Cain v Mettrick
[2020] NZHC 2125
•21 August 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-000548
[2020] NZHC 2125
UNDER the Companies Act 1993 IN THE MATTER
of an application under section 301 of the Act
BETWEEN
R J CAIN and R G LOGAN as Liquidators of Stonewood Homes Limited (in
Receivership and Liquidation) First Plaintiffs
AND
R J CAIN and R G LOGAN as liquidators of Stonewood Homes New Zealand Limited (in Receivership and Liquidation)
Second Plaintiffs
AND
R J CAIN and R G LOGAN as liquidators of Holmfirth Group Limited (in Receivership and Liquidation)
Third Plaintiffs
AND
B A METTRICK
First Defendant
AND
J BOULT
Second Defendant
Hearing: 28 July 2020 Appearances:
M G Colson, J I Taylor and J W A Johnson for Plaintiffs O Peers for First Defendant
A Galbraith QC and G J Ryan for Second Defendant
Judgment:
21 August 2020
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
CAIN v METTRICK [2020] NZHC 2125 [21 August 2020]
This judgment was delivered by me on 21 August 2020 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
The application
[1] This is an action by the plaintiff liquidators (the Liquidators) against the defendants, alleging breach of directors’ duties. The Liquidators have entered into a litigation funding agreement with PLF Services Ltd (PLF) in respect of the proceeding. The second defendant (Mr Boult) applies for a stay of the proceeding on the ground it is an abuse of process due to factors related to the identity of PLF as funder and the terms of the funding arrangement.
Background
[2] The Liquidators are the liquidators of Stonewood Homes Ltd (in rec and in liq) (SHL), Stonewood Homes New Zealand Ltd (in rec and in liq) (SHNZL) and Holmfirth Group Limited (in rec and in liq) (HGL) (together, the Companies). The Companies were part of the Stonewood Homes group. SHL carried on business as a residential home builder. SHNZL carried on business as the franchisor of residential home building systems. HGL was the ultimate holding company of SHL and SHNZL.
[3] The defendants were directors of the Companies at relevant times. Mr Boult has since October 2016 also been the Mayor of the Queenstown Lakes District Council.
[4] In 2016, the Stonewood Homes group collapsed with large sums owing to unsecured creditors. On 22 February 2016, the Companies were placed into receivership by ASB Bank. The Liquidators were appointed to HGL on 10 March 2016 and to SHL and SHNZL on 21 April 2016.
[5] The Liquidators believe SHL and SHNZL became insolvent no later than 30 June 2014 and 31 July 2014 respectively and that the defendants allowed them to trade for around 20 months while insolvent during which period their financial positions deteriorated by many millions of dollars. They allege breaches of directors’ duties under ss 131, 135 and 137 of the Companies Act 1993 and seek orders the defendants contribute to the assets of the Companies for the benefit of the creditors. There are also causes of action founded on s 161 of the Companies Act seeking to recover remuneration paid to Mr Boult. It is not necessary for the purposes of this
application to consider the merits of the Liquidators’ claims and Mr Boult did not engage directly with them. I proceed on the basis that the claims are arguable but subject to genuine challenge.
[6] Around late February 2016 when the Companies were in receivership, Jeremy Johnson (Mr Johnson), a lawyer with Wynn Williams, approached Christopher Meehan (Mr Meehan) of Winton Capital Ltd (Winton) to gauge his interest in funding claims against the directors. Upon the appointment of the Liquidators, Mr Johnson put Mr Cain and Mr Meehan in contact with each other on 17 May 2016. Mr Cain deposes the Liquidators believe there are good claims to be brought against the directors, but there was no money to do so and the creditors were not willing to provide funding. Mr Cain also had discussions with other potential funders.
[7] On 14 December 2016, PLF and the Companies entered into a litigation funding agreement (the funding agreement). The funding agreement was amended on 19 November 2018.
[8] Under the funding agreement, PLF agrees to provide the Companies with investigative, management and funding services to assist them to investigate and pursue claims and proceedings. The Companies undertake to professionally and diligently prosecute proceedings which the parties have agreed will be undertaken and use best endeavours to minimise costs. They also agree to instruct an Expert Team selected by PLF. The Expert Team includes lawyers, expert witnesses and other professional advisers. PLF agrees to pay Project Costs which include court costs, legal fees, witness and investigator fees, security for costs, and adverse costs orders. The payment of Project Costs is in the form of a loan which becomes repayable when the Companies receive a Resolution Sum pursuant to a settlement or a successful outcome in litigation. The Companies are to pay PLF a Services Fee which it is entitled to following receipt by the Companies of a Resolution Sum in connection with any claim. The Services Fee is:
(a)Reimbursement of the Project Costs (the first tranche);
(b)80% of the Resolution Sum until PLF has received the greater of the first tranche or $300,000; and
(c)20% of the balance.
[9] This proceeding was commenced on 31 July 2018. Mr Boult then applied to obtain details of the identity of the “real funder” behind PLF1 and disclosure of the terms of the funding agreement.2
[10] PLF is ultimately funded by Winton. Mr Meehan and his wife are directors of Winton. Winton and its related entities are regularly involved in land development projects and seek consents and administrative decisions from the Queenstown Lakes District Council (the Council).
[11] Mr Boult argues this proceeding is an abuse of process and relies on the following three bases:
(a)the funding of litigation by Winton, an entity controlled by Mr Meehan, against him raises serious public policy issues because:
(i)the evidence supports the inference that Winton’s motives for funding the litigation are problematic and risk being employed improperly;
(ii)the funding risks effecting actual pressure on him and Council officers in carrying out their public responsibilities; and
(iii)the funding creates a significant risk of public perception of pressure being effected on him and Council officers, compromising their ability to freely act in discharge of their public responsibilities;
1 Cain v Mettrick [2019] NZHC 802, [2019] NZAR 668.
2 Cain v Mettrick [2019] NZHC 2756.
(b)the terms of the funding agreement are without justification contrary to the policies underpinning the law of champerty and maintenance; and
(c)the funding arrangement amounts to an impermissible assignment of a bare cause of action.
