Foster Construction & Building Services Limited (in liquidation) v AAPC New Zealand Pty Limited HC Wellington CIV 2004 485 970

[2005] NZHC 1217

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2004 485 970

BETWEEN

FOSTER CONSTRUCTION & BUILDING SERVICES LIMITED (IN

LIQUIDATION)

Plaintiff

AND

AAPC NEW ZEALAND PTY LIMITED

Defendant

Hearing:         16 February 2005

Appearances: P J Radich and J K Hodgson for the Plaintiff No appearance for the Defendant

R D Palu for the 18 sub-contractors seeking to be joined/substituted as plaintiffs

Judgment:      18 February 2005

JUDGMENT OF WILD J

Introduction

[1]   This is an application by 18 non-parties to this proceeding to set aside a Notice of Discontinuance of the proceeding filed by the plaintiff on 10 February 2005. The application is a necessary precursor to the hearing of an application by those 18 non- parties to be substituted or joined as plaintiffs to this proceeding. That application was filed by the 18 non-parties on 10 December 2004.

[2]   The application to set aside is pursuant to r476B, or alternatively seeks to invoke the Court’s inherent jurisdiction to set aside a discontinuance which is an abuse of the Court’s process. The grounds for the application are:

FOSTER CONSTRUCTION & BUILDING SERVICES LIMITED (IN LIQUIDATION) V AAPC NEW ZEALAND PTY LIMITED HC WN CIV 2004 485 970 [18 February 2005]

a)The discontinuance was an abuse, because the plaintiff (“Foster”) sued as a representative, and on behalf, of the 18 non-parties and its discontinuance precludes the hearing of their joinder/substitution application and therefore prejudices them and is thus an abuse of the Court’s process.

b)The Notice is not in proper form because Foster sued in the representative capacity described in ground [a], and a plaintiff may discontinue a proceeding in which there is more than one plaintiff only with the consent of every other plaintiff or with the Court’s leave:  r476(3).  When it discontinued Foster had neither the consent of the 18 non-parties nor the leave of the Court.

[3]   Having heard from Ms Palu at length, I am in no doubt that the application cannot possibly be granted. Before explaining my reasons, some background is unavoidable.

Background

[4]   This proceeding was commenced on 19 May 2004. Foster sued the defendant (“Accor”) alleging breach of a construction contract entered into between the two on 30 July 2003. The contract was for the construction of backpackers’ accommodation to be known as “Base Backpackers”, on Cambridge Terrace in Wellington.

[5]   There is no reference in any part of the statement of claim to the 18 non-parties, who are (or were) Foster’s sub-contractors on the “Base Backpackers” construction contract. There is reference in the statement of claim to the fact that Foster owed the 18 non-parties money, which it was unable to pay because Accor had not paid it under the contract.

[6]   On 19 May last Mr R A Bird, formerly a director and employee of Foster, swore an affidavit in support of an application by Foster for summary judgment. In that affidavit he deposed:

24.…  We are pursuing this claim on the sub-contractors’ behalf.  In taking this proceeding, we have instructed our solicitors to hold any money received from (the defendant) in their trust account for distribution to the sub-contractors.

[7]   Foster got into financial difficulties and ceased work on the contract works. On or about 23 June 2004 the 18 non-parties entered into a settlement agreement with Accor. Essentially, that agreement entailed the 18 non-parties agreeing to complete the contract work in return for the payment of specified sums of money at specified times or upon the completion of specified work.

[8]   In a joint memorandum dated 18 June 2004 counsel for Foster and Accor announced to the Court that “the parties have reached settlement of the issues between them”. That memorandum then outlined the terms of the settlement agreement reached on 23 June 2004. Having done so, the memorandum stated:

4.Given the settlement arrangements the parties wish to adjourn this matter sine die to enable performance of the settlement agreement.

5.Given that there are issues of future performance by the parties which could give rise to further dispute, Counsel requests that leave is reserved for either party to refer the matter back to the Court on seven (7) days notice for  direction.

6.The plaintiff intends to discontinue this proceeding on satisfaction of payment of the settlement sum.

