Kidd v van Heeren
[2015] NZHC 517
•14 April 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-725 [2015] NZHC 517
BETWEEN MICHAEL DAVID KIDD
Plaintiff
AND
ALEXANDER PIETER VAN HEEREN Defendant
Hearing: 9 - 13 February 2015 Counsel:
S J Mills QC and B O'Callahan for Plaintiff
B D Gray QC and A Wakeman for DefendantJudgment:
14 April 2015
JUDGMENT OF FOGARTY J
This judgment was delivered by me on 14 April 2015 at 3.00 p.m., pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors: Kirkland Morrison O’Callahan Limited, Auckland
Jones Fee, Auckland
KIDD v VAN HEEREN [2015] NZHC 517 [14 April 2015]
TABLE OF CONTENTS
Introduction [1] The issues between the parties [14] Res judicata [17] What did the Judge decide? [55]
The indemnity [60] The Genan agreement [84] Mr Kidd’s trust in Mr van Heeren [96]
The content of the partnership [100] Evaluation of the merits on a finding of issue estoppel [110] Summary of issue estoppel analysis [117] Remedy of account [118] Interim payment [127] Opposition to interim payment on the facts [134]
The continuing and outstanding duty of Mr van Heeren to Mr Kidd[146] Residual discretion [157] Judgment [171] Costs [174]
Introduction
[1] This litigation commenced by statement of claim filed in New Zealand in
February 1996.1 The claim pleaded that:2
All the properties and companies and share investments referred to were part of the worldwide 50/50 partnership between the Plaintiff and the Defendant.
The claim sought various remedies, including the taking of accounts. The defendant did not file a statement of defence. Rather, he filed an appearance under protest to jurisdiction. He also applied to have the proceedings struck out or permanently stayed by relying on an indemnity, dated 18 January 1991. He contended the indemnity constituted a complete defence as it provided for a full and final settlement of all matters between the parties.
[2] The New Zealand proceedings were stayed. The order made is as follows:3
There will be a stay of this action until further order of the Court, or until it is established either that the South African Courts decline jurisdiction to declare the validity and scope of the indemnity signed at Randburg on
18 January 1991 (Exhibit E of van Heeren’s affidavit of 8 October 1996), or otherwise uphold the plaintiff’s challenge to it. Leave is reserved to either
party to apply on 21 days’ notice.
[3] On 21 May 2013, Satchwell J, sitting in the South Gauteng High Court of South Africa, declared the indemnity is void and of no force and effect. She did so having concluded “that there were misrepresentations which were deliberately made” (by the defendant) to the plaintiff in order to get him to sign it.4
[4] This is an interlocutory application by the defendant seeking four orders in the following terms:
1 These proceedings have been given a new file number, but remain the same proceedings commenced in 1996, CP46/96.
2 Statement of claim, dated 20 February 1996 at [1.39].
3 Kidd v van Heeren [1998] 1 NZLR 324 at 342.
4 Kidd v van Heeren South Gauten High Court 27973/1998, 21 May 2013, [152] – [173].
(a) An account be taken between the plaintiff and the defendant to determine the amount due to the plaintiff arising out of the plaintiff’s claim against the defendant.
(b) That any amount certified on the basis of that account be paid.
(c) The defendant make an interim payment to the plaintiff in the sum of
USD25m on account.
(d) The defendant pay the costs of this application.
Effectively this requires, as a preliminary step, declarations that there are partnership assets, or assets jointly owned, in respect of which there needs to be an account taken.
[5] The notice of application pleads in 2f as grounds for the remedy of account:
f. The judgment of Satchwell J has substantially narrowed the disputed issues between the parties. In particular the judgment holds that the parties were partners from 1975 and that as at 17 January 1991 the assets of their partnership included but were not limited to:
1. Huka Lodge in New Zealand;
2. an 80% shareholding in Optech International Ltd (of New
Zealand);
3. the shares in or assets of Prime International Ltd (of New
Zealand);
4. the proceeds of the sale of 13,975,704 shares in Wellesley
Resources Ltd (of New Zealand);
5. Dolphin Island, Fiji;
6. The shares in or assets of Genan Trading Co NV (of the
Netherland Antilles) (“Genan”);
7. gold bars and bearer certificates;
8.various bank accounts around the world, including those in the name of Prime International Ltd and Genan;
9. the shares or assets of the following South African
Companies:
(a) Galaxy Export/Import Company Limited, trading as
Tisco International SA (Tisco);
(b) Edmonton Properties (Proprietary) Limited, formerly Kiddeeren Properties (Proprietary) Limited (Edmonton Properties);
(c) Edmonton Steel (Proprietary) Limited, formerly Steel Straighteners and Stockists (Proprietary) Limited (Edmonton Steel);
(d) Ocean Steel Limited;
(e) Group Four Trading (Proprietary) Limited (Group
Four);
(f) TGM Metals (Proprietary) Ltd (TGM Metals);
10. the shares or assets of Ferromar Pvt Ltd (of Zimbabwe);
11. an 80% shareholding in Jocrow Steel Ltd (of the United
Kingdom) (Jocrow);
12. the shares in or assets of Briar Trading Ltd (of the United
Kingdom);
13.the shares in or assets of Bramlin Ltd (of Hong Kong) (Bramlin).
[6] The application pleads that the findings of facts set out in 2(f) give rise to an issue estoppel in New Zealand proceedings. In the alternative they plead that, to the extent that any findings in the judgment of Satchwell J do not give rise to issue estoppel, it is likely this Court will come to the same conclusion.
[7] It pleads that as a result the issues between the parties are now limited to:
(i) What further assets (if any) were part of the partnership as at
17 January 1991;
(ii) Questions relating to the taking of an account, including:
1.The extent to which each partner received distributions prior to 18 January 1991;
2. The precise value of the partnership assets at 18 January
1991;
3. How the defendant has applied the partnership assets after
18 January 1991 and the extent to which he, or third parties to whom he may have transferred assets or who have
subsequently received partnership property, must account to
the plaintiff for any profits derived from those assets, and the amount of those profits;
(iii) The extent of the plaintiff’s proprietary interest in the partnership assets or the assets into which they can be traced and/or the plaintiff’s rights to a lien over such assets in order to secure his right to an account.
[8] The application goes on to plead that the parties have not operated their affairs in common since 18 January 1991 but the partnership has not yet been wound up and that the defendant has taken full control of all partnership assets since
18 January 1991 other than:
(a) the shares in Tisco, Edmonton Properties, Edmonton Steel, Group
Four, TGM Metals and Bramlin; (b) the 80% shareholding in Jocrow;
(c) a shipment of steel known as the Siamasse Shipment; and
(d) the Drury Hills property.
The defendant’s shares in (a) were transferred for one rand to the plaintiff in the “sale agreement”, signed on the same day, 18 January 1991, as the indemnity agreement – referred to in [2] above.
[9] It pleads that the taking of an account is bound to show that the defendant must deliver assets to or make payment to the plaintiff to a value of, or in the sum of, no less than USD58,700,000. It goes on to plead that it is in the interests of justice that an order for interim payment be made forthwith of USD25,000,000 because of a number of factors, which I summarise from the pleadings:
(a) The delay to the plaintiff and the corresponding use and enjoyment of the partnership assets of the defendant.
(b) That the defendant has delayed the proceedings:
(i) by relying on the indemnity found to be null and void, by
reason of the defendant’s deliberate misrepresentations.
(ii)denying there was ever a partnership between himself and the plaintiff; and
(iii) denying that his business assets with the plaintiff included the
New Zealand assets.
(c) That undertaking an account now is likely to be a time-consuming process with the possibility of substantial further delay on the basis that the defendant will be uncooperative and evasive.
(d)Finally, that the defendant has had more than 17 years to arrange his affairs to defeat in whole or in part the plaintiff’s ability to recover from him and there is a real risk that this has been done or will continue to be done.
[10] The defendant’s notice of opposition denies:
That the pleadings or judgment in the South African proceedings raised and determined whether or not the parties were partners from 1975 or the extent of partnership assets as at 17 January 1991 including but not limited to the assets identified in paragraphs (2)(f)(1) to 2(f)(13).5
(Emphasis added.)
Rather, the defendant says it would be necessary for there to be a trial of the issues raised by the New Zealand statement of claim and statement of defence in this proceeding for either of such conclusions to be reached: partnership and extent.
[11] There can be no doubt that the South African Court found that the parties were partners and made findings as to the extent of the partnership assets. The section of the South African judgment headed “CONCLUSION” with a subheading
“Partnership”, concludes as follows:
5 See [5] above.
[126] It is difficult to comprehend the joint enterprise of Kidd and Van Heeren constituting anything other than a partnership. This view is fortified when one has regard to more than the creation, movement and inter exchange of steel trading and funds. The acquisition of the worldwide assets by reason of these steel trading profits confirms the finding of a partnership.
(Emphasis added.)
The finding of partnership in [119] through to [126] is then followed by findings as to worldwide assets in [127] through to [132]. Paragraph [132] is important and reads:
[132] I am more than satisfied that the partnership of Kidd and Van Heeren, through Genan and Prime NZ as also Tisco and Jocrow and the other entities, made acquisitions throughout the world. These include but are not limited to Prime NZ, Huka Island, Dolphin Island, Cromwell/Wellesley shares which ultimately became a substantial stash of monies, Optech, gold bars and bearer certificates, cash on hand in bank accounts. The full extent of the funds retained and the assets acquired is unknown to me.
[12] The defendant wants to contradict these findings by the South African Court by pleading in New Zealand to the contrary. If the defendant is successful, there will be contradictory findings by two High Courts.
[13] In the face of the defendant’s intent, the burden is on the plaintiff to set up an estoppel, contending: 6
… that his opponent is seeking to put into controversy and reagitate some question of law, or issue of fact, which is the very same question or issue which has already been the subject of a final decision between the same parties by a tribunal of competent jurisdiction.
The issues between the parties
[14] Two principal issues divide the parties in this proceeding, one of law, the other of mixed law and fact. The legal issue is whether issue estoppels can extend to findings of fact which were not directly placed in issue by the pleadings. The mixed law and fact question is whether issue estoppels arise from the findings made by the
Judge of the factual matrix. Mr Gray QC submitted that the Judge had not made
6 AK Turner Spencer Bower and Turner Res Judicata (2nd ed, Butterworths, London, 1969) at
[185], see also [184].
final decisions about key assets as a necessary step in her reasoning to her conclusion that the indemnity was void.
[15] Faced with the findings in [119] – [132] of the South African judgment of a partnership and partnership assets worldwide, the defendant argues that those findings were not necessary to resolve the dispute as pleaded, as to whether the indemnity was null and void.
[16] The plaintiff argues to the contrary, that the findings were “an essential and fundamental step in the logic of [Satchwell J’s] judgment, without which it could not stand”.7
Res judicata
[17] A res judicata is a decision pronounced by a judicial or other tribunal with jurisdiction over the cause of action and the parties, which disposes once and for all of the fundamental matters decided so that, except on appeal, they cannot be relitigated between the persons bound by the judgment.8 A res judicata estoppel may be either a cause of action estoppel or, by extension, an issue estoppel.9
[18] The res judicata doctrine cannot be understood and applied correctly without understanding its common law character and twin purposes. It is a common law policy with two limbs: 10
The interest of the community in the determination of disputes and the finality and conclusiveness of judicial decisions;
and the interests of an individual in being protected from repeated suits and prosecutions for the same cause.
[19] Lord Chancellor Maughan said in New Brunswick Railway Company v
British and French Trust Corporation Ltd:11
7 AK Turner Spencer Bower and Turner Res Judicata, above n 6, at [191].
8 KR Handley Spencer Bower and Handley Res Judicata (4th ed, LexisNexis, London, 2009) at
[1.01].
