Compass Communications Limited v Infopump Interactive Media Limited HC Auckland CP 153-sd00

[2001] NZHC 449

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY CP. 153-sd00

BETWEEN COMPASS COMMUNICATIONS LIMITED
Plaintiff

AND INFOPUMP INTERACTIVE MEDIA LIMITED (IN LIQUIDATION)
First Defendant

AND PHILLIP JAMES COCKFIELD
Second Defendant

AND PAUL NEVILLE OWEN-LOWE
Third Defendant

Hearing: 2 March 2001

Counsel: MA Tapsell for the plaintiff/respondent
AM Swan for the first defendant/applicant

Judgment: 6 June 2001

(RESERVED) JUDGMENT OF MASTER KENNEDY-GRANT

Introduction

[1] The plaintiff is a telecommunications service provider. Prior to being placed into liquidation, the first defendant designed and implemented computer software and systems. In May 1999 the plaintiff and the first defendant entered into a contract for the first defendant to provide certain services in relation to the plaintiff’s business.

[2] The plaintiff alleges that the first defendant failed to perform its obligations under that contract. In this proceeding it sues the first defendant for damages for breach of contract. It also sues the second and third defendants, as the shareholders and directors of the first defendant, for breach of the Fair Trading Act 1986 in that they allegedly made a variety of representations regarding the capabilities of the first defendant and the extent to which it had developed the systems to which the contract related and they knew or ought to have known facts which rendered the representations untrue.

[3] The defendants deny the plaintiff’s allegations and the first defendant contends that its inability successfully to complete its obligations under the contract was due to the plaintiff’s own breach of contract. The first defendant alleges that it has suffered loss as a result of the plaintiff’s breach of contract and has counterclaimed to recover that loss.

[4] The matter comes before the Court on this occasion because the first defendant has applied for leave to join the shareholders and directors of the plaintiff and two of the plaintiff’s employees as counterclaim defendants. The draft statement of defence and amended counterclaim discloses that:

[a] The first defendant intends to claim a breach of the Fair Trading Act 1986 on the part of the plaintiff; and

[b] Wishes to make similar claims against each of the four proposed counterclaim defendants.

[5] The first defendant’s application for joinder of the counterclaim defendants is opposed by the plaintiff.

The proposed pleadings

[6] The first defendant’s proposed pleading alleges, so far as is relevant to the application for joinder:

[a] That the counterclaim first defendant (“Mr Hussona”) and counterclaim second defendant (“Mr Carter”) were at all material times shareholders and directors of the plaintiff and that Mr Carter was also at all material times Financial Controller of the plaintiff;

[b] That the counterclaim third defendant (“Mr Craies”) was at all material times the plaintiff’s Internet Project Manager;

[c] That the counterclaim fourth defendant (“Mr Coelho”) was at all material times the plaintiff’s Marketing Manager;

[d] That the first defendant and the plaintiff entered into the contract in question in May 1999 and that the contract contained the written terms set out in paragraph 35 of the proposed pleading and the oral terms set out in paragraph 36 of the proposed pleading;

[e] That shortly after the parties entered into the contract and the first defendant commenced the design and development of the system envisaged by the contract, the plaintiff appointed Mr Craies to act on its behalf during the course of the contract, which he did until January 2000, when the plaintiff appointed Mr Coelho to that position;

[f] That at all material times the plaintiff and the four counterclaim defendants were in trade;

[g] That (paragraph 54):

“In making the representations referred to in paragraph 36 above (in which paragraph they were alleged to have been oral terms of the contract of May 1999) and then failing to provide and/or perform those various matters . . ., the Plaintiff engaged in conduct . . . which was misleading and/or likely to mislead and deceive the first defendant in breach of s 9 of the Act”

[h] That either prior to the plaintiff entering into the contract of May 1999 and/or during the course of the contract, Messrs Hussona, Carter and Craies made the representations alleged in paragraphs 56, 58 and 60 respectively;

[i] That

“By making the representations [alleged to have been made by each of them] and then failing to ensure or arrange that the plaintiff provide and/or perform those various matters [each of Messrs Hussona, Carter and Craies]:

[i] engaged in conduct which was misleading or likely to mislead and deceive the first defendant, in breach of s 9 of the Act; and

[ii] aided, abetted, counselled, or procured or was directly or indirectly knowingly concerned in, or a party to, the contravention by the plaintiff of s 9 of the Act pursuant to s 43(1)(b) and (d) of the Act”

(paragraphs 57, 59 and 61);

[j] That on or about 28 January 2000, Mr Coelho made the representations alleged in paragraph 62 of the proposed pleadings to the first defendant;

[k] That by making those representations and then failing to ensure or arrange that the plaintiff provide and/or perform those various matters Mr Coelho breached the Fair Trading Act 1986 in the same way as is alleged against Messrs Hussona, Carter and Craies;

[l] “As a result of the breaches the first defendant has suffered a loss

Particulars

(A) The Plaintiff has failed or neglected to:

(i) pay the First Defendant the sum of $20,000 for additional work undertaken by the First Defendant as agreed on 22 October 1999; and

(ii) Reimburse the First Defendant in the sum of $5,062.50 being a connection fee (Internet Gateway) incurred by the First Defendant on behalf of the Plaintiff: and

(iii) Remunerate the First Defendant for $20,000 being the reasonable value of the additional work carried out by the First Defendant in February 2000:

(B) The First Defendant has lost expected profits, being:

(i) The anticipated sale price of a further channel within the developed Infopump Publishing System which had a market value as at February 2000 of $250,000:

(ii) The anticipated earnings relating to the production of advertisements by the First Defendant (clause 76 of the agreement) valued at $50,000.”