[9]   On 29 June MacKenzie J minuted the file, in particular that leave was reserved as requested in paragraph 5 of counsel’s memorandum. Subsequently, various Judges further adjourned the proceeding, upon the request of counsel for the parties. I was one of those Judges.

[10]      Ms Palu informs me that, in November last, she applied to Goddard J, pursuant to the leave reserved by MacKenzie J back on 29 June, to have the Court determine a dispute that had arisen as to how the remainder of the settlement was to be worked through. Goddard J recorded that in a minute dated 29 November and directed:

The case is adjourned to the next Chambers List on Monday 6 December 2004 for mention and in the interim the parties are to file their respective applications in the Court.

[11]      Goddard J’s minute records Ms Palu as appearing for the plaintiff, but it is now apparent that she was appearing as counsel for the 18 non-parties.

[12]      In the meantime, on 1 November, this Court had made an order putting Foster into liquidation.

[13]      As I have mentioned, on 10 December, the 18 non-parties filed an application seeking to be substituted as plaintiffs or, alternatively, added as plaintiffs.

[14]      On 23 December Accor filed a Notice of Opposition. Amongst the grounds set out in that notice are the following:

(a)This proceeding has been settled, and should be dismissed. Any claims by the non-parties should be incorporated in a fresh proceeding in the District Court;

(b)It has settled all issues presented n the plaintiff’s statement of claim, and all other potential claims and counterclaims, on terms and conditions as set out in the Settlement Agreement dated 22 June 2004. These claims related to various contractual retentions, payments, liquidated damages and interest alleged to be owing under the plaintiff’s head construction contract;

…

(d) The reservation by consent on 29 June 2004 of leave to seek “directions” did not and could not relate to future unpleaded claims relating to the Settlement Agreement;

[15]Foster filed its Notice of Discontinuance on 10 February.

[16]      Also on 10 February, Foster filed a proceeding (CIV 2005 485 186) against the 18 sub-contractors seeking a declaratory judgment as to entitlement to the monies still to be paid by Accor under the Settlement Agreement of 23 June 2004.

[17]      On 15 February, Foster filed a second proceeding (CIV 2005 485 231). This one is an originating application against the 18 sub-contractors’ solicitor, Mr

Garnham, seeking an order that he hand to the liquidator contractual documentation and trust account records which the liquidator claims he is entitled to and needs in order to complete the liquidation of Foster. That application is listed for hearing on 28 February.

[18]      Finally, yesterday 16 February, the 18 sub-contractors filed a proceeding (CIV 2005 485 268) against Accor alleging breach by Accor of the 23 June 2004 Settlement Agreement, and seeking relief accordingly.

Reasons for dismissing the application

[19]      I dismiss the non-parties’ application for two reasons. First, because, assuming jurisdiction, there is no abuse by Foster of the Court’s process. Secondly, there is no advantage to any party or prospective party in setting aside the discontinuance. I will develop each reason in turn.

Assuming jurisdiction, no abuse

[20]      Rule 476B does not permit the application to set aside the discontinuance, since it is limited to an application by a defendant. Jurisdiction could only be inherent. There is some doubt as to whether the general inherent jurisdiction to set aside a discontinuance for abuse of process (recognised by the Court of Appeal in Bank of New Zealand v Rada Corporation Ltd [1989] 1 NZLR 750 at 758), in particular a jurisdiction to set aside on the application of a non-party, survives the introduction in February 2003 of r476B. Assuming it does, there was/is no abuse of process by Foster. Ms Palu contended that the abuse was because Foster had sued in a representative capacity – on behalf of its 18 sub-contractors – and for Foster to discontinue without the authority of those sub-contractors, and thus to prejudice their rights, was tantamount to abuse. She relied on this Court’s decision in Tamaki v Baker (1902) 22 NZLR 97. That case is clearly distinguishable, since it was admitted by all parties that the plaintiff had sued in a representative capacity, but then had discontinued against the wishes of some of those whom he represented.

