Gillette v Wylie

[2014] NZHC 1691

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-004626 [2014] NZHC 1691

BETWEEN

STEPHEN JOHN GILLETTE, DEBRA

JONES GILLETTE as trustees of the GILLETTE FAMILY TRUST Plaintiffs

AND

MARTIN EDWARD WYLIE and GEOFFREY PETER PHILLIP CONE, as trustees of the ARGYLE TRUST Defendants

Hearing:	17 July 2014
Appearances:	E St John for Plaintiff S J Maloney for Defendant
Judgment:	17 July 2014

ORAL JUDGMENT OF VENNING J

Solicitors:           Burton & Co, Auckland

Lee Salmon Long, Auckland

Copy to:            E St John, Auckland

GILLETTE & ANOR v WYLIE & ANOR [2014] NZHC 1691 [17 July 2014]

Introduction

[1]      This case has a four day fixture scheduled to commence on 20 October 2014.

[2]      On 4 July the defendants filed an interlocutory application for discovery, amendment to timetable orders and security for costs.   Although referring to an amendment to timetable orders the application effectively also sought vacation of the fixture of 20 October 2014.

[3]      Given that the matter related to a fixture it was referred to me as the List Judge at Auckland.   I convened a telephone conference with counsel yesterday. During the course of that telephone conference I indicated to counsel that the reasons advanced to vacate the fixture date and reallocate it were insufficient and that application would be declined.   I adjourned the other applications for particular discovery and security for costs to hearing this afternoon.

The application to vacate the fixture

[4]      I now set out the reasons why I declined the application to vacate the fixture. [5]     The application for vacation of the fixture date was made on the basis:

(a)       that there were these outstanding discovery issues that needed to be addressed;

(b)one of the defendants’ witnesses, Mr Cone was unavailable to give evidence during the period;  and

(c)       counsel of first choice for the defendants, Mr Long, was unavailable due to an existing commitment to a long running arbitration.

[6]      Those reasons were insufficient to support the vacation of the fixture date allocated by the Court.   The discovery issues can be resolved and an amended timetable put in place to ensure the fixture for 20 October is met.

[7]      Mr Cone says in his affidavit that he does not live in New Zealand.  He lives in Uruguay and his work requires him to travel in South America and Europe.  He requires advance planning of at least three months.

[8]      On any view of it, if he was to give evidence he would either have to return to New Zealand or arrange a video link.  The fixture was allocated in a minute of Associate Judge Christiansen of 30 May 2014.  Obviously more than three months’ notice was given of the fixture.   Mr Cone will have to make the necessary arrangements.   If he wishes to give evidence he will either have to return to New Zealand or arrange a video link during the period of the trial.

[9]      The last issue raised was the unavailability of counsel of choice.  While the Court seeks to accommodate counsel’s availability as much as possible, in this case the matter should be relatively confined as the legal issues arising are not particularly difficult and it will largely be factual.  Further, there is no reason why other counsel within Mr Long’s firm or other counsel outside the firm could not be briefed given the length of time between the allocation of the fixture and the trial.

[10]     For those reasons the application for adjournment was declined.

[11]     That leaves the remaining applications in relation to discovery and security for costs.

Leave

[12]     A preliminary point arises.   On 24 June Associate Judge Sargisson made orders by consent confirming a timetable fixed by counsel.  That timetable fixed by counsel in a joint memorandum referred to the close of pleadings date as 16 June

2014.   Despite that memorandum being signed by both counsel Mr Maloney has advised that he had understood the close of pleadings date would be 4 July.  Mr St John accepts that the date of 4 July was a date counsel had discussed.  He does not take any particular issue about the need for leave to bring the interlocutory applications. To the extent leave may formally be required I grant leave.

Background to claim

[13]     To put the remaining applications in context it is necessary to refer briefly to the background.   I take it in part at least from the earlier minute on the file of Associate Judge Sargisson.

[14]     The  plaintiffs  as  trustees  of  the  Gillette  Family  Trust  entered  a  written agreement with the defendants, the trustees of the Argyle Trust, to sell the plaintiffs’ shareholding in a company called Sospito Group Limited to the defendants.   The agreement was made on 2 September 2013.  The price for the sale of the shares was

$700,000.  It was subject to the satisfaction of a number of conditions, including that the  plaintiffs  would  obtain  the  release  of  their  guarantees  to  the  Bank  of  New Zealand (BNZ) for the debts of Sospito’s wholly owned subsidiary, Eco Insulation Limited and guarantees in respect of leases of premises.

[15]     The agreement for sale and purchase was due for settlement on 20 September

2013.  The defendants declined to settle the purchase on the basis the BNZ would only provide a qualified release of the guarantees.   The plaintiffs says  that the qualified  release  was  agreed  to  by  the  parties  so  that  the  agreement  was unconditional.

