Audio Essentials Limited v Tripathi

[2018] NZHC 3425

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2016-004-616

[2018] NZHC 3425

BETWEEN

AUDIO ESSENTIALS LIMITED

Plaintiff

AND

URMANG TRIPATHI

First Defendant

VARUN CHAWALA
Second Defendant

VIKAS ROHILLA

Third Defendant

Hearing:	23 August 2018
Counsel:	K J Crossland for Plaintiff M J Norris for Defendants
Judgment:	20 December 2018

JUDGMENT OF DUFFY J

This judgment was delivered by me on 20 December 2018 at 11 am pursuant to

Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Solicitors/Counsel:

Shieff Angland, Auckland Kidd Legal, Auckland

AUDIO ESSENTIALS LTD v TRIPATHI & ORS [2018] NZHC 3425 [20 December 2018]

[1]    Audio Essentials Limited (Audio Essentials) commenced this proceeding against Mr Tripathi and two other defendants. They in turn filed statements of defence and later a counterclaim against Audio Essentials.

[2]    On 23 November 2017 Associate Judge Christiansen entered summary judgment upon Audio Essential’s claim against the defendants.1 The Associate Judge also struck out the defendant’s counterclaim, finding that it could not succeed.2

[3]    Mr Tripathi now wants to review Christiansen AJ’s decisions in this Court, pursuant to s 26P(1) of the now-repealed Judicature Act 1908 and he seeks leave to adduce fresh evidence in support of the counterclaims. Mr Tripathi also seeks a stay of proceedings in relation to the Associate Judge’s decisions.

[4]    The key issue is whether this Court has jurisdiction to hear and determine the review.

Procedural history

[5]    Some understanding of the procedural history is required. On 5 May 2016, Audio Essentials filed a statement of claim against the defendants in the District Court. The claim related to unpaid rent under a deed of lease. A statement of defence was filed. Then on 29 May 2017, the defendants filed an amended statement of defence and counterclaim in the District Court. The amount claimed in the counterclaim meant that the proceeding had to be transferred to the High Court. This took place on 29 June 2017.

[6]    On 6 July 2017, Audi Essentials replied to the defence and the counterclaim. It sought leave to apply for summary judgment on the basis that the counterclaim could not succeed. The application it filed also sought orders striking out the statement of claim

[7]    The application was heard before Christiansen AJ on 13 November 2017. The judgment was delivered on 23 November 2017. In short, Christiansen AJ found that

1      Audio Essentials Ltd v Tripathi [2017] NZHC 2864.

2      At [85]

the defendants’ counterclaim could not succeed and without the counterclaim the defendants had no arguable defence to Audio Essentials’ claim. This led to the Associate Judge entering summary judgment for Audio Essentials. He also struck out the counterclaim.

[8]    At 4:57 pm on 21 December 2017, Mr Tripathi emailed the Court of Appeal Registry, purporting to file an appeal of Christiansen AJ’s decision pursuant to s 26P(2) of the Judicature Act 1908. This was the final day to file an appeal in time

[9]    Unfortunately for Mr Tripathi, appeals must be filed in the Court of Appeal by hand or by post.3 Therefore, the Court of Appeal Registry informed Mr Tripathi that no appeal had been received.

[10]   On 19 January 2018, Mr Tripathi filed the review and stay applications in this Court. The matter was originally set down for a one-hour hearing on 28 March 2018. However, counsel raised concerns that this would be insufficient time for a hearing. The matter was then deferred to a one-day hearing later in the year. That is how it comes before me now.

[11]   Audio Essentials argues that Mr Tripathi cannot pursue review of the Associate Judge’s decisions in this Court now given the repeal of the Judicature Act 1908 and its replacement by the Senior Courts Act 2016.

Jurisdiction

[12]   On 1 March 2017, the Senior Courts Act came into force, and since then all challenges to decisions of Associate Judge’s must be brought by way of appeal to the Court of Appeal.4 The only exception would be if the transitional provisions of the Senior Courts Act were engaged. If that were so the (now repealed) provisions of the Judicature Act 1908 would still apply.

