Fitzroy Engineering Group Limited v Technix Group Limited

[2004] NZCA 207

IN THE COURT OF APPEAL OF NEW ZEALAND

CA38/04

BETWEENFITZROY ENGINEERING GROUP LIMITED

Appellant

ANDTECHNIX GROUP LIMITED

Respondent

Hearing:16 August 2004

Coram:McGrath J
Glazebrook J
Hammond J

Appearances:  D G Hurd for Appellant

R C Laurenson for Respondent

Judgment:31 August 2004 

JUDGMENT OF THE COURT DELIVERED BY HAMMOND J

Introduction

[1]       The applicant, Fitzroy Engineering Group Limited (FEGL), seeks leave (pursuant to s 67 of the Judicature Act 1908) for a second appeal, to this Court, from a judgment of Chambers J dismissing FEGL’s substantive appeal from the earlier judgment of Judge Perkins in the District Court.

[2]       Leave to appeal was declined by Randerson J in a judgment delivered on 17 February 2004 (New Plymouth CIV 2003-443-293).

[3]       There is also before us an application for a stay of execution pending the hearing of the proposed appeal, if leave is granted.

Background

[4]       The case arose out of FEGL’s purchase in 1992 of a substantial engineering business based in New Plymouth, from Fitzroy Engineering Limited (FEL).  FEL was a wholly owned subsidiary of the respondent, Technix.  Technix was a party to the sale agreement.

[5]       As part of the overall transaction, FEGL took a lease of the premises from which the business was operated, from Technix, as the owner of the premises.

[6]       Subsequently, FEGL incurred ACC levies totalling in excess of $100,000 based on the accident history of the business prior to FEGL’s purchase.  FEGL took the view that it was entitled to be indemnified by FEL for these levies, pursuant to a clause in the sale agreement.  FEL denied it had any such liability.  Over a period of almost two years, FEGL offset the amount of the ACC levies against rentals due under the lease from Technix.

[7]       Technix did not bring proceedings to challenge these offsets during that period.  It did however dispute that there was any liability for the levies.

[8]       In the meantime, other issues arose between FEGL and Technix relating to an overdue rent review on the lease.  That issue was eventually resolved in FEGL’s favour by an informal resolution process.

[9]       Late in 1996, Technix and FEL commenced declaratory judgment proceedings in the High Court, seeking a declaration that FEL was not obliged to indemnify FEGL for the ACC levies.  In that same proceeding FEGL sought a declaration to the reverse effect.

[10]     Technix’s evidence in that proceeding was that FEL was at all relevant times insolvent, and that FEGL knew this.  Therefore any judgment in FEGL’s favour would be worthless, and it was claimed that FEGL must have known of this.

[11]     Notwithstanding that factor, FEGL fully participated in the declaratory judgment proceedings.  It did so because Technix’s solicitors had sent to FEGL’s solicitors a letter dated 20 February 1997 which is at the heart of the issues between the parties.  The letter contained the following statement:

We recognise that you continue to claim that the whole of the amount paid by you to ACC is the responsibility of [Technix].  We disagree and as you know have filed court proceedings to have the matter clarified.  In the meantime, in view of the above facts, we have agreed that the amount of the ACC claim may be deducted from the rental pending resolution of the ACC issue.  Should we succeed to any extent on the ACC matter then we would expect this to be paid immediately to our client as part of the rent still outstanding.

[12]     FEGL’s contention throughout this proceeding has been that the meaning of this passage was that, whilst the declaratory judgment proceeding was being pursued, FEGL was entitled to maintain this rental offset, and would only be required to pay it if, and to the extent, that Technix/FEL were successful in that proceeding.  FEGL also says that, in reliance upon that understanding, it altered its position, because it continued to maintain the offset (and thus continued to incur liability for interest for unpaid rental under the lease), and further, refrained from taking other steps directly against FEL.  Although FEL was apparently insolvent it was at that time a claimant in certain significant litigation that might well have made a claim against it worthwhile.

[13]     After the 20 February letter, Technix took no steps with respect to the withheld rentals.

[14]     Eventually, the declaratory judgment proceedings came on for hearing before Anderson J, on 9 July 1998.

[15]     In an oral judgment, His Honour found in favour of FEGL on the issue of whether FEL was required to indemnify FEGL.

[16]     In early August 1998, Technix’s solicitors wrote to FEGL’s solicitor, advising that they had been instructed to issue summary judgment proceedings against FEGL to recover the offset rental.

[17]     That application came to trial in December of 2002.  Summary judgment was entered in favour of Technix in July 2003.

[18]     An appeal to the High Court against that entry of judgment was dismissed by Chambers J in a reserved judgment delivered on 23 January 2004.

[19]     So far as is relevant for present purposes, Chambers J noted that there were two main issues on the appeal:

·     First, had Technix, by 20 February 1997, agreed that if the declaratory judgment proceeding was answered in FEGL’s favour, it would release FEGL from paying the rent that had been offset?