9 At [1.05].
10 At [1.10].
11 New Brunswick Railway Company v British and French Trust Corporation Ltd [1939] AC 1 (HL), at 19 – 20.
The doctrine of estoppel is one founded on considerations of justice and good sense. If an issue has been distinctly raised and decided in an action, in which the both parties are represented, it is unjust and unreasonable to permit the same issue to be litigated afresh between the same parties or persons claiming under them.
[20] So it can be seen at the outset, and is not to be forgotten, that the plea of res judicata is not a technical doctrine, but a general rule of public policy that there should be finality in litigation, when the policy is engaged. 12
[21] In many cases of res judicata, as distinct from issue estoppel, the application of the doctrine is simple because it applies to the upholding of a cause of action with distinct constituents or rejection of the same, as the case may be, or a clear finding on one of the pleaded constituents of the cause of action one way or the other.
[22] Issue estoppel is a term reserved to findings which do not fall into either of
those categories and is sometimes described as an “extension” of res judicata.
[23] As already explained in the introduction,13 in this case the South African judgment declared an “indemnity” to be null and void. By this written agreement, the defendant was granted a complete indemnity against any claims by the plaintiff in respect of any assets worldwide. That indemnity was declared void due to deliberate misrepresentations by the defendant that induced the plaintiff to enter into it. The pleading in support of that order did not expressly plead a partnership between the two parties. Though that was pleaded elsewhere in the pleadings.
[24] In this dispute it is common ground that a res judicata applies between the parties vitiating the contract of indemnity. But it is not common ground that the findings of partnership, and the extent of its assets, by the Judge in reaching her conclusion creates an issue estoppel.
[25] Mr Mills QC, for the plaintiff, submits that the Judge came to her conclusion that the indemnity was void by finding that the plaintiff and the defendant were in
partnership and had accumulated assets worldwide. These findings meant it was
12 Mills v Cooper [1967] 2 QB 459 QB, 469 per Diplock LJ cited in KR Handley Spencer Bower and Handley Res Judicata, above n 8, at [1.01].
13 See [3] above.
reasonable for Mr Kidd to trust Mr van Heeren, rather than read carefully the text of the indemnity. Mr Mills argues that Satchwell J’s findings as to partnership and partnership assets were necessary to her ultimate findings.
[26] Mr Gray QC, for the defendant, argued that the evidence admitted from Mr Kidd as to assets acquired from the steel trading and as to partnership related only to the need of the Judge to appreciate the factual matrix before interpreting the contract of indemnity. So that the issue for this proceeding is whether any of the facts forming part of the factual matrix were determined in a way which creates an issue estoppel. He submits there is nothing in the judgment to suggest the factual matrix, once known by the Court, will give rise to an estoppel. That there is no basis upon which it could be argued that the pleadings and judgment in South Africa finally determined the obligations between the parties in respect to the profits made by the companies such that any relevant issue estoppel can be said to arise. Mr Gray’s submission, as developed in oral argument confined issue estoppel to a very modest extension of res judicata. Though, like Mr Mills, Mr Gray agreed the
Carl-Zeiss Stiftung v Rayner and Keeler Ltd (No 2) judgment was a leading case, 14
but he also relied upon a very narrow definition of issue estoppel by Dixon J in the
High Court of Australia in 1939.15
[27] Mr Gray relied for this narrow definition upon the 4th edition of Spencer Bower and Handley16 which cites Dixon J’s judgment in the decision of Blair v Curran.17 The following are the key extracts from that case for the purposes of Mr Gray’s argument:18
A judicial determination directly involving an issue of fact or law disposes once and for all of the issue … The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, … The distinction between res judicata and issue estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact
14 Carl-Zeiss Stiftung v Rayner and Keeler Ltd (No 2) [1967] 1 AC 853 (HL)
15 Blair v Curran 62 CLR 464, 531-532.
16 Now edited by The Hon Mr KR Handley AO, QC of Australia. At the time of publication of the
4th edition, Mr Handley was a Judge of the Court of Appeal of New South Wales.
17 KR Handley Spencer Bower and Handley Res Judicata, above n 8 at [8.02].
18 Blair v Curran, above n 15, at 531 – 533.
or law is alleged or denied the existence of which is matter necessarily decided by the prior judgment, decree or order.
Nothing but what is legally indispensible to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established.
…
The difficulty in the actual application of these conceptions is to distinguish the matters fundamental or cardinal to the prior decision or judgment, decree or order or necessarily involved in it as its legal justification or foundation from matters which even though actually raised and decided as being in the circumstances of the case the determining considerations, yet are not in point of law the essential foundation or groundwork of the judgment, decree or order.
(The emphasis in the penultimate paragraph is the phrase relied upon by Mr Gray.)
[28] The italicised passage in Dixon J’s judgment is obiter and is a limitation not to be found, on my reading, elsewhere. It was not necessary to his reasoning. The issue was the construction of a will. Such issues are not normally classified as causes of action. The testator had a lottery business. His will essentially divided his assets into three classes: his lottery business, his assets outside of Tasmania and his assets inside Tasmania but unconnected to his lottery business. The principal beneficiaries of his estate were twelve persons, each receiving a share of the profits of the sweepstake business. In 1907, in the Supreme Court of New South Wales, Street J, made declarations in answer to various questions relating to the interpretation and effect of the will.
[29] The will promised to widows of these twelve persons a life interest in her husband’s share of the profits. The problem then was what happened to that share upon the death of the widow? A number of consequences were resolved. The bequest fell first into an invalid devise of undisposed interests in favour of “charities”, and thereby fell next into a category of unapplied or undisposed profits. With the effect that the issue became the fate of 3/20ths of these profits, when
classified as unapplied or undisposed profits.19 On the death of one of the widows in
1935, an originating summons was taken out in the Supreme Court of Tasmania to
19 At 499, per Rich J.
determine a number of questions, including who was entitled to the 3/20 share of profits.
[30] The majority held that certain beneficiaries, known as the Hobart property beneficiaries, were entitled to the 3/20th share. Latham CJ, and Starke J reached that decision because that construction of the will by Street J in 1907 had been acted on by the parties, and the decision was not clearly wrong. Rich and Dixon JJ held that the earlier interpretation of Street J created an issue estoppel between the parties. Starke J said issue estoppel did not apply as this was a different subject matter.
McTiernan J, who dissented, held that the issue before this Court was not
“fundamental” or “necessarily involved” in Street J’s decision.20
[31] On making his finding of issue estoppel, Dixon J did not identify any ingredients in any cause of action. Rather, he said:21
I think that two questions must be asked and answered in deciding whether from this there arises an issue-estoppel [from Street J’s 1907 declaration] governing or determining the operation of the clause upon the undisposed of three-twentieths share of profits.
The first is whether the declaration [of Street J] quoted necessarily involves the proposition that an interest in the business of conducting sweepstakes, if not otherwise validly disposed of, falls under the clause as a residuary gift of Tasmanian property. The second is whether this proposition is the immediate foundation of the declaration [of Street J], as opposed to a proposition collateral or subsidiary only, that is, no more than part of the reasoning supporting the conclusion. I think both these questions should receive an affirmative answer.
[32] Of the other judges, only Starke J referred at any length to the test for issue estoppel.22 He said:23
But it is contended that the construction of clause S was the foundation of the declaration and consequently that an estoppel by judgment arises. It is well settled that a judgment concludes not merely the point decided but matters which were necessary to decide and which were actually decided as the groundwork of the decision itself thought not then directly the point at issue and that a judgment is conclusive evidence not merely of the facts
20 At 542.
21 At 533.
22 Rich J said, “Except for the difference in the identity of the subject matter the issues were the same”. See 502.
23 Blair v Curran, above n 15 at 510.
directly decided but of those facts which are necessary steps to the decision –
so cardinal to it that without them it cannot stand.
The passage cites some UK authorities including R v Inhabitant’s of the Township of Hartington Middle Quarter24 and Hoystead v Commissioner of Taxation.25 As the reader will find,26 these authorities were subsequently relied upon by Lords Wilberforce and Reid in the leading decision of Carl-Zeiss.27
[33] Both Mr Gray and Mr Mills also relied upon the following dictum from the
New Zealand Court of Appeal judgment in Talyancich v Index Development Ltd:28
... [Issue estoppel] can only be founded on determinations which are fundamental to the decision and without which it cannot stand. Other determinations cannot support an issue estoppel however definite the language in which they are expressed. What is emphasised in the judgments cited is that for the decision on any matter to give rise to an issue estoppel that matter must be one which it was necessary to decide and which was actually decided.
[34] Mr Mills invited the Court to follow the New Zealand Court of Appeal in three cases: Talyancich, OY v Complaints Hearing Committee and Joseph Lynch Land Co Ltd v Lynch.29
[35] The material facts in Talyancich did not raise a significant issue estoppel. The background was a boundary dispute between Mr Talyancich and his sister-in- law, Ms Balich, who were both shareholders in a family company, Golden Sunset Holdings Limited. In 1984 the company transferred part of the company’s land to Mr and Mrs Talyancich. They resided on that land. The rear legal boundary of the land transferred did not in fact coincide with the boundary as fenced. The legal boundary passed very close to the dwelling house. A common place dispute arose
about the use of the land between the legal boundary and the fenced boundary.
24 R v Inhabitant’s of the Township of Hartington Middle Quarter (1855) 4 E & B 780 at 794, 119
ER 288 at 293.
25 Hoystead v Commissioner of Taxation [1926] AC 155 (PC).
26 At [45] and [47] below.
27 Carl-Zeiss Stiftung v Rayner and Keeler Ltd (No 2), above n 14.
28 Talyancich v Index Developments Ltd [1992] 3 NZLR 28 (CA) at 38.
29 Talyancich v Index Developments Ltd, above n 28, OY v Complaints Hearing Committee [2013] NZCA 107, [2013] NZAR 629 and Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA).
[36] Ms Balich issued proceedings in the High Court alleging she was the tenant and occupier of certain land (which I presume is the land outside the legal boundary but inside the fence boundary) and that Mr Talyancich had interfered with the water supply for her livestock and had threatened trespass and damage. She sought an injunction.
[37] Less than a month after proceedings were issued, the parties reached an agreement headed “consent orders” which was filed in Court. As part of that agreement, Ms Balich, Mr Telyanchich and the latter’s son withdrew from any involvement in running Golden Sunset Holdings and the management of that company was placed with Coopers and Lybrand. As part of the settlement, Mr Telyanchich would have the right to purchase from the company the land actually occupied by him at the rear of his dwelling, being the area within his back fence but excluding the driveway on his eastern boundary in a strip of approximately one metre adjoining the driveway. Ms Balich was given the right to purchase all the remaining land and improvements of the company.
[38] Against this background we come to the judgment said to be the subject of an issue estoppel. This was a judgment of Tompkins J. In 1990 there was an application to the Court filed by Mr Telyanchich. He sought an order directing Coopers and Lybrand to report to the Court in respect of their management of the company. Coopers and Lybrand were not parties to the proceedings. The application appears to have been based on a mistake of law that the settlement reached between the parties in the document headed “consent orders” was itself an order of the Court. When this application by Mr Talyancich came before the judge, Ms Balich, the plaintiff, took no part in the proceedings. She was by that time bankrupt. The application was opposed by counsel for Coopers and Lybrand on the basis that the Judge had no jurisdiction to consider the application. The Judge observed that the so called consent orders were referring to the terms of a settlement. He did not finally determine the jurisdiction issue. Rather, he referred to the terms of the deed in 1987 in which Ms Balich and later Ms Talyancich indemnified Coopers and Lybrand. In the Judge’s view, these provisions were an effective bar to any further action by Mr Talyancich against Coopers and Lybrand and, accordingly, dismissed the application.
