Auckland Uniservices Limited v Ebonz Limited HC Auckland CIV 2011-404-004177
[2011] NZHC 1719
•9 November 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2011-404-004177
BETWEEN AUCKLAND UNISERVICES LIMITED Plaintiff
ANDEBONZ LIMITED Defendant
Hearing: 27 October 2011
Appearances: P Moodley for the Plaintiff
J Long / P O'Neil for the Defendant
Judgment: 9 November 2011
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
09.11.11 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors/Counsel:
P Moodley, Brookfields, Auckland – [email protected]
J Long, LeeSalmonLong, Auckland – [email protected] / paul.o‟[email protected]
AUCKLAND UNISERVICES LIMITED V EBONZ LIMITED HC AK CIV 2011-404-004177 9 November
2011
The stay application
[1] In or about September 2010 the plaintiff (AUL) and the defendant (EBONZ) entered into a consultancy agreement which provided that Dr Malcolm and Mr Sorby as agents for the plaintiff, would provide certain specified consultancy activities to the defendant, as directed by the defendant and its board. The agreement provided for payment of a sum of $97,630 plus GST on signing. Thereafter quarterly payments were to be made in the same sum beginning 1 November 2010 and concluding on 1 May 2011.
[2] Clause 13.1 of the agreement provided that it recorded the entire agreement between the parties.
[3] AUL said its agents provided the services required. The initial invoice was paid but subsequent invoices were not. The plaintiff claims a sum of $224,549 inclusive of GST as owing.
[4] EBONZ opposes AUL‟s summary judgment application on the grounds:
(a) That AUL failed to provide the services agreed to be provided.
(b)That AUL failed to procure the satisfactory availability of its agents, or to ensure they carried out the work required.
(c) AUL failed to follow the dispute resolution process provided for in the agreement.
[5] EBONZ has also filed an application for stay of the summary judgment proceedings, on the grounds:
(a) The parties‟ agreement required them to follow a dispute resolution
process.
(b)Court proceedings could not be commenced unless there was compliance with the dispute resolution procedure.
(c) EBONZ had given written notice specifying a matter in dispute arising from the agreement and designating its representative in negotiations relating to the dispute.
(d)AUL failed to designate its representative in negotiations relating to the dispute and has failed to use reasonable endeavours to agree, in good faith, on a process for resolving the dispute.
Background
[6] EBONZ is a start up company associated with the University of Auckland. Its purpose was to commercialise the research and technology work carried out by the Auckland Bioengineering Institute (ABI) and to take their work to the market to attract investment.
[7] AUL manages Auckland University‟s intellectual property and is responsible for all research-based consultancy partnerships and commercialisation, including contracting with EBONZ in relation to the use of ABI‟s staff and resources to pursue commercial projects.
[8] AUL holds 29.4 per cent of the shares in EBONZ.
[9] Key personnel have shared roles between AUL and EBONZ.
[10] By letter dated 1 July 2011 and prior to AUL‟s claim being filed, EBONZ‟s solicitors gave written notice to AUL‟s solicitors specifying the matter claimed to be in dispute arising from the agreement and designating Mr M Smith‟s as its representative in negotiations relating to the dispute. The letter explained that the parties‟ consultancy agreement could not be considered in isolation of other considerations. Rather, that the services to be provided by AUL‟s consultants were circumscribed by the work description, timeframes and cost structure set out in AUL‟s proposal submitted pre agreement. The solicitors claimed that “it was never
intended by the parties that the consultancy agreement gave [AUL] cart blanche as to the critical elements of the services to be provided...”. The solicitors warned that the parties would have to adopt the “agreed procedures” for the purpose of resolving their dispute.
[11] AUL‟s solicitors responded by letter dated 8 July 2011 advising AUL considered the parties were not required to undergo the dispute resolution process in the agreement. Thereupon on that date AUL filed its summary judgment application.
[12] Subsequent to the filing of its proceeding AUL‟s representative has attended two meetings with EBONZ‟s representative and AUL considers it has now completed the dispute resolution process. As a result it has refused to attend mediation.
