Clarke v Forsyth Barr Ltd
[2017] NZHC 842
•1 May 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2016-404-2996 [2017] NZHC 842
BETWEEN MATTHEW SIMON CLARKE
Applicant
AND
FORSYTH BARR LTD Respondent
Hearing: 27 April 2017 Appearances:
Mr Clarke in person
P Churchman QC for DefendantJudgment:
1 May 2017
JUDGMENT OF DUFFY J
This judgment was delivered by me on 1 May 2017 at 1.00 pm pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors/Counsel:
Forsyth Barr Ltd, Wellington
Peter Churchman QC, Barrister, Wellington
CLARKE v FORSYTH BARR LTD [2017] NZHC 842 [1 May 2017]
[1] The plaintiff, Matthew Clarke, seeks summary judgment against the defendant company (Forsyth Barr). It opposes that application and has also applied to strike out the claim against it.
[2] At the commencement of the hearing it was accepted by both parties that the reference in the proceedings to Forsyth Barr Group Ltd is incorrect. The appropriate party is Forsyth Barr Ltd. By consent, I amended the proceedings to cite the appropriate party, Forsyth Barr Ltd, with Forsyth Barr Group Ltd being struck out.
Background
Overview
[3] Forsyth Barr is a company that offers professional investment and portfolio services.
[4] Forsyth Barr entered into an individual employment agreement with Mr Clarke on 7 November 2014. Mr Clarke was employed as an investment advisor. He was previously employed in a similar role at Craig’s Investment Partners for
10 years.
[5] Difficulties arose in the employment relationship early on. In 2015, Mr Clarke was subject to a disciplinary investigation by his employer. As a result of this investigation, Forsyth Barr and Mr Clarke entered into an exit agreement on
2 September 2015, and Mr Clarke resigned from his employment with Forsyth Barr. The exit agreement waived the restraint of trade in Mr Clarke’s employment agreement, but provided for a fee to be paid if a client closed its account with Forsyth Barr and transferred to Mr Clarke after he resigned. It also stated that neither party would disparage the other or take any action that would reasonably be expected to harm the other party or their reputation. Clause 6 of the exit agreement stated:
You agree that this agreement is in full and final settlement of all claims that you may have against Forsyth Barr Ltd or its directors and employees.
[6] On 24 November 2016, Mr Clarke filed a statement of claim in which he sought damages “in the sum range of $2,991,937 – $3,497,062 (including GST)”, as well as damages caused by the distress of losing access to his children. He also filed an interlocutory application for summary judgment, on the grounds that his statement of claim is unanswerable and Forsyth Barr has no genuine or arguable defence to the allegations contained in it.
[7] Forsyth Barr filed a notice of opposition to Mr Clarke’s application for summary judgment, and filed an interlocutory application to strike out Mr Clarke’s statement of claim and dismiss the proceeding. The grounds listed in its strike-out application are, in summary:
(a) The statement of claim names the wrong defendant: it alleges only one cause of action, namely breach of contract, and the named defendant is not a party to the relevant contract(s). This irregularity was cured by the substitution of the correct defendant.
(b)The statement of claim is likely to cause delay or prejudice because it is unnecessarily prolix and pleads purely evidentiary material to an excessive degree.
(c) The proceeding is outside the jurisdiction of the High Court because it concerns an employment relationship.
(d)Issue estoppel, in the form of the exit agreement (in particular c1 6) provides a complete defence to Mr Clarke’s cause of action in breach of contract.
Statement of claim
[8] Mr Clarke’s statement of claim contains a lengthy discussion of his relationship with Forsyth Barr and the events that have taken place between them. It is difficult to discern a clear timeline from the statement of claim; nor is it clear what causes of action Mr Clarke relies upon. I briefly set out the history as he describes it in his statement of claim.
[9] Mr Clarke begins by noting that he was working on an exit agreement with Craig’s Investment Partners, his former employer, at the time he approached Forsyth Barr in September 2014. The cut-off date for signing the exit agreement with Craig’s Investment Partners was 7 November 2014. Mr Clarke felt some pressure to sign a new employment agreement before signing the exit agreement with Craig’s Investment Partners. He therefore entered into negotiations with Forsyth Barr.
