Irrigation Services (Wairarapa) Limited v Benton HC Napier CIV-2010-441-280

[2011] NZHC 1144

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2010-441-280

BETWEEN  IRRIGATION SERVICES (WAIRARAPA) LIMITED

Plaintiff

ANDALEXANDER ELMON BENTON AND STEWART WILLIAM BENTON PARTNERSHIP

Defendant

ANDADRIAN EDWARD MANNERING Counterclaim Defendant

Hearing:         20 September 2011 (Heard at Wellington)

Counsel:         J.O. Upton QC - Counsel for Plaintiff and Counterclaim Defendant

T. Anderson and W. Hamilton - Counsel for Defendants

Judgment:      20 September 2011

ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

Solicitors:           Gifford Devine, Solicitors, PO Box 148, Hastings 4156

Gibson Sheat, Lawyers, PO Box 2966, Wellington

IRRIGATION SERVICES (WAIRARAPA) LIMITED V AE BENTON AND SW BENTON PARTNERSHIP HC NAP CIV-2010-441-280 20 September 2011

[1]      Before  the  Court  is  an  application  by  the  plaintiff  and  counter-claim defendant pursuant to r 7.18 of the High Court Rules for leave to file an amended statement of defence to the defendant’s counter-claim.

[2]      This application is opposed by the defendants.

[3]      Rule 7.77 High Court Rules provides that before trial an amended pleading may be filed by any party.   This provision, however, is qualified by r 7.18 High Court  Rules  which  at  7.18(2)  provides  “No  statement  of  defence  or  amended pleading or affidavit may be filed, and no interlocutory application may be made or step taken, in the proceeding after the setting down date without the leave of a Judge.”

[4]      As a preliminary matter I note certain time tabling dates which have occurred in this proceeding.

[5]      The proceeding has been set down for a 3 day hearing commencing  25

October 2011 in the High Court at Wellington.

[6]      A notice of the date of this hearing was issued by the Deputy Registrar of this Court on 31 August 2011 confirming the trial date.  This notice also confirmed that the setting down date was to be 9 June 2011.

[7]      In any event, pursuant to r 7.13(5) the default setting down date if none had otherwise been allocated would have been 2 August 2011.

[8]      The present application before me for leave to file the amended statement of defence  was  not  filed  until  24 August  2011.    It  was  appropriately  entitled  an Application On Notice for Leave to File the Amended Statement of Defence.  It is clear and before me counsel accepted that, given the setting down dates in this matter, an application for leave was required.

[9]      I turn now to consider the application itself.

[10]     By  their  interlocutory  application,  the  plaintiff  and  the  counter-claim defendant seek leave to file an amended statement of defence to the defendant’s counter-claim essentially on the following grounds:

(a)      The counter-claim defendant appears in the original defence to the counter-claim, to have admitted owing an independent legal duty of care to the defendant partnership.   This admission was said to be made in error;

(b)That original statement of defence to the counter-claim was prepared by counsel earlier instructed; and

(c)      The counter-claim defendant does not accept that he owes any independent duty of care to the defendant partnership and wishes to argue that point at the hearing of this matter.

[11]     As I have noted, the application is opposed by the defendant partnership, and they do so essentially on the following grounds:

(a)      It is suggested there is an evidential vacuam upon which the Court can exercise its discretion in favour of the application in this case;

(b)There is said to be no adequate explanation before the Court for the delay on the part of the plaintiff and counter-claim defendant in filing an amended statement of defence;

(c)      The admissions already made in the original statement of defence on the part of the counter-claim defendant are the correct position in fact and in law;

(d)The hearing date scheduled for 25 October 2011 is fast approaching and there is a significant risk to this hearing date if the application is granted.   Any postponement of this hearing it is said would cause significant prejudice to the defendant partnership;

(e)      In addition, granting the leave sought would cause the defendant partnership significant other prejudice; and

(f)       Finally,  it  is  not  in  the  overall  interests  of  justice  to  allow  an amendment to the statement of defence to the counter-claim at such a late stage in this proceeding.