The plaintiff’s grounds for objection to joinder of the proposed counterclaim defendants

[7] Mr Tapsell, for the plaintiff, submits that the Court should not grant leave to join the proposed counterclaim defendants for the following reasons:

[a] That the proposed pleading does not disclose a cause of action against them for the following reasons:

[i] To make a representation as to a party’s intention to perform its obligations under a contract and then to fail to arrange or ensure that that party carries out those intentions does not amount to misleading and deceptive conduct unless, at the time of making the representations the person making it was aware that it was not the intention of the party in question to perform its obligations under the contract or had no proper grounds for believing that that party intended to perform its obligations;

[ii] There are no allegations of further representations after the original representations by the various proposed counterclaim defendants;

[iii] The proposed pleading does not contain allegations which would found an argument that the representations by the proposed counterclaim defendants were made in their personal capacities as opposed to in their capacities as employees of the plaintiff;

[iv] That the loss claimed (even if proved) is not attributable to the alleged breaches of the Fair Trading Act 1986 by the proposed counterclaim defendants;

[b] Even if the first ground relied on is not made out, leave should be denied because of:

[i] The delay in making the application for leave;

[ii] The inconsistency between the proposed pleading and the further particulars of the present counterclaim provided by the first defendant;

[iii] The absence of evidence to substantiate the claims of breaches of the Fair Trading Act 1986.

My findings: absence of a cause of action

[8] I accept Mr Tapsell’s submission that the proposed pleading does not disclose a cause of action against any of the proposed counterclaim defendants.

[9] I am of this view for the following reasons:

[a] There is no allegation in respect of any of the proposed counterclaim defendants that at the time that they made the representations alleged to have been made by them respectively the plaintiff did not have the capability to, and/or did not intend to, perform as represented;

[b] There is no allegation that at the time that they allegedly failed to ensure or arrange that the plaintiff would perform as previously represented by them they represented that they were taking steps to ensure or arrange that the plaintiff performed;

[c] There is no proper basis for an allegation that any of the alleged counterclaim defendants aided, abetted, counselled or procured or was directly or indirectly knowingly concerned in, or a party to, misleading and deceptive conduct by the plaintiff.

[10] I do not accept Mr Tapsell’s fourth ground for arguing that the proposed pleading discloses no cause of action, namely that the losses alleged are not attributable to the misleading and deceptive conduct alleged because, if, contrary to my findings in paragraph [9] of this judgment, there is a sufficient pleading of misleading and deceptive conduct against the proposed counterclaim defendants, then the losses pleaded are arguably as attributable to that conduct as to the plaintiff’s breach of contract.

My findings: exercise of the Court’s discretion

[11] Mr Tapsell, for the plaintiff, submits that, even if I find against the plaintiff on the ground that the proposed pleading does not disclose any cause of action, I should decline to grant leave for the joinder of the proposed counterclaim defendants in the exercise of the Court’s discretion. In support of this submission, he advances three arguments:

[a] The granting of leave is likely to unduly delay the plaintiff in obtaining its relief from the defendants;

[b] The first defendant’s proposed pleading is inconsistent, in particular respects, with the further particulars of the existing counterclaim;

[c] The first defendant has not adduced any evidence to substantiate its claim against the proposed counterclaim defendants.

[12] I accept Mr Tapsell’s third submission, namely that there is an absence of evidence to support the alleged claim against the proposed counterclaim defendants. In his submissions in support of this part of his argument, Mr Tapsell, for the plaintiff, referred to the judgments of Potter J in O’Sullivan v New Zealand Ostriches Ltd (High Court, Auckland, CP231/98, 10/3/00) and of myself in O’Malley v Webb (High Court, Auckland, CP597-sw99, 28/8/00) (while accepting that the second of these decisions is not directly on point because what was sought in that case was summary judgment).

[13] In O’Sullivan, ubi supra, one of the issues was whether that particular person owed the plaintiff a duty of care. Potter J declined to order joinder because she did not consider that the evidence offered to the Court in support of the application could support the cause of action alleged against the person in question.

[14] That seems to me to be the position in this case.

[15] I am not persuaded by the other grounds relied on by Mr Tapsell in this connection, namely the likelihood of the plaintiff being delayed in obtaining relief and the existence of inconsistencies between the proposed pleading and the further particulars provided to the existing pleading. While I accept, and apologise, for the delay that has occurred in the delivery of this judgment, there is no reason, given the close relationship between the plaintiff and the proposed counterclaim defendants, that there should be undue delay as a result of joinder of the proposed counterclaim defendants. Any inconsistencies could be made the matter of direction, if that was thought appropriate.

Orders

[16] In the light of the foregoing, I dismiss the first defendant’s application to join the proposed counterclaim defendants. I fix the costs of the application on a 2B basis, together with disbursements to be fixed.

[17] The first defendant is directed to file and serve its statement of defence to the plaintiff’s second amended statement of claim and any counterclaim that it may wish to make against the plaintiff within 14 days of the date of this judgment.

[18] The Registrar is to schedule a conference before me in Chambers outside normal Court hours on the first available date after 21 days from the date of this judgment.

[19] This judgment is signed at 8.48am on 6 June, 2001.