[10] Mr Clarke contends that, in negotiations prior to signing the employment agreement, he and Forsyth Barr verbally agreed on 11 conditions These included a provision for an exit agreement that would replicate Mr Clarke’s exit agreement with Craig’s Investment Partners in the event that the employment relationship did not work out. This part of his employment with Forsyth Barr was particularly important to Mr Clarke, as it would allow him to take his clients with him on leaving the company. However, the 11 conditions also included promises that would facilitate a smooth transfer to Forsyth Barr for Mr Clarke and his clients, including for example transfer of his mobile number and data (including his client contacts); remote access so Mr Clarke could work from home; web access for clients; and no increase in fees for clients.
[11] He contends that Forsyth Barr deliberately did not provide Mr Clarke with a draft employment agreement until the evening of 6 November 2014, placing him under some pressure as the cut-off date for signing the exit agreement with Craig’s Investment Partners was the following day. The draft agreement provided to him on
6 November 2014 was a standard form agreement, and did not include any of the 11 conditions that the parties had agreed upon in their pre-contractual negotiations. Mr Clarke nevertheless signed the agreement on 7 November 2014, noting that he was unhappy with its terms. Neil Paviour-Smith, managing director of Forsyth Barr, responded by saying they would “work out the fine print later”. Mr Clarke says that this never happened.
[12] Instead, Mr Clarke alleges that Forsyth Barr went on to breach all 11 conditions mutually agreed upon in pre-contractual discussions. These breaches have hindered him in earning an income, as his clients have become frustrated and
much of his time was spent trying to organise matters such as the transfer of mobile data and remote access.
[13] When Mr Clarke raised issues with his employer, he was reprimanded for having an aggressive attitude. On 15 May 2015, Forsyth Barr invoked a clause in his employment agreement to request him to undergo a medical assessment. In July
2015, when Mr Clarke did not confirm that medical appointment by the time required, Forsyth Barr suspended him.
[14] On 9 July 2015, Mr Clarke was required to attend a disciplinary meeting. He says he was accused of taking drugs and being mentally unstable, with unpredictable behaviour in the workplace. Mr Clarke stated that he no longer wanted to work at Forsyth Barr and sought to invoke the exit clause that was verbally agreed upon in pre-contractual negotiations. Mr Paviour-Smith agreed to allow him to build an “exit path”.
[15] The parties subsequently entered into exit negotiations. During that time Mr Clarke says Forsyth Barr repeatedly threatened him with dismissal for serious misconduct as he had allegedly breached confidentiality obligations. Two further disciplinary meetings were held. Under considerable pressure, Mr Clarke signed an exit agreement on 2 September 2015 and resigned from Forsyth Barr. He believed this was the only course of action he could take, referring to his professional obligation to put his clients first. This meant he could not undertake a protracted legal battle during which he would not have access to his clients.
[16] Mr Clarke disputes the amount he was paid during his time at Forsyth Barr. He claims he was underpaid, and also argues that during the time he was dealing with disciplinary meetings and exit negotiations, all his time was occupied and he was prevented from earning brokerage income. He therefore claims for loss of income during his time at Forsyth Barr, citing also the breach of the 11 conditions agreed upon in pre-contractual negotiations.
[17] After he left Forsyth Barr, Mr Clarke attempted to start a new business to which he could transfer his clients, Rhino Capital Ltd (Rhino Capital). He alleges
that Forsyth Barr purposely and maliciously hindered him in establishing his own business, meaning he has now lost all of his clients. Forsyth Barr failed to act on multiple transfer requests from his clients, and caused him difficulty in finding a custodian for Rhino Capital by suggesting that legal proceedings were pending against Rhino Capital. Mr Clarke therefore claims for the loss of his business, and values the business based on its annual projected income before interest and tax.
[18] The total loss that Mr Clarke claims he has suffered as a result of Forsyth
Barr’s actions (loss of income and loss of his business) are “in the sum range of
$2,991,937 – $3,497,062 (including GST)”. He also seeks damages for the emotional distress of losing access to his children. He claims that Forsyth Barr harmed his relationship with his family by communicating lies about him during his time of employment, for example that he had a problematic attitude at work and was possibly using drugs. As a result he has not had contact with his mother, step-father, ex-wife and children for almost two years.
Application for summary judgment
[19] Mr Clarke applied for summary judgment on 24 November 2016. He submits that his statement of claim is unanswerable and that Forsyth Barr has no genuine or arguable defence to his statement of claim.
[20] In his submissions in support of his application for summary judgment, Mr Clarke simply reiterates much of the narrative he set out in his statement of claim.