[13] EBONZ considers AUL has completed one step only rather than the entire
process provided by clause 10 of the parties‟ agreement.
Clause 10
[14] Clause 10 of the agreement provides:
10.1Unless a party has first complied with Clauses 10.2 to 10.4 (inclusive) that party may not commence court proceedings relating to any dispute arising from this agreement (except where the party seeks urgent interlocutory relief, in which case that party need not comply with this clause before seeking such relief) and where that party fails to so comply with those clauses, the other party need not comply with those clauses before commencing court proceedings relating to that dispute.
10.2Either party (referred to in this clause as „the First Party”) claiming that a dispute has arisen under this agreement between the parties shall give written notice top the other party (referred to in this clause as “the Second Party”) specifying the matter in dispute and designating as its representative in negotiations relating to the dispute a person with authority to settle the dispute. The Second Party shall, within 5 Business Days after receiving the First Party‟s notice, give written notice to the First Party, designating as its representative in negotiations relating to the dispute, a person with similar authority.
10.3The parties shall use their reasonable endeavours to procure that the persons designated under Clause 10.2 shall within 10 Business Days
of the last designation required by Clause 10.2, following whatever investigations each such persons deems appropriate, seek to resolve the dispute.
10.4 If the dispute is not resolved within the period referred to in Clause
10.3 (or within such longer period as their respective representatives may agree is appropriate) the parties shall within a further period of
10 Business Days (or such longer period as the representatives may
agree is appropriate) use their reasonable endeavours to agree, in good faith, on a process for resolving the whole or part of the dispute through means other than litigation or arbitration (including, without limitation, further negotiations, mediation, conciliation, or independent expert determination) and on:
(a) The procedure and timetable for any exchange of documents and other information relating to the dispute.
(b) Procedural rules and a timetable for the conduct of the selected mode of proceedings.
(c) A procedure for selection and compensation of any neutral who may be employed by the parties in dispute.
(d) Whether the parties should seek the assistance of a dispute resolution organisation.
10.5 After the expiry of the time established by or agreed under Clause
10.4 for agreement on a dispute resolution process, a party which has complied with the provisions of Clauses 10.1 to 10.4 (inclusive) may, by written notice to the other party, terminate the dispute resolution process provided for in those clauses and may then commence court proceedings relating to the dispute.
The parties’ dispute positions
[15] AUL opposes the stay application on the grounds that there is no dispute between the parties which requires them to complete the dispute resolution process contained in clause 10, and in any event says the parties have now completed the dispute resolution process.
[16] Clause 10.1 provides that the parties may not commence Court proceedings relating to any dispute arising from the agreement. AUL says the agreement provided for payment of invoices in specified amounts on specified days. AUL‟s position is that EBONZ was obliged to pay its invoices and there is no basis upon which it can refuse to make such payment. Therefore AUL says the non payment of invoices is not a dispute under the agreement to which clause 10 applies.
[17] Clause 10.2 requires the parties to nominate their designated representatives with authority to settle the dispute. Clause 10.3 states the designated representatives are to seek to resolve the dispute within ten working days. Clause 10.4 requires the parties to use their reasonable endeavours to agree on a process for resolving the dispute and on a procedure for any agreed dispute resolution process.
[18] AUL‟s position is that to the extent it was required to do so at all then pursuant to clause 10.4 it notes each party has nominated designated representatives with authority to settle. Further, that those representatives attended two meetings on two occasions (on 5 and 19 September 2011 respectively) to seek to resolve the dispute in accordance with clause 10.3. AUL says EBONZ did not make a settlement proposal at either of the meetings. AUL considers the parties have complied with clause 10.3.
[19] It is clause 10.4 which polarises the positions of the parties upon the stay application.