[13]The transitional provisions of the Senior Courts Act relevantly provide:5

3      Court of Appeal (Civil) Rules 2005, r 31(1).

4      Senior Courts Act 2016, ss 27 and 56(4).

5      Senior Courts Act 2016, sch 5, cls 10 and 11.

10Proceedings, etc, continue under relevant Act

(1) All proceedings pending or in progress in a court operating under the relevant Act immediately before the commencement of this clause may be continued, completed and enforced only under the relevant Act (including the relevant rules of court) as if that Act had not been repealed by this Act.

11Proceedings subject to former High Court Rules

(1)In this clause, former High Court Rules 2016 means the High Court Rules 2016 as in force immediately before 1 March 2017.

(2)A proceeding that is pending on 1 March 2017 must be continued, completed, and enforced under the High Court Rules 2016 as in force immediately after that date, except as provided in subclause (3).

(3)A proceeding that is pending on 1 March 2017 must be dealt with as if—

(a)Part 29 of the former High Court Rules 2016 (if applicable) were in force:

(b)the provisions of the former High Court Rules 2016 referring to section 26P of the Judicature Act were in force.

[14]   The effect of these transitional provisions was summarised by the Court of Appeal in Sutcliffe v Tarr:6

[17]      … Clause 10 is the general provision. Proceedings pending or in progress in a court operating under the “relevant Act” as at 1 March 2017 must (may only) be continued under that Act (including the relevant rules of court) as if that Act had not been repealed by the passage of the Senior Courts Act. The phrase “the relevant Act” means the Judicature Act … So, any proceedings pending or in progress in the High Court… as at 1 March 2017 are to continue under the formerly applicable jurisdictional statute (the Judicature Act…) and the rules of those courts.

[18]      This general provision is subject to cl 11, which provides that proceedings, even though pending or in progress as at 1 March 2017, become immediately subject to the new High Court Rules 2016. There are two exceptions to this, described in cl 11(3): a proceeding that is pending on 1 March must be dealt with as if pt 29 of the former High Court Rules (the rules applicable to proceedings in the commercial list) were in force, and also as if the provisions of the former High Court Rules that refer to s 26P of the Judicature Act were in force. The latter refers to the rules which regulate the twin appeal pathways … rr 2.3, 2.4 and 7.50.

[19]      For our purposes then, a proceeding pending before 1 March 2017 continues under the Judicature Act, and the relevant rules of court. However,

6      Sutcliffe v Tarr [2017] NZCA 360 at [17]-[21].

in respect of the High Court Rules, it continues under the new High Court Rules 2016, subject to cl 11(3) savings.

[20]      But, what constitutes a “proceeding” for the purposes of cl 10? This is the critical question in ascertaining when the Senior Courts Act is to apply to appeals (and applications for leave) sought to be filed in this Court…

[21]      Appeals are commonly understood to form part of the proceeding originally initiated in the High Court (or other first instance jurisdiction). Whilst appeals do, when filed and processed have a different character (and filing number) from the initial proceeding, we consider that they are still part of that initial proceeding in the sense that the rights and interests at issue are the same.

[15]   The initiating documents of the proceeding brought by Audio Essentials were filed before 1 March 2017 in the District Court. I can see no reason why the subsequent transfer of the proceeding to this Court should affect the date it was initiated. Further I consider that its transfer to this Court means it should now be viewed from the outset as if it had been commenced in this Court. It follows that Audio Essentials’ proceeding was pending or in progress before 1 March 2017. Accordingly, the proceeding, which includes the summary judgment, remains subject to the Judicature Act and the former High Court Rules pursuant to clauses 10 and 11 of Schedule 5 of the Senior Courts Act.7 Whether those transitional provisions also affect the counterclaim, which was filed after their operative date, is a separate question that will be addressed later.

Powers and jurisdiction of Associate Judges under the Judicature Act.

[16]   Under the Judicature Act, the scope of an Associate Judge’s powers and jurisdiction hinged on whether he or she was sitting in Chambers or in Court. When sitting in Chambers, subject to certain exclusions, an Associate Judge had all the powers and jurisdiction of a Judge of this Court.8 But when sitting in Court an Associate Judge’s jurisdiction was more limited.9

7      Pursuant to the former r 12.4 of the High Court Rules applications for summary judgment were made by interlocutory application, which in this case was made in the context of a proceeding initiated before 1 March 2017.