The legal context and the issues
Rule 15.1
[12]Rule 15.1 of the High Court Rules 2016 relevantly provides:
(1) The court may strike out all or part of a pleading if it –
…
(d) is otherwise an abuse of the process of the court.
…
(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
The burden
[13] Mr Boult has the burden of establishing that grounds exist for a stay. The burden is a heavy one. The court is loath to stay a proceeding when there is a genuine and viable cause of action, as is the case here.3
Waterhouse v Contractors Bonding Ltd
[14] Waterhouse v Contractors Bonding Ltd is the leading authority on third party litigation funding.4 The Supreme Court considered the extent to which it should exercise a supervisory jurisdiction over litigation funding agreements, specifically in the circumstance where funding is provided by a third party with no prior interest in the proceeding, whose remuneration is tied to the success of the proceeding and/or
3 Moevao v Department of Labour [1980] 1 NZLR 464 (CA) at 470-471; Fostif Pty Ltd v Campbells Cash and Carry Pty Ltd [2005] NSWCA 83, 63 NSWLR 203; Goldsmith v Sperrings Ltd [1977] 1 WLR 478 at 498 (CA).
4 Waterhouse v Contractors Bonding Ltd [2013] NZSC 89, [2014] 1 NZLR 91.
who can exercise control over the conduct of the proceeding.5 That is the circumstance in this case.
[15] The relevant principles to be taken from Waterhouse were summarised by the Court of Appeal in PricewaterhouseCoopers v Walker as follows:6
[14] The context for this stay application is sufficiently established by the 2013 judgment of the Supreme Court in Waterhouse v Contractors Bonding Ltd. The Court took a cautiously permissive stance toward litigation funding, refusing to intervene at the defendant’s instance for the funding arrangement’s unfairness as between plaintiff and funder, or the funder’s right to withdraw funding, or the absence of an indemnity for costs the plaintiff might have to pay, or the conferring of a degree of control commensurate with the funder’s investment in the litigation. The case is authority for the following propositions:
(a) The courts do not regulate litigation funding, although a supervisory role in representative actions was not precluded. However, a court may exercise jurisdiction to stay for abuse of process on traditional grounds, or when the arrangement effectively assigns the cause of action in circumstances where that is impermissible.
(b) Subject to certain exceptions, it remains the law that a bare assignment of a cause of action in tort or other personal actions is not permissible in New Zealand.
(c) When considering whether a funding arrangement is in substance a bare assignment of a cause of action a court should consider the arrangement as a whole, including the funder’s degree of control and share of profits.
(d) The role of the lawyers acting may be relevant in the inquiry into a funding arrangement. Here the Court instanced a representative action in which the plaintiff’s lawyers reported to the funder and in addition to their usual fees took an undisclosed success fee from the funder, conflicting with their duty to act only in their lay clients’ interests. These features exacerbated the majority’s concern that the funder, which had referred plaintiffs to the lawyers, was trafficking in litigation.
(e) The traditional categories of abusive proceedings include those that deceive the court, are fictitious, or a mere sham, those that use the process of the court in an unfair or dishonest way or for some ulterior or improper purpose or in an improper way, those that are manifestly groundless, without foundation or serve no useful purpose, and those that are vexatious or oppressive.
5 At [24].
6 PricewaterhouseCoopers v Walker [2016] NZCA 338 at [14].
The issues
[16] The issues are whether the funding arrangement between PLF and the Companies is an abuse of process:
(a)on traditional grounds; and/or
(b)as effectively an assignment of a cause of action in circumstances where such an assignment is impermissible.
[17] If the funding arrangement is an abuse of process the court must also consider whether it is appropriate to grant a stay.
[18] Counsels’ arguments proceeded on the basis that Mr Meehan is in actual control of PLF and Winton and his purposes/motives (such as they are) may be imputed to them.
First ground – motive and purpose; perception and effect
Abuse of process
[19] The court has inherent power to stay proceedings that are an abuse of process. The power is exercised when the procedure of the court is misused in a manner which is manifestly unfair to a party to the litigation before it or would otherwise bring the administration of justice into disrepute.7 The categories of abuse of process are not closed. That does not mean any conduct of a party or non-party in relation to judicial proceedings is an abuse of process simply if it can be characterised as in some sense unfair to a party.8
[20] The recognised categories of case that will attract the court’s intervention on abuse of process grounds are: 9
7 Hunter v Chief Constable of the West Midlands Police [1982] AC 529 (HL) at 536 cited in
Waterhouse v Contractors Bonding Ltd, above n 4, at [30].
8 Waterhouse v Contractors Bonding Ltd, above n 4, at [32] citing Jeffery & Kautauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43.
9 At [31] citing Jeffery & Kautauskas Pty Ltd v SST Consulting Pty Ltd, above n 8 at [28].
(a)proceedings which involve a deception on the court, or those which are fictitious or constitute a mere sham;
(b)proceedings where the process of the court is not being fairly or honestly used but is employed for some ulterior or improper purpose or in an improper way;
(c)proceedings which are manifestly groundless or without foundation or which serve no useful purpose; and
(d)multiple or successive proceedings which cause or are likely to cause improper vexation or oppression.
The ground Mr Boult relies upon
[21] Mr Boult argues this proceeding is employed for some ulterior or improper purpose or in an improper way. Mr Galbraith submits it is open to the court to find Mr Meehan has a vendetta against Mr Boult and intended to interfere in his election as Mayor for a collateral purpose of influencing Council activity in respect to Mr Meehan’s commercial interests. The evidence relied upon concerning these “problematic” motives/purposes is contained in the affidavits of Celia Crosbie (Ms Crosbie), Mr Boult and Mr Meehan.
Ms Crosbie’s evidence
[22] Ms Crosbie is a public relations consultant and journalist. On 17 September 2016, she met with another journalist, Aimee Wilson (Ms Wilson), and was told by Ms Wilson that she was being paid by Mr Meehan to investigate Mr Boult and had signed a confidentiality agreement. Ms Wilson also said Mr Meehan had a personal vendetta against Mr Boult but did not outline what it was. Ms Wilson was considering going public with her story on Mr Boult.