[16]     The  plaintiffs  allege  in  the  alternative  that  following  further  discussions between the parties a settlement agreement was concluded on 3 October 2013 providing for revised terms of sale.  While the price remained at $700,000 the terms upon which that was to be paid were adjusted.

[17]     The defendants have filed a statement of defence putting the agreements in issue.  They have also raised a counterclaim based on the Contractual Remedies Act

1979 and the Contractual Mistakes Act 1977.

The application for particular discovery

[18]     The defendants seek further discovery of documents:

(a)      For the period  relating to the purchase of Eco  Insulation  Limited between 21 October 2010 and 1 March 2011:

(i)       Any  documents  which  show  the  Gillette  Family  Trust’s

financial position.

(ii)      Any  documents  which  show  Stephen  and  Debra  Gillette’s

financial position.

(iii)Any  documents  that  show  how  the  Gillette  Family  Trust, Stephen and Debra Gillette or any other related party funded the purchase of Eco Insulation Limited.

(b)      For the period relating to the failed share purchase between 1 August

2013 and 31 October 2013:

(i)       Any  documents  which  show  the  Gillette  Family  Trust’s

financial position.

(ii)      Any  documents  which  show  Stephen  and  Debra  Gillette’s

financial position.

(c)      Any  BNZ  loan  documents  executed  or  signed  by  either,  Stephen Gillette, Debra Gillette, or the Gillette Family Trust, including the executed copies of the loan documents used to fund the purchase of Eco Insulation Limited.

[19]     There was some correspondence between the parties regarding this issue, particularly during May.  The matter was not satisfactorily resolved, which is why this application has been pursued.

[20]     At  the  telephone  conference  yesterday  and  confirmed  in  the  notice  of opposition filed yesterday the plaintiffs have agreed to provide:

(a)      documents in relation to category 1(a) to the extent they have such documents;

(b)the  bank  documents,  which  are  the  only documents  they have  in respect of 1(b) and bank statements which would be the documents referred to at 1(c) along with the loan documents described in paragraph 3;

(c)      in relation to the documents described in para 2 the defendants would agree to provide documents which show the financial position up to

30  August  2013,  namely  of  the  agreement  by  the  defendants  to

purchase the plaintiffs’ shares.

[21]     The issue between the parties is therefore narrowed to the form in which discovery should be provided and the period of discovery of the Gillette Family Trust’s financial position and Mr and Mrs Gillette’s financial position, and in particular, whether discovery is required of those documents for September and October 2013.

[22]     Mr St John has the documents that the plaintiffs are prepared to discover at present at Court and is willing to make them available immediately.

[23]     As  discussed  with  counsel,  given  that  the  issue  in  this  case  will  be  the agreement between the parties and what took place at meetings I consider it appropriate that there be some degree of formality about the discovery exercise.  To advance the defendants’ preparation for trial, the documents are to be discovered by numbered copies of the documents being made available to the defendants through their solicitors, if not today, by the end of business tomorrow.  However, within two weeks of today’s date the plaintiffs are to file and serve a supplementary list of documents  deposing  as  to  the  completeness  of  the  documents  referred  to  and attaching as a schedule a note and list of the documents which are to be provided physically in the meantime.

[24]     A further matter as to the scope of discovery is that even on the plaintiffs’ position  the  end  date  should  be  2  September  2013,  which  is  the  date  of  the agreement for sale and purchase. To the extent that there are any documents between

30 August and 2 September that fall into the above category they are also to be discovered.

[25]     That leaves the issue of the defendants’ request for documents for the balance of September and October.  Mr Maloney argued that discovery is required for that period  because  the  defendants  raise  in  their  counterclaim  that  the  plaintiffs represented they were fully committed to the success of Eco Insulation Ltd.  That representation induced Mr Wylie, on behalf of the defendants’ Trust to enter into the purchase of Eco.   The defendants say the plaintiffs were actually never fully committed to Eco’s success.

[26]     Mr Maloney notes that Eco failed in the period September to October 2013 and was placed in liquidation on 15 October 2013.

[27]     The application for particular discovery has to be dealt with on the basis of the pleadings.  In that context consideration of the defendants’ counterclaim does not support further particular discovery of the documents after 2 September through to the end of October.

[28]     For instance, the representations alleged in the first cause of action of the counterclaim are that the plaintiffs were contributing all their available cash and assets to the purchase of the company.  The statements and conduct relied on are set out at various paragraphs.   However,  the last  of those paragraphs  relates to  an allegation concerning a meeting in December 2010.  I do not accept that the period of September and October 2013 can be relevant to that allegation.

[29]     Next, there is the allegation that the representation was made the plaintiffs were fully committed to the success of the company but again the last of the allegations pleaded in support is the meeting of December 2010.