[39] The question before the Court of Appeal was, did that judgment of Tompkins J give rise to an issue estoppel as to the effect of the deed of release and indemnity? For the purpose of looking at the issue, the Court of Appeal was prepared to assume that Coopers and Lybrand were parties. It went on to find:30
In our view, the application before Tompkins J for orders against Coopers & Lybrand was misconceived. The so-called “Consent Orders” were not orders of the Court, and the leave reserved in the Minute by Henry J could not give the Court jurisdiction to make an order against persons who were not parties to the action in respect of matters that were entirely outside the scope of the action as defined by the statement of claim. It was, therefore, unnecessary for Tompkins J to go on to deal with the alternative objection raised by Coopers & Lybrand based on the deed of release and indemnity. His conclusion as to the effect of the deed was not a determination on a matter which it was necessary for him to decide. The finding as to the effect of the deed was not separately appealable.
[40] The Court found that Tompkins’ J’s conclusion as to the effect of the deed was not a determination on a matter which was necessary for him to decide and no issue estoppel arose. I have set out these matters in some detail because two material facts distinct from this case are apparent. Firstly and importantly, none of what happened in these proceedings was a trial. Secondly, the hearing before Tompkins J did not involve Coopers and Lybrand as a party and was underpinned by a misconception that the settlement agreement was a consent order of the Court. It was a very fragile and leaky ship upon which to build an issue estoppel. On the facts, the easiest route to find that there was no issue estoppel was simply to emphasise those authorities and dicta emphasising that the matter had to be something which was necessary to decide between the parties.
[41] In Joseph Lynch, the decision of the Court was delivered by Tipping J. The
Court said:31
Issue estoppel is concerned with the prior resolution of issues rather than causes of action.32
(Emphasis added.)
30 Talyancich v Index Developments Ltd, above n 28, at 39.
31 Joseph Lynch Land Co Ltd v Lynch, above n 29, at 41.
32 Hallsbury’s Laws of England (4th ed, reissue) vol 16 Estoppel at [977].
[42] Cross on Evidence says that issue estoppel precludes a party from contending the contrary of any precise point which, having once been distinctly put in issue, has solemnly and with certainty determined against him. 33 The learned author cites a judgment of Lord Denning MR in Fidelitas Shipping Co Ltd v V/O Exportchleb:34
… Within one cause of action, there may be several issues raised which are necessary for determination of the whole case. The rule then is that, once an issue has been raised and distinctly determined between the parties, then, as a general rule, neither party can be allowed to fight that issue all over again.
(Emphasis added.)
[43] Both Mr Gray and Mr Mills identified the leading United Kingdom decision of Carl-Zeiss Stifung v Rayner.35 Mr Mills cited a number of passages starting with Lord Guest at 933 through to 935:
… “Cause of action estoppel.” This has long been recognised as operating as a complete bar if the necessary conditions are present. Within recent years the principle has developed so as to extend to what is now described as “issue estoppel” that is to say, where in a judicial decision between the same parties some issue which was in controversy between the parties and was incidental to the main decision has been decided, then that may create an estoppel per rem judicatam.
(Emphasis added.)
[44] Mr Mills also cited from Lord Guest at 938 where Lord Guest doubted whether or not issue estoppel should be introduced in the case of foreign judgments. (On this view he was in the minority.) The reason for his concern, however, informs the understanding of issue estoppel. Lord Guest observed:36
In operating issue estoppel it may be necessary, in order to ascertain what issues have been inferentially or incidentally decided, to look, not only at the judgment, but also at the pleadings and, it may be, at the evidence. We are not familiar in this country with the practice and procedure in foreign countries, and it may be a matter of considerable nicety in certain cases to find out what issues were determined and whether they were incidental or collateral to the main decision.
(Emphasis added.)
33 Don Mathieson, Cross on Evidence (9th ed, LexisNexis, Wellington, 2013) at [4.10].
34 Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630 (CA) at 640.
35 Carl-Zeiss Stiftung v Rayner and Keeler Ltd, above n 14.
36 At 938.
[45] There is a similar passage by Lord Wilberforce in Carl-Zeiss:37
Mr Spencer Bower, in his work on Res Judicata states the principle as being “that the initial decision was, or involved, a determination of the same question as that sought to be controverted in the litigation in which estoppel is raised” (Res Judicata, p 9) – a formulation which invites the inquiry how what is “involved” in a decision is to be ascertained. One way of answering this is to say that any determination is involved in a decision if it is a “necessary step”, to the decision or a “matter which it was necessary to decide, and which was actually decided, as the groundwork of the decision.”38 And from this it follows that it is permissible to look not merely at the record of the judgment relied on, but at the reasons for it, the pleadings, the evidence39 and if necessary other material to show what was the issue decided.40 The fact that the pleadings and the evidence may be referred to, suggests that the task of the court in the subsequent proceeding must include that of satisfying itself that the party against whom the estoppel is set up did actually raise the critical issue, or possibly, though I do not think that this point has yet been decided, that he had a fair opportunity, or that he ought, to have raised it.
(Emphasis added.)
[46] A number of the authorities cited by Lord Wilberforce are discussed by Lord Reid in his judgment, in Carl-Zeiss. I find particularly pertinent to the issue before me Lord Reid’s discussion of the decision of Flitters v Allfrey:41
In Flitters v Allfrey a landlord alleging a weekly tenancy obtained a warrant for the eviction of the tenant and then sued him the county court for 29 weeks’ rent. He failed in this action because the Judge held there was a yearly tenancy. Then the tenant sued for damages for eviction. Lord Colleridge CJ said:
The now plaintiff succeeded upon the trial of a plaint in the county court which involved the same question of fact as that which was in issue in this cause, viz., whether his tenancy under the defendant was a weekly or a yearly tenancy. The defendant thought the decision of the county court wrong. On the trial of this cause, the jury thought so too; and I agree with them: but the plaintiff, against the right, succeeded upon an estoppel.
Counsel had pointed out that failure to succeed in the action for rent did not on the face of it or necessarily involve any decision that the tenancy was yearly and not weekly: but that was in fact the ground on which the county court judge decided the case and the landlord was not allowed to relitigate that issue in the tenant’s subsequent action for damages.
37 At 965 (b) – (e).
38 R v Inhabitants of Harting Middle Quarter Township), above n 24.
39 Brunsden v Humphrey (1884) 14 QBD 141 (CA).
40 Flitters v Allfrey (1874) 10 LRCP 29.
41 Carl-Zeiss Stiftung v Rayner and Keeler Ltd (No 2), above n 14 at 915 A-D.
[47] On the same page, Lord Reid cites Hoystead v Commissioner of Taxation.42
His discussion is as follows:43
A case which has give rise to some difficulties is Hoystead v Commissioner of Taxation. There an appeal with regard to income tax for an earlier year had been decided on an assumption that certain beneficiaries under a will were joint owners. Then in a case as to liability to tax in a later year the commissioner tried to maintain that that assumption had been wrong but he was held to be estopped. Lord Shaw in delivering the judgment of the board, after citing numerous authorities, including the judgment of Lord Ellenborough C.J. in Outram v Morewood44 said:
It is seen from this citation of authority that if in any court of competent jurisdiction a decision is reached, a party is estopped from questioning it in a new legal proceeding. But the principle also extends to any point, whether of assumption or admission, which was in substance the ratio of and fundamental to the decision.
(Emphasis added.)
[48] The most recent New Zealand Court of Appeal decision is OY. The judgment of the Court was given by O’Regan P. The judgment at [26] and [27] cites the same passage on issue estoppel, by Tipping J, from Joseph Lynch that I have cited above and the same passage from Fidelitas Shipping of Lord Denning, also cited above. It then goes on in [28] to rely on Halsbury’s Laws of England, the following passages being selected:45
[28] Halsbury’s Laws of England summarises the principles as follows: Issue estoppel means that a party is precluded from
contending the contrary of any precise point which, having
once been distinctly put in issue, has been solemnly and with certainty determined against him. Even if the objects of the
first and second claims or actions are different, the finding
on a matter which came directly in issue in the first claim or action, provided it is embodied in a judicial decision that is final, is conclusive in a second claim or action between the same parties and their privies. Issue estoppel will only arise where it is the same issue which a party is seeking to re- litigate. This principle applies whether the point involved in the earlier decision, and as to which the parties are estopped, is one of fact or one of law, or one of mixed fact and law.
...
42 Hoystead v Commissioner of Taxation, above n 25.
43 Carl-Zeiss Stiftung v Rayner and Keeler Ltd (No 2), above n 14 at 915.
44 Outram v Morewood (1803) 3 East 346, 102 ER 630.
45 OY v Complaints Hearing Committee, above n 29.
The conditions for the application of issue estoppel require a final decision on the issue by a court of competent jurisdiction and that:
(1) the issue raised in both proceedings is the same; and
(2) the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies.
(Emphasis added.)
[49] Mr Mills noted that none of the cases said that an issue estoppel must be an issue pleaded. And that to do that would be to narrow a concept of an issue estoppel as established by the authorities. I agree. I was not cited any case which required the issue which is to be estopped to be pleaded in advance of trial. It is a fact that the reference to partnership in the pleadings in this case is very limited and not in respect of the cause of action which succeeded. However, issue estoppel is more pragmatic. It looks at the issues which were in fact put in issue and decided in an adversarial court, and examines whether they had a sufficient nexus to the res judicata to qualify as an issue estoppel per rem judicatam.
[50] The authorities are clear that issue estoppel is an extension of res judicata. As Lords Wilberforce and Reid explain in Carl-Zeiss, it is a question of fact as to whether the finding of fact was a matter in issue, resolved by the Judge “the ratio” or “fundamental” to the decision, or a finding the Judge found “necessary” to make when reaching her decision on the cause of action.
[51] The Supreme Court of Canada in Danyluk v Ainsworth Technologies Inc said that the application of issue estoppel is a matter at the discretion of the judge in subsequent proceedings. It should not be applied mechanically even if the preconditions of issue estoppel are present. 46
[52] It will be apparent to the reader that there is no consistent formulation of the issue estoppel test by Commonwealth judges nor in the texts. This is because the test
cannot be reduced to a simple certain rule. Issue estoppel is an extension of res
46 Danyluk v Ainsworth Technologies Inc [2001] SCC 44, [2001] 2 SCR 460 at [63].
judicata which is recognised in particular cases. It is recognised where the policy of res judicata is engaged and required to be recognised.47
[53] Overall I agree with the submission of Mr Gray that before an issue estoppel arises, the precise point must have been put distinctly in issue in the earlier proceedings and determined with certainty against the defendant. Where I disagree is that the issue must have been put in issue in the pleadings.
[54] Accordingly, I proceed by examining the judgment, in respect of which it is said an issue estoppel arises. I look to see what the trial Judge saw as the issues that had to be decided, and how she decided them. I look for issues and decisions upon them which are necessary to or the ratio of the decision, being in that sense the reason for the decision or the material facts found by the Judge upon which the decision depended. Then I step back and make an overall evaluation as to whether in this case issue estoppel per rem judicatum arises. In that final step I take into account the two purposes. The first purpose being to uphold the certainty of the law by not allowing issues to be relitigated with the prospect of there being conflicting findings by two courts on the same issues. The second purpose is to avoid requiring a successful litigant to go to the expense, delay and stress of having to fight the same issue again. Only after following this method do I reach a judgment as to whether any issue estoppel arises.
What did the Judge decide?
