Hunt v Macartney HC Auckland CIV 2010-404-1881

[2010] NZHC 1700

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-001881

BETWEEN  PAUL HUNT AND AMY HUNT Plaintiffs/Respondents

AND  PETER MACARTNEY

First Defendant/First Applicant

AND  VERNE MACARTNEY

Second Defendant/Second Applicant

ANDDOROTHY MACARTNEY Third Defendant/Third Applicant

ANDROSS MELVILLE Fourth Defendant

Hearing:         18 August 2010

Appearances: E Orlov and T Shah for Plaintiffs/Respondents

C T Patterson for First to Third Defendants/Applicants
No appearance for Fourth Defendant

Judgment:      25 August 2010 at 2:30pm

(RESERVED) JUDGMENT OF ANDREWS J [Defendants’ application to strike out cause of action]

This judgment is delivered by me on 25 August 2010 at 2:30pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

Solicitors:           Botany Law, DX EP84008 (Plaintiffs)

Jones Young, P O Box 189, Shortland Street, Auckland 1140 (Defendants)

Equity Law Limited, DX CX10246 (Plaintiffs) E Orlov

Counsel:            C T Patterson, P O Box 2886, Shortland Street, Auckland 1140 (Defendants)

HUNT & HUNT V MACARTNEY AND ORS HC AK CIV 2010-404-001881  25 August 2010

Introduction

[1]      The plaintiffs (“Mr and Mrs Hunt” or “the Hunts”) issued proceedings on 24

March 2010 alleging breach of fiduciary duty, breach of contract and breach of the Fair Trading Act 1986 (“the Act”) against the first to third defendants (collectively “the Macartneys”).   The Macartneys have applied to strike out the Hunts’ claim under the Act.

[2]      The issue for determination is whether the Court can be certain that the claim under the Act cannot succeed, or that the claim is so certainly or clearly bad that it should be precluded from going forward.[1]

Background

[1] See Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33], per Elias CJ

and Anderson J.

[3]      The second defendant, Verne Macartney, was the Managing Director of Performance Hosiery Limited (“PHL”).  He and his wife (the third defendant, Mrs Dorothy Macartney) had founded PHL, the shares in which were held by family trusts.   The first defendant, Mr Peter Macartney, is the son of Verne and Dorothy Macartney.

[4]      Mr Paul Hunt first started working part-time for PHL when he was about 14 years old.  When he left school in 1994 aged 16, Mr Hunt started working full time for PHL as a junior mechanic.  He remained at PHL until 2000, by which time he was head mechanic.

[5]      The Hunts decided to move to Australia, and moved to Melbourne in 2000. However, they returned to New Zealand, and Mr Hunt returned to work for PHL, early in 2001.

[6]      In 2005 the possibility of Mr Hunt’s purchasing a fifty per cent shareholding in PHL was raised.  The Hunts and the Macartneys dispute the manner in which this occurred and what Mr Hunt was told in respect of interest from other parties in

acquiring the company, and the implications of such an acquisition for the employment of Mr Peter Macartney and Mr Hunt.

[7]      During  the  period  from  July  to  October  2006  agreement  was  reached whereby the Hunts bought fifty per cent of the shares in PHL.   The Hunts had obtained loan finance in order to buy the shares.  Mr Hunt was appointed a director of PHL but continued working in the factory.

[8]      On 24 May 2008 PHL’s premises were destroyed by fire.

[9]      In  their  statement  of  claim  the  Hunts  claim  damages  in  respect  of  the purchase price for the shares in PHL ($130,000) and other damages.

The Fair Trading Act claim

[10]     In their claim under the act the Hunts allege that the Macartneys were “in trade” when they were in the process of selling the shares to the Hunts.  They also allege that the various statements, representations, and conduct set out in the statement of claim constitute misleading and deceptive conduct in the course of trade.  Particulars are set out, as follows:

A.       Failed to disclose the true financial status of the company at the time of sale.

B.       Misled the Plaintiff into believing the company was profitable.

C.       Misled the Plaintiff into believing that they had lent money to the company.

D.       Converted  monies  belonging  to  the  Plaintiff  from  the  company account to their own use.

[11]     By way of relief, the Hunts claim an inquiry into damages, interest, and costs.

Application to strike out

[12]     On 20 May 2010 the Macartneys filed an interlocutory  application seeking, first, an order that the Hunts pay security for costs, and secondly, an order striking out the claim under the Act.

[13]     The application for security for costs has been resolved between the parties. The hearing and this judgment are concerned solely with the application to strike out.