8      Judicature Act 1908, s 26J.

9      Section 26I set out the limited circumstances when an Associate Judge could exercise the jurisdiction of the Court.

[17]   Section 26I of the Judicature Act specified when Associate Judges sitting in Court had the powers and jurisdiction of a High Court judge; this included the power to grant summary judgment, which despite being sought by interlocutory application, was always dealt with in open Court.10 On the other hand, strike out applications, were always to be dealt with by an Associate Judge in Chambers. This much was made clear by the Supreme Court in Siemer v Heron:11

An Associate Judge does not have jurisdiction to hear an interlocutory application in open court. Under r 1.3 of the High Court Rules an interlocutory application includes “an order striking out the whole or part of a pleading”. Contrary to Mr Siemer’s submissions, s 26I does not grant Associate Judges the power to strike out such applications in open court. The same applies to s 26IA. Further, as noted by the Court of Appeal, s 26J and the associated s 26P rights are not altered by the fact that the Associate Judge allowed public access to the courtroom.

[18]   The effect of the jurisdictional bifurcations created by ss 26I and 26J of the Judicature Act on the forum in which an Associate Judge was to preside, and its consequential impact on methods of further redress is well explained in Talyanich v Index Developments Ltd where the Court of Appeal stated:12

We think it is clear that where [an Associate Judge] is exercising the jurisdiction of the Court under s 26I of the Judicature Act 1908 the [Associate Judge] must do so in Court and not in Chambers, and an appeal from the decision lies to this Court under s 26P(2). Where an [Associate Judge] is exercising the powers of a Judge sitting in Chambers pursuant to s 26J of the Act, the matter should be dealt with in Chambers and the decision will then be subject to review under s 26P(1). If such a matter is in fact dealt with by [an Associate Judge] sitting robbed in open Court, the [Associate Judge] is still exercising a personal jurisdiction conferred on [Associate Judge] by s 26J, being a jurisdiction of a Judge sitting in Chambers, and is not exercising a jurisdiction or power of the Court under s 26I. The order is, therefore, an order made in Chambers for the purposes of s 26P regardless of matters of form such as the use of a courtroom, the wearing of robes, or the allowing of access to the public.

[19]   The former distinction in appellate pathways between an Associate Judge’s decision on a summary judgment application and a strike out application was confirmed in Sutcliffe v Tarr:13

10     Judicature Act 1908, s 26I(1)(a). See also the former r 7.36 of the High Court Rules.

11     Siemer v Heron [2014] NZSC 35, (2014) 21 PRNZ 818 at [5] (emphasis added).

12     Talyanich v index Developments Ltd [1992] 3 NZLR 28 (CA) at 36-37.

13     Sutcliffe v Tarr, above n 6, at [5] (emphasis added).

[5]     [Section 26P], in combination with the provisions of rr 7.34 and 7.36 of the High Court Rules, created procedural complexity. Decisions by an Associate Judge following an “in chambers” hearing, which by virtue of r 7.34 included decisions on almost all interlocutory applications, including those for strike-out, were subject to the review appellate pathway. This pathway provided for review of the Associate Judge’s decision before a single Judge of the High Court… In contrast, decisions of an Associate Judge following a hearing “in court”, which by virtue of r 7.36 included decisions on applications for summary judgment, were to be appealed directly to this Court.

[20]   In principle, therefore, it is clear that any decision Associate Judge Christiansen made on the summary judgment application should have been made in open Court and any challenge to that decision would need to be made by appeal to the Court of Appeal under s 26P(2) of the Judicature Act.

[21]   It is also clear that under the Judicature Act matters of form such as the physical setting (Court or Chambers), whether robes are worn or not and whether the public has access or not had no influence on the nature of the power an Associate Judge was exercising. That was engendered by the source of the power alone; so that if the power that was exercised was given to an Associate Judge for exercise in Chambers that is what the power was irrespective of the form of its exercise.14

[22]   The Associate Judge’s power to enter summary judgment against the defendants derives from s 26I of the Judicature Act and the former r 7.36 of the High Court Rules, which in combination requires their exercise to be made in open Court. Accordingly, I am satisfied that when Associate Judge Christiansen gave summary judgment to Audio Essentials he did so exercising the powers given to him by s 26I(1) of the Judicature Act.