[55] I have already set out the Judge’s finding of a partnership [126], and partnerships assets in [132] of her judgment.48
[56] Mr Gray submitted that most of the reasoning of the judgment was a description of the evidence of Mr Kidd, without there being any finding in favour of
Mr Kidd’s evidence as being the truth.
47 See [18] above.
48 See [11] above.
[57] Certainly parts of the judgment operate as a record of the evidence before the Court. For example, [85] and [86] begin “Kidd says …”. Paragraph 87 begins “In essence, the evidence of Kidd is …”.
[58] But in the course of the narrative, there were findings of fact which resolved issues. For example [48] reads:
There can be no doubt that Kidd was an integral and essential part of the Prime NZ operations. Any suggestion by Van Heeren that he worked for another entity, Prime UK, is unsupported by any evidence and disclaimed by Kidd, Cullen, Currie and Ashworth and Zeederberg.
[59] It needs to be kept in mind that although Mr van Heeren did not in the end give evidence, he participated in the six week trial through his team of counsel, lead by Mr Stockwell SC. Witnesses were cross-examined and propositions were put to the plaintiffs’ witnesses as to what Mr van Heeren would say if he gave evidence. Effectively, his counsel, during the trial in cross-examination, challenged the existence of a partnership, as distinct from a joint venture, and the continued ownership of the significant assets claimed by Mr Kidd as a co-partner, over and above those acquired by Mr Kidd in the shareholdings transfer executed on the same day as the indemnity.
The indemnity
[60] It is worth setting out the entirety of the terms of the indemnity executed,
18 January 1991. After reciting the parties, it reads:
WHEREAS VAN HEEREN and KIDD have this day entered into an agreement terminating their business relationship.
NOW THEREFORE:
1KIDD hereby indemnifies VAN HEEREN against all claims which KIDD or any company, of which VAN HEEREN was previously a shareholder, might have against VAN HEEREN.
2.Beyond thus stated in paragraph 1 above neither party shall have any claim of any nature whatsoever against the other, neither shall any company of which either is a shareholder, director, employee, or has any other interest, have any such claim, and each shall take all such steps as may be possible in order to ensure that no action is instituted.
3The parties agree that the moneys paid by KIDD to VAN HEEREN in respect of the sale of VAN HEEREN’s shareholdings shall constitute a settlement of all disputes between the parties anywhere in the world and shall furthermore be in full and final settlement of all claims which either party may have against the other, and in full and final settlement of all claims which any company in which either party is directly or indirectly involved may have against the other or against any company in which the other may directly or indirectly be involved.
4. Each settlement contained herein is severable from the remainder.
5.It is expressly agreed that the parties have no further shareholdings in any companies or trusts and if it should occur that there is such company or trust such company or trust will be transferred to VAN HEEREN at the price of R1,00 (ONE RAND).
6.This document will be binding on the parties in relation to any company, shareholding or other business in which the parties are directly or indirectly involved anywhere in the world.
7.Any dispute between the parties shall be determined according to South African law in the Republic of South Africa and each party elects as his domicilium citandi et executandi for all purposes the address recorded in preamble thereto.
(Emphasis added.)
[61] The transfer of shareholdings agreement signed the same day, 18 January
1991, is referred to in cl 3 of the indemnity. It is called the “sale agreement” in the
South African judgment:
1.The SELLER sells to the PURCHASER who hereby purchases all the shares held by the SELLER in the following companies voetstoots:
1.1GALAXY EXPORT IMPORT COMPANY (PROPRIETARY) LIMITED
1.2EDMONTON PROPERTIES (PROPRIETARY) LIMITED formerly KIDDEEREN PROPERTIES (PROPRIETARY) LIMITED
1.3EDMONTON STEEL (PROPRIETARY) LIMITED formerly STEEL STRAIGHTENERS AND STOCKISTS (PROPRIETARY) LIMITED
1.4 GROUP FOUR TRADING (PROPRIETARY) LIMITED
1.5 T.G.M. METAL (PROPRIETARY) LIMITED
1.6 BRAMLIN LIMITED in Hong Kong
2. The purchase price for the shares shall be an amount of R 1,00 (One
Rand) in respect of the companies as reflected in Clauses 1.1, 1.2,
1.3, 1.4 and 1.5, which amount shall be payable on signature of this agreement. In respect of Bramlin Limited the agreement which was reached by the parties on the 25th day of September 1990 is still valid and is incorporated herein and is bound by the conditions as stipulated in the Indemnity and the price for which these shares were bought was the sum of $1.00 US.
3.It is recorded that the SELLER held the shares that are being sold subject to several conditions the full nature and import of which the PURCHASER is fully aware and the PURCHASER purchases the said shares subject to those conditions.
4.Simultaneously on the signature of this agreement the SELLER shall deliver up to the PURCHASER signed and completed instruments of transfer together with the share certificates in respect of the shares that are being sold.
5.Any dispute between the parties shall be determined according to South African law in the Republic of South Africa and each party elects as its domicilium citandi et executandi for all purposes the address recorded in preamble hereto.
[62] The terms of the sale agreement are not disputed. They were transfers of shares in respect of South African steel trading entities, with the addition of one company, Bramlin, which was registered in Hong Kong and used to hold Mr Kidd’s residence in the UK.
[63] The companies listed in the sale agreement are included in ground 2f of the application for the remedy of account.49 However, except for Tisco, the companies listed in the sale agreement are not referred to in [132] of the South African judgment. The entities and assets listed as acquisitions of the partnership in [132] comprise most of the balance of pleading 2f, being Huka Lodge, Optech, Prime, Wellesley, Dolphin Island, gold bars and bearer certificates. The entities and assets listed in [132] as the entities making these acquisitions, appear in pleading 2f as Prime, Genan, and Jocrow. So [132] of the South African judgment collects all the
assets of the partnership pleaded as the issue estoppel, except some of the shares transferred in the undisputed sales agreement, Ocean Steel, Ferromer Pty Ltd and
Briar Trading Ltd.
49 See [5] above.
[64] By the time of the South African trial, a number of claims in the pleadings had been abandoned. For example, the first one, to the effect that the Court should decline jurisdiction. There were four live pleadings summarised by the Judge in paragraph 4 of her judgment. It is necessary to read her footnotes in order to understand the trial issues, particularly her footnote 2:
[4] Various interlocutory matters have been disposed of over the past nine years. This court is now required to determine Kidd’s claims. First, to declare the indemnity to relate only to claims between the parties in respect of the shareholdings in the companies referred to in the sale agreement. (fn 1) Second and alternately, to declare the indemnity to be void alternatively voidable and of no legal force and effect. (fn 2) Third and further alternatively, a declarator as to assets settled by the conclusion of the indemnity. (fn 3) Fourth and further alternatively, declaring both the sale agreement and the indemnity document to be rectified in accordance with the true agreement between the parties. (fn 4)
[Footnotes of judgment]
(fn 1) Claim B1 “on a proper construction of the indemnity is in full and final settlement of all claims arising between the parties in respect of the sale by the defendant to the plaintiff of the defendant’s shareholding in the companies reflected in K2.
(fn 2) Claim B2 and B3 and B4 all in the alternative that (B2) both parties intended the indemnity should only relate to their companies in respect of which the defendant had transferred his shares in terms of K2 but “their aforesaid intention was not given effect thereto as the indemnity was drawn in such a way as to purport to relate to their entire business relationship anywhere in the world”; (B3) the plaintiff would not have signed or concluded the indemnity because he “reasonably believed and assumed that the indemnity related only to the business relationship between the parties signing to the companies listed in K2 which belief was due to representations of the defendant and his attorney to that effect and failure by the defendant to draw to plaintiffs attention that the indemnity was not limited in the manner in which the plaintiff assumed” (B4) the indemnity is void alternatively voidable by reason of negligent alternatively deliberate misrepresentations made by the defendant to the plaintiff which induced the plaintiff to enter into the indemnity.
(fn 3) Claim C a declaratory order is sought as “to the scope of the indemnity ie which assets formed part of the partnership sought to be dissolved and settled by the conclusion of the indemnity”.
(fn 4) Claim D that K1 the indemnity agreement does not correctly reflect the prior agreement of the plaintiff and the defendant and should be rectified to reflect their common intention that the indemnity in K1 would apply only to the companies listed in K2.
[65] The plaintiff succeeded on the second claim to declare the indemnity void, being claims B3 and B4.
[66] Mr Mills pointed out that to get the indemnity agreement set aside, the plaintiff had to establish a source of obligation on the part of the defendant to warn
the plaintiff as to the wide scope of the indemnity agreement, notwithstanding the narrow scope of the sale agreement of the same day (also known as K1).
[67] It was the plaintiff’s case at trial that, on the day after an oral agreement to acquire the South African entities, he was presented with the deed of indemnity as though it was just to complement and complete the share transfer. Mr Mills pointed out, for the trial Judge to know whether that was true or false, it was necessary to know what is true. To get any traction on an application to set aside a written agreement on the grounds of misrepresentation, the Judge had to be satisfied that giving effect to the indemnity is confining the plaintiff to the benefits of the share transfer agreement would result in an unequal and unjust exchange in the value of assets built up during their time in business together. Mr Mills argued that in the judgment the Judge came to the conclusion that there would be such an unjust, unequal exchange of value by reason of finding that Mr Kidd and Mr van Heeren were in partnership and that there were other assets produced by the partnership over which the plaintiff had a claim.
[68] Mr Mills separated out six necessary findings to support the final conclusion that Mr van Heeren had deliberately misrepresented the scope of the indemnity document:
(a) It was necessary to find that a partnership existed as a matter of fact, otherwise the indemnity document made no sense.
(b)It was necessary to find that the partnership extended beyond the companies listed in the sale agreement, and that Genan, Briar and Prime were all related and part of the partnership. Without this finding of fact there could be no misrepresentation, as the assets covered by the sale agreement and the indemnity document would have been identical.
(c) For the same reason, it was necessary to find that Mr Kidd was still a partner in the worldwide partnership as at January 1991.
(d)It was necessary to find that the partnership made worldwide acquisitions including Huka Lodge, Dolphin Island, Cromwell shareholding, Optech shareholding, gold and precious stones. Without a finding as to the extent of the partnership assets the Judge’s findings about the knowledge of Mr Kidd and Mr van Heeren, and the assumptions that it was reasonable for Mr Kidd to make, do not make sense.
(e) It was necessary to find that the partnership had always operated with Mr Kidd placing a level of trust in Mr van Heeren in relation to documentation and financial matters. Without this finding the Judge’s conclusion that it was reasonable for Mr Kidd to sign the indemnity agreement without thoroughly reading it and without seeking legal advice do not make sense. Nor do the Judge’s findings that Mr van Heeren misrepresented the scope of the indemnity document through his silence. The finding of a trusting relationship was essential to the finding of misrepresentation.
(f) It was necessary to find that no-one drew Mr Kidd’s attention to the change in the wording of the indemnity document. If this had been pointed out to Mr Kidd there could be no misrepresentation.
[69] Earlier on in the judgment, the Judge had pointed out in [23] of her judgment that the meaning of the document:
… can only be understood in context: one must objectively view and understand the business matrix within which both parties operated and the circumstances attendant upon the indemnity coming into existence.
(Emphasis added.)
[70] To sustain an argument of misrepresentation, the plaintiff set about arguing that as a partner with the defendant he had an interest in assets worldwide, beyond the South African shares transferred by the sale agreement. As part of the plaintiff’s case to establish a factual basis for a finding by the Judge of misrepresentation, the plaintiff led extensive evidence of the acquisition of other
assets internationally, particularly in New Zealand. This evidence was led by testimony of the plaintiff himself: for example, saying he went to inspect Huka Lodge in New Zealand with the defendant before it was purchased; that he went to Fiji to inspect Dolphin Island with the defendant before it was purchased. And second by placing before the Court a very large and extensively detailed report by a specialist forensic accountant, Mr Browning and other witnesses, tracing the acquisition of assets from the profits of the steel trading.
