Isolare Investments Limited v Fetherston HC Auckland CIV 2002-404-1791

[2005] NZHC 1247

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2002-404-1791

BETWEEN  ISOLARE INVESTMENTS LIMITED

Plaintiff

AND  DENIS JOHN FETHERSTON & OR

Defendant

Hearing:         20 April 2005 Appearances: P Grace for Plaintiff

S Judd for Defendant Judgment:  21 April 2005

ORAL JUDGMENT OF COURTNEY J

ON DEFENDANTS’ APPLICATION FOR JOINDER OF COUNTERCLAIM DEFENDANT

Solicitors:           Rice Craig, P O Box 72440, Papakura

Ladbrooks, P O Box 27-633, Parnell

Counsel:            P Grace, P O Box 2179, Auckland

Fax: [phone] – email: [email protected] S Judd, P O Box 3320, Auckland

Fax: [phone] – email: [email protected]

ISOLARE INVESTMENTS LTD V FETHERSTON & OR HC AK CIV-2002-404-1791 [21 April 2005]

[1]    In their amended statement of defence and counterclaim the defendants allege that the plaintiff agreed to purchase 50% of the shares in HIL from them and to provide various other forms of consideration as part of the purchase price. The defendants now seek to join Mr Gallagher, Isolare’s director, as a counterclaim defendant. They do so on the basis that the effect of the evidence heard last week shows that the agreement was in fact reached by Mr Gallagher personally. Mr Judd also raised the possibility that Mr Gallagher had acted as agent for Isolare in  reaching the agreement and asserts that Mr Gallagher should properly be a party to the proceedings as an alternative to Isolare.

[2]    Mr Judd submits that the joinder would be permitted under r 150 and r 97 of the High Court Rules. He acknowledges that the application is late and that it could and should have been made earlier. However, he says that there would be no prejudice to either party in allowing the joinder. Mr Gallagher  himself  gave evidence as Isolare’s primary witness and the circumstances surrounding the agreement between the Fetherstons and Isolare/Gallagher was explored in detail. He says that no further evidence either through witnesses or documents would be needed nor indeed would probably be available.

[3]    The plaintiff opposes the application. Mr Grace points out that the issue as to whether Mr Gallagher was the proper subject of the defendants’ counterclaim was raised in an affidavit in support of Isolare’s application for summary judgment 20 November 2002. Mr Gallagher specifically said that the defendants’ counterclaim was, at best, based on an alleged commitment by him personally, which he denied, and not any failure of Isolare.

[4]    Mr Grace also says that the evidence simply does not support the proposed new counterclaim against Mr Gallagher and for that reason leave ought not be given. He relies on O’Sullivan v New Zealand Ostriches Limited (2000) 14 PRNZ  593. This submission was based on the fact that in the current pleading the defendants allege an agreement between Gallagher and Fetherston as to the sale of the shares in HIL reached orally at a meeting between them. In evidence however Mr Fetherston said that the agreement was in fact made by way of Mr Gallagher’s letter and draft agreement 1 May 2001 and his subsequent acceptance conveyed to Ms Hall by

telephone. This fact (contrary to Mr Fetherston’s evidence in chief) was not put to either Mr Gallagher or Ms Hall.

[5]    Further, Mr Grace says that this would bring into focus a possible issue over Ms Hall’s position which might raise the question as to whether she would need to be a party or at least whether she should need to give more evidence.

[6]Under r 150:

Subject to r 146, if the defendant has a counterclaim against the plaintiff along with any other person (whether a party to the proceeding or not) for any relief relating to or connected with the original subject matter of the proceeding, he may, within the time limited for filing his statement of defence, file a statement of the counterclaim and serve a copy thereof on the plaintiff and such other person. Such other person shall be referred to as a counterclaim defendant.

[7]    The two relevant criteria under r 150 are that the proposed counterclaim be against both the existing plaintiff (Isolare) along with Mr Gallagher. Mr  Judd accepts that only one party contracted with the defendant and therefore Mr Gallagher was unlikely to be liable along with Isolare.  However, if Mr Gallagher were acting as agent for Isolare then both might potentially be liable on the counterclaim. Given that possibility I accept that the first requirement of r 150 is satisfied.

[8]    The second requirement is that the proposed counterclaim be related to or connected with the original subject matter of the plaintiff’s claim against the defendant. I think it is clear that this requirement is also satisfied; the  plaintiff’s claim is made under a guarantee given by the defendants. The defendants have always asserted that the guarantee was part of a wider contractual arrangement surrounding the purchase by Mr Gallagher of the HIL shares. In this sense, I am satisfied that it is sufficiently related to the original proceeding.

[9]    However, the application for leave to join Mr Gallagher has been brought very late under r 97. There is jurisdiction to grant leave even at this late stage. But  the delay in making the application is a factor that I am entitled to take into account in exercising my discretion to grant leave. Granting leave in this case would inevitably mean re-opening the pleadings. The defendants would need to file a

further amended statement of defence and counterclaim. Mr Gallagher would be entitled to file a statement of defence. As a newly joined party I also cannot see why Mr Gallagher would be denied all of the other rights of any party including the rights to exercise interlocutory steps. Although it seems unlikely that this  would  be needed.

[10]   This matter has now been on foot since July 2002. There have been substantial delays and some of those, as alluded to by Venning J in his recent decision refusing the defendant leave to join third parties shortly before the trial, have been caused by the defendants. The plaintiff, through Mr Gallagher, put the defendants on notice that their counterclaim was directed towards the wrong party more than two years ago. Briefs of evidence were exchanged  well before  trial and all of the evidence is completed. In the circumstances, it would not be fair to the plaintiff to grant leave. If the defendants wish to pursue Mr Gallagher for alleged breaches of the agreement then they are free to do so separately.  But I do  not see that the plaintiff should be held up in resolving its claim.

[11]   Leave to join the counterclaim defendant is therefore refused. Costs are reserved.

P Courtney