[21] In response, Forsyth Barr refers to r 12.2(1) of the High Court Rules and submits that in order for summary judgment to be granted, the applicant must satisfy the Court that the respondent has no defence to its statement of claim. It says that Mr Clarke has not met this standard. Forsyth Barr has two clear defences:
(a) The Court lacks jurisdiction to hear the matter, as it is an employment dispute over which the Employment Relations Authority has exclusive jurisdiction.
(b)The exit agreement entered into by Mr Clarke and Forsyth Barr creates an issue estoppel, as it states that the agreement is in full and final settlement of all claims that Mr Clarke may have against Forsyth Barr.
(i)Forsyth Barr denies that Mr Clarke entered into this agreement under duress. They submit that the stringent test for duress requires a threat or improper pressure that overbears the contractor’s free will and displaces their judgment, inducing them to enter the contract and leaving them with no reasonable alternative. That test is not met here. Mr Clarke’s professional obligations to act in his client’s best interests did not, on any reasonable construction, leave him with no alternative but to sign the exit agreement.
[22] In light of these defences, Forsyth Barr says that the application for summary judgment should be dismissed.
Application for strike-out
[23] Forsyth Barr applies to strike out Mr Clarke’s statement of claim.
[24] First, it says that the statement of claim is unnecessarily prolix and written in emotive language. It breaches r 5.14 of the High Court Rules, which requires each paragraph to be confined to a single topic. It contains a number of irrelevant statements and commentary, including a lengthy summary of alleged events in a level of detail that is inappropriate for a statement of claim.
[25] Second, it says that Mr Clarke errs as to jurisdiction, seeking to have an employment dispute heard in the High Court. Section 161 of the Employment Relations Act 2000 provides that the Employment Relations Authority has exclusive jurisdiction in relation to employment disputes, including matters related to breach of an employment agreement, disputes as to the interpretation of employment agreements, and disputes about whether or not the person is an employee.
[26] Forsyth Barr says that it and Mr Clarke were parties to an individual employment agreement. There can be no argument that Mr Clarke was a contractor, and in any event determining whether the relationship was one of employment is a matter within the exclusive jurisdiction of the Employment Relations Authority.
[27] Forsyth Barr acknowledges that the High Court may have jurisdiction to hear a claim for breach of the exit agreement. It is not clear, however, that Mr Clarke does allege a breach of the exit agreement: any references to breach of the exit agreement are vague at best, and do not state which clause Forsyth Barr has breached. Rather, it appears that his allegations relate to breach of the employment agreement, in respect of which the High Court has no jurisdiction.
[28] Fourth, an issue estoppel arises as cl 6 of the exit agreement states that the exit agreement is in full and final settlement of all claims that the applicant may have against Forsyth Barr. Forsyth Barr refers to Skelton v Howcroft, in which Sargisson AJ held that “an unanswerable defence of issue estoppel” arose in respect of a similar clause in a settlement agreement.1 Forsyth Barr repeats its submissions above that it is untenable to say Mr Clarke entered into the exit agreement under duress.
[29] In summary, therefore, Forsyth Barr argues that the Court should strike out the claim and dismiss the proceedings as they have no prospect of success.
[30] Mr Clarke does not directly respond to the points made by Forsyth Barr; instead, he simply reiterates many of the allegations in his statement of claim. He does however make the following arguments:
(a) The employment agreement was a ‘sham’ contract: although it resembled an individual employment agreement, it may also have been designed for some other purpose, i.e. to define client “ownership”.
(b) Taking the relevant legal tests into account, Mr Clarke’s relationship
to Forsyth Barr resembled that of a contractor, not an employee.
Analysis
Summary judgment
[31] Rule 12.2 of the High Court Rules provides for summary judgment:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
(2) The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[32] The onus is on Mr Clarke to satisfy the Court, to the civil standard of a balance of probabilities, that Forsyth Barr has no defence to the cause(s) of action contained in his statement of claim. The notion of “no defence” has been variously described as “the absence of any real question to be tried”; “no bona fide defence”; “no reasonable ground of defence”; or “no fairly arguable defence”.2
[33] I consider that Mr Clarke has not discharged this onus. Forsyth Barr has two arguable defences to his cause(s) of action, neither of which Mr Clarke rebuts in his submissions. I discuss these defences in more detail in relation to strike out below.
Strike-out
[34] Rule 15.1 of the High Court Rules provides for strike out:
15.1 Dismissing or staying all or part of proceeding
(1) The court may strike out all or part of a pleading if it—
(a) discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b) is likely to cause prejudice or delay; or
(c) is frivolous or vexatious; or
(d) is otherwise an abuse of the process of the court.
(2) If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(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.
(4) This rule does not affect the court’s inherent jurisdiction.