Mr Boult’s evidence
[23] Mr Boult deposes that Winton has never before been a litigation funder in any normal sense and the funding of this litigation is inconsistent with its business model.
[24] He received several phone calls from Ms Wilson and she told him she was writing for Fairfax Media and asked questions about his involvement with the Stonewood Group and his intention to stand for Mayor. The day before he announced his intention to seek election, Ms Wilson sent him an email containing statements about his involvement with the Stonewood Group and other businesses. She asked if he thought he was an appropriate person to stand for Mayor. She sent emails about the same matters to parties Mr Boult was associated with. He made a complaint to the Police about what he considered was an attempt to pressure him to withdraw his candidacy, but no charges were laid.
[25] At about that time, he spoke to Ms Crosbie who told him of her conversation with Ms Wilson. He has also heard casual comments from business people around Queenstown Mr Meehan has a vendetta against him. He has met Mr Meehan, briefly and only once, but he was involved with the Friends of Lake Hayes Society (Friends of Lake Hayes) in opposition to Mr Meehan’s intensive residential subdivision near Lake Hayes. Mr Meehan made several applications for permission for this subdivision and the objections on behalf of the Friends of Lake Hayes were written by Mr Boult and submitted in his name. He considers this opposition was a significant factor in the applications being turned down.
Mr Meehan’s evidence
[26] Winton specialises in managing and acquiring distressed assets and property developments. Winton had followed Mr Boult’s business ventures, long before he was involved in local politics, to identify business opportunities. It had previously attempted to purchase defaulting first-ranking debt over a development Mr Boult was associated with. He does not know Mr Boult personally and does not have a vendetta against him. He would prefer that Mr Boult was not the Mayor because he believes he does not have a solid business track record.
[27] It is common for Winton to receive objections to its applications for resource consents and to engage with objectors to obtain those consents. Winton engaged constructively with the Friends of Lake Hayes and there is now approval in place for a hotel, a conference centre and associated infrastructure at Lake Hayes.
[28] Winton is funding this litigation for a commercial return on its investment. Winton has not previously been involved in litigation funding of this kind but has looked into such opportunities. Much of Winton’s business concerns distressed property developments involving ancillary litigation. The Liquidators’ litigation rights are distressed assets which create a business opportunity for Winton. This funding is no different to the multitude of other projects that Winton is involved in, save that there are no underlying land assets involved.
[29] Ms Wilson was engaged under a research agreement dated 13 June 2016 to research Mr Boult’s business background. Ms Wilson conducted an investigation that went beyond the intended scope and was not what Winton had paid for.
[30] The funding agreement was entered into by PLF to provide anonymity for Winton. He wanted to avoid allegations of favoured treatment by the Council for Winton-related entities and equally to prevent Mr Boult negatively influencing consent applications to the Council. The planning and consents process can be contentious and those not in favour of development will look to undermine it. He does not understand how Winton would gain favoured treatment from the Council. Applications by Winton for plan changes or resource consents are processed by Council staff and ultimate decisions upon them do not usually involve Mr Boult. Council practice is to refer planning matters to be determined by Commissioners external to the Council. Every planning application of any significance ends up being publicly notified and determined by Commissioners or the Environment Court.
When does an ulterior motive amount to an abuse of process?
[31] The institution of legal proceedings with an ulterior motive will only constitute an abuse of process where they are being used to achieve a collateral advantage beyond what the law offers, or the proceedings are conducted, not so as to vindicate a right,
but to cause the defendant problems of expense, harassment, commercial prejudice or the like going beyond those ordinarily encountered in properly conducted litigation.10 A plaintiff’s purpose must be shown to be “not that which the law by granting a remedy offers to fulfil, but one which the law does not recognise as a legitimate use of the remedy sought”.11 Where a plaintiff has multiple purposes for bringing an action, including some that might be condemned as a collateral advantage, it will be sufficient that one of those purposes is legitimate.12 There is authority that where a plaintiff’s action is funded, the funder’s purposes and motivations will not be attributed to the plaintiff.13
[32] Broxton v McClelland concerned an application to strike out libel proceedings commenced by the plaintiff against a former co-worker of a currency exchange provider, Chequepoint.14 The action was funded by Chequepoint whose objective, it was assumed for the purposes of the application, was the defendant’s financial ruin. The defendant argued that in a maintained action the court should focus on the funder’s purpose in determining whether the proceeding was an abuse. The court refused to strike out the action. The manner in which the proceeding was conducted had not been criticised. Neither the plaintiff nor the funder were seeking an impermissible collateral advantage. A plaintiff is entitled to seek the defendant’s financial ruin if that will be the consequence of properly prosecuting a legitimate claim.15 In relation to whether the motives of a funder were to be imputed to the plaintiff, Simon Brown LJ stated:16
… I for my part would not think it right to allow the maintainer’s thinking to infect what would otherwise be the plaintiff’s lawful purpose….
… I cannot see why, given that the plaintiff is lawfully entitled to accept the maintainer’s financial support for her action, she should be vulnerable to an attack, however well-directed, against the maintainer’s personal motivation. She surely cannot be worse off than if she were conducting the proceedings unaided, perhaps in person.
10 Broxton v McClelland [1995] EMLR 485 at 497-498, Williams v Spautz (1992) 174 CLR 509 at 526; Goldsmith v Sperrings Ltd, above n 3 at 503.
11 Goldsmith v Sperrings Ltd, above n 3, at 499 citing In re Majory [1955] Ch 600 at 623.
12 Goldsmith v Sperrings Ltd, above n 3, at 503 and JSC BTA Bank v Ablyazov [2011] EWHC 1136 (Comm), [2011] 1 WLR 2996 at [22].