[30]     There is then the allegation the defendants were induced to accept certain funding conditions because of the plaintiffs’ representations.  Again the last of those representations is dated December 2010.

[31]     Mr Maloney pointed out that there was an allegation at para 88 that Mr and Mrs Gillette were not committed to the company and used the continuing deterioration of the company’s financial position to force Mr Wylie to buy up their shareholding.   That is, of itself, a general allegation without any particular dates referred to.  But to the extent that there is any force in the allegation, the force of it must have expired by the date that it is said Mr Wylie was forced to buy out the shareholding which is at the date of the agreement, namely 2 September.

[32]     There is no basis on the defendants own pleading to support discovery of the documents they seek after 2 September through to the end of October.

[33]     The  defendants’  second  cause  of  action  in  the  counterclaim  under  the

Contractual Mistakes Act proceeds on the same essential factual basis.

[34]     For those reasons the further discovery sought is declined, save for the orders I have made above as to the discovery of the documents now conceded by the plaintiffs.

Security for costs

[35]     The principles in relation to an application for security for costs are well settled.  To the extent that there is a threshold question, namely reason to believe the plaintiffs will be unable to meet an adverse costs order if unsuccessful in the proceeding it is effectively conceded in this case.  The plaintiffs are currently facing a summary judgment proceeding brought by the BNZ in relation to the guarantee given by them to support the funding agreement for Eco.

[36]     As the matter came before the Court at relatively short notice brief evidence was given orally by Mrs Gillette.  In her evidence she confirmed that the plaintiffs’ Trust has limited funds at present.  The funds are limited to approximately $38,000

held in solicitors’ bank account.  Both Mr and Mrs Gillette are beneficiaries of the

Trust as is, she understands, their son who is dependent on them.

[37]     Neither Mr or Mrs Gillette are currently in employment.  While they have a limited fund of a couple of thousand dollars in a personal account they are using that for personal living expenses.  They are living in rented accommodation.  They are aware they will have to pay $10,000 to $11,000 in Court fees for hearing fees and the like but obviously will also have to meet their  solicitor’s and counsel’s fees  in relation to the proceeding.

[38]     I am satisfied that there is reason to believe that the plaintiffs will be unable to meet an adverse costs order if they are unsuccessful in the proceeding.  It is then necessary for the Court to weigh a number of other considerations.

[39]     The plaintiffs submit the application has been brought for an ulterior purpose, namely  to  adjourn  the  trial  or  to  prevent  the  plaintiffs’ case  being  heard.    Mr Maloney countered that by noting that the defendants were still pursuing the application for security after the application to adjourn had been determined against the  defendants  yesterday.     He  submitted  that  the  defendants  were  genuinely concerned that the plaintiffs would not be able to meet an adverse costs award.

[40]     I accept on the material before the Court there is no basis to infer that the defendants in bringing this application are acting improperly or with an ulterior purpose.

[41]     The next consideration is the effect of any award for security.  It is said in the notice of opposition that even if the Court orders security of costs and the plaintiffs could not meet the order they would be entitled to defend the counterclaim.   In discussion with the Court Mr St John accepted that it could not be put as high as saying that if an order for security was made, if made at a modest level, it would not prevent the plaintiffs proceeding.  But if an order in the region of $25,000 to $30,000 was ordered as sought by the defendants then that would prevent the claim being pursued.  Mrs Gillette’s evidence would support that.

[42]     The Court of Appeal said in S McLachlan Ltd v MEL Network Ltd:1

The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs.   That must be taken as contemplating  also  that  an  order  for  substantial  security  may,  in  effect, prevent the plaintiff from pursuing the claim.  An order having that effect should be made only after careful consideration and in a case in which the claim has  little  chance  of  success.   Access  to  the  courts  for  a  genuine plaintiff is not lightly to be denied.

Of course, the interests of defendants must also be weighed.  They must be protected against being drawn into unjustified litigation, particularly where it is over-complicated and unnecessarily protracted.

[43]     None of those criticisms of unjustified, overcomplicated or protracted can be made of the present proceeding.  While it is not for the Court on an application such as this to engage in a detailed consideration of the merits it is sufficient to record that the basis of the claim,  namely an alleged breach of an  agreement for sale and purchase for a substantial sum of money is on the face of it a genuine claim.  The case will be determined in large part by the evidence of the parties.  There will be a conflict between the evidence of the plaintiffs and the defendants.

[44]     In those circumstances the Court is reluctant to see any order for security that would prevent the plaintiffs pursuing their claim against the defendants.