[21]      Here, Foster did not sue in a representative capacity. There is nothing in the statement of claim to indicate that it did. Rule 78, permitting a “representative” proceeding, and referred to by Ms Palu, requires the consent of all parties represented or a direction of the Court. Although the 18 sub-contractors may have consented to Foster suing, I have no indication of that consent and certainly there was no direction by the Court. Quite apart from that, I am far from persuaded that Foster’s 18 sub-contractors had “the same interest in the subject matter” as did  Foster itself. At best, there seems to have been an assumption or understanding by the 18 sub-contractors that Foster’s proceeding might benefit them, because if Foster recovered from Accor it would be able to pay its sub-contractors. The confusion, or at least lack of clarity, in this respect was not assisted by the fact that the same solicitor was representing both Foster and its sub-contractors at the time. In  precisely whose interest Foster sued was not spelt out or agreed.

[22]      Bank of New Zealand v Rada Corporation Ltd provides an analogy, though not exact, with the situation here. The National Bank of New Zealand had commenced winding up proceedings against Rada, but had discontinued them several months later. The Bank of New Zealand then applied out of time to file an appearance in the proceeding. The Court found that, despite its inherent jurisdiction to set aside a discontinuance for abuse of process, there was no basis for exercising that jurisdiction here. The Court said:

… the (Bank of New Zealand) took no action because it was content to allow the National Bank to proceed and expected it to do so …

A creditor who has duly joined as a plaintiff cannot be prejudiced by  a discontinuance by any other plaintiff. A creditor who has not chosen to become a plaintiff can have no legitimate complaint about the discontinuance.

(p757, emphasis added)

No advantage to any party or prospective party

[23]      In Davies v Christie 23/6/87 HC Wellington M466/84 McGechan J, faced with an application to set aside a discontinuance, considered the possibility that setting aside may benefit the defendant. Here, Accor opposes the setting aside of the

discontinuance, or at least opposes the substitution/joinder of fresh plaintiffs which the setting aside would facilitate.

[24]      Foster obviously does not want its discontinuance set aside. It has now commenced two fresh proceedings aimed to facilitate its liquidation.

[25]      Is there any advantage to the 18 sub-contractors – the prospective substituted plaintiffs? It became clear to me in the course of argument that Ms Palu considered that the advantage would be the sub-contractors’ ability, by means of an interlocutory application, to be able quickly and economically to have the Court rule upon disputes which have or might arise between the sub-contractors and Accor under the 23 June 2004 Settlement Agreement. That is distinctly not the position. In order to obtain such a ruling the sub-contractors would need to file a fresh statement of claim pleading the settlement agreement, alleging breach of that agreement, and seeking appropriate relief. That re-pleaded proceeding would then move ahead in  the usual way toward a hearing: statement of defence; interlocutories; setting down; trial.

[26]      Particularly given that the sub-contractors yesterday filed a fresh proceeding along exactly the lines I have described, there could be no advantage whatsoever in setting aside the discontinuance in order to facilitate the sub-contractors’ substitution/joinder application. Indeed, quite the opposite. What would then be involved for the sub-contractors is the conversion of this proceeding into something altogether different than it was.

[27]      If any evidence in this proceeding is required for interlocutories in the sub- contractors’ new proceeding, then rr 4 and 248, coupled with the Court’s inherent jurisdiction, may enable the transfer of affidavits from this proceeding to the sub- contractors’ new proceeding. However, I point out that the two proceedings are not “between the same parties”.

Result

[28]      For the reasons I have given, the application by the 18 non-parties to set aside the plaintiff’s Notice of Discontinuance dated 10 February 2005 is dismissed.

[29]      The plaintiff is entitled to its costs of the unsuccessful application as against the 18 non-parties.

[30]      Finally, may I express my concern at the rapid multiplication of proceedings arising out of the Base Backpackers contract works. I urge all parties involved to consider whether the disputes between them should not be referred urgently to a mediator or arbitrator. Given that there are now three proceedings before this Court, another approach might be to seek an appropriate consolidation of those proceedings, and an early reference of them to the Associate Judge for a judicial settlement conference. I see an urgent need to maximise the amount of money which will ultimately find its way to Foster and/or its sub-contractors, and to minimise the amount of money that will be expended on legal expenses and Court fees.

Solicitors:

Izard Weston, Wellington for the Plaintiff

M R Garnham, Wellington for the Plaintiff’s 18 sub-contractors Chapman Tripp, Wellington for the Defendant