[71] Prior to the trial, the two experts, Mr Browning for the plaintiff and Mr Greyling for the defendant, met in Johannesburg over three days. The experts produced a schedule of statements formulated by Mr Browning with Mr Greyling’s responses. At the start of the trial there was an objection to the admissibility of Mr Browning’s evidence in its entirety. The principal ground of the objection was that Mr Browning’s evidence, directed as it was to the questions of whether there was a partnership between Mr Kidd and Mr van Heeren and what assets it comprised, was irrelevant to the questions raised by the plaintiff’s pleading which centred on the validity and scope of the 18 January 1991 indemnity. The objection was overruled. The Judge concluded that Mr Browning’s evidence was likely to be relevant to the scope and validity of the indemnity.
[72] At various stages later in the trial, Mr van Heeren’s counsel renewed the objection in different ways and in respect of different pieces of evidence and in each instance the objection was overruled. Defence counsel put it this way in their written submissions:
[62] It is true that at the trial in South Africa Mr van Heeren attempted to limit the scope of evidence introduced by Mr Kidd. Mr van Heeren did this by reference to the pleadings and the law. Satchwell J made some comments about the limited relevance of some of the evidence Mr Kidd introduced. However, she ultimately allowed Mr Kidd to call the evidence he wished – seemingly on the basis that the evidence may form part of the factual matrix within which the indemnity was construed.
[63] Mr van Heeren did not give evidence. In the end, this tactical decision went against him. But, Mr Kidd conceded that he had read and understood the indemnity document and he accepted that he was free to appoint his own attorney or take legal advice on the indemnity. As well, Satchwell J seemed to understand that issues of
partnership were not in issue, and would not need to be determined
…
[68] Accordingly, Mr Kidd’s claims regarding the scope of issues in respect of which issue estoppels have arisen by reason of the judgment of Satchwell J rest entirely on the argument that the whole of the evidence admitted by the Judge forms part of the factual matrix against which the indemnity was construed. The argument then proceeds on the basis that observations about the factual matrix constitute steps in the Judge’s reasons. This is said to give rise to legal issues which have been finally determined so that issue estoppel arises.
[73] I do not see the law this way, as I have endeavoured to explain in the review of the authorities. These submissions carry within them the assumption that an examination of the factual matrix against which the indemnity was to be construed cannot possibly raise an issue estoppel. That is not what the authorities say. There is no authority saying that. There is no authority confining issue estoppel to matters specifically pleaded prior to the trial starting. To the contrary, as the authorities cited above show, issue estoppel is recognised when issues have been decided in an earlier trial, which were “necessary” for the judge to decide, “groundwork” of the decision etc.
[74] Examination of the factual matrix, a standard aid to construction in this sort of case, required resolution of a significant dispute as to the character of the factual matrix. The plaintiff, Mr Kidd, said that the context was a partnership between himself and Mr van Heeran. Through his counsel, Mr van Heeran argued there was no partnership. Rather, the two of them were shareholders in various companies (inferentially, each company having its own assets). Depending on which was the case, defined the matrix against which the misrepresentation allegation fell to be resolved.
[75] This was a long trial. It lasted six weeks. There was every opportunity for Mr van Heeren, with advice of counsel, to engage, test and confront the evidence led by Mr Kidd in the course of the trial.
[76] During the course of the trial Mr van Heeren’s counsel, extensively cross- examined both Mr Kidd and Mr Browning on partnership issues. A significant focus to the cross-examination was to try to get Mr Kidd to accept that the assets he said
were partnership assets were in fact purchased by Mr van Heeren personally from distributions made to him from time to time.
[77] For the defendant, Mr Stockwell SC cross-examined Mr Kidd as follows:
Question: Mr Kidd, you are entitled to 50% of those proceeds on what you say?
Answer: I do not need to go into that with him, at that stage we are partners. He did not have to account to me at that point.
Question: But sir, I am putting to you, you are not partners, you are shareholders, joint shareholders in various companies, in one way or another you hold shares in companies either in your own name or through nominees, you are not partners, it does not make you a partner.
Answer: Well my view is that I am a partner.
Question: When was this partnership agreement concluded?
Answer: Really it was concluded when we started, when we started, yes, we were partners.
Question: When you acquired Galaxy Import and Export? Answer: That is correct.
Question: So you acquired shares in a company and from that day on you were partners?
Answer: We viewed ourselves as partners, yes. Question: You viewed yourself as partners? Answer: Well we were partners.
Question: Sir, that is what I do not understand, you say you view yourself as partners, then you say you are partners, and I am trying to establish when was this agreement reached that you will now be partners, when, how did it happen?
Answer: To my mind we were, as I have said earlier, to my mind we were always partners.
Question: Yes, sir, you have said that a couple of times that in your mind, to your thinking, I want you to be more specific, what was agreed and when was it agreed that you would be partners?
Answer: As I have said we were partners from the point where we started together.
The cross-examination then continued at length looking at various acquisitions.
[78] Over the six-week trial Mr Kidd and his witnesses set out his claim in detail and were cross-examined thereon, including against “will or may say” propositions being put to them as to what Mr van Heeren’s evidence would be, if the defendant gave evidence.
[79] The Judge made a number of findings in favour of the plaintiff, in addition to the findings of partnership [126], and partnership assets [132]:
[168] It would be preferable to be able to make a finding that these representations were either innocently or negligently made. Yet I can only conclude that there were misrepresentations which were deliberately made.
[169] Van Heeren’s behaviour over a period of years suggest that he had started treating Genan and Prime NZ profits for the benefit of himself alone and, in so doing, cheating Kidd. The absence of any mention or documentation or explanation as to what had become of the proceeds of the Wellesley Investment and the concealment of Dolphin Island in Fenton are but two instances of bad faith which had occurred prior to the meeting in January 1991.
[170] I find that Kidd was induced to enter into the indemnity by reason of
Van Heeren’s misrepresentations ...
[171] The only probability is that Kidd signed the indemnity because he had concluded the sale agreement. He was certainly induced to do so by Van Heeren’s deliberate misrepresentations. These misrepresentations were false – that the indemnity was in accord with the discussion, the agreement and the sale of shares agreement. These misrepresentations were intended to induce Kidd to sign the indemnity and did so induce Kidd to sign. These misrepresentations would have induced any reasonable person to have entered into the indemnity.
[172] As can be seen, I have found for Kidd in respect of both claims B3 and B4.
[173] The indemnity document (K1) is void and of no force and effect.
[80] To get to that conclusion, the Judge found in [165] and [166]:
[165] I am satisfied that Van Heeren took advantage of Kidd – in Kidd’s trust in his partner, in Kidd’s fifteen year reliance upon the financial acumen of his partner, in Kidd’s worry over the fate of Tisco resulting in his sudden trip to South Africa, in Kidd’s concern to ensure the security of his family home. I am satisfied that Van Heeren saw that he could indeed snatch a bargain from Kidd at the
same time that the South African companies and the residence were resolved. It was a tremendous bargain to purport to resolve the South African companies and the Bristol residence and, at the same time, ensure that Kidd abandoned all claims to Prime, Genan, Worldwide Leisure, Fenton, Optech, bank accounts, gold certificates and bars, aquamarines, whatever other investments had been procured through the Wellesley funds.
[166] I find that Kidd was unaware that the indemnity was not limited in the manner which he had reasonably assumed it to be. I find that Van Heeren failed to disclose to Kidd that the indemnity document contained provisions which rendered the indemnity unlimited contrary to Kidd’s reasonable assumption that it was so limited. I find that Van Heeren was under an obligation to so inform and enlighten Kidd – whether as a business partner, a contracting party, the party who had procured legal advice and the drafting of the two contracts. I find that Kidd would not have signed this document and concluded this apparent agreement if he had know the true content and import thereof and that his assumption was mistaken. Not only Van Heeren but any reasonable person would have foreseen that Kidd was unaware of the limitation, that the document did not conform to his reasonable assumption, that Kidd would not have signed or concluded the indemnity document if he had been aware of the provisions of the document as presented to him.
[81] On my reading, the phrase in the third sentence of [166], “whether as a business partner, a contracting partner, a party who had procured legal advice and the drafting of the two contracts” are cumulative reasons. Mr van Heeren was all of those. These facts compounded the duty of Mr van Heeren to disclose to Mr Kidd that the indemnity document contained provisions which rendered the indemnity unlimited, contrary to Mr Kidd’s reasonable assumption that it was limited to the shares transferred that day. There is no doubt as to the centrality of the partnership in the reasoning or ratio of the decision. For example, see the first line of [165], “I am satisfied that Van Heeren took advantage of Kidd – in Kidd’s trust in his partner”.
[82] In my view, it took a long trial canvassing an enormous amount of evidence before the Judge could confidently make that finding. These conclusory paragraphs have as their foundation the finding of shared ownership of overseas assets, companies, stashes of money, gold bars and so on, as found in [132] and of the partnership found in [126]. The Judge’s positive finding of partnership is not qualified by the other material facts set out in [166] nor by her phrasing of [155] where, in the course of which, she says:
Kidd was continuing his trusting reliance upon the man whom he considered his partner and with whom he had profitably done business for some fifteen years.
[83] The finding as to joint assets and the finding as to partnership arose out of a direct challenge to these propositions in the hearing. They were contested issues.
The Genan agreement
[84] The application before this Court includes a pleading that as at 17 July 1991 the assets of the partnership included:50
6. The shares in or assets of Genan Trading Co NV (of the Netherland
Antilles) (“Genan”);
…
8.various bank accounts around the world, including those in the name of Prime International Ltd and Genan;
[85] Genan was liquidated on 14 June 1991. The Judge begins [132] of her decision:51
... I am more than satisfied that the partnership of Kidd and van Heeren through Genan and Prime NZ as also Tisco and Jocrow and the other entities, made acquisitions throughout the world.
(Emphasis added.)
[86] One of the issues the defendant contends should be tried in New Zealand are “the consequences of the sale to Mr van Heeren of all of his shares in Genan in February 1990”. The defendant’s counsel submitted that Satchwell J made no findings about this sale and that there was no relevant pleading in South Africa.
[87] In an affidavit sworn in the New Zealand proceedings in 1996, Mr van Heeren had said that by late 1989 the joint holdings between he and Mr Kidd were limited to their interest in Genan (and, through that, Jocrow) and the South African companies that were later referred to in the 18 January 1991 sale agreement. He said
that in February 1990, Mr Kidd agreed to sell his shares in Genan to Mr van Heeren
50 See [5] above.
51 See [11] above.
for USD3m recorded in a written agreement dated 21 February 1990. Mr Kidd said the agreement was a fraud.
[88] The disputed sale of Genan shares were explored during Mr Kidd’s evidence at the trial in South Africa, both in anticipation of the evidence that Mr van Heeren might give and through cross-examination where Mr van Heeren’s version of events was put to Mr Kidd. The issue is dealt with in the South African judgment in [73] to [77]. Satchwell J records Mr Kidd’s evidence that on 21 February 1990, he and Mr van Heeren had agreed a profit or bonus distribution from Genan in an amount of USD3m which sum was paid to him and, he understood, to Mr van Heeren as well. She also records Mr Kidd disavowing any knowledge of the document dated 21
February, though agreeing that something resembling his signature appears to be on the document.
