms:2
The essence of champerty is maintenance coupled with an agreement that the maintainer shall have a share of the amount recovered in the action maintained. Champerty has been viewed as a particularly obnoxious form of maintenance.
The general rule has always been that even in equity, a bare right of action was not assignable, on the principle that the law will not recognise any transactions savouring of maintenance or champerty... .
[16] Champerty is not only a tort, it can also amount to an abuse of process.
[17] The Court has jurisdiction – inherent and by means of r 15.1(1)(d) of the High Court Rules 2016 – to deal with any abuse of process, including by striking out a claim or defence.
[18] All of the above is elementary. More controversially, Mr Smith also contended that a plaintiff whose claim is being champertously maintained is obliged expressly to disclose this at the commencement of the litigation. In this regard, he relied on observations made by the Supreme Court in Waterhouse v Contractors Bonding Ltd.3
On this basis he levelled trenchant criticism at Advanced Apiaries (and the Melita
group) because the funding arrangements were not disclosed at the time that this proceeding was commenced and only became apparent when Advanced Apiaries was placed in liquidation in March 2018.
[19] In my view, that criticism is unjustified. The Supreme Court in Waterhouse was directing its observations at commercial litigation funders. These are a relatively new phenomenon in New Zealand, and the Court was plainly seeking to develop protocols in relation to the operation of such funders. I do not read their observations as applying to commercial arrangements that do not involve commercial litigation funders such as this. Indeed, it seems to me that the same requirements could not possibly apply to such situations. It is a commonplace occurrence for a parent or sibling company to fund litigation by another company within a group and any number of examples could be given of commercial and other situations in which a party other than the cited plaintiff (or other party) is paying the bills.
[20] Nothing more needs to be said about this aspect of the case.
The applicant’s case
[21] Against that background, Waipunga Station’s case was presented on two interrelated bases:
(a)First, it was submitted that there was no conclusive evidence that the arrangements entered into by the Melita group and Advance Apiaries in November 2016 included the assignment of the Bee Hive Placement Agreement and that, if it did not, that meant that the Melita group – ultimately Melita Honey – had no interest in the outcome of this litigation;
(b)Second, it was said that even if the Melita group and Advance Apiaries had intended to transfer the latter’s interest in the Bee Hive Placement Agreement to Melita Honey, they could not have done so without consent of Waipunga Station with the same result that Melita Honey has no legal interest in the outcome.
[22] If – the argument continues – Melita Honey received no interest in the Bee Hive Placement Agreement, then it is a volunteer and its maintenance of the litigation is unlawful and an abuse of process, and should be struck out.
[23] On its face, the 7 November 2016 contract between Melita Holdings and Advance Apiaries appears to be for the sale of the latter’s business assets. The contract provided for the assets in question to be schedulised. However, the schedules in the contract were not completed. It was on this basis, Mr Smith submitted that the contract was inconclusive as to whether or not Melita Holdings acquired Advance Apiaries’ rights under its agreement with Waipunga Station.
[24] The affidavit evidence of Mr Janson on behalf of Advance Apiaries was that the omission was an error. He went on to say that it was an error that was of no moment as between the parties because these arrangements involved two closely linked parties. He said that it was always understood between the parties that Melita Holdings was acquiring Advance Apiaries’ business assets including the agreement with
Waipunga Station (and a number of other similar contracts) and that the parties proceeded on that basis.
[25] On behalf of Waipunga Station, Mr Smith questioned that. He said it was incredible. He referred me to evidence of Advance Apiaries’ business continuing after
7 November 2016.
[26] In my assessment, Advance Apiaries’ affidavit evidence is entirely credible. It is plain that the Melita group and Advance Apiaries were closely connected. It is plain that what occurred in November 2016 was an agreement whereby the Melita group would acquire the assets of Advance Apiaries. It is far from unusual in contractual arrangements involving closely related companies for the parties to proceed on a more casual footing than might be expected where they are truly operating at arms length. Given Mr Janson’s dual directorships of Melita Holdings and Advance Apiaries, his evidence is likely to reflect the position of both companies. Accordingly, both vendor and purchaser are saying that their contract involved the sale of all relevant assets including the contract at issue here. This evidence stands uncontradicted. In my view, the fact that some of the business before the Court record Advanced Apiaries apparently continuing to operate after the transaction simply reflects business being carried out in that company’s name.
[27] It is quite correct that the agreement between Waipunga Station and Advance Apiaries prohibited the latter from assigning its rights and obligations without Waipunga Station’s consent (which could not be withheld without adequate reason).
[28] The fact that there was this impediment to an assignment says nothing about whether Melita Holdings and Advance Apiaries sought to transfer the latter’s interest under the Bee Hive Placement Agreement. All it indicates is that an assignment of that agreement could not be perfected without Waipunga Station’s consent. Incidently, there is no suggestion that Waipunga Station would have grounds for withholding consent.
[29] On those bases, the view I take is that there is strong evidence supporting the proposition that the contract between Melita Holdings and Advance Apiaries involved
the sale – or rather assignment – of the latter’s contract with Waipunga Station, and although Advance Apiaries did not obtain Waipunga Station’s consent (or an order from the Court to the effect that such consent could not be withheld) nevertheless the effect of the arrangements in November 2016 was that Melita Holdings, and through it Melita Honey, acquired an interest in Advance Apiaries’ licence (albeit an equitable interest that was vulnerable to challenge).
[30] The upshot of that is that Melita Honey appears to me to have a genuine commercial interest in this litigation and its outcome, albeit one that, because of the failure to perfect the assignment of the contract, must be advanced in the name of the assignor, Advance Apiaries.
[31] That interest it seems to me is more than adequate to satisfy the principle that a party assisting litigation in the name of another for financial gain must have an antecedent interest in that litigation. Accordingly, I have, as I have already indicated, reached the conclusion that Melita Honey’s funding of this proceeding is neither champerous nor an abuse of process. In short, it is legitimately pursuing its own commercial interests.
[32] The application is dismissed.
[33] I did not hear the parties on costs and reserve them. I would expect counsel to be able to agree on costs. In case it assists I indicate that my preliminary view, reached without the benefit of argument, is that the plaintiff respondent as the successful party is entitled to costs on a 2B basis, but see no obvious reason for increased or reduced
costs here.
Solicitors:
Sainsbury Logan & Williams, Napier for the plaintiff
Michael Smith, Wellington for the defendant
Associate Judge Johnston
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