[12]     Some brief factual background to this matter is useful.  The original claim by the plaintiff against the defendant in this proceeding, as I understand it, is to recover approximately $300,000.00 said to be due under a contract for work carried out on a farm property owned by the defendant partnership.

[13]     The counter-claim issued by the defendants against both the plaintiff and the counter-claim defendant, Adrian Edward Mannering (Mr Mannering), alleges breaches of duty owed to the defendants by both the plaintiff and Mr Mannering. This counter-claim has recently been quantified at the sum of $1.64 million.

[14]     The plaintiff’s original statement of claim in this proceeding was issued on 5

May 2010.  The lengthy statement of defence and counter-claim from the defendants was filed on 5 July 2010.  The counter-claim at that point was not quantified.  The original statement of defence to the counter-claim was filed on 13 August 2010.

[15]     At that time, counsel instructed for the plaintiff was a Mr Max Courtney, a Napier Barrister who was subsequently appointed as a District Court Judge.   His instructing solicitor was  a Mr Dougal  Matheson, a Hastings Solicitor, who was himself subsequently appointed as a District Court Judge.  Those appointments, as I understand it, occurred during the second half of 2010 and thus, in about December

2010, Mr Upton QC, present counsel for the plaintiff was instructed in place of Mr

Courtney.

[16]     It seems to be accepted for the plaintiff and Mr Mannering that a significant error occurred in the statement of defence to the defendant’s counter-claim which was filed on their behalf on 13 August 2010.

[17]     This  error  in  essence  involved  an  admission  by  Mr  Mannering  in  the statement of defence that he owed a personal duty of care to the defendant along with the duty of care that was owed by the plaintiff.

[18]     This error appeared to go undetected until sometime in August 2011.

[19]     Mr Upton QC for the plaintiff and Mr Mannering now contends that, at a private mediation arranged between the parties on 12 August 2011, for the first time the defendant’s counter-claim was quantified and this totalled approximately $1.64 million.   This  was  in contrast  to  the original  claim  by the plaintiff against  the defendant which was for slightly under $300,000.00.

[20]     Mr Upton QC submitted that it was only at this mediation that, in addition to the substantial quantification of the counter-claim, it became apparent that the claim against Mr Mannering personally was on the basis that he had a personal duty of care to the defendant and that a closer analysis of the pleadings carried out at that point revealed ambiguities and purported admissions by Mr Mannering as to this duty of care which should not have been made.  Mr Upton QC noted that, on the face of it, there appeared to be a fundamental error in the drafting of the 13 August 2010 statement of defence to the counter-claim in that in particular whatever admissions were made in that pleading on behalf of Mr Mannering personally should not have been made.

[21]     There seems to be little argument that the effect of these apparent admissions is to potentially expose Mr Mannering personally to a risk of a finding against him in this proceeding in circumstances where the entire purpose of Mr Mannering incorporating his plaintiff company was  to protect him as a director from such personal liability.

[22]     Before me, Mr Upton referred to the fact that in the past the Court’s have consistently recognised that they should not risk imposing a personal duty of care on the owners of  “one-man” companies which  would  erode the concept  of limited liability and separate identity, except in exceptional cases.   On this he referred to Todd, The Law of Torts in New Zealand Fifth Edition at para 6.8.01, Trevor Ivory

Limited v Anderson [1992] 2NZLR 517 and Auckland Christian Mandarin Church

Trust Board v Canam Construction (1955) & Ors, CIV-2008-404-8526, 25 June

2010.

[23]     Mr Upton QC submitted before me that following this mediation, when the extent of the defendant’s counter-claim was known and the ambiguities and errors in the plaintiff’s and Mr Mannering’s statement of defence were identified, the present Application for Leave to Amend was filed, this occurring shortly thereafter on 24

August 2011.

[24]     As I have noted above, r 7.77 addresses the filing of an amended pleading. McGechan on Procedure at para HR7.77.03 deals with the requirement for leave of the Court to be granted for an amendment after the setting down date and notes:

HR7.77.03 Amendment after setting down date

After the setting down date, an amended pleading may be filed only with leave. (The rule does not prohibit service of an amended pleading already filed before setting down, if delay has occurred.)