[35] In relation to r 15.1(1)(a) (no reasonably arguable cause of action), the Supreme Court has commented that the jurisdiction is to be “sparingly employed”, and is not suitable for use except where the action “is so clearly untenable that it cannot succeed”.3
[36] In relation to r 15.1(1)(b) (prejudice or delay), the Court of Appeal has held that:4
Pleadings which can cause delay include those that are prolix; are scandalous and irrelevant; plead purely evidential matters; or are unintelligible.
[37] I consider that Mr Clarke’s statement of claim is likely to cause prejudice or delay. It contains an extended discussion of the facts (continuing for 75 pages), much of which is irrelevant or overly detailed. The Court of Appeal’s observations in Commissioner of Inland Revenue v Chesterfields Preschools Ltd apply equally in
this case:5
The large tracts of factual information pleaded do not identify the main issues but obfuscate them by adding to the prolix nature of the document and making it burdensome to read. A major concern is the excessive pleading of matters of evidence.
[38] Mr Clarke’s statement of claim breaches r 5.17 of the High Court Rules, which states that “[distinct] causes of action and distinct grounds of defence, founded on separate and distinct facts, must if possible be stated separately and
clearly”. Mr Clarke’s discussion of the facts is interspersed with numerous
3 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [31].
4 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2
NZLR 679 at [89].
5 Commissioner of Inland Revenue v Chesterfields Preschools Ltd, above n 4, at [91].
unconnected allegations such as “the plaintiff was never paid correctly while employed at [Forsyth Barr]”; and Forsyth Barr made “misrepresentations” to him before the signing of the employment agreement. It is therefore difficult to discern exactly what causes of action he relies upon.
[39] It can broadly be inferred that Mr Clarke alleges the following causes of action:
(a) Forsyth Barr failed to act in good faith towards him during their employment relationship.6
(b) Forsyth Barr breached the parties’ alleged verbal agreement
containing 11 conditions of employment.
(c) Forsyth Barr breached the exit agreement in its conduct after his employment ended, in that it failed to act on his client’s transfer requests and warned others who were considering dealing with Mr Clarke that it had legal proceedings pending against him.
[40] The first two causes of action listed above cannot succeed in the High Court. Both are fundamentally employment disputes over which the Employment Relations Authority has exclusive jurisdiction, under s 161 of the Employment Relations Act
2000:
161 Jurisdiction
(1) The Authority has exclusive jurisdiction to make determinations about employment relationship problems generally, including—
(a) disputes about the interpretation, application, or operation of an employment agreement:
(b) matters related to a breach of an employment agreement:
(c) matters about whether a person is an employee (not being matters arising on an application under section 6(5)):
…
6 See Employment Relations Act 2000, s 4(1).
(r) any other action (being an action that is not directly within the jurisdiction of the court) arising from or related to the employment relationship or related to the interpretation of this Act (other than an action founded on tort):
…
[41] The High Court therefore has no jurisdiction in respect of the first two causes of action. Those causes of actions accordingly have no prospect of success in the High Court and can be struck out.
[42] A potential third cause of action, namely breach of the exit agreement, is not an employment dispute as it arose after the employment relationship had ended. Thus this Court would have jurisdiction to determine it.
[43] Forsyth Barr sought to raise cl 6 of the exit agreement as establishing a complete issue estoppel in respect of all claims that Mr Clarke may have against Forsyth Barr. Such a clause cannot protect Forsyth Barr against subsequent breaches of the exit agreement, after that agreement was signed. Insofar as Forsyth Barr relies on cl 6 to protect against earlier claims, for example those arising out of the employment agreement, it is not appropriate for me to comment given the jurisdictional issues mentioned above.
[44] In any event, whatever the status of cl 6 of the exit agreement, I consider that there are problems with this third potential cause of action as presently pleaded. Mr Clarke does not explicitly raise this cause of action in his statement of claim. He does not state which provisions of the exit agreement were breached and relate those provisions to the conduct of Forsyth Barr Ltd. Substantial reading between the lines is required to identify this as a possible cause of action. I consider that as currently pleaded, any implicit allegations that can be identified are too obscure for the Court to require the defendant to answer to them. To this extent the pleading is oppressive. Accordingly, the statement of claim as presently pleaded is struck out.
Result
[45] The plaintiff’s application for summary judgment is dismissed.
[46] The defendant’s application for strike out of the statement of claim is allowed. The statement of claim is struck out.
[47] Leave is reserved to file memoranda on costs.
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