Finewood Upholstery Ltd v Vaughan
[2017] NZHC 1679
•23 June 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2017-404-633 [2017] NZHC 1679
BETWEEN FINEWOOD UPHOLSTERY LIMITED
Plaintiff
AND
FLETCHER HEYWOOD VAUGHAN Defendant
Hearing: 23 June 2017 Counsel:
ZG Kennedy and MD Toulmin for plaintiff
DM Salmon for defendantJudgment:
23 June 2017
Reasons:
20 July 2017
REASONS FOR JUDGMENT OF FITZGERALD J [Granting leave to appeal interlocutory order]
This judgment was delivered by me on 20 July 2017 at 4 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: MinterEllisonRuddWatts, Auckland
LeeSalmonLong, Auckland
Finewood Upholstery Limited v Vaughan [2017] NZHC 1679 [20 July 2017]
Introduction
[1] The plaintiff (“Finewood”) commenced these proceedings against the defendant (“Mr Vaughan”) in April 2017. Finewood and Mr Vaughan were parties to an agreement concerning the design and manufacture of commercial furniture (“Agreement”). Mr Vaughan purported to terminate the Agreement in February this year. Finewood disputes the validity of that termination, hence these proceedings. Pending resolution of the proceedings, Finewood sought an interlocutory injunction preventing Mr Vaughan from taking any action inconsistent with the terms of the Agreement.
[2] By judgment dated 2 June 2017, I declined to grant the injunction.1 On
14 June 2017, Finewood applied for leave to appeal my judgment to the Court of Appeal. There is no dispute that, in light of s 56(3) of the Senior Courts Act 2016 (“Act”), leave is required.
[3] I heard Finewood’s application for leave to appeal on Friday, 23 June 2017. At the conclusion of that hearing, I delivered judgment granting leave to appeal. These are my reasons for doing so.
Background to judgment and application for leave to appeal
[4] The factual background to the present proceeding is fully set out in my judgment of 2 June 2017. It is not repeated here.
[5] The reasons why I declined Finewood’s application for an interim injunction
may be summarised as follows:
(a) While I found that there was a serious question to be tried on the merits (i.e. whether or not Mr Vaughan’s termination of the Agreement was valid), I did not consider there was any real prospect of Finewood obtaining the relief it sought at trial, namely specific
performance of the Agreement or in the alternative, a permanent
1 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1195.
injunction prohibiting Mr Vaughan from acting outside the Agreement in a manner contrary to its terms.
(b)This was against the backdrop of my finding that the Agreement was sufficiently analogous to a contract for personal services, in respect of which the courts are generally hesitant to grant specific performance, or the permanent prohibitory injunction sought by Finewood.
(c) The approach described at (b) above is particularly so where the evidence demonstrates that the parties no longer enjoy a workable relationship. I was satisfied on the evidence before me that the parties’ relationship has irretrievably broken down.
(d) The losses claimed by Finewood sounded in a remedy in damages.
And while the Agreement contains limitation and exclusion of liability provisions, I did not consider that those, in and of themselves, meant that damages were an inadequate remedy.
(e) I was not satisfied on the evidence before me that there was a substantial risk that Finewood would suffer losses of the type and quantum claimed in any event.
(f) Standing back, and considering the overall interests of justice, I was not satisfied that an interim injunction ought to be granted.
[6] The grounds upon which Finewood seeks leave to appeal may be summarised as follows:
(a) It is seriously arguable that the Court erred in principle in proceeding to determine whether it was likely that Finewood would obtain specific performance or a permanent injunction at trial. Finewood submits that I was not in a position to pre-determine the exercise of the trial Judge’s unfettered discretion as to whether or not to grant the
remedies sought, which could be materially influenced by factual findings made at trial.
(b)The Court erred in finding that the Agreement was analogous to a contract for personal services.
(c) The proposed appeal raises issues of importance to Finewood, namely the enforceability of the Agreement and its inability to recover damages in full for the losses suffered (as a consequence of the agreed limitations on damages contained in the Agreement itself).
(d)The proposed appeal raises issues of general or public importance justifying the delay caused by the appeal, including the appropriateness of interim relief in the context of contracts analogous to contracts for personal services; and the relevance of contractual exclusion and limitation of liability provisions to the assessment of the adequacy of damages.
[7] Mr Vaughan, not surprisingly, opposes leave to appeal being granted. His opposition may be summarised as follows:
(a) The Court did not err in its judgment on the interim injunction application.
(b)The law relating to the nature of personal service contracts (and the appropriateness of interim relief) is well established and does not give rise to any issues of general importance.
(c) Additional cost and delay will cause undue prejudice to Mr Vaughan, when the Court has already ruled that the balance of convenience favoured dismissing Finewood’s application for interim relief.
(d)Factual developments subsequent to my judgment of 2 June 2017 weigh against the granting of leave. Mr Vaughan has since committed himself to a contractual relationship with a third party manufacturer in
the United States which would, if an injunction is granted on appeal, put him in immediate breach of that contract.