·     If that argument failed, was Technix estopped from suing for the rent if the declaratory judgment proceeding was answered in FEGL’s favour?

[20]     On the first issue, the Judge said that the “fundamental flaw” in the argument for FEGL was that its counsel seemed to think “that the original withholding of rent was perfectly legitimate”, when it was not.  Because Technix, under protest, tolerated the non-payment and did not immediately sue for it did not mean that Technix had “agreed that the amount was not payable”.  The Judge was not satisfied that the construction to be placed on the relevant letter meant that, post the declaration, Technix could not sue for unpaid rent.

[21]     On the estoppel question, Chambers J held that the statement relied upon in the letter “was ambiguous” (in the sense that it was capable of more than one construction).

The application for leave

[22]     In the High Court, in considering the leave application Randerson J correctly set out the principles enunciated by this Court in such cases as Waller v Hider [1998] 1 NZLR 412 and Snee v Snee [2000] NZFLR 120.

[23]     The Judge then traversed the background to the case, and the findings in the various Courts.  He then concluded, with respect to the question of leave:

[15]     There are two matters which have given me pause to consider in this case.  The first is that, in view of the insolvency of FEL, it is no longer open for FEGL to pursue that company for the recovery of the amounts which have been found to be due to it in the declaratory proceedings.  Indeed, it seems quite likely on the limited view that I have had of this matter that this was the reason for Technix, as the parent company, giving the indication it did in the letter of 20 February 1997.  Secondly, it may be that a different view of that particular letter is available.

[16]     Despite these misgivings, however, I have decided by a fairly narrow margin not to grant leave, principally because the issue was purely one of construction.  There have been two thorough hearings in the District Court and this Court which have reached the same conclusion.  There is no wider question of law or public interest involved in the case other than the position as between two commercial parties.  The availability of a fairly arguable issue is not sufficient by itself to warrant the grant of leave in all the circumstances of this particular case.

[17]     As a matter of discretion, I am not persuaded that the question of construction raised in this case is of sufficient importance to justify the further pursuit of litigation which has now been on foot for over five years.  The interests of finality in the legal system outweigh the grant of leave for a further appeal to ventilate this matter once more.

Discussion

[24]     The crux of this case was whether, as FEGL contended, the “arrangement” set out by Technix’s solicitors resolved how the offset by FEGL was to be dealt with once the declaratory judgment proceedings were determined.  It was common ground that, at least up until that time, there was an agreed suspension of rental payments.  It followed that the onus was always going to be upon FEGL to show that what was said resolved the issue between the parties for all time and all purposes.  Chambers J was firmly of the view that the agreement did not go so far.

[25]     Like Randerson J we are not, on the consideration we have been able to give the merits of the matter on a leave application, quite so confident.  In particular, and again like Randerson J, we are troubled by the distinctly odd participation of Technix in the declaratory judgment proceedings if its view to be taken of the arrangement was as was subsequently contended for by Technix and FEL.  As Mr Hurd forcibly said “if the judgment stands, the declaratory judgment proceedings were commenced and pursued by Technix/FEL knowing throughout that any adverse judgment would be unenforceable and meaningless”.  And there is no question that there is an element of unfairness (in the large sense) in that FEL is now put in the position, in the events which have happened, of not being able to recover levies which were the proper responsibility of FEL, but it does have to bring the rental up to date.

[26]     As against that, in a situation such as the present, context is of great moment.  There was a good deal of force in the observations by Judge Perkins in the District Court that the particular portion of the letter which was relied upon had been somewhat “plucked” out of the overall context.  Both before and after this letter there were indications that Technix/FEL did not accept the limitations FEGL had subsequently sought to put upon the arrangement.

[27]     We agree with Randerson J that FEGL’s position was “arguable”.  But it cannot be said that the applicants have a distinct prospect of success.  It would be for FEGL to establish that the outcome of the declaratory judgment proceedings was going to be determinative, for all purposes, of the rentals offset question.  It is problematic, and far from clear, that that hurdle could be cleared.  At best, FEGL has an arguable case.

[28]     Randerson J then, correctly, endeavoured to weigh such prospects of success as there might be against the further delays and costs of a dispute which had already been on foot for several years.  The Judge, with respect, was right to emphasise the importance of finality in litigation.

[29]     We are of the view that Randerson J approached this leave application in the appropriate way.  He identified and weighed the relevant considerations.  We are not persuaded that leave should be granted.

Conclusion

[30]     In the result, the leave sought will be declined.  The respondent will have costs of $2,500 together with its reasonable disbursements.  If agreement cannot be reached thereon same are to be fixed by the Registrar.

Solicitors:
Reeves Middleton Young, New Plymouth for Appellant
Billings, New Plymouth for Respondent