[89] There are a number of documents evidencing this transaction. One is Mr van Heeren’s written instructions for the transfer of the $3m in favour of Mr Kidd, to be drawn from Prime International Limited, the reference being “Genan.share”. There may have been an “s” after the “e” but whatever was there has been deleted. This is then replicated in a text to the same extent where the reference is “Genan share”.
[90] There are also three 1990 documents said to be dealing with transfers of shares in Genan. One is a deed dated 25 September 1990 which has Mr Kidd paying Mr van Heeren the sum of $1.00 in full and final settlement of any payments, monies due or obligations of any kind between them and an acknowledgement by Kidd and van Heeren that no shares are held in each others’ companies worldwide and that shares held by Genan Trading Company and Jocrow would be transferred to Genan for $1.00. That document appears to be executed by Mr Kidd, witnessed by Mr van Heeren’s personal associate, Ms O’Loughlin, but is not executed by Mr van Heeren. The second document appears to be an agreement made on 21 February 1990 between the two men. It says in cl 1 that as from the date of signing the agreement, they will cease to be partners in the company of Genan and that Mr van Heeren will pay Mr Kidd the sum of USD3m in full and final payment for all Kidd’s shares in Genan. In return, Mr Kidd agreed that all the joint partnership assets and shares in Genan shall be the property of Mr van Heeren from the date of the agreement and
that he is owed no further monies from Genan and that he would immediately execute a share transfer of all shares he owes in Genan in favour of Mr van Heeren. That appears to be signed by both parties and witnessed by Ms O’Loughlin. The third document is a share transfer agreement in a different type-face but also dated
21 February 1990, purporting to be a share transfer of Mr Kidd’s shares in Genan and authorising ABN Trust Company (Jersey) Limited to recognise and give effect to the transfer.
[91] When the 1990 agreements were before the South African judge, Mr Kidd disputed their validity, as already noted above, essentially saying each was a fraud. As a consequence of Mr van Heeren not giving evidence, he was not called as a witness to prove the agreement. Nor did he call the purported witness of the document, his personal assistant, Ms O’Loughlin, to give evidence.
[92] Satchwell J found the sale was “not proven”:
[75] This purported sale of Genan shares has not been proven. Neither Gabrielle McLaughlin, personal assistant to Van Heeren, who supposedly signed as witness nor Van Heeren who supposedly also signed as a contracting party have given evidence as to its provenance. Similarly, the basis upon which Van Heeren gave instructions that the transfer of US3 million to Kidd from a Prime NZ bank account should be marked “share transfer” has not been explained.
[76] Kidd disputed this document. He also pointed out a number of factors which supported his disavowal of this unproven document. Firstly, dissolution of the partnership had not been discussed. Secondly, there had not been and still has not been a valuation of the Genan assets, presentation of the Genan bank accounts and computation of the value of trading in hand in Genan’s name. Third, he had signed blank documents in the past for reasons of administrative convenience because he travelled a great deal and produced a couple of such blank signed pages. Fourth, if the bonus or profit payment of US3 million was now to be considered payment for sale of his shareholding in Genan, then he would have been paid out of Prime NZ and therefore out of his own funds which made no financial sense. Fifth, Genan continued to make payments to the builders effecting renovations to the residence occupied by Kidd even though this document of 21st February explicitly states that Kidd was owed no further monies by Genan. Sixth, subsequent to
21st February 1990, Kidd continued working for the benefit of
Genan, through Prime and Jocrow and Tisco, which he would not have done if he had sold his Genan shareholding and would receive no benefit from such labours.
[77] Kidd also said that he had no knowledge of a supposed agreement of
25th September 1990 signed by him. Again, this document was never proved. It had not been signed by Van Heeren who had set out
in an earlier affidavit that he had not been in agreement therewith.
The document only has relevance insofar as paragraph 2 of the sale of shares agreement of 18th January 1991 now purports to rehabilitate it.
[93] It is important to keep in mind that a finding of issue estoppel does not depend upon a critique of Satchwell J’s judgment. It is an analysis of what were the findings of fact, and mixed law and fact, necessary for her judgment. The facts that she positively found: an ongoing partnership; and the presence of valuable worldwide partnership assets; after the supposed execution of the 1990 Genan agreement, are the two critical findings which Mr van Heeren seeks to contradict. Satchwell J made these positive findings, notwithstanding the qualified finding of
‘not proven’ as to the disputed Genan agreement. The relevant fact is that the Judge did not consider the not proven Genan sale to disturb her findings of current worldwide partnership assets in [132].
[94] The significant finding of Satchwell J is that she accepted Mr Browning’s evidence that Genan’s role was a conduit of partnership funds accumulated from steel trading to purchase assets. See her findings under the heading “Income from Steel Trading in Genan and Prime”, [51] – [72] inclusive.
[95] If there are other consequences of the Genan “agreement” independent of Satchwell J’s findings in [126] and [132] of her judgment, and so not inconsistent with the issue estoppel, they can be explored in the course of a taking of account. For example, Mr Kidd says there was a distribution of profits of USD3m in 1990, he received that amount, and believes Mr van Heeren received the same sum.
Mr Kidd’s trust in Mr van Heeren
[96] This section of the South African judgment assesses the plaintiff’s evidence.
It is sufficient to cite three paragraphs:
[104] I am mindful that the evidence of Kidd and witnesses stands uncontradicted since neither Van Heeren nor anyone on his behalf gave evidence. I am also mindful that, just because there is no rebuttal evidence, this does not necessarily render Kidd’s version
true and correct. It remains necessary to assess the probabilities of
Kidd’s version.
...
[117] Whatever the criticism of Kidd as gullible or passive, logic and the evidence indicates nothing dishonest therein. There can be no doubt on the evidence that Kidd was a prime mover in the steel trading of Tisco, Prime NZ and Jocrow all of which produced profits for Genan and Prime NZ. There was certainly a division of labour between himself and Van Heeren – Kidd did the trading and Van Heeren opened doors and oversaw financials. It is difficult to find any great significance in Kidd’s failure to involve himself in the finances of their businesses. As far as the acquisition of the assets is concerned, Kidd referred the court to his diary entries which it was never suggested were post litigation creations and Browning performed the task of sleuth with regard to those financials.
[118] Kidd placed much emphasis on his trust in Van Heeren. This may have appeared naïve to lawyers aware of the amount of litigation which arises out of business relationships which have gone sour. But such naivety does not mean that Kidd’s explanation is to be rejected. Such ‘trust’ is, after all, the very basis in our law of the relationship between partners. It is a value much admired in all aspects of life. So Kidd referred to himself and Van Heeren as being “body and shadow””. He repeatedly said that he left matters “totally to Alex who had my implicit trust”, “he would do whatever was necessary”, I gave “carte blanche to Alex” and was “satisfied Alex looked after” their affairs. Much of Kidd’s evidence was premised upon the words “Alex told me so”. Much of Browning’s evidence confirmed that the documentation existed to corroborate trustful Kidd’s understandings.
[97] Those paragraphs are immediately preceding the bold heading
“CONCLUSION” and the finding of partnership.52
[98] As already noted, the Court, after the clear finding that there was a partnership, went on to make the finding that the assets of the partnership were throughout the world and included Prime NZ, Huka Lodge, Dolphin Island and the Cromwell/Wellesley shares, gold bars and various certificates.53 The Judge then went on to make a finding as to the misleading character of the indemnity.
[99] I am satisfied that the Judge made these findings because they were, for her, a necessary part of her reasoning to her conclusion. They were the essential
52 Set out above at [11].
53 At [132].
foundation or groundwork of her judgment. They were findings fundamental to her decision, rejecting the indemnity.
The content of the partnership
[100] Mr Gray submitted that the legal effect of the South African judgment in New Zealand is that the indemnity defence has gone but all the rest of the defences of Mr van Heeren remain. The task of the plaintiff, Mr Kidd, now is to continue his statement of claim and pursue all the issues to trial.
[101] As part of that argument, Mr Gray argued that the plaintiff cannot now move straight to an account as the Judge had not made a finding of a formal or legal partnership, nor the terms of such a partnership for the purposes of reaching her judgment setting aside the indemnity. He draws attention to [122] of her judgment which begins with the opening sentence:
There is certainly more than one possible structure for a partnership.
[102] Related to this submission was Mr Gray’s opening submission that while Messrs Kidd and van Heeren may have referred to each other as partners – “they were not partners in law in the legal sense. They never had a contract or deed forming such an entity”.
[103] In reply, Mr Mills relied on the proposition that Mr Kidd is entitled to the presumptions of the Partnership Act 1908.
[104] The issue estoppel which the plaintiff seeks to carry to New Zealand has two components:
(a) That the plaintiff and the defendant were partners, see particularly
[126].
(b)That in the course of their partnership, they amassed assets worldwide, see particularly [132].
[105] Section 27(a) of the Partnership Act 1908 provides:
27 Rules as to interests and duties of partners
The interests of partners in the partnership property, and their rights and duties in relation to the partnership, shall be determined, subject to any agreement (express or implied) between the partners, by the following rules:
(a) all the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses, whether of capital or otherwise, sustained by the firm:
[106] It follows that the plaintiff does not have to prove the disputed agreement of equal shares but, rather, for any partner to assert anything other than equality, the onus is on that partner, here the defendant, to prove on the balance of probabilities that the parties did not have an equal sharing.
[107] Furthermore, in dealing with the shareholding of the companies, there was a mass of evidence in that regard at the South African trial. There was a proliferation of corporate entities registered in numerous jurisdictions. In her findings on partnership, the Judge discusses those companies in [125] “as all interrelated entities with a common ownership”. Her finding of partnership followed in [126].54
[108] This is, of course, not surprising. In the world of international trade there are all sorts of reasons for using different entities from time to time, whether they be to maintain anonymity of true ownership, to take advantage of favourable tax transactions in one country rather than another, as well as the ordinary intent to limit personal liability.
[109] It is plain that the Judge made the finding of partnership fully appreciative, after six weeks, of the extremely sophisticated use of corporate entities worldwide to meet the commercial needs of the partnership. The finding of partnership cannot be gainsaid by the presence of these different companies.
Evaluation of the merits on a finding of issue estoppel
[110] It is not surprising that there are different shadings in the formulations of issue estoppel, both in the leading texts and in the cases. This is because the doctrine
of res judicata and its extension to issue estoppel is a common law rule governed by
54 See [11] above.
principles rather than by prescripted, tightly-drawn rules. It has been described as a rule of public policy.55 These principles are applied to achieve the two policy goals. On my reading, the New Zealand Court of Appeal judgments follow the leading United Kingdom judgments. I would adopt particularly Lord Chancellor Maughan’s dictum in New Brunswick, as cited above at [19]. I would emphasise his choice of words the justice and good sense and “if an issue has been distinctly raised and
decided in an action, in which the parties are represented”.
[111] It is important to keep in mind the high hurdle the plaintiff had to achieve in order to get the worldwide indemnity set aside on the grounds of misrepresentation. He read it. He signed it. To sustain an argument that the indemnity should be declared null and void it was crucial that the South African Court find that he was a partner, entitled to trust his co-partner and that defendant’s silence, as a partner, was positively misleading, given the worldwide scope of the indemnity against: 1. “all
claims”, 3. “anywhere in the world”, 6. “in relation to any company …”56 when the
transfer that day was limited to some steel trading companies. The obligation of mutual trust between partners is sometimes expressed in Latin as uberrimae fidei. It is an obligation of the utmost good faith in the dealings between one and another.