Approach to application for leave to appeal
[8] Counsel informed me that this case appears to be the first consideration of an application for leave to appeal pursuant to s 56 of the Act. Mr Kennedy did, however, refer me to Dobson J’s decision in A v Minister of Internal Affairs, in which Dobson J considered such an application, though found that leave was not in fact required.2
[9] Dobson J nevertheless went on to consider whether he would have granted leave to appeal, had it been required. In that context, and as Mr Kennedy submitted on the present application, Dobson J observed that the following considerations would be relevant to any such application:
(a) A high threshold exists for the granting of leave. An allegation of error of law or fact is generally insufficient. An applicant should raise an arguable error.
(b)Leave should only be granted where the circumstances warrant incurring further delay.
(c) The alleged error should be of general or public importance that requires determination, or otherwise be of sufficient importance to the applicant to outweigh the lack of any general or precedential importance.
[10] Mr Kennedy submitted that these criteria are analogous to factors previously identified in relation to applications for leave to bring an appeal in the context of arbitrations conducted under the Arbitration Act 1996, and the now abolished High
Court Commercial List.
2 A v Minister of Internal Affairs [2017] NZHC 887.
[11] I do not consider the principles governing applications for leave to appeal a question of law from an arbitral award to be of particular assistance in the present case. The statutory and policy considerations concerning arbitration are quite different to the considerations a court will need to consider on an application for leave to appeal an interlocutory order of the High Court. For example, applications for leave to appeal from an arbitral award are made in the context of the parties having consciously chosen to have a party other than the court finally determine their dispute. And in the context of the broader policy and purposes of the Arbitration Act
1996, the threshold for securing leave to appeal on a question of law is rightly high. The narrow approach to appeals on questions of law is manifested by, for example, the Arbitration Act’s definition of a “question of law”, which excludes matters such as an absence of evidence to support factual findings.
[12] I accept, however, that the approach to applications for leave to appeal interlocutory orders under the rules governing the (now discontinued) Commercial List may be of more utility to applications pursuant to s 56(3) of the Act.
[13] The requirement for leave to appeal should serve as a “filtering mechanism”, to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either the parties or more generally, do not unnecessarily delay the proceedings in which the orders were made.
[14] Ultimately, and taking into account those considerations set out at [9] above, the court hearing an application for leave to appeal from an interlocutory order will need to stand back and assess, in a pragmatic and realistic way, whether the interests of justice are served by granting leave to appeal.
Analysis
[15] Having considered the basis upon which Finewood says leave ought to be granted, I concluded that this was a case where leave ought to be granted. I came to this view for the following reasons:
(a) First, and bearing in mind the inherent tension of being the both Judge who delivered judgment in the matter and who then has to consider
whether that judgment discloses arguable errors of law or fact, the grounds of appeal raised by Finewood are not of a frivolous or vexatious nature which would otherwise weigh against leave being granted.
(b)Second, while the proper approach to interim and final injunction applications in the case of personal services contract is reasonably well settled, there is limited Court of Appeal authority on the question of granting interim and final prohibitory relief in the context of such contracts. Accordingly, Finewood’s application for interim relief did not give rise to straightforward legal considerations, as evidenced by, for example, the considerable body of legal authorities to which each party directed me.
(c) Third, it seems that the relevance of limitation and exclusion of liability provisions to the question of adequacy of damages has not been considered by the New Zealand courts. This case accordingly called for consideration of whether, and if so to what extent, the English Court of Appeal’s approach in AB v CD3 should be followed in this jurisdiction.
(d)Fourth, the granting (or otherwise) of the interim injunction is of significant importance to Finewood. To the extent the exclusion and limitation of liability provisions are upheld (and there has been no suggestion that they ought not to be), Finewood may well be unable to recover all of the losses which it says it has or will suffer as a result of Mr Vaughan’s termination of the Agreement. As noted, I was not satisfied on the evidence before me that there was a substantial risk of Finewood suffering losses of the type and quantum alleged. That does not exclude the possibility, however, that it will suffer losses in excess
of the liability cap in the Agreement.
3 AB v CD [2014] EWCA Civ 229, [2015] 1 WLR 771.
(e) Finally, and taking into account the cumulative effect of all of the above matters, I formed the clear view that the factors weighing in favour of granting leave to appeal outweighed the inevitable delay of an appeal.
[16] As I indicated to counsel during the hearing of the application for leave to appeal, I did not consider that the factual developments subsequent to my judgment of 2 June 2017 materially altered this outcome. Mr Salmon properly acknowledged this. As I observed during hearing, Mr Vaughan was presumably aware that he was entering into contractual arrangements with a third party at a point in time when it remained open to Finewood for seek leave to appeal my decision declining to grant the injunction. Mr Vaughan was therefore “on notice” as to the risk of such an application for leave to appeal being made, and it being granted.
Result
[17] Accordingly, for the reasons given above, I granted leave to Finewood to appeal my judgment dated 2 June 2017.
Costs
[18] The parties did not address me on costs. As Finewood’s application was opposed, there does not seem to be any reason why costs ought not to follow the event in the usual way. My provisional view is that costs ought to be assessed on a
2A basis.
[19] These are, however, provisional views only. If the parties are unable to agree costs, then memoranda (not exceeding five pages in length) may be filed. Finewood’s memorandum is to be filed within 10 working days of these reasons for judgment, with Mr Vaughan’s memorandum to be filed within a further five working
days. I will then determine costs on the papers.
Fitzgerald J
191