[23]   Here an integral part of the Associate Judge’s reasoning to enter summary judgment against the defendants was the finding that the counterclaim had no prospect of success. Had he not been satisfied of this it is unlikely that he would have entered summary judgment against the defendants.15 Accordingly, the findings he made

14     Siemer v Heron, above n 11, at [5]; and Talyanich v Index developments, above n 12, at 36-37.

15     The former r 12.12 of the High Court Rules permitted the Associate Judge to refuse to enter summary judgment if satisfied the counterclaim ought to be tried.

regarding the counterclaim were open to him to make in the exercise of the summary judgment jurisdiction.

[24]   It follows that, despite the continued application of the Judicature Act, any challenge to the summary judgment must be brought by way of appeal to the Court of Appeal.

The striking out of the counterclaim

[25]   Here the decisions on the summary judgment application and the strike out application were heard together at the same time in the one setting and delivered in the one judgment. The applications were heard after the Senior Courts Act came into force and it seems the Associate Judge did not turn his mind to the character of the jurisdiction he was exercising.

[26]   If the counterclaim is regarded as a separate proceeding that was commenced after 1 March 2017 then any method of further redress is limited to an appeal to the Court of Appeal.16

[27]   On the other hand, if the counterclaim is regarded as part of Audio Essentials’ proceeding then the counterclaim will remain subject to s 26P(1) of the Judicature Act, in which case the Associate Judge only had jurisdiction to deal with the strike out of the counterclaim in Chambers.17 This later prospect raises the further question of whether under the Judicature Act an Associate Judge could be regarded as sitting in open Court and in Chambers on the one occasion.

[28]   I shall deal first with whether the counterclaim can be regarded as a separate proceeding or not.

16     Senior Courts Act 2016, s 27(1).

17 Associate Judge Christiansen had the power under the former r 7.34 of the High Court Rules to direct that the strike out application be heard in Court, but the effect of such direction was that the matter would then have needed to be heard by a High Court Judge: See Talyanich v Index Developments Ltd, above n 12, at 37.

Characterisation of counterclaims

[29]   Mr Tripathi essentially contends that the counterclaim should be approached as if it forms part of Audio Essentials’ proceeding. If that were so the decision to strike out the counterclaim would still be amenable to review by a Judge of this Court.

[30]   On the other hand, Audio Essentials contends that the counterclaim is a separate proceeding, which necessarily was instituted after 1 March 2017 given it was filed in the District Court on 29 May 2017.

[31]   On Audio Essentials’ view of the counterclaim there was no proceeding pending as at 1 March 2017 and therefore in accordance with the Senior Courts Act the only method of redress now available is by appeal to the Court of Appeal.

Analysis

[32]   The term “counterclaim” is not defined in the Senior Courts Act, the Judicature Act or the High Court Rules.

[33]   A counterclaim does not fit within the definition of “interlocutory application” in either the Senior Courts Act, the Judicature Act or the definition of interlocutory application under the High Court Rules.18 By default, therefore, it would appear to come within the meaning of “proceeding” in the r 1.3 of the High Court Rules. However, this is not enough of itself to warrant viewing a counterclaim as an entirely separate proceeding. More is required before that outcome is reached. A more detailed analysis of the place of counterclaims in the High Court Rules is required.

[34]   The rules make separate provision for the filing of a counterclaim against a plaintiff only or against a plaintiff and another person. In relation to the former, r 5.53(1) requires the counterclaim to be filed in the same High Court registry as the statement of defence.