[20] Following the meetings of the two representatives EBONZ proposed the dispute be referred to mediation. It says AUL refused but should not have because clause 10.4 referred to mediation as one of the means (other than litigation and arbitration) for resolving disputes. Also and in that process of considering alternative means of resolution, clause 10.4 requires, EBONZ submits, for the parties to use reasonable endeavours to agree in good faith on a procedure and timetable for the exchange of documents; on procedural rules; on a procedure for selecting and compensating any neutral person employed to resolve the dispute; and on whether the parties should seek the assistance of a dispute resolution organisation.
[21] EBONZ says AUL has refused to engage the 10.4 process; that the summary judgment proceedings have been wrongfully maintained; and that the clear intention of clause 10 was that the parties would, in good faith, exhaust every option to resolve the dispute before they went to Court.
[22] EBONZ refers to the commercial background of the parties‟ relationship. At
the time they entered into the agreement the parties were common shareholders in
EBONZ and had senior staff common across both parties. It says this was effectively a joint venture and there was a mutually beneficial commercial relationship to protect. Counsel for EBONZ submits the parties were clearly aware that going to court or arbitration over a dispute would damage this relationship. Therefore they agreed not to go to court without first exploring more amicable means to resolve disputes including mediation. EBONZ says AUL should not be able to depart from the contractually agreed method of resolving disputes simply because it has changed its view as to the value of the relationship.
[23] EBONZ rejects claims that it did not have any intention to settle the matter. It says it has clearly been focussed on the clause 10 dispute resolution process. Rather it says AUL has lacked good faith by commencing its summary judgment proceedings having rejected recourse to dispute resolution and, since, having refused to attend mediation.
[24] As to AUL‟s claims of having made a counter offer during the negotiation process EBONZ says that all AUL has done is to have its representative meet twice in an attempt to be seen to be participating in the process, but that it has done no more than this.
[25] AUL‟s summary judgment application has a hearing in this Court on 27
January 2012. EBONZ says no delay would occur if a mediation was to be conducted meanwhile. The costs involved would be minimal and it matters not that AUL is of the view presently that no agreement can be reached. After all, mediations involve parties who cannot agree and the purpose of mediation is to engage the services of a trained and independent facilitator to assist the parties in finding common ground.
[26] The Court has a power to direct a stay of proceedings. EBONZ invites the Court to grant the application. It says given the unambiguous language and mandatory nature of clause 10 the proceedings were undoubtedly wrongly commenced. On that basis alone, the proceedings are an abuse of process and should be stayed; that even if the Court decided that AUL has somehow cured its
breach after the fact of commencement it says AUL has not participated in that process in good faith.
Considerations
[27] AUL‟s position is that the parties having exchanged offers which have not been accepted, it is of the view no benefit can be achieved by any further dispute resolution processes. It says the parties have used reasonable endeavours and good faith to agree on issues between them but, they have been unable to do so. Therefore AUL says the dispute resolution process envisaged by clause 10 is now at an end.
Claim of lack of good faith
[28] The consultancy agreement identified the two individuals who on AUL‟s behalf would be providing consultancy services and the number of hours each week, for which those services would be provided. Under the heading of “Work Program” the agreement provided:
[Dr Malcolm and Mr Sorby], as agents of [AUL] will undertake services for eBonz as directed by the eBonz‟s Supervisor and Board. The day-to-day management of projects time allocation will be undertaken by the Supervisor and Deputy Director of Commercialisation or other nominated personnel of [AUL].
[Dr Malcolm and Mr Sorby] will undertake the following activities in delivering the Services.
1.Carry out projects as directed by the eBonz and Deputy Director of Commercialisation for the Bio Engineering Institute (University of Auckland).
2. Assist in the management of eBonz‟s projects especially with regard
to technical matters.
3.Assist in strategic planning and scoping of projects which includes defining project objectives, timelines and costings.
4. Assist with writing project reports.
5. Develop software, hardware and technical processes.
6.Contribute to meetings, seminars and discussions both internally and externally.