[45]     Next, the Court sometimes considers the argument that the defendants have caused the plaintiffs impecuniosity.  Mr Maloney submits in this case that the fact the defendants have not accepted the plaintiffs’ theory of events is not justification for an order and that the defendants are not the cause of the plaintiffs’ impecuniosity. He says the plaintiffs’ impecuniosity has been caused by the failure of Eco.   He

refers to the decision of Birnie Capital Property Partnership Ltd v Birnie2  where

Asher J suggested that an argument that if the plaintiffs were successful the defendants  can  be  said  to  have  caused  the  plaintiffs’ present  impecuniosity  is somewhat of a circular argument and only limited weight could be given to that

factor.

1      S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA).

2      Birnie Capital Property Partnership Ltd v Birnie HC Auckland CIV-2010-404-3000, 29 October

2010.

[46]     However, as Mr St John submitted, there are a number of other decisions where that factor has been considered relevant by the Court.  In Du Claire v Palmer3

MacKenzie J held that the possibility of a connection between the plaintiff’s impecuniosity and the subject matter of the proceedings was sufficiently strong to weigh against an order for security.   Consideration of this factor involves consideration of the linkage rather than any particular examination of the merits.  If, on the plaintiffs’ case, the defendants are in breach of the agreement for sale and purchase and the transaction would have been settled and resolved then there would appear  to  be  a  distinct  linkage  between  the  breach  by  the  defendants  of  the agreement for sale and purchase and at least part of the plaintiffs’ present impecuniosity.

[47]     There may have been ongoing issues with the Bank in terms of the partial release but ultimately that matter was not able to be resolved because the settlement was not concluded.  In short, while I accept the point Mr Maloney makes, I consider that this case is one of those cases where it can be said there is sufficient linkage between the actions complained of by the plaintiffs and their impecuniosity to the extent that it is a relevant factor.  It is certainly not a case where there is no particular linkage at all which can be the case in some situations.

[48]     The last consideration is delay.  In this case I consider the issue of delay to be particularly relevant.   In response to the plaintiffs’ submission that the defendants have delayed in bringing this application for security Mr Maloney submitted the application was brought within the deadline for filing interlocutory applications, at least within the deadline as understood by counsel, namely by 4 July.  He says the defendants were only alerted to the summary judgment proceedings by the memorandum  of  28  May  2014  and  only  received  a  copy  of  the  claim  for  the summary judgment proceedings brought by the Bank against the plaintiffs on 25

June 2014.  They only understood the plaintiffs were not apparently defending that application on 1 July 2014.

[49]     However, I accept the force of Mr St John’s point that, even if the date for filing applications was 4 July, in the context of this case the application has been

3      Du Claire v Palmer HC Wellington CIV-2009-485-2638, 29 October 2010.

made very late in the piece.  These proceedings were commenced in October 2013. The close of pleadings date is by definition the date pleadings are closed and the matter is otherwise ready for trial.  The application is brought very much at the last moment.

[50]     Nor do I accept that the defendants only became aware of the plaintiffs’ financial  position  or  had  reason  to  be  concerned  about  the  plaintiffs’ financial position on 28 May 2014.

[51]     In the statement of claim itself filed in October 2013 the plaintiffs plead that by letter of 21 October the Bank made demand on the plaintiffs for the sum of $1.5 million pursuant to the plaintiffs’ guarantees.  At the very least that should have put the defendants on notice of the financial pressure the plaintiffs were under.  As is often the case, inquiries could have been made through the plaintiffs’ solicitors at that time in relation to the parties’ financial position. A failure to respond could have been taken into account to support an inference of impecuniosity to justify an application for security.

[52]     Even more, by 28 May 2014 the matter could not have been stated much more plainly than it was by Mr St John in the memorandum of counsel.  In opposing the suggestion of a fixture in 2015 counsel noted there was real urgency to the matter noting the BNZ had issued summary judgment proceedings against the parties pursuant to the guarantees.

[53]     In the circumstances I consider this application to have been made very late in the piece and, in this case, too late.

[54]     Weighing those factors in the mix as best I am able to I am not satisfied that this is an appropriate case for an order for security.  Any order for security the Court might be minded to make would be of a particularly modest sum in any event to ensure that the plaintiffs were able to pursue their claim.  However for the reasons given above I am not satisfied that this is an appropriate case for the Court to order security at all.

Result

[55]     I decline the application for security.

Costs

[56]     In relation to costs on these various applications the plaintiffs have succeeded in opposing the application for adjournment and in opposing the application for security.  The plaintiffs, however, should have made the concession made at the last minute in relation to discovery well before the application for discovery was made. The application for adjournment of the fixture was not seriously contested or advanced by Mr Maloney, responsibly I might say, in discussion with the Court yesterday.

[57]     In the circumstances I direct that costs on these applications are simply to lie where they fall. There will be no other order in either party’s favour.

[58]     Counsel are to file a joint memorandum with a revised timetable to trial.  The memorandum is to be referred to me.

Venning J