[112] Also driving towards finding the indemnity void is the implications of signing away all claims, given the size of the assets. In this regard, the Judge made findings as to the defendant’s motives in [165]:
I am satisfied that Van Heeren saw he could indeed snatch a bargain from Kidd at the same time that the South African companies and the residence were resolved. It was a tremendous bargain to purport to resolve the South African companies and the Bristol residence and, at the same time, ensure that Kidd abandoned all claims to Prime, Genan, Worldwide Leisure, Fenton, Optech, bank accounts, gold certificates and bars, aquamarines, whatever other investments had been procured through the Wellesley funds.
[113] If so much was not at stake, it would, by counter-reasoning, be unlikely that the defendant would have had the incentive to mislead his partner.
[114] There is no doubt that Mr van Heeren had every opportunity to give evidence directly and through his expert, Mr Greyling. Obviously he and his counsel at the end of six weeks of trial took a calculated risk when not calling evidence to rebutt of the plaintiff’s case.
[115] Standing back and looking at the judgment, no one can suggest that the Judge did not find it necessary to make numerous findings of fact before she took the extraordinary step of declaring the defendant’s conduct to have been deliberately misleading. That is after all a finding of deceit.
[116] Going back then to the purposes of res judicata and issue estoppel, as the ultimate test of the merit of the plaintiff’s argument before this Court, I am satisfied that against this history of the matter, it is in the interests of the community that the disputes determined by the High Court of South Africa in this judgment of Satchwell J should be final and conclusive in New Zealand, to avoid the possibility of South African and New Zealand High Courts making contradictory findings. Secondly, and as a separate consideration, that having participated in a six week trial on these issues, the plaintiff in these proceedings should now be protected from having to make the same case with the same voluminous evidence before a New Zealand Court. The principles underpinning the plea of res judicata are engaged and should be applied.
Summary of issue estoppels analysis
[117] In summary, the trial judge had to resolve two competing contentions as to the factual matrix on the day the indemnity agreement was signed, before she could decide whether the defendant had had an obligation to explain the worldwide scope of the indemnity. As to matrix, the plaintiff contended that the defendant was his partner and that there were other partnership assets worldwide, in addition to those transferred by the sale agreement of the same day. The defendant’s matrix was that there was no partnership, and that any assets were owned by various separate entities. These issues were not ingredients of any cause of action, nor were the plaintiffs’ contentions as to matrix directly pleaded against the challenge to the indemnity. However, they became issues that the Judge needed to resolve before she
could find that the defendant owed a duty as his partner to explain the scope of the indemnity, and so could find that his conduct and his silence were deliberately misleading. The groundwork of her decision was a detailed examination of the joint business affairs of the two men, operating through a myriad of entities worldwide. It culminated in unequivocal and detailed findings that they were partners,57 and a list
of known and very valuable partnership assets.58 These findings of mixed fact and
law underpinned and were necessary for her reasoning to justify finding the indemnity to be void. Issue estoppel applies to prevent the defendant contradicting those findings in this Court, and seeking this Court to itself contradict those findings of the South African High Court.
Remedy of account
[118] Clause 1(a) of the application before the Court seeks an order that:
(a) An account be taken between the plaintiff and defendant to determine the amount due to the plaintiff arising out of the plaintiff’s claim against the defendant.
[119] As to the taking of accounts, High Court Rule 16.2 provides:
16.2 Orders for accounts and inquiries
The court may, on the application of any party, before, at, or after the trial of a proceeding, order an account or an inquiry, whether or not it has been claimed in that party’s pleading.
[120] The plaintiff seeks the remedy of summary account, enabled by High Court
Rule 16.4, which provides:
16.4 Summary order for accounts
(1) If a party's pleading claims an account or makes a claim that involves taking an account, the court may, on application by that party at any stage of the proceeding, order—
(a) an account; and
(b) that any amount certified on the account as due to any party be paid to that party.
(2) The court must not make an order under subclause (1)—
(a) if there is some preliminary question to be determined; or
(b) against a defendant who has not filed a statement of defence or an appearance, until the time for filing a statement of defence has expired.
I am satisfied that there is no preliminary question to be tried. The defendant has opposed the application by a pleading in opposition and appeared. The opposition was that the plaintiff needs to establish that he will succeed on liabilities. The argument was he cannot show that now because there is no issue estoppel. In addition, the argument was that the Judge had made no findings about the disputed sale of the Genan shares. Both arguments have been resolved in this judgment against the defendant. I am satisfied that the remedy of summary account is appropriate now and should be granted.
[121] Notably the notice of application does not rely on r 16.5 which provides for mutual accounts so that each party account to the other. Yet some degree of account may be required by the plaintiff.
[122] A considerable amount of research has been undertaken by Mr Browning the expert for the plaintiff and no doubt for the defendant by Mr Greyling. Mr Hagen, also an expert retained for the defendant has advised the Court that he has read all of the Browning material. In short, there is a wealth of material dealing with the steel trading and its surpluses prior to the breakup of the relationship in 1991. For that reason, and applying HCR 16.3(1), I direct that no further work need be done by the plaintiff in the meantime until the defendant has accounted in the manner ordered by this Court, or until any further order of this Court.
[123] Rather, the issue estoppel of the South African judgment now makes it necessary for the defendant to be the accounting party to his partner, the plaintiff. The partnership has not been properly wound up. The two men remain partners. There is a continuing obligation of the upmost good faith on the part of the defendant to the plaintiff. The defendant has had control of the assets of the partnership, other
than the assets that were transferred by the sale agreement59 these include all the assets listed by the Judge in [132]. But the Judge also records that the partnership acquisitions are not limited to those. She records full extent of the funds retained in the assets required is unknown. The same situation pertains to this Court.
[124] Paragraph 9(f) on the notice of motion replicates the list in paragraph [132] of the judgment and adds a number of other companies: Genan, Galaxy, Edmonton Proprieties, Edmonton Steel, Ocean Steel, Group Four Trading, TGM Metals, Ferromar Pct Limited, Jocrow Steel Limited, Briar Trading Limited and Bramlin Limited. Some but not all transferred in the sale agreement. Over the passage of time, it is more probable than not that the assets of the partnership have from time to time been realised and reinvested following the usual pattern of using corporate entities and maybe trust relationships. But not all may be under the effective control of the defendant, if he has transferred some of these assets absolutely by way of gift or for inadequate consideration to other persons, such as members of his family.
[125] It is more probable than not, that like all investors, Mr van Heeren today has a complete knowledge of the investments that he controls, and so has the ability to swiftly to discharge his duty to account to his partner. The finding of the estoppel effectively transfers the findings of fact as to the world wide partnership assets from South African jurisdiction to the New Zealand jurisdiction and to these proceedings.
[126] There is an order for taking of an account between the plaintiff and the defendant to take effect as provided at the end of this judgment.
Interim payment
[127] The plaintiff seeks an interim payment of USD25m. This sum is approximately 50 per cent of a calculation by Mr Browning of the likely current value of the assets, based on his assessment of the value of those assets at 1991, accrued at the Judicature Act rate of interest. He thinks this is likely to be a conservative assessment.
[128] Interim payments are provided for in Part 7 subpart 5 of the High Court Rules. The Rules were originally taken almost verbatim from Part 2 of the English Order 27, Rules 9 to 18. The plaintiff in this case relies on r 7.71 which provides:
7.71Order for interim payment in respect of sums other than damages
(1) A Judge may make an order under subclause (2) if, on hearing the application, the Judge is satisfied—
(a) that the plaintiff has obtained an order for an account to be taken as between the plaintiff and the defendant and for the payment of any amount certified to be payable on the basis of that account; or
(b) in the case of a claim for the possession of land, that even if the proceeding was finally determined in favour of the defendant, the defendant would still be required to compensate the plaintiff for the defendant's use and occupation of the land before the determination of the proceeding; or
(c) that, on the trial of the proceeding, the plaintiff is likely to obtain judgment against the defendant for a substantial sum of money apart from any damages or costs.
(2) A Judge may order that the defendant pay an amount the Judge thinks just, after taking into account any set-off, cross-claim, or counterclaim on which the defendant may be entitled to rely.
(3) The order does not prejudice any contentions of the parties as to the nature or character of the sum to be paid by the defendant.
[129] The jurisdictional difficulty is whether or not the facts satisfy the test in subrule (1)(c), that the plaintiff is likely to obtain judgment against the defendant for a substantial part of money apart from any damages and costs. The English equivalent of that rule does not use the term “likely” but rather the term “would”. The term “would” appears in the counterpart provision in New Zealand r 7.70(1)(c) which reads:
(c) on a trial of the proceeding, the plaintiff would obtain judgment for substantial damages against the defendant or, if there are several defendants, against 1 or more of them.
[130] The learned authors of McGechan on Procedure do not discuss the use of the
term “likely” under r 7.71. Counsel were not able to provide the Court with a New
Zealand decision which offered any assistance. It would appear the change came in as part of the rewriting of the Rules some years ago, but without explanation.
[131] The English case law makes it clear that the test of “would” is a test of likelihood on the balance of probabilities. See the judgment of Lloyd LJ in Schearson Lehman Brothers Inc v Maclaine Watson & Co Ltd.60
[132] Mr Gray also submitted that a common law court will not dispossess a person of private property except after judgment at trial. But there has been a trial, which has led to an issue estoppel resolving the dispute as to partnership, and to the accumulation of assets, which stood in the way of any duty to account.61 The dispute between the parties is now one of the extent and description of the partnership assets, and maybe arguments endeavouring to displace the statutory presumption of equality of ownership, quantum, and remedies to obtain payments.
[133] Rule 7.71 is to be examined circumspectly. The powers to be exercised are discretionary. There is no right to an interim payment. I have not been given a precedent for an interim payment of this scale, be it in New Zealand or in the United Kingdom.
Opposition to interim payment on the facts
[134] The USD25m sought is Mr Browning’s assessment, he says conservatively,
of about 50 per cent of the likely present day value of the assets of the partnership.
[135] Mr Browning reached his assessment of the total value of the partnership in evidence given in the course of the trial and repeated here. It is based on an analysis of the parties’ steel trading profits, a deduction for known distributions and transfers and then, most significantly, an analysis of the benefits made from the known investments made with the steel trading profits:
(a) Huka Lodge (New Zealand);
60 Schearson Lehman Brothers Inc v Maclaine Watson & Co Ltd [1987] 1 WLR 480 at 489 (a) and
(b).
(b) Dolphin Island (Fiji);
(c) The Cromwell/Wellesley share transactions (New Zealand); (d) Optech (New Zealand); and
(e) Approximately 16 kilograms of gold.
[136] In opposition, the defendant has filed two affidavits by Mr John Hagen, an expert forensic accountant. Essentially, Mr Hagen says that Mr Browning’s affidavit and reports do not evidence a valid material claim by Mr Kidd to monies or assets other than the investments in Cromwell/Wellesley Resources Limited and Huka Lodge. This, however, is in contradiction of the South African Court’s findings in [132] and so with the issue estoppel. Mr Hagen deposes he could see no basis in Mr Browning’s analysis for a proposition that these assets were acquired for the benefit of any partnership between Mr Kidd and Mr van Heeren.
[137] I have found that the reasoning of the South African judgment in [132] raises an issue estoppel. These are all partnership assets. It is no longer open for the defendant to challenge that finding. His opportunity to challenge that was during the six week South African trial. The first policy reason for res judicata is finality of disputes. Mr Hagen’s affidavit is not admissible to challenge let alone displace the issue estoppel.
[138] The combined consequence of the estoppel by reason of the South African High Court’s finding of partnership in [126] and finding of accumulated assets in [132] is that it is not for Mr Kidd to prove in a court of law the accumulated assets of the partnership. But for the partner in control of those assets to account for them.