13 Broxton v McClelland, above n 10, at 498.
14 At 498.
15 At 498.
16 At 498.
[33] Here, the Liquidators are pursuing genuine causes of action to obtain compensation on behalf of the Companies. They do not seek any advantage beyond that which the law allows. There is no criticism of the manner the proceeding has been conducted (apart from the issue of funding). The Liquidators and PLF have a common commercial interest in seeking the payment of compensation. It is from the success of the proceeding, or a settlement, that PLF will receive the Services Fee.
[34] For reasons I shall shortly set out, I find that Mr Meehan does not have any problematic motives as alleged. His purpose in funding this litigation is to make a profit. If, contrary to that view, Mr Meehan has a subordinate purpose that may be achieved as a by-product of the litigation, that is not an abuse of process, nor can such purpose be imputed to the Liquidators to taint this proceeding.
Mr Meehan’s motives
[35] Mr Boult relies upon several matters as evidence of Mr Meehan’s problematic motives. First, there is Ms Crosbie’s evidence that Ms Wilson told her that Mr Meehan had a personal vendetta against Mr Boult. He says business people in Queenstown have said the same. This evidence is hearsay. Ms Wilson has not filed an affidavit. Mr Meehan deposes he does not have a vendetta against Mr Boult. No application was made to cross-examine him. I accept Mr Meehan’s evidence which is corroborated by Mr Cain who says Mr Meehan has never expressed any ulterior motive for providing funding.
[36] Mr Galbraith emphasised that Ms Wilson corresponded directly with Mr Boult challenging his suitability as Mayor just days after her engagement by Winton. Ms Wilson was contracted to provide research and investigative services pursuant to an agreement that, I understand, has been disclosed. This research was undertaken because Mr Meehan was considering providing the funding. That seems reasonable and prudent. In contacting Mr Boult directly, Ms Wilson appears to have been pursuing her own interests.
[37] The next matter is Mr Meehan’s candid opinion of Mr Boult’s unsuitability for public office. This is based on his understanding of Mr Boult’s involvement with
failed commercial enterprises and not evidence of animus. There is no direct evidence of any animosity shown towards Mr Boult by Mr Meehan.
[38] It is suggested Mr Boult’s involvement with the Friends of Lake Hayes in opposition to the Lake Hayes development provides a plausible basis for a vendetta. This is mere surmise. In support, it is said Winton had investigated Mr Boult in February 2016, which closely followed Mr Boult’s opposition to the development and coincided with Mr Boult’s Mayoral campaign. Winton has been involved in many land development projects. Such objections are common-place and Winton worked cooperatively with the Friends of Lake Hayes and obtained its consent. I do not accept that it is plausible Mr Meehan would involve himself in expensive, uncertain and complex litigation as a result of such a matter. It is the case that enquiries concerning Mr Boult were made internally by Winton in February 2016. This coincided with Mr Johnson’s approach to Mr Meehan and was before Mr Boult announced he was standing for Mayor.
[39] Next it is said that PLF is a new company set up to hide Winton’s identity,17 and this is Winton’s first and only litigation funding venture. Importantly, Mr Meehan did not seek out the opportunity to provide funding but was approached by Mr Johnson. Mr Meehan wanted to keep Winton’s involvement confidential due to commercial considerations. This is Winton’s first foray into litigation funding of this type, but it has considered doing so before and providing such funding is congruous with its business model.
[40] The evidence is circumstantial, contains speculation, rumour and inadmissible hearsay.18 I cannot draw inferences against Mr Meehan on the basis of such unsatisfactory evidence. Even if the circumstances as outlined were considered “odd”, as Mr Galbraith submits, Mr Boult has not satisfied me Mr Meehan is pursuing a vendetta or has any purpose in funding the litigation other than to earn a profit on investment.
17 Cain v Mettrick, above n 1, at [31].
18 Evidence Act 2006, s 20 and High Court Rules 2016, r 7.30.
Perception and effect
[41] Mr Boult argues Winton’s funding engages public policy concerns the court should not countenance. The argument is, Winton will continue to make applications for resource consents and have administrative dealings with the Council. Its involvement in funding this litigation may compromise Mr Boult and Council officers in their ability to deal with Winton’s developments and interests and may give rise to a perception that the funding arrangement is influencing Council decisions or actions. These risks are heightened because some of the Winton’s developments are locally controversial. Mr Galbraith refers to Mr Meehan’s evidence that he believed it desirable to conceal Winton’s association with PLF and that Winton’s applications have been treated less positively and processing times have increased. This latter assertion is, Mr Galbraith submits, indicative of the risk associated with the funding arrangement.
[42] The submission is not founded on any authority. Mr Galbraith says this case is unlike any other. He argues the court’s focus should be on whether the funding arrangement has a tendency contrary to public policy. I consider such an approach was rejected in Waterhouse. There, the Supreme Court said a test for assessing whether litigation funding arrangements effectively amount to an assignment formulated on general public policy concerns is highly uncertain.19 It rejected the public policy test favoured in Giles v Thompson of “wanton and officious intermeddling with the disputes of others”.20
[43] Cases that will attract the court’s intervention on abuse of process grounds are concerned with misuse of the court’s processes, manifest unfairness and conduct that brings the administration of justice into disrepute. None of these factors are engaged by the argument that is advanced. If accepted, it would, potentially at least, deny the Liquidators of their right to access the court because of undefined and doubtful public policy concerns.
19 Waterhouse v Contractors Bonding Ltd, above n 4, at [58]-[59] citing Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41, (2006) 229 CLR 386 at [85]-[86] per Gummow, Hayne and Crennan JJ.
20 Giles v Thompson [1994] 1 AC 142 (HL) at 164.
[44] The suggestion the funding may compromise Mr Boult and Council staff in the discharge of their duties, or, be perceived to do so is largely conjecture. Unsurprisingly, Mr Boult says he would not be influenced to act unprofessionally in respect of Mr Meehan and “Council staff act professionally and would never be influenced”.