[14]     The grounds for strike out were stated to be that “there is no reasonably arguable cause of action”.   The judgments of the Court of Appeal in Attorney- General v Prince & Gardner,[2] and the Supreme Court in Couch v Attorney-General[3] were relied on.  At the hearing, the application to strike out was argued on two bases: first that the Hunts’ claim is statute-barred under s 43(5) of the Act, and secondly, that the Hunts could not succeed in their allegation that the Macartneys were “in trade”.

Applicable principles

[2] Attorney-General v Prince & Gardner [1998] 1 NZLR 262 (CA).

[3] Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725.

[15]     The principles to be applied to an application to strike out a pleading are well settled.  In Attorney-General v Prince & Gardner the Court of Appeal summarised them as follows:[4]

[4] At 267.

A striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true.  That is so even although they are not or may not be admitted.  It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed;  the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material;  but the fact that applications to strike out raise difficult questions of law, and require extensive argument does not exclude jurisdiction.

(Citations omitted.)

[16]     In Attorney-General v Couch Elias CJ said:[5]

[5] At [33].

It is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed.  The case must be ‘so certainly or clearly bad’ that it should be precluded from going forward.

(Citations omitted.)

Limitation

[17]     Mr Patterson submitted that the claim under the Act is statue-barred under s 43(5) of the Act.   Section 43 establishes the jurisdiction of the Court to make orders if it is found that there has been a contravention of any of the provisions of Parts 1 to 4 of the Act.[6]   Section 43(5) provides:

An application [for orders] under subsection (1) may be made at any time within 3 years after the date on which the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered.

[6] Section 9 of the Act which provides that “no person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive” is in Part 1 of the Act.

[18]     Mr Patterson submitted that the date that “the loss or damage or likelihood of loss or damage was discovered or ought reasonably have been discovered” was the date of the sale of the shares to the Hunts, on 26 September 2006.   Mr Patterson submitted  that any proceedings  under  the  Act  should  have  been  brought  by 26

September 2009.  As the Hunts’ statement of claim was filed on 26 March 2010, he submitted that the claim under the Act statue-barred.

[19]     Mr Orlov submitted that the Hunts did not discover any loss or damage, and ought not reasonably have discovered any loss or damage, until after the factory was destroyed in the fire in July 2008.   Accordingly, he submitted, time under s 43(5) runs until July 2011 and the claim under the Act is well within time.

[20]     Mr Patterson’s submission was based on the fact that there is no pleading as to the date or dates on which various representations were made and no pleading as to the date or dates on which the Hunts allege that they “reasonably” discovered loss or damage, or the likelihood of loss or damage.  He submitted that there was nothing put forward by or on behalf of the Hunts to say that they could not “reasonably discover” loss or damage before March 2007 (which he submitted was the latest the “reasonable discoverability” could have occurred in order for the statement of claim to have been filed within time.

[21]     Mr Orlov countered this submission by saying that the Hunts’ case as to reasonable discoverability is set out in detail in the affidavit filed by the Hunts in response to the application to strike out.  He submitted that it would be appropriate for the Hunts to replead after discovery has been completed.   He submitted that documents had been withheld from the Hunts.

[22]     I am not satisfied that grounds to strike out have been established on the limitation point.  Any defect in the pleadings (in omitting a pleading as to when the Hunts discovered the loss or damage, or likelihood of loss or damage), can be remedied by an amended statement of claim.   When a defect can be remedied by

repleading, strike out should not be ordered.[7]     When the Hunts discovered their loss

or damage, or ought reasonably to have discovered it, is a question of fact that cannot be determined at this stage.

[7] See Marshall Futures Limited v Marshall [1992] 1 NZLR 316. In Couch Elias CJ noted at [30] that “the claim is barely developed” and that “the pleadings remain unsatisfactory”. Nonetheless, that did not lead to the pleading being struck out.

[23]     Accordingly, subject to an amended statement of claim being filed which includes an allegation as to when the Hunts discovered their loss or damage, or likelihood of loss or damage, the claim under the Act is not struck out on this ground.

The Hunts’ claim that the Macartneys were “in trade”

[24]     Section 9 of the Act provides:

Misleading and deceptive conduct generally

No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

In s 2 of the Act, “trade”:

means any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.

[25]     Mr Patterson submitted that the Hunts cannot succeed in their allegation that the Macartneys were, in the course of selling the shares in PHL to them, “in trade”.

He acknowledged that a “one-off transaction” comprising the disposition of assets can be “in trade” for the purposes of the Act, but submitted that in the present case, that could not be the Court’s conclusion.