Granting of leave to amend after setting down was briefly considered by the Court of Appeal in Thornton Hall Mfg Ltd v Shanton Apparel Ltd (1989) 3 TCLR 249, [1989] 1 NZLR 234 (dismissing an appeal from Henry J, reported), where the Court said the parties should have every opportunity to ensure that the real controversy goes to trial so as to secure the just determination of the proceedings.

That paragraph in McGechan on Procedure goes on to state:

Lateness (a fortnight before adjourned trial date), incompleteness in proposed additional pleading of consequential losses without factual basis for them, the need for further interlocutory applications and the weakness of the allegations were seen as decisive against permitting amendment in Grey v Elders Pastoral Holdings Ltd HC Auckland CP417/95, 1 May 1997. In Fordham v Xcentrix Communications Ltd (1996) 9 PRNZ 682, Fisher J considered the magnitude of and explanation for the delay, and the merits of the amended pleading that the applicant sought to file, as relevant factors.

...........

In Whakatane DC v Bay of Plenty RC (2008) 19 PRNZ 91, the High Court held that an application for leave to permit late amendments to a pleading “requires the Courts to conduct a balancing exercise between the general concern that parties to litigation comply properly with procedural requirements and the particular interest in each case of ensuring that the case is justly determined.”

[25]     In addition, in Pegasus Group Ltd v QBE Insurance (International) Limited HC, Auckland, CIV-2006-404-6941, Winkelmann J, 10 July 2009, referred to me here  by  Mr Anderson  for  the  defendants,  para  [9]  identifies  three  “formidable hurdles” (taken from the decision in Ketterman v Hansel Properties Limited (1987) 2

WLR 312) which an applicant must surmount in order to obtain leave to make a belated amendment to a pleading. These are:

(a)       Is granting the application in the interests of justice? (b)        Will it significantly prejudice the other party?

(c)       Will it cause significant delay?

[26]     I turn now to address these particular issues here.

Is Granting Leave in this Application in the Interests of Justice?

[27]     On this aspect, the first point to note as I see it, is that the application to amend the statement of defence is not simply a case of requiring an amendment for some minor slip, typographical error or the like.   The issue in this case is a fundamental one.  The question is does Mr Mannering have a personal duty of care owed to the defendants here?

[28]     So far as the defendant’s contentions are concerned first, that an evidential vacumn exists and secondly, that the plaintiff and Mr Mannering have not done sufficient to place before the Court sufficient evidence to show that the present application should be granted, I take the view that there is a sufficient basis which exists here and adequate material before the Court on which it is able to act. There is no  doubt  in  my  mind  that  the  concession  at  the  time  presumably  by  counsel instructed by the plaintiff and Mr Mannering in their 13 August 2010 statement of defence to the counter-claim, was made in error.   As I have noted above, a fundamental issue which will arise at trial in this matter is whether indeed such a personal duty of care was owed.

[29]     Next, on this question as to the general interests of justice, in my view it is self-evident  in  this  case  that  the  detrimental  impact  on  Mr  Mannering  will  be obvious if his admission that he owed a personal duty of care to the defendants remains unchallenged.  Mr Mannering will clearly be significantly more at risk then he would otherwise have been if that personal duty of care had been denied.   In effect to “punish” Mr Mannering in this case for what may well turn out to be

significant  errors  made  by  his  counsel  at  the  time,  would  not  in  my  view  be conducive to ensuring that the present case is justly determined.  Here, it is important as I see it, that the real controversy between the parties goes to trial, in order that as McGechan puts it “the just determination of the proceeding” can occur.

Will Granting Leave Significantly Prejudice the Defendants Here?

[30]     On this aspect, before me Mr Anderson referred on a number of occasions (and  quite properly if established) to what he contended would be significant delay in this proceeding if the present leave application is granted.  If that was to occur, he argued that the hearing date set for 25 October 2011 could not be maintained. To this extent he contended that the defendants would be under some significant prejudice if the application was successful.  I will talk more on this issue of delay shortly.