[45] Local authorities must observe statutory performance and governance principles.21 By convention Council officers remain independent of elected members and act impartially in giving advice and information to the Council and the public. Local authorities must adopt codes of conduct for members which emphasise ethical behaviour and the avoidance of conflicts of interest.22 The Council has such a code. Applications for resource consents, plan changes and the like are commonly dealt with by independent Commissioners, who are experts in resource management matters, or by the Environment Court.23 Significant applications are often notified allowing for public participation and transparency in the processes dealing with them.24 Decisions not to notify such applications are commonly subject to review in the High Court.25 Ironically, given Mr Galbraith’s submission, the more controversial an application the more likely it is that it will be subject to notification and public scrutiny.
[46] I do not see how, in these circumstances, Council staff would be compromised by the funding arrangement. If there is a risk Council staff may be influenced in such circumstances, it is for the Council to manage that risk; it is not a reason for the courts to close their doors to genuine claims. I also do not see that any fair-minded reasonably informed member of the public would perceive the funding would influence Council decisions either for or against Winton’s interests.
21 Local Government Act 2002, s 14; Kenneth Palmer Local Authorities Law in New Zealand
(Brookers Ltd, Wellington, 2012) at 22.
22 Local Government Act 2002, sch 7, cl 15(1), (2) and (5).
23 Auckland Council v Auckland Council [2018] NZEnvC 56, [2019] NZRMA 218, Marche Ltd v Auckland Council [2016] NZHC 145, [2016] NZRMA 139. See also Ceri Warnock and Maree Baker-Galloway Focus on Resource Management Law (LexisNexis, Wellington, 2015) at 49.
24 Resource Management Act 1991, s 95A either because the effects will be more than minor or because special circumstances exist.
25 Discount Brands Ltd v Westfield (New Zealand) Ltd [2005] NZSC 17, [2005] 2 NZLR 597; NZ Southern Rivers Society Inc v Gore District Council [2020] NZHC 1996; Aotearoa Water Action Inc v Canterbury Regional Council [2020] NZHC 1625.
[47] Mr Meehan says that since Mr Boult became aware of Winton’s involvement as the funder of this litigation Winton’s applications have been treated less positively by the Council and processing times have increased. This is a challenge to the integrity of the Council for which no supporting evidence is provided. It is in conflict with Mr Meehan’s evidence that Mr Boult could not influence Council decisions. I do not accept his evidence in this regard.
Second and third grounds – assignment of a bare cause of action?
The approach of the court
[48] Mr Boult’s second and third grounds raise the question whether the funding arrangement amounts to an impermissible assignment of the Liquidators’ bare causes of action.
[49] As noted earlier, the court does not have a role in gauging the fairness of the bargain between a funder and plaintiff.26 The court will have regard to the funding arrangements as a whole, including the level of control able to be exercised by the funder and the profit share of the funder. The role of the lawyers acting may also be relevant.27 Any consideration of control should be linked to potential legal control and not potential de facto control of the litigation.28 Some measure of control by a funder is inevitable to enable a litigation funder to protect its investment. Not to allow sufficient control may reduce unmeritorious claims, but at the expense of denying access to the courts for legitimate claims.29
Mr Price’s evidence
[50] I have had regard to the expert opinion evidence of Stuart Price (Mr Price), as to the form of standard litigation funding agreements in use in Australia and New Zealand and his concerns with the terms of the funding agreement. I found his evidence to be helpful, subject to the reservations that his experience is largely in
26 Waterhouse v Contractors Bonding Ltd, above n 4, at [48] citing Campbell’s Cash & Carry Pty Ltd v Fostif Pty Ltd, above n 19, at [92].
27 Waterhouse v Contractors Bonding Ltd, above n 4, at [57].
28 At [47].
29 At [46].
Australia and evidence about practises and standard terms in the litigation funding market should not determine the law.
PricewaterhouseCoopers v Walker
[51] I have had regard also to PricewaterhouseCoopers v Walker.30 The facts of that case were unlike the present and do not justify recounting. Mr Galbraith relies particularly upon a dissenting judgment of Elias CJ. She would not have accepted the concession accepted by the majority that the litigation funding agreement in question was not contrary to public policy.31 She considered the litigation funding agreement in detail and concluded there was scope for the view it amounted to the transfer of a bare cause of action for profit and was champertous.32 I accept Mr Colson’s submission that the court should approach Elias CJ’s conclusions with caution as they were provisional.33 However, her views command respect and illumine issues arising in this case and I have considered them.
Excessive control
[52] Mr Boult contends the level of control PLF exercises over the litigation goes well beyond what is reasonable to protect its investment. The matters that follow are relied upon.
[53] Under cl 3.2 of the funding agreement, the Companies must obtain PLF’s approval to any significant expenditure. This requirement is subject to exceptions and, most importantly, prior approval is not required for the costs of the Expert Team (cl 3.3). The fees and expenses of the Expert Team are likely to represent the greatest cost in any litigation. Clause 3.2 appears to have little practical significance in terms of the control PLF can exercise over the litigation.
[54] Under cls 6.1 and 6.3, the Companies appoint the Expert Team, instruct the Expert Team and retain the right to make all significant or strategic decisions in respect
30 PricewaterhouseCoopers v Walker [2017] NZSC 151, [2018] 1 NZLR 735 at [54].
31 At [114].
32 At [134].
33 At [100].
of any litigation. However, the Expert Team is selected by PLF and the Companies agree not to change the Expert Team without PLF’s approval (cl 6.2). Furthermore, PLF must be consulted about significant or strategic decisions (cl 6.4). Importantly, significant or strategic decisions do not include settlement or discontinuance decisions (cl 6.3). PLF is entitled to liaise directly with the Expert Team and obtain copies of all communications from the Expert Team (cl 6.5). Mr Price says that it is unusual that a funder would have unilateral control over the appointment of the Expert Team and disputes over appointments would ordinarily be resolved by a dispute resolution mechanism.