[35]   Rule 5.53 places no restrictions upon the character of the counterclaim which may be brought against the plaintiff. This type of counterclaims may comprise any

18     Senior Courts Act 2016, s 4; Judicature Act 1908, s 2; and High Court Rules 2016, r 1.3.

matters which could have been included in a proceeding separately issued. It may comprise multiple causes of action to the same extent as would be permissible in an independent proceeding brought by the defendant against the plaintiff.19

[36]   However, where a counterclaim is brought against a plaintiff and another person r 5.57 restricts the subject matter of the counterclaim to claims for “any relief relating to or connected with the original subject matter of the proceeding”. Furthermore, under r 5.57(6) the Court may at any time order such a counterclaim be struck out if it appears that the plaintiff is likely to be unduly delayed in obtaining relief, or that the trial is to be held at a place where it could not be held if a counterclaim defendant had been made defendant to an independent proceeding, or the relief sought in the counterclaim is not related to or connected with the original subject matter of the proceeding.

[37]   Rule 5.57 requires a notice of proceeding to accompany the filing of a counterclaim under this rule whereas a counterclaim filed under r 5.53 does not require a notice of proceeding.

[38]    In general, a counterclaim must be tried at the same place as the statement of claim in the original proceeding and either simultaneously or immediately afterwards.20 Nonetheless, a counterclaim proceeds in the same manner as if the defendant had commenced an independent proceeding against the plaintiff.21

[39]   A counterclaim can survive the stay, discontinuance or dismissal of the plaintiff’s proceeding.22 On the other hand, the rule permitting a defendant to bring a counterclaim envisages the existence of a proceeding brought by the plaintiff against the defendant at the time the counterclaim is filed.

[40]   Another aspect of counterclaims which distinguishes them from statements of claim is that the rules do not permit joinder of a new claimant as a counterclaim

19     Compton v Preston (1882) 21 ChD 138.

20     High Court Rules 2016, r 58(1). However, in special circumstances sub-r (2) permits the counterclaim to be tried separately.

21     Sub-r (3).

22     Rule 5.59.

plaintiff.23 On the other hand, a counterclaim may be discontinued and then recommenced in the same manner, which is consistent with it being an independent proceeding that is inserted into the plaintiff’s claim24.

[41]   Counterclaims have some of the characteristics of independent proceedings but in other respects they do not. My view is that whilst in a number of respects counterclaims are to be treated as if they are independent proceedings, they cannot be entirely independent because they require the existence of an extant proceeding before they can be commenced, and they are subject to other restrictions which do not apply to proceedings commenced by way of statement of claim. These limitations on a counterclaim lead me to conclude that for the purpose of determining whether the provisions of the Senior Courts Act or the Judicature Act should be applied to a counterclaim the relevant date must be the date the proceedings in the related statement of claim were pending or in progress.

[42]   This seems to me to be the only sensible way of characterising counterclaims, because otherwise in circumstances where the statement of claim was filed before the commencement of the Senior Courts Act but the counterclaim was filed afterwards two separate appellate pathways would apply. Interlocutory applications brought in respect of the statement of claim proceedings would remain subject to the Judicature Act whereas interlocutory proceedings brought in respect of the counterclaim would be dealt with under the Senior Courts Act. Such an outcome would be a nonsense. In proceedings involving a statement of claim and a counterclaim there needs to be one coherent appellate pathway. Parliament could not have intended otherwise.

[43]   Audio Essentials argues that if Mr Tripathi’s argument is carried to its logical conclusion and the filing of a counterclaim does not entail instituting fresh proceedings, then this necessitates the counterclaim being considered an interlocutory application within the ongoing original proceeding. I reject this argument. Whilst a counterclaim does not sit easily within the definitions of “interlocutory” proceedings

23     Pender v Taddei [1898] 1 QB 798 (CA) followed in Nippon Credit Australia Ltd v Girvan Corp NZ Ltd (1991) 5 PRNZ 44 at 52-53.

24     Star-Kist Overseas Inc v The Ship “M V Fijian Swift” [1982] 1 NZLR 721 (CA).

or “proceedings” it is specifically provided for in the substantive body of the High Court Rules. This is enough to recognise its existence.

[44]   Accordingly, I am satisfied that in principle a challenge to the striking out of a counterclaim that has been filed in a proceeding commenced before 1 March 2017 must be dealt with by way of review in this Court, despite the counterclaim having been filed after that date.