[29] Significantly, it appears to this Court, there is no reference in the consultancy agreement about outcomes or milestones to be achieved. Yet it is the claim of EBONZ‟s, as expressed by its solicitor‟s letter dated 1 July 2011 that the terms of the consultancy agreement ought to be read in conjunction with AUL‟s consultancy proposal. This view is to be compared with clause 13 of the agreement which provides that the agreement records the entire arrangement between the parties.
[30] I mention these factors not to express a view about the correctness or otherwise of the parties‟ respective positions about whether there is a dispute, for that is properly left for consideration upon the summary judgment application. However I mention the contrasting viewpoints to address Mr O‟Neil‟s submissions claiming that AUL lacked good faith at the time it filed its claim and its summary judgment application. Suffice to say at that time the plaintiff then did, and undoubtedly continues now to adopt the position that the consultancy agreement will not recognise EBONZ‟s claims of a dispute for the purpose of recourse to the clause 10 disputes process.
[31] It is certainly arguable that claims of bad faith because of the filing of the proceeding, may be misplaced.
Whether AUL was obliged to attend mediation
[32] I will now address EBONZ‟s claims that clause 10 contained a requirement of the parties to follow a dispute resolution process set out in that clause.
[33] A letter dated 20 September 2011 from EBONZ‟s solicitors recorded that the parties‟ nominated representatives had met on two occasions in an effort to resolve the dispute in accordance with clause 10.3, despite which the dispute was not resolved. The letter then declared that in accordance with clause 10.4 EBONZ chose to refer the dispute to mediation. It advised that once the mediator was agreed upon the solicitors would propose agreeing a timetable for the exchange of position papers and in relation to other procedural matters.
[34] AUL‟s solicitor‟s letter in response dated 23 September 2011 asserted:
It is our client‟s view that, at no stage during this process, has your client displayed the slightest inclination to settle the issues between the parties. More importantly, your client never advanced a settlement offer in this matter at those meetings.
[35] The letter concluded that AUL did not consider that a mediation would assist the parties and was therefore not prepared to attend such.
[36] Further correspondence between the parties provided an exposition of respective positions about what was required by clause 10. AUL‟s view was that there was no mandatory requirement to attend mediation.
[37] Then by letter dated 3 October 2011 AUL‟s solicitors noted that there remained for the parties an opportunity to consider and perhaps undertake further ADR. It repeated that AUL was not prepared to attend a mediation but suggested a final further meeting between representatives upon the basis that if resolution was not achieved then the process under clause 10 would be at an end.
[38] A further letter dated 17 October 2011 from AUL‟s solicitors noted they had not received a response to the offer to attend a final meeting. The letter concluded that it was AUL‟s view that the process of clause 10 was then at an end.
Conclusions
[39] Clause 10.4 requires only that the parties use their reasonable endeavours, and good faith, to agree a process for resolving a dispute. The clause does not require the parties to attend one, or all, of the named resolution processes. It follows that the Court considers that AUL was within its rights to decline to attend mediation. The Court does not accept claims of lack of good faith by AUL to the extent it is suggested AUL always had a predisposition to refusing recourse to mediation. Rather, as the evidence discloses, there were two meetings of the representatives and indeed a further meeting was proposed by AUL‟s solicitors by its
17 October 2011 letter, to which EBONZ did not respond, albeit because AUL was not prepared to engage mediation at that time.
[40] Mr Moodley submits that EBONZ‟s apparent interpretation of clause 10.4 is contradicted by the clear and unambiguous words contained in the clause. Respectfully, I agree. The clause does not say what the parties are required to do save for the use of reasonable endeavours to agree, in good faith, on a process for resolution.
[41] There is no requirement for the parties to exhaust every option of „further negotiations, mediation, conciliation, or independent expert determination, referred to in that clause.
[42] It is clear from the evidence that the parties have not been able to agree to adopt the mediation process. The fact that there has not been an agreement does not mean there was a lack of good faith on the part of AUL.
Decision
[43] The application for stay is dismissed.
[44] Costs are awarded on to AUL on a 2B basis together with disbursements approved by the Registrar.
Associate Judge Christiansen
0
0
1