[55] I consider settlement and discontinuance decisions later. For the time-being they can be set aside. With that qualification, I do not consider that PLF’s control over the Expert Team goes beyond what is reasonable. It must be expected that PLF would be involved in the choice of the Expert Team and, in particular, in relation to the selection of the lawyers. Here, the lawyers are named in the funding agreement and are of high calibre. The choice of lawyers were agreed to by the Companies at the outset. The Companies had independent advice on the terms of the funding agreement which, it would be expected, includes advice as to the suitability of the lawyers. The Companies have not had to accept lawyers who are not of their choosing. Importantly, it is the Companies that make all significant and strategic decisions (other than settlement and discontinuance decisions) and the obligation to consult with PLF does not abrogate that right. Disputes are to be decided by an independent adjudicator (cl 13). The dispute resolution clause is broad and applies to “every dispute arising under or in connection with this agreement”. The decision of the adjudicator is binding on the parties (cl 13.1(e)).
[56] Under cl 7.4(e), the lawyers are to provide written confirmation they owe a duty of care in relation to advice and material produced by them directly to PLF. I do not accept Mr Price’s view that this creates a conflict of interest. The funding agreement records that the Companies and PLF share mutual interests (cl 12.1). It is not uncommon for parties who share mutual interests to be represented by the same lawyers. This is reflected in Mr Price’s evidence that regulatory principles in Australia require a funder to have procedures to resolve such conflicts. If a conflict does arise that is most likely to be when settlement is being considered. In such circumstances
the lawyers must manage that conflict in accordance with conduct and client care rules.34 Here, the lawyers are a highly regarded commercial law firm and a Queen’s Counsel. The court can be confident that they are alive to any possibility of abuse of PLF’s position and of conflicts arising. I agree with Mr Colson’s submission that this clause makes commercial sense by providing PLF with a direct remedy against the lawyers. I do not consider it significant in terms of the control of the litigation.
[57] Clauses 10 and 11 deal with appeals from judgments both in favour and not in favour of the Companies. There is an immediate difficulty with these clauses because there is no definition of the terms “in favour” and “not in favour”. Experience confirms that the parties’ understandings of these terms may well differ giving rise to doubt as to the application of the clauses.
[58] Clause 10 is concerned with appeals by a defendant against a judgment in favour of the Companies. There appears to be a lacuna here. This clause does not deal with PLF’s obligation to provide funding where PLF and the Companies do not agree that such an appeal should be defended. However, given their mutual interest in maintaining such a judgment, it would appear unlikely that they would not agree to defend an appeal against a decision in the Companies’ favour.
[59] Clause 11 concerns appeals against judgments that are not in favour of the Companies. If the Companies wish to appeal such a decision but PLF does not, the Companies must either decide the appeal will not be pursued or pay-out PLF on the basis of what it would have received under the terms of the decision, following which the Companies may continue with the appeal and the agreement will terminate (cl 11.3). Mr Colson submits this clause simply allows PLF to decide whether or not to fund an appeal. If it does not, he says, the Companies can find another funder and continue with the appeal. He argues that terms upon which funding can be withdrawn are not relevant to whether there is an abuse of process.35 Mr Price says, as the Companies are unlikely to have funds available the requirement to pay-out PLF means its view will carry the day. Relevant to this are cls 8.3 and 8.10 of the funding
34 Campbell’s Cash & Carry Pty Ltd v Fostif Pty Ltd, above n 19; Regina (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions (No 8) [2002] EWCA Civ 932, [2003] QB 381 at [90].
35 Waterhouse v Contractors Bonding Ltd, above n 4, at [54]-[55].
agreement. Clause 8.3 provides that if no Resolution occurs or any Resolution Sum is insufficient to meet all the Project Costs “the [Companies] will not have to repay any of the Project Costs”. It goes on to provide that any amount received by the Companies in relation to the claims at any time (including any tax refund) must be applied to payment of the Project Costs. Clause 8.10 is perhaps more significant and provides that “[n]otwithstanding anything else in this agreement… the [Companies] will not be required to pay an amount to PLF that is, or may be, in excess of the Resolution Sum actually received by or on behalf of the [Companies]”. Clause 8.10 appears to take precedence over cl 11.3. It is not clear how a judgment that is not in favour of the Companies will result in the receipt by the Companies of a Resolution Sum. However, if a Resolution Sum is received the effect of cl 8.10 is that the Companies will not be required to pay PLF an amount in excess of that sum. If no Resolution Sum is received, the Companies would not be obliged to make any payment to PLF.
[60] Clause 12 deals with settlement and discontinuance decisions. Under cl 12.3, if PLF wishes to make or accept a settlement offer the Companies must either approve the settlement offer or pay-out PLF the equivalent it would have received if such settlement was entered into and the funding agreement terminates (cl 12.3(b)(ii)). Mr Price says that the obligation to pay-out PLF will effectively leave the Companies with no choice but to settle in accordance with PLF’s wishes. Mr Colson argues this is not correct and the Companies are free to convince another funder that there is commercial merit in the pursuit of the litigation, and the Companies can continue. I consider that Mr Price’s concern is significant. There is real prejudice to the Companies, who are unlikely to have funds available, if they are required to immediately pay-out PLF on the basis of unacceptable settlement terms. I would expect it would be difficult to attract another funder, particularly if the funding required includes an amount owed to PLF. There is merit in Mr Price’s view that this would force the Companies to settle as PLF wishes. However, this does not take account of cl 8.10, to which I have already referred. If cl 8.10 takes precedence over cl 12.3(b)(ii), no Resolution Sum would be received by the Companies and nothing payable to PLF.
[61] The relationship between cls 8.3 and 8.10 and cls 11 and 12 is plainly significant in terms of the degree of control PLF can exercise over the litigation, but this was not addressed in counsels’ submissions.
[62] Clauses 12.4 deals with the circumstance where the Companies wish to make or accept a settlement offer. If PLF does not wish to do so it may provide the Companies with the same return on the same terms as if the settlement had been entered into following which the Companies are obliged to carry on the proceeding. The Companies may not thereafter make or accept a settlement offer and will receive a reduced share of any excess proceeds (cl 12.4(b)(ii)). Under this clause the Companies are required to continue with litigation they would not otherwise pursue. The litigation would be conducted substantially by and for the benefit of PLF. It is entitled to treat the litigation as an investment to be maintained to maximise its financial return.36 The Companies’ interests become subservient to those of PLF. This amounts to an assignment of bare causes of action for profit.