[45]   In this case there is the separate question of whether the striking out of the counterclaim can be regarded as an exercise of Chambers jurisdiction given the counterclaim was dealt with at the same time as the summary judgment application, which was dealt with in Court in accordance with s 26I(1) of the Judicature Act. Before dealing with this issue I shall assess the merits of the review.

Merits of the review

[46]   The counterclaim pleads causes of action in negligence, the Contracts (Privity) Act 1982 and contract.

[47]   The general principle regarding applications to strike out a claim (be it statement of claim or counterclaim) is that the Court approaches the allegations assuming they are capable of proof.

[48]   The difficulty that Mr Tripathi faces as one of the counterclaim plaintiffs is that the counterclaim fails to plead the essential elements of claims in either negligence or contract. The Contracts (Privity) Act does not of itself give rise to any actionable cause of action. The pleading in negligence does no more than to state “particulars of loss”. Nothing is alleged that would provide a foundation to support a duty of care owed by the Audio Essentials to the counterclaim plaintiffs, or to establish that Audio Essentials caused the counterclaim plaintiffs loss. Nothing is pleaded to support allegations that Audio Essentials owed contractual duties to the counterclaim defendants.

[49]   In short, here the counterclaim was properly struck out because it failed to disclose any properly pleaded cause of action.

[50]   I am satisfied, therefore, that the counterclaim had no prospect of success, because it disclosed no reasonable causes of action, and for that reason it should have been struck out.

Was there jurisdiction to strike out?

[51]   There remains the question of whether the Associate Judge had jurisdiction to strike out the counterclaim. If this action is seen as interwoven with the entry of summary judgment, which was done in exercise of the powers and jurisdiction of this Court given to him by s 26I (1) then it would follow there was no jurisdiction to strike out. On the other hand, if the Associate judge is seen to have exercised a Chambers jurisdiction when it came to the striking out of the counterclaim it would follow that he did have jurisdiction and the power to strike out.

[52]   Siemer v Heron and Talyanich v Index Developments state that under the Judicature Act the nature of the power and jurisdiction of an Associate Judge hinged on its source. Here Associate Judge Christiansen had power under s 26J of the Judicature Act to strike out the counterclaim. Provided he confined his use of his powers and jurisdiction under ss 26I(1) and 26J to the appropriate subjects I cannot see why he could not use each of those powers and jurisdictions in the context of the same hearing and in the same judgment. This fits with the views on the powers and jurisdiction of Associate Judges that were expressed in Siemer v Heron and in Talyanich v Index Developments. Accordingly, I am satisfied the decision to strike out the counterclaim was properly and lawfully made.

[53]   In the alternative, if I am incorrect and in the context of hearing and determining a summary judgment the Associate Judge had no jurisdiction or power to determine the strike out application as well I consider that it would be appropriate for me to determine that matter de novo. The matter has come before me on review. In a review, it would be open in principle for me to find the Associate Judge lacked jurisdiction to strike out the counterclaim as he did. It would also in that context be open to me then to determine the merits of the strike out rather than to refer it back to an Associate Judge for determination. Given the view I have already reached on the

merits of the counterclaim, the outcome would be the same whether I found the Associate Judge had jurisdiction to strike it out or not.

[54]   As a further alternative and in the event I am incorrect regarding the status of counterclaims, and they do, for the purpose of the Senior Courts Act, operate as independent proceedings it would then follow that that the counterclaim was filed after 1 March 2017, in which the only further redress against the Associate Judge’s decision striking out the counter claim would be to seek leave out of time to appeal against it to the Court of Appeal.

Result

[55]   There is no jurisdiction to review the Associate Judge’s decision to grant summary judgment.

[56]   There is jurisdiction to review the Associate Judge’s decision to strike out the counterclaim. However, I am satisfied the counterclaim should be struck out and for this reason the review is dismissed.

[57]   Alternatively, if appeal to the Court of Appeal is the appropriate method of redress to challenge the striking out of the counterclaim the Associate Judge’s decision must stand until overturned on appeal.

[58]   It follows that the applications to stay Audio Essentials’ proceeding and for Mr Tripathi to be given leave to adduce new evidence to support the counterclaim are also dismissed.

[59]The parties have leave to file memoranda on costs.

Duffy J