[31]     Generally, as to other aspects of prejudice argued for the defendants, Mr Anderson endeavoured to persuade me that there were limited prospects of success of the proposed amended pleading and that in any event further substantial additional evidence  and  submissions  would  be  required  if  the  present  application  was  to succeed.

[32]     So far as the prospects of success of the proposed amendments are concerned, as I see it, this is not the appropriate occasion to endeavour to determine those likely prospects.  What is clear to me however is that, as with the situation which prevailed in cases such as Trevor Ivory Limited v Anderson and the subsequent cases which have addressed the potential liability of directors in these situations, all these determinations  are significantly fact  specific.   That  said,  in  my view,  these are matters which should go to trial.

[33]     So far as the complaint that additional evidence and submissions will be required, there can be no doubt that there will need to be some additional evidence as to Mr Mannering’s involvement with the defendants and the general contractual arrangements which seem to have been entered into with the plaintiff.  I do not see, however, that this would necessarily be substantial.

[34]     As to the additional submissions required on this issue, there can also be no argument that these will be required. As I see it again however, they are not likely to need to be unduly substantial and, in any event, the clear interests of justice in this case in my view require that Mr Mannering should have the whole duty of care question properly considered by the Court.

[35]     And  finally  on  this  prejudice  question  generally,  I  accept  that  if  the application before me is to succeed, there will be clearly some impact upon the defendant.  In my view, however, this impact is outweighed by considerations as to the just determination of this proceeding which I have noted above.

Would Granting Leave Cause Significant Delay

[36]    As I have noted above, this matter has been allocated a 3 day hearing commencing 25 October 2011.  Mr Anderson for the defendants contended that this hearing date was substantially at risk if leave is granted to the filing of the amended statement of defence.

[37]     In  response  on  this,  Mr  Upton  QC  for  the  plaintiff  and  Mr  Mannering submitted that the hearing date would not necessarily be lost.

[38]     Both counsel seem to  agree,  however, that some additional hearing time might be required if the leave sought here is granted and that the hearing might be required to extend to 4 days.

[39]     On  this,  I  have  had  the  opportunity  of  discussing  this  aspect  with  the Registrar and  can  confirm  that  an  allocation  for this  hearing of 4  days  is  now available commencing on Tuesday, 25 October 2011.  That 4 day allocation is now confirmed.

[40]     That said, although the hearing date itself is fast approaching, I have some degree of confidence that, with due attention from counsel to the parties and a speedy service of briefs of evidence on the part of the plaintiff and Mr Mannering

and on the part of the defendant, together with proper attention to other pre-trial matters, the 25 October 2011 hearing date can be preserved.

[41]     I do note however that the present application for leave has been filed rather late in the piece.   It will be apparent from the reasons outlined above that notwithstanding this, the application is to be granted.  This is, however, as I see it an indulgence granted to the plaintiff and Mr Mannering, in particular, because in my view the delays in this case it seems cannot be attributed to actions on their part but rather because of actions on the part of their advisers.

Conclusion

[42]     As  I  have  noted,  for  the  reasons  outlined  above  the  present  application succeeds.  Leave is now granted to the plaintiff and the counter-claim defendant to file an amended statement of defence to the defendant’s counter-claim as set out in the draft document attached to the present application.

[43]     As to costs on this application, given my comment above that in effect the granting of leave at this rather late stage is an indulgence to the plaintiff and Mr Mannering, in my view, the defendant is entitled to an order for costs with respect to the present application.  That may seem rather surprising given that the defendant’s opposition to that application has failed.  Notwithstanding that, this is an appropriate case in my view where costs should be awarded to the defendant.

[44]     Costs are awarded to the defendants on this application on a 2B basis together with disbursements as fixed by the Registrar.

[45]     Leave is reserved for either party on 24 hours notice to approach the Court further  if  additional  directions  are  required  to  get  matters  on  track  for  the approaching trial of this matter.

‘Associate Judge D.I. Gendall’