[63] Under cl 15.1, PLF may terminate the funding agreement without cause on five working days’ notice, whereas the Companies may terminate only for cause under cl 16. Mr Price deposes that PLF’s unfettered termination rights, allowing it to avoid liability for some adverse costs (cl 15.4(b)), gives it effective control over the conduct of litigation as it shifts the balance of control further towards PLF than would generally be allowed. In Waterhouse, the Supreme Court rejected a submission that the terms upon which funding can be withdrawn is a relevant factor in deciding if there is an abuse of process.37 PLF’s generous termination rights reflect the unequal risk the parties assume under the funding agreement and, in any event, it is not for the court to assess the fairness of the bargain struck by the parties.
[64] Finally, Mr Galbraith raises concern about the Services Fee payable by the Companies to PLF. There is no evidence before me as to how the Services Fee compares with the market. The parties have addressed this issue in cl 2, where the Companies acknowledge that the Services Fee represents a commercial rate of return on the funding provided and that they have been advised to seek legal advice (which
36 PricewaterhouseCoopers v Walker, above n 30, at [131].
37 Waterhouse v Contractors Bonding Ltd, above n 4 at [54]-[55].
was obtained) and have independently assessed the agreement. The Companies were, and are, satisfied that the terms are fair and appropriate having regard to the potential claims, expected timeframes for resolution of the claims and the inherent risks of litigation. In PricewaterhouseCoopers v Walker the Court of Appeal was not prepared to draw any inference that the amount the funder would receive was too much relative to its investment in the litigation without knowing what would be recovered and what would be paid to recover it.38 I am in the same position.
Conclusions
[65] In my view cl 12.4 amounts to an assignment of the Companies’ bare causes of action for profit. I have raised concern about clauses 10 and 11 which may also have that effect subject to the application of cls 8.3 and 8.10.
Was the assignment permissible?
[66] Having found that the funding agreement is an effective assignment to PLF of the Companies’ bare causes, I must consider whether this was permissible under an established exception to the policies behind the torts of maintenance and champerty. The exception the Liquidators rely upon is an assignment of a cause of action by a liquidator for the benefit of unsecured creditors.39
[67] Mr Colson argues if the funding arrangement is characterised as an assignment of a bare cause of action this can be managed by the Liquidators making an application under s 260A of the Companies Act 1993 which provides as follows:
Liquidator may assign right to sue under this Act
(1)The liquidator may, if the Court has first approved it, assign any right to sue that is conferred on the liquidator by this Act.
(2)The application for approval may be—
(a) made by the liquidator or the person to whom it is proposed to assign the right to sue; and
(b) opposed by a person who is a defendant to the liquidator’s action, if already begun, or a proposed defendant.
38 PricewaterhouseCoopers v Walker, above n 6, at [31].
39 PricewaterhouseCoopers v Walker, above n 30, at [65].
[68] The latitude extended to liquidators to assign a personal cause of action not otherwise allowed by the general law on public policy grounds is generally understood to be based on the statutory right to sell the property of the company.40 That power is contained in s 260(2) and sch 6 para (g) of the Companies Act. The exception does not extend to statutory causes of action conferred on a liquidator as an incident of his or her office.41
[69] Mr Colson disavowed any reliance upon the Liquidators’ general powers under s 260. Section s 260A allows a liquidator to assign a right to sue that is conferred on the liquidator by the Companies Act only if the court gives its approval. Such approval has not been obtained and does not assist the Liquidators.
[70] Mr Colson submits the court could now grant approval under s 260A as there would be little basis to refuse such an application. I do not agree. There is no such application before me and I do not accept that I have heard everything that would be relevant to it.
Should a stay be ordered?
[71] The Liquidators contend no stay should be ordered on two further grounds. First, they argue it is not appropriate to order a stay if there is other relief to address the wrong.42 The wrong is said to be Mr Meehan’s supposed vendetta. Second, it is said that to grant a stay in a case such as this would impose an additional hurdle upon those wishing to make civil claims against public officials, would create an effective immunity for such officials and have a chilling effect.
[72] These submissions assume findings of fact that have not been made. The wrong here is that the funding arrangement, contrary to law, confers on PLF control of this litigation that goes beyond what is reasonable to protect its investment. Nothing
40 Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80 at 86. In PricewaterhouseCoopers v Walker, above n 30, at [107], Elias CJ expressed reservations that the liquidator’s statutory power to sell property operates as unqualified exception which permits assignment of a personal cause of action not otherwise allowed by the general law.
41 Greg Tolhurst The Assignment of Contractual Rights (2nd ed, Hart Publishing, Oxford, 2016) at 213; Re Oasis Merchandising Services Ltd [1998] Ch 170 and Stone v Angus [1994] 2 NZLR 202.
42 Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd, above n 19, at [81]-[82].
has been submitted that suggests this can be adequately addressed other than by the making of an order for stay.
[73] I note, Mr Boult does not seek a permanent stay. His position is a stay should remain in force so long as PLF is funding the litigation and/or while the present funding arrangement remains in place. I have rejected the argument that the funding arrangement is an abuse of process due to Winton’s involvement. Any stay order is required only while the impugned aspects of the funding arrangement remain in place and does mean that the Liquidators’ claims cannot be pursued. The funding agreement may be varied, PLF may obtain an approval under s 260A of the Companies Act or fresh funding arrangements may be made.
Non-publication orders
[74] All parties seek non-publication orders under r 7.35 High Court Rules. That rule provides:
Publication about hearing in chambers
Particulars of the hearing in chambers of an interlocutory application or of the decision or both (including the reasons for the decision) may be published unless a Judge or Registrar, exercising jurisdiction in chambers, otherwise directs.