[26]     Mr Orlov referred to a number of decisions in which consideration has been given to whether representations or conduct in the course of a “one-off transaction” were “in trade”.  Having analysed those decisions, he submitted that a “one-off sale” can be considered “in trade” under the Act.  He then submitted that, in the present case, the Macartney’s actions were “in trade”.

[27]     The authorities cited in the course of the hearing were Newell v Garland,[8]

Undrill v Senior,[9] E & K L Zust Ltd v Shirtcliff,[10] Cochrane v Clark,[11] and Cashmore v Sands.[12]    In none of those cases was the factual situation identical to that of the present case.  They serve only to make it clear that a one-off sale of a business can be “in trade”, and whether a one-off transaction is “in trade” is a question of fact to

be determined in the facts and circumstances of the particular case.

[8] Newell v Garland, HC Palmerston North, CP144/89, CP129/89, 14 September 1989. 

[9] Undrill v Senior HC Blenheim, CP9/94, 20 August 1997.

[10] E & K L Zust Ltdd v Shirtcliff HC Christchurch CP84/00, 14 December 2000.

[11] Cochrane v Clark CA66/04, 24 February 2005.

[12] Cashmore v Sands (2007) 8 NZBLC 101,897 (HC).

[28]     Where there is a dispute of fact, strike out is not appropriate.  As noted by the Court of Appeal in Attorney-General v McVeagh,[13]  the Court will not attempt to resolve genuinely disputed issues of fact, for a striking-out application is dealt with on the footing that the pleaded facts can be proved.

[13] Attorney-General v McVeagh [1995] 1 NZLR 558 at 566.

[29]     Again, Mr Patterson criticised the statement of claim in that it did not set out particulars of the allegation that the Macartneys were “in trade”.  While that is the case, it is a matter that can be addressed by an amended pleading.

[30]     Accordingly, I am not satisfied that the Hunts’ claim under the Act should be struck out on the grounds that the Court can be certain that the Hunts cannot succeed on their claim that the Macartneys were “in trade” or that the claim is so certainly or clearly bad that it should be precluded from going forward.  Subject to the Hunts’

amending the statement of claim so as to include particulars as to the Macartneys being “in trade” when they were in the process of selling the shares in PHL to the Hunts, the claim under the Act is not struck out on this ground.

Other grounds to refuse strike out

[31]     Mr Orlov also submitted that the Macartneys’ application to strike out should be refused, on the grounds that a strike out application will not completely dispose of the case.  He referred to two judgments in particular, those of Master Thomson in Whitman v Airways Corporation of New Zealand Limited,[14]  and the judgment of Doogue J in Applefields Limited v New Zealand Apple & Pear Marketing Board.[15]

[14] Whitman v  Airways Corporation of New Zealand Limited HC Wellington CP98/93, 25 October 1994 at 4 and 6. 

[15] Applefields  Limited  v  New  Zealand  Apple  &  Pear  Marketing  Board  HC  Wellington CP35/94, 21 April 1994. 

In the former case Master Thomson said:

I emphasise that strike out procedure should generally not be relied on unless the result will be that the whole pleading will be disposed of.

Putting the issue as clearly as I can it seems to me that in the ordinary run of the mill case, which may take two or three days, a strike out application which will not dispose of the entire case should not be made as the time and cost in hearing it is seldom, if ever, justified.  The issue of course can still be raised at trial.

[32]     In his judgment in Applefields Limited, Doogue J said:[16]

When this matter was last called before me, I made it plain that unless the application was likely to finally dispose of the proceedings it should not be pursued.

[16] At 12.

[33]     Mr Orlov submitted that because the Macartneys’ application was to strike out just one cause of action from the statement of claim, it should not be granted, in any event, as to do so would not dispose of the entire proceeding.   Mr Orlov’s submission is understood, but in the light of my conclusion on the points argued on behalf of the Macartneys, it is not necessary to rely on those authorities.

Costs

[34]     Mr Orlov sought costs on behalf of the Hunts “on the highest possible scale”. He submitted that the application to strike out should never have been brought, and that the application has wasted both the Hunts’ time and the Court’s time.

[35]     While I am prepared to make an order that the Macartneys pay costs in respect of the application to strike out, I am satisfied that the appropriate scale is 2B.

Result

[36]     The application by the first, second and third defendants to strike out the plaintiff’s cause of action under the Fair Trading Act 1986 is dismissed.

[37]     The  first,  second  and  third  defendants  are  ordered  to  pay  costs  to  the plaintiffs on a 2B basis, together with any disbursements as certified by the registrar.

Andrews  J