LHL Leasing Solutions Limited v Pinto Limited
[2017] NZHC 1050
•19 May 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-5240 [2017] NZHC 1050
BETWEEN LHL LEASING SOLUTIONS LIMITED
Plaintiff
AND
PINTO LIMITED Defendant
Hearing: 11 May 2017 Appearances:
R J M Sim and D P Robinson for the Defendant, in support
G Denholm for the Plaintiff, to opposeJudgment:
19 May 2017
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 19 May 2017 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
………………………………………………….
Registrar/Deputy Registrar
Solicitors:
Foy & Halse (G W Halse), Epsom, Auckland, for Plaintiff
Gallaway Cook Allan Lawyer (RJM Sim/DP Robinson), Dunedin, for the Defendant
Copy for:
Greg Denholm, Barrister, Auckland
LHL LEASING SOLUTIONS LIMITED v PINTO LIMITED [2017] NZHC 1050 [19 May 2017]
[1] The defendant applies to dismiss under r 15.2 of the High Court Rules for failure by the plaintiff to prosecute its claim. LHL Leasing Solutions Ltd sues Pinto Ltd (formerly called MPL Pinto Ltd) under an agreement to lease juice-dispensing units. LHL says that Pinto Ltd did not pay rent under the lease and failed to return all the units at the end of the lease. The agreement came to an end in December 2010. LHL Leasing Solutions Ltd claims $228,552.00 plus interest at 8.66 per cent for unpaid rent and liquidated damages of $607,015.98 for equipment not returned at the end of the lease. It began this proceeding in December 2013. Pinto Ltd has counterclaimed for breach of contract for not keeping the equipment in good order and repair.
Background
[2] The case involves these businesses:
[a] LHL Leasing Solutions Ltd of Auckland is a company under the control of Mr Lindsay Raki. It did not carry on any other business except the lease of equipment to the defendant.
[b] Pinto Ltd, the defendant, is not the first company with that name. The original Pinto Ltd, based in Tauranga, sold juice through dispensers at outlets around the country.
[c] Pinto Ltd, the defendant, took that business over. It used to be called MPL Pinto Ltd. It is based in Dunedin and is a subsidiary of Mainland Poultry Ltd. It had no other business. It is no longer active, but has not been wound up because this proceeding is still pending. It now has only one employee, its director.
[d] Mr Thomas Leaupepe, who carries on business under the name LHL Food and Beverage Technology Source, had a contract with LHL Leasing Solutions Ltd to repair and maintain the equipment leased to Pinto Ltd.
[e] Mr Graeme Benney (now deceased) ran a company, Maxro NZ Ltd, which Mr Leaupepe engaged as a sub-contractor to service and maintain the juice- dispensing units.
[3] The arrangements among the parties and the way they were documented are not straightforward:
[a] There is a master lease agreement of 16 November 2005. The parties are Mr Leaupepe, the original Pinto Ltd, with Mr Leaupepe as “hirer”, the original Pinto Ltd as lessee and the directors of the original Pinto Ltd as guarantors.
[b] There is an agreement for sale and purchase of a business of 20 December
2005 between the original Pinto Ltd as vendor, and LHL Leasing Solutions Ltd as purchaser for $345,687. The business is described as “plant and equipment for sale of juice”. The agreement provides for the original Pinto Ltd to lease back the equipment for five years at a rent of $9,059.54 plus GST per month.
[c] There is an agreement for a lease of equipment between LHL Leasing Solutions Ltd as lessor, the original Pinto Ltd as lessee and its directors as guarantors. Mr Raki signed that agreement on behalf of his company, but the original Pinto Ltd and the guarantors did not.
[d] On 9 August 2006, a novation of lease and guarantee was signed. The parties are the original Pinto Ltd as retiring party, MPL Pinto Ltd (the defendant) as substitute party, Mr Leaupepe as the hirer, LHL Leasing Solutions Ltd as the continuing party, the directors of the original Pinto Ltd as retiring guarantors, and Mainland Poultry Ltd (the current Pinto Ltd’s holding company) as substitute guarantor. That agreement recites that Mr Leaupepe and the original Pinto Ltd entered into the master lease agreement of 16 November 2005. Mr Leaupepe had assigned his interest in the master lease agreement to LHL Leasing Solutions Ltd. The original Pinto Ltd had agreed to sell, and the new Pinto Ltd had agreed to buy its
business and assets. The original Pinto Ltd was to be released and the new Pinto Ltd was to be substituted under the master lease agreement. The original guarantors were released and Mainland Poultry Ltd was substituted as guarantor. The novation agreement provided for the assumption and release of obligations in accordance with the recitals. It took effect from 30
June 2006.
[4] The result was that LHL Leasing Solutions Ltd leased the equipment to the new Pinto Ltd under the master lease agreement. The contractual documents do not easily square with that. The master lease agreement assumes that Mr Leaupepe had title to the equipment so as to be able to lease it to the old Pinto Ltd. If so, that Pinto Ltd did not have title to sell the equipment to LHL Leasing Solutions Ltd under the agreement for sale and purchase of the business and there was nothing to lease back. Given that the old Pinto Ltd had sold its business to LHL Leasing Solutions Ltd, it had no business to sell to the new Pinto Ltd.
[5] When I raised these matters, Mr Denholm explained that the master lease agreement did not take effect in November 2005, apparently because Mr Leaupepe did not have the funds to buy the equipment from the original Pinto Ltd. Instead, LHL Leasing Solutions Ltd bought the equipment under the agreement on 20 December 2005. That agreement is better understood as solely for the sale and purchase of goods rather than the sale and purchase of a business. While that agreement provided for the lease back to the original Pinto Ltd, those terms no longer applied after the novation. Although the recitals to the novation assume that Mr Leaupepe had hired the equipment to the original Pinto Ltd, there was nothing to be novated if the master lease agreement had not taken effect in November 2005. Instead, under the agreement of August 2006, the terms of the master lease agreement became contractually binding between LHL Leasing Solutions Ltd and the new Pinto Ltd. That superseded the leaseback in the sale and purchase agreement between LHL Leasing Solutions Ltd and the old Pinto Ltd and any terms in the lease agreement signed only by LHL Leasing Solutions Ltd.
[6] One of the discrepancies between the lease-back terms in the agreement for sale and purchase and in the master lease agreement is the amount of the rent. Under the master lease agreement the rent is $9059.94 per month, including GST. Under the lease-
back, it is $9,059.94 plus GST. At the hearing, LHL Leasing Solutions Ltd accepted that the master lease agreement applied and the rent was correctly $9,059.94 including GST per month. That resolved one of the differences between the parties.
[7] There are difficulties with the master lease agreement. While there is a bailment of chattels, the agreement leaves that to be inferred. There are no express words of conveyance. LHL Food and Beverage Technology Source (Mr Leaupepe’s trading name) is identified as hirer and the original Pinto Ltd as lessee. The term of the bailment is
60 months from the commencement date, but the agreement does not state the commencement date. The parties are described as hirer and lessee, but the printed form also provides for an owner. The agreement says that it does not bind the hirer until a duly authorised officer of the hirer signs it, but Mr Leaupepe did not sign it nor did any agