Edwards v I Grow New Zealand Limited
[2015] NZHC 2217
•15 September 2015
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV-2015-442-000033 [2015] NZHC 2217
IN THE MATTER of an application for transfer of
proceedings
UNDER
Section 45 of the District Courts Act 1947 and Rule 5.69 of the High Court Rules
BETWEEN
MARK EDWARDS First Applicant
REIGATE INVESTMENTS LIMITED Second Applicant
AND
I GROW NEW ZEALAND LIMITED Respondent
Hearing: 9 September 2015 Appearances:
A R Shaw for Applicants
M Tolhurst for RespondentJudgment:
15 September 2015
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] This is an application for an order under s 45 of the District Courts Act 1947 transferring to this Court a claim against them by the respondent, issued in the District Court at Nelson, and the counterclaim they have filed on that proceeding.
[2] The grounds on which the applicants rely are:
(a) in their counterclaim they seek orders requiring the respondent to return or transfer to them certain property, the value of which exceeds
the present jurisdictional limit of the District Court ($200,000); and
EDWARDS v I GROW NEW ZEALAND LIMITED [2015] NZHC 2217 [15 September 2015]
(b)they intend to join further parties to the current proceedings, claiming damages which also exceed the jurisdiction of the District Court.
[3] The respondents oppose the application, saying that the counterclaim does not exceed the jurisdictional limit of the District Court and, in any event, the applicants do not have any right to any property held by the respondent or any other party.
[4] An order was made on a without notice basis staying the District Court proceeding until further order of this Court. The respondents apply to set aside that order.
[5] Section 45 of the District Courts Act provides:
45 Transfer of proceedings where there is a counterclaim
(1) Where, in any proceeding commenced in a court, any counterclaim or set-off and counterclaim which involves matter beyond the jurisdiction of a court has been filed by any defendant, any party to the proceeding may, within such time as may be prescribed by the High Court Rules, apply to the High Court or a Judge thereof for an order that the whole proceedings, or the proceedings on the counterclaim or set-off and counterclaim, be transferred to the High Court.
(2) On any such application the High Court or Judge may, as it or he thinks fit, order either—
(a) that the whole proceedings be transferred to the High Court;
or
(b) that the whole proceedings be heard and determined in the court; or
(c) that the proceedings on the counterclaim or set-off and counterclaim be transferred to the High Court and that the proceedings on the plaintiff’s claim and the defence thereto other than the set-off (if any) be heard and determined in the court:
provided that, where an order is made under paragraph (c), and judgment on the claim is given for the plaintiff, execution thereon shall, unless the High Court or a Judge thereof at any time otherwise orders, be stayed until the proceedings transferred to the High Court have been determined.
(3) If no application is made under this section within the time prescribed as aforesaid, or if on such an application it is ordered that the whole proceedings be heard and determined in the court, the court shall have jurisdiction to hear and determine the whole proceedings, notwithstanding any enactment to the contrary.
(4) Where the High Court makes any order under the provisions of this section, the Registrar of the High Court shall send to the Registrar of the court a copy of the order so made.
[6] It is accepted that the approach this Court should take to an application under s 45 is accurately summarised by Penlington J in Essar (NZ) Ltd v The Spa and Pool Factory Ltd:1
The discretion is unfettered. I must determine what course is more just having regard to all the circumstances of this particular case.
[7] This case was applied in Stoupe v Nutrimetrics International (NZ) Ltd & Nutrimetics International Holdings Pty Ltd and in Cromwell Property Holdings and Development Ltd v Checketts McKay.2
[8] In Essar, the learned Judge identified a number of factors which he found to be relevant to the decision before him. These were the amount of the counterclaim, the nature and the extent of the matters in issue, the question of relative costs in each of the Courts, and the likely time for disposal of the case in each Court. His Honour also said that there may be other factors to be taken into account.3
[9] In Cromwell Property Holdings and Development Ltd v Checketts McKay, Master Venning observed that whilst the factors identified by Penlington J were considered by him to be appropriate in the case before him, the listed factors did not represent an exclusive list of issues which the Court might consider relevant to a
decision under s 45.4
1 Essar (NZ) Ltd v The Spa and Pool Factory Ltd HC Auckland M307/91, 15 March 1991 at 4.
2 Stoupe v Nutrimetrics International (NZ) Ltd & Nutrimetics International Holdings Pty Ltd (1997) 10 PRNZ 389 (HC); Cromwell Property Holdings and Development Ltd v Checketts McKay (1999) 13 PRNZ 709 (HC).
3 Essar (NZ) Ltd v The Spa and Pool Factory Ltd, above n 1, at 5-9.
4 Cromwell Property Holdings and Development Ltd v Checketts McKay, above n 2, at [19].
The claim and the counterclaim in the District Court
[10] In its claim in the District Court, the respondent claims repayment of the sum of $23,932.69 which is said to represent advances to the first applicant, who was said to be trading as the second applicant. It is said that the sums received by the first applicant were later recorded in a document, described as a loan agreement, which set out terms for repayments and interest. Both the first and second applicant are said to have become liable for repayment. It is said that the second applicant has acknowledged indebtedness by listing the sum claimed as a term liability in its financial statements.
[11] In the statement of defence to this claim, the applicants deny that the sums they received were advances, and, importantly for the present application, plead that the second applicant is owed no less than $22,640 for services and work performed by the second applicant for a predecessor company of the respondent, which they claim should be set off against any indebtedness that may be found.
[12] These allegations also form the basis of the third cause of action in the counterclaim filed by the applicants in the District Court proceeding. In the counterclaim there is a further claim in an unascertained amount for consultancy services said to have been supplied by the second applicant. Judgment against the respondent is sought accordingly.
[13] The first two causes of action in the counterclaim are considerably more complex. They concern the commercial relationship between the first and second applicants, Mr Ralph Shale, his wife, Mr D L Caselli, and two “I Grow” companies. The present respondent is referred to in the pleading as “IGROWNZ2”. This is a company formerly known as Shale and Associates Limited. Its name was changed in
2013. Prior to that there was another “I Grow” company, referred to in the pleading as “IGROWNZ1”. Mr Shale was at all material times a director of both companies, and Mr Caselli the director of “IGROWNZ1”.
[14] It is said that, in about April 2009, a company called Orica Vigor Venture Capital Ltd, China (Orica Vigor) began work on a proposed joint venture to build and operate a large-scale dairy project in northern China. It engaged IGROWNZ1 to
assist in scoping the feasibility study, business plan, and implementation for the joint venture. IGROWNZ1 entered an agreement with the second applicant that the latter would assist it in its involvement in the joint venture on the basis of receiving reasonable compensation for its services. The agreement between IGROWNZ1 and Orica Vigor provided for IGROWNZ1 to receive an equity stake in the joint venture of not less than 30 per cent. At about the same time, the second applicant agreed with IGROWNZ1 that it would continue to assist IGROWNZ1 in the joint venture and, in turn, would receive equity in it.
[15] It is said that Reigate performed its services under this agreement. In July
2011, the first applicant, Mr Caselli and Mr Shale on behalf of IGROWNZ1, agreed that Reigate would receive one-third of the shares that IGROWNZ1 would receive in terms of the joint venture. It was also agreed that another company, HZFT New Zealand Limited (HZFT), would be incorporated, and that company would hold on trust the interest Reigate was to receive in the joint venture. HZFT would have three million ordinary shares, and one-third of these would be appropriated to Reigate or its nominee.
[16] In August 2011, it was proposed that the parties to the joint venture would form a Chinese company to be registered as Heihe Zhongxing Dairy Co Limited (HZAH), that IGROWNZ1 would hold eight million shares in that company once incorporated, and that these shares would be transferred to HZFT at a certain point.
[17] It is then said that, without the knowledge or authority of the first applicant, the second applicant or Mr Caselli, Mr Shale signed a Companies Office consent form showing that all three million shares in HZFT were held by IGROWNZ1, and that HZFT was incorporated on that basis. Thereafter, the first and second applicants have demanded that the shares be transferred from IGROWNZ1 to the second applicant Reigate. In September 2011, HZAH was registered in China, with HZFT recorded as owning four million shares.
[18] Against those allegations, the first and second applicants then plead that there is an express trust whereby IGROWNZ1 is the trustee of one million shares in HZFT for the benefit of the first and second applicants, and that in breach of this trust
Mr Shale arranged to transfer one million shares each in HZFT to Mr Caselli, Mr Shale himself, and Mr Shale’s wife, Helen Potter. In April 2013 and January 2014, it is said that Ms Potter entered into an agreement to transfer the shares she received to IGROWNZ2, which is the present respondent. It is said that although the value of the shares is unknown to the applicants, they are believed to be worth not less than $1,500,000.
[19] The first cause of action which follows these pleadings is based on knowing receipt, and the second cause of action is based on constructive trust. On both causes of action a declaration is sought that the present respondent held these shares on trust for the applicants. Consequential orders are sought.
Discussion
[20] The applicants say that the counterclaim exceeds the civil jurisdiction of the District Court, which is $200,000. If the pleaded value of the shares in issue (no less than $1,500,000) is correct, the claim exceeds the limit by over sevenfold. The respondent, however, does not accept that the shares are worth that sum, it says they are worth a figure well less than $200,000, and the Court should not accept at face value the pleaded sum in issue.
[21] There is an obvious difficulty on an application of this kind, in this Court inquiring into the strength of the applicant’s assessed value of its claim. As Mr Shaw correctly pointed out, the applicants do not hold the shares, nor therefore records in relation to them, and, to value them accurately would require professional expertise based on discovered documents and, probably, other information provided or garnered by way of interrogatory, and considerable expenditure. Mr Tolhurst says that the Court cannot simply accept a claim at face value without at least being satisfied on the balance of probabilities that there is a justification for it.
[22] In my opinion, it is not for this Court on an application of this kind to decide whether a valid basis for a claim has been established. Except where there is an obvious flaw in a pleaded claim, or it is plainly apparent that there is an abuse of process, the Court should, in my view, accept the claim as pleaded (when forming a view under s 45).
[23] Even if that conclusion is wrong, there is sufficient material before the Court on this application to show that the shares in question may well have a value in the order of that pleaded. First, in August 2011, KPMG was engaged by Mr Shale and the respondent to provide guidance in connection with income derived by the respondent from services performed under a contract with an organisation called Fortune Link. Fortune Link is a funds management business located in China which, at that time, together with other parties was looking to establish the company which on later incorporation became HZFT. In a draft report, KPMG estimates that the value of the respondent’s future equity holding was thought to have increased to approximately $700,000. Although Mr Shale does not say that he provided this information, KPMG says that its understanding of the circumstances of the respondent is based on information provided by Mr Shale. It seems that this figure can therefore be attributed to him. Further, it is said by KPMG that the respondent understands that the value of the business, based on the capital raising which had just been completed, is approximately $34 million. As a result, the four per cent of the new company which was being issued to the respondent is worth, prima facie, approximately $1.4 million.
[24] I pause to observe that although I have referred in the above paragraph to the respondent, the report actually refers to IGNZ, which is the acronym used in the report for I Grow New Zealand Limited. At the time the report was prepared, this was IGROWNZ1 rather than the respondent. But as I understand the position, it is said that the respondent received one-third of the same parcel of shares from IGROWNZ1. For present purposes, the distinction between the companies is immaterial.
[25] On the basis therefore of the draft report, the value of the shares in issue in the counterclaim is well in excess of the District Court jurisdictional limit.
[26] Secondly, Mr Edwards produced an email from Howard Moore, a director of Taranaki Dairy Technologies Limited. That company owns 2.23 per cent of the total shares in HZAH. Mr Moore advised that it was planned to list HZAH on the share market, and, if that occurred, a 0.894 per cent share in the company, as held by HZFT, would be worth 17.88 million RMB, which equates to approximately
$NZ4.388 million. On that basis, one-third, as claimed in the present proceeding, would be worth approximately $1.463 million NZD. The float has not occurred so this assessment is presently speculative. It does indicate, however, that there are expectations among the directors that the company has a high worth. The exact value of the shares cannot be ascertained, but this is at least an indication of the shares having a value, if not at present, then potentially, well exceeding $200,000
NZD, the District Court jurisdiction limit.
[27] The evidence was criticised by Mr Tolhurst as hearsay. I accept that is correct. The Court may still admit hearsay evidence under the Evidence Act 2006.5
Given the aforementioned difficulties in obtaining a more accurate valuation of the shares, the fact that the maker of the statement is a shareholder with evident knowledge of the value of the shares, and the nature of this application, I admit the evidence whilst noting that it can only be taken as a guide to the approximate worth of the shares in question. Overall, the evidence on share value is, in my view, sufficient for the purposes of this interlocutory application.
[28] The second issue identified in the cases to which I have referred is the nature and extent of the matters in issue, whether of fact or law. It will be apparent from the brief summary I have given of the pleadings that this is a complicated commercial case which will take a considerable time to present in Court. Mr Shaw foreshadows that there will be further amendments to the pleadings, including the addition of further parties, and that relief will be sought which will in itself be outside the jurisdiction of the District Court. However, I take no account of those matters as, in my view, the pleadings must be assessed as they stand.
[29] In my view, the combined effects of the value of the property in issue on the counterclaim and the complexity of this case direct that the counterclaim must be tried in the High Court. Indeed, by the close of argument, Mr Tolhurst conceded the latter point, and emphasised in his submissions that his principal argument was that the claim itself should not be transferred to this Court. That is not a position which
was evident from the notice of opposition which he filed, his separate application to
5 Section 18 of the Evidence Act 2006 permits the Court to admit hearsay evidence if there is reasonable assurance that the evidence is reliable and the Court considers that undue expense or delay would be caused if the maker of the statement were required to be a witness.
lift the stay of the District Court proceeding, nor the voluminous affidavits which were filed in support of his client’s position. As far as I could ascertain, Mr Tolhurst’s remaining objection in relation to the counterclaim being transferred was that there was no jurisdiction to do so because the value of the counterclaim had not been sufficiently established. I find against him on that point.
[30] I turn therefore to the question of transfer of the District Court claim. On the face of the claim itself it appears to be a discrete issue, in the nature of collection of an established debt. But for one factor, I may have been inclined to leave the claim in the District Court, but I am persuaded that is not appropriate on review of the pleadings as a whole. The third cause of action in the counterclaim mirrors the pleaded defence that, arising from the relationship between the parties to this case and other companies, there are sums which must be offset against the claimed debt. Indeed, the claim itself is closely interwoven with the complicated factual issues which must be determined at trial. On balance therefore I am satisfied that the claim should also be moved to this Court.
[31] Finally, whilst the given factors have led to the decision on this application, counsel accepted that issues relating to the cost of the proceedings, and timing of trial, are balanced between the District Court and the High Court. They are not factors that have weighed in my decision one way or the other.
Outcome
[32] I order, pursuant to s 45 of the District Courts Act 1947, that the claim and counterclaim in District Court proceeding CIV-2014-042-76 be transferred to the High Court.
[33] As the applicants have been successful, the respondent will pay costs to them on a 2B basis with disbursements fixed by the Registrar.
Associate Judge Matthews
Solicitors:
C & F Legal Limited, Nelson
City Law, Auckland
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