[75] The Supreme Court in Erceg v Erceg dealt with an application to prevent publication of matters referred to in oral argument.43 It was recognised the courts have the power to make non-publication orders that are binding on third parties.44 These powers have been exercised in civil cases.45 In dismissing the application before it, the court first considered the principle of open justice as “fundamental to the common law system of civil and criminal justice”.46 The courts will not make orders because the publicity may be embarrassing or unwelcome. Orders of non-publication may be justified where, for instance, there is a need to protect trade secrets or commercially sensitive information. The party seeking the order must show specific adverse
43 Erceg v Erceg [2016] NZSC 135, [2017] 1 NZLR 310.
44 Seimer v Solicitor General [2013] NZSC 68, [2013] NZLR 441 at [148].
45 Clark v Attorney General (2004) 17 PRNZ 554 (CA); McIntosh v Fisk [2015] NZCA 247, [2015] NZAR 1189.
46 Erceg v Erceg, above n 43, at [2].
consequences that are sufficient to justify an exception to a fundamental principle of open justice and this standard is high.47
[76] In A Ltd v C Ltd, Mander J was asked to continue suppression of names and identifying particulars of parties in a settled proceeding.48 He articulated the following principles:
(a)A court must have a sound reason for granting suppression: the question is whether the circumstances justify an exception to open justice. 49
(b)Extraordinary circumstances are not required but the threshold remains high. A balance must be struck between open justice and the interest of the party seeking suppression.50
(c)This balancing exercise will be case dependent, for example where a party is a professional practitioner facing charges in disciplinary proceedings there will be legitimate public interest in disclosure. In contrast there is limited legitimate public interest in knowing names of parties where the information is intensely private, personal or commercially sensitive.51
(d)The centrality of the information sought to be suppressed to the understanding of the nature of the proceedings is an important consideration. If the information is required to understand the court’s decision it is less likely to be suppressed.52
(e)It is more likely suppression will be granted on an interim basis at an interlocutory stage as the court at trial will have better idea of the
47 At [13].
48 A Ltd v C Ltd [2018] NZHC 3433.
49 At [10].
50 At [11].
51 At [12].
52 At [12].
particular details and so will better be able to assess the need for permanent suppression.53
The Liquidators’ application
[77]The Liquidators seek non-publication of:
(a)the name of Winton;
(b)the names of Mr and Mrs Meehan; and
(c)the business model of Winton.
[78] The grounds advanced in support of the application are first, that the disclosure of Winton as the funder was made pursuant to court order.54 It is therefore subject to implied undertakings as to use to which the information may be put and it has previously been held to allow the media to view that information would be unfair.55 Second, whilst there is a public interest in whether the motives of the funder warrant a stay of this proceeding, there is no public interest in the fact the funder is Winton. The public interest can be satisfied by referring to Winton generically rather than by name. Third, there is a repetition of Mr Meehan’s concerns about possible public perception that Winton is obtaining favourable treatment from the Council and that, conversely, Winton is being treated unfavourably since knowledge of Winton’s involvement has already been made known.
[79] In support of the application for non-publication of the names of Mr and Mrs Meehan, it is said their involvement with Winton is well-known and publication of their names would inevitably identify Winton as the funder.
[80] In respect to Winton’s business model, it is submitted the information is confidential, provided only for context and Winton could suffer commercial damage
53 At [13].
54 Cain v Mettrick, above n 1.
55 Cain v Mettrick [2019] NZHC 2563 [19].
if it was disclosed. There is also adverse comment made in the evidence about people who are not parties to this proceeding.
[81] None of these grounds justify suppressing the names of Winton and Mr and Mrs Meehan. While the identity of Winton was disclosed as a result of a court order and thereby subject to an implied undertaking as to its use by the other parties or their legal advisors, that is not what is in issue here.56 Any expressions of this court that disclosure would be unfair were made in the context of applications to access the court file. Such applications have been made and determined under the Senior Courts (Access to Court Documents) Rules 2017 which are not directly applicable.
[82] There are important reasons why an order for non-publication of Winton’s name should not be made. First, Mr Meehan has taken an active role in opposing this application and has filed two substantial affidavits and I cannot see any reason he should be treated differently than any other witness. Second, I consider that the identity of both Winton and Mr Meehan is essential to an understanding of the application and the reasons for this judgment. Third, counsel maintains Winton has been “treated more unfavourably since knowledge of Winton’s involvement was made known to Mr Boult”. I have rejected that submission but in circumstances where the integrity of the Council has been put in issue in such a direct fashion full disclosure is the appropriate means to stamp out any suggestion of unethical behavior. Finally, as Mr. Meehan has acknowledged, Winton’s identity as the funder has been made known to several people. The making of a non-publication order would serve little purpose. I am not prepared to order the non-publication of Winton’s name and it must also follow that there is no basis to order non-publication of the names of Mr and Mrs Meehan either.
[83] As far as evidence concerning Winton’s business model and people who are not parties to this proceeding are concerned, this judgment contains only such information as is essential to an understanding of the issues and the decision. I do not consider any information has been included about Winton’s business model or third parties that is commercially sensitive or damaging to Winton or those third parties.
56 Dotcom v Attorney General [2014] NZHC 1343 at [49]
The defendants’ application
[84] Mr Boult and Mr Mettrick seek non-publication of evidence about factual matters relevant to the substantive claims against them because if the evidence were included in this judgment the media would obtain and report an unbalanced perspective of the merits. As the judgment makes no reference to that evidence, there is no need for a non-publication order to be made.
Result
[85] For the reasons given, there shall be a stay of this proceeding. The Liquidators may apply on notice to lift the stay once satisfactory steps have been taken to address the matters in paragraph [65].
[86] I reserve leave to apply for further directions in respect of any matters arising from this judgment.
[87] I reserve costs noting that in relation to the arguments advanced both parties have obtained a degree of success. In these circumstances, it may be appropriate that costs lie where they fall.57 That is not, however, a final view and if the parties cannot agree on costs they may submit memoranda within 21 days.
O G Paulsen Associate Judge
Solicitors:
Wynn Williams, Christchurch Buddle Findlay, Christchurch White Fox & Jones, Christchurch
57 Emmons Development v Mitsui Sumitomo Insurance Company Ltd [2020] NZHC 932.
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