[139] In making these rulings, I am agreeing with paragraph 4 of Mr Browning’s
affidavit filed in response to the affidavit of Mr Hagen where Mr Browning says:
In giving my response I am conscious that the plaintiff considers all of the issues raised by Mr Hagen to be the subject of issue estoppel arising out of the Judgment of Satchwell J in South Africa. In that context I can say, in summary, that all of the points raised by Mr Hagen were raised in one form
or another in the meeting of experts in advance of the South African trial and were the subject of my evidence in chief or cross examination of me by Mr van Heeren’s counsel.
[140] It is beyond dispute that the Cromwell/Wellesley shares were sold, the proceeds stated by Mr Browning are USD20.7m. Those proceeds were received in
1987. An alternative figure of Mr Hagen is USD16.8m.
[141] It is common ground that the Huka Lodge investment held by Worldwide Leisure is of substantial value. Mr Hagen does not seem to dispute Mr Browning’s figure of USD6.726m nor the joint value of the gold of USD1.18m.
[142] What has happened to the Wellesley resource proceeds in the intervening 28 years is not known.
[143] There are a variety of other assets, as referred to in [132] of the judgment. Mr Browning assesses all assets, plus attributing interest at the Judicature Act rate, to total in the order of nearly USD59m, so that the claim for a USD25m payment now is approximately 50 per cent.
[144] Mr Hagen’s principal response was to argue that there is no evidence that the partnership had beneficial ownership of the shares in Worldwide Leisure and so Dolphin Island or in Cromwell/Wellesley and to dispute that, Genan purchased Huka Lodge. All of these arguments, as I have already noted, are in contradiction of the findings of fact of the Judge in [132], which is part of the issue estoppel.
[145] The taking of account should render irrelevant the application of the Judicature Act interest rate. For it is an obligation to account for the use of the partnership monies, showing where the assets currently are and showing how they came to be in that state. It would report profits and losses on transactions.
The continuing and outstanding duty of Mr van Heeren to Mr Kidd
[146] Mr van Heeren opposes an interim payment, in part, by reason of Mr Kidd’s decisions leading to delays in the progress of the litigation. The mutual trust between the two partners effectively ended in fact some time in 1991, so the Court is
looking at a period of about 24 years in which Mr van Heeren has failed to account. In law he continues to owe his trust obligation to Mr Kidd.
[147] Mr van Heeren’s duty to account does not depend on Mr Kidd bringing legal proceedings. It is a continuing obligation as a partner in a winding up of the partnership.62 Accordingly, it is no defence to say that Mr van Heeren has not delayed the proceedings in New Zealand which commenced in 1996 to now. I was taken through the procedural history of the New Zealand and, to some extent, the South African proceedings. There is a significant argument that the delays were caused by the assembly of the expert report of Mr Browning and various tactical decisions taken by Mr Kidd. But that, in my view, is beside the point now. Plainly,
Mr van Heeren was relying on being vindicated in his reliance upon the indemnity agreement. Given the finding that that agreement was void because of his deliberate misrepresentations to Mr Kidd, he can no longer fall back on the length of the Court litigation as a justification for his continuing failure to account.
[148] It follows from my finding as to the extent of the issue estoppel, as including [132] of the South African judgment, that I can find confidently that, in the absence of settlement, the remedy of account will result in a substantial judgment in favour of Mr Kidd, or failing the remedy of account, then other such remedies as receivership or damages will, in substitute, result ultimately in a substantial judgment for the plaintiff. There is, of course, doubt as to the size of the assets, see the last sentence
in [132]63 and possibly a challenge to a 50/50 share.64 There is no doubt as to the
continuing existence of the substantial immovables, Huka Lodge and Dolphin Island, if there has been any change of ownership that can be traced. Given the undoubted business acumen of the defendant, it is more probable than not that the proceeds of the Cromwell/Wellesley transactions have not been lost but, rather, have been profitably reinvested over time.
[149] As already noted, although Mr van Heeren retained expert assistance prior to the trial and that there was a conference of experts, in the end, as the Judge records
62 See Partnership Act 1908, s 41.
63 At [11] above.
in [6], Mr van Heeren did not himself give evidence at the trial. Nor was any evidence led on his behalf, particularly by his expert, Mr Greyling.
[150] The Judge records Mr Browning’s overall assessments in her judgment at
[90](k):
The overall worldwide group financial assessment as at 17 January 1991 was calculated at between US$48,892,947 and US$55,585,026 and the overall worldwide group financial assessment based on assets forming part of the Kidd/Van Heeren business association as at 17 January 1991 was calculated at between US$47,263,501 and US$511,812,643.
[151] Materially, in [95] the Judge refers to Mr Greyling, the accountant retained by Mr van Heeren, who was to be called as an expert witness:
… I am also mindful that Browning was taken through his response to the report of another accountant, Greyling, who was to be called as an expert witness by Van Heeren and who sat in court throughout the evidence of Browning. The only real difference between Browning and Greyling (as discussed by Browning in evidence) was that Browning’s investigation and opinion was more extensive as was the brief which he was required to undertake.
[152] Obviously, the scale of these partnership assets provided the motivation for Mr van Heeren to instruct his solicitors to draw the wide indemnity and for the deliberate misrepresentations he made to get it executed, as the trial judge noted, in [165].65
[153] There is no doubt that it was a judgment call by Mr van Heeren and his advisers that neither he nor Mr Greyling gave evidence, made at Mr van Heeren’s risk.
[154] Mr van Heeren had every opportunity at the South African trial to argue that the profits from the steel trades had been fully distributed between he and Mr Kidd and these other assets belonged to him alone. Had he done that and proved that, the indemnity agreement would have been seen in a completely different factual matrix.
[155] For these reasons, in my view, my judgment as to whether Mr Kidd “would”
or “is likely”, putting either test on the balance of probabilities, recover USD25m has
to be based on the issue estoppel that I have found and the difficulty of displacing a presumption of 50/50 sharing.
[156] I have deliberately used the test of “would” although the rule uses the term “likely” for I am satisfied that inasmuch as there is a difference, the “would” test is a higher burden and is satisfied in this case. It follows that I am also satisfied that the likely test, however it is interpreted, is also satisfied. For my judgment is based on the balance of probabilities favouring Mr Kidd strongly on quantum.
Residual discretion
[157] It does not follow that if the Court has a jurisdiction to make an order under HCR 7.71 for an interim payment, that the Judge will make the order. The whole of the rule is subject to the Judge’s discretion. I refer to subrule (2). The Judge has to be satisfied that the amount that the Court orders is “an amount the Judge thinks just”. The Judge needs to take into account any setoff, cross-claim or counterclaim on which the defendant may be entitled to rely. There is, at present, no setoff, cross- claim or counterclaim. The Judge can also order a payment into Court under r 7.72.
[158] It is important to keep in mind that the power in r 7.71 applies in respect of sums other than damages which are addressed in r 7.70.
[159] There is, however, a relationship between r 7.71 and r 7.70. As the learned authors of McGechan explain in HR7.70.01 orders tend to be made where liability has been admitted or judgment already obtained.
[160] Essentially, this judgment as to issue estoppel falls into that category. As already found, it is beyond argument now that these two men are partners. They remain so until there is a final accounting between them. It is beyond argument that the assets of the partnership include the acquisitions and property described in [132] and, inevitably, any subsequent acquisition of assets from those assets over the past nearly quarter of a century.
[161] In short, barring affidavit evidence by Mr van Heeren, accepted by the Court, that due to disastrous investments he had lost these assets, he is obliged to account
for them to Mr Kidd. Furthermore, having previously denied that there was a partnership, he is not likely to be able to avoid the statutory presumption of 50/50.
[162] Unlike r 7.70, an order under r 7.71 is not limited to the principle that the “amount must not exceed a reasonable proportion” of the likely final sum to be realised by an account to be taken.
[163] Rather, subs (2) suggests that the reduction should be by way of allowing for any setoff, cross-claim or counterclaim. There is currently no such claim, nor has one been asserted these past 24 years.
[164] Taking these propositions together, this Court has the jurisdiction to order the defendant to pay the sum of USD25 million nominated by Mr Browning, an expert, as a conservative sum.
[165] The only question is whether or not ultimately the Court thinks that is just to make that order now.
[166] The Court has to take into account the possibility that there may have been subsequent disastrous investments by Mr van Heeren. The Court can also take into account the risks that Mr Kidd might lose some of an interim payment during the course of the balance of litigation or that Mr Kidd might alienate it in a way which prevents an interim payment being recovered.
[167] Mr Gray has submitted that the cases in New Zealand and the UK do not discuss the need for security for repayment. He submits:
Presumably, they do not need to do so because an order is not appropriate where there is any possibility of the need to repay.
[168] In my judgment, the only relevant possibility for an order of repayment is that Mr Kidd may need to repay part if it turns out Mr Browning has over-estimated Mr Kidd’s share.
[169] It is a basic principle of law that where statutes and regulations give the Court a discretion, the power can be exercised subject to conditions.
[170] For these reasons, I think it is just that I make the following orders:
(a) That the defendant pay the sum of USD25m in equivalent New Zealand dollars on the date of payment into Court at the latest, being one calendar month from the date of this judgment, with leave to apply for an extension of time.66
(b)That the plaintiff submit to the Court a plan of investment and use of that sum, pending completion of the taking of account of the assets of the partnership.
Judgment
[171] This Court declares that, by reason of the decision of the South Ganteng High Court of South Africa (27975/1998, 20 May 2013, Satchwell J), the defendant is issue estopped from denying the partnership and the accumulated worldwide assets of the partnership, as found by the Judge, particularly in [126] and [132] of her judgment.
[172] The following orders are made:
(a) An account is to be taken between the plaintiff and the defendant to determine the amount due to the plaintiff arising out of the plaintiff ’s claim as a partner against the defendant.
(b)That any amount certified by the High Court on the basis of that account be paid.
(c) The defendant, as the principal accounting party, is required to account to the plaintiff by filing in the High Court and serving on the plaintiff within 30 days of this judgment a complete list of all assets of the partnership, not confined to the list in [132] of the South African
judgment, other than any held by the plaintiff, including:
66 High Court Rules, r 7.72.
(i) a description of the entities holding the assets; (ii) a description of the assets; and
(iii) the current value of the assets.
(d)In addition, if any assets have been deposed of or otherwise he has lost control of, they should be listed with details of loss of control, advice as to the his knowledge as to who has control of those assets, a description of those assets and his estimated current value of those assets.
(e) I direct that no further work need be done by the plaintiff in the meantime until the defendant has accounted in the manner ordered by this Court, or until any further order of this Court.
(f) That the defendant pay the sum of USD25m in equivalent New Zealand dollars as at the date of payment into Court at the latest, being one calendar month from the date of this judgment, with leave to apply for an extension of time.
(g)Further in respect to order (e) within two calendar months of this judgment, and after the payment is made by the defendant into Court, the plaintiff is to submit to the Court a plan of investment and/or use of the interim payment pending completion of the final accounts.
(h)On receipt of the plaintiff’s proposal the Court will have a case management conference between the parties to timetable the process of approving or varying that proposal, enabling release of the whole or part of the funds to the plaintiff and the investment of the balance, coupled with a timetable on completion of the account.
(i) The defendant shall pay the plaintiff’s cost of this application.
[173] In the first instance, these accounts will be taken before myself or Gilbert J, as the judges familiar with the dispute.
Costs
[174] In respect of order (i), the amount of costs is reserved. If the parties cannot agree costs I will receive submissions from each party limited to ten pages exchanged sequentially between the plaintiff and the defendant, with the plaintiff’s right of reply limited to five pages. On receipt of those submissions, I will either make a decision on the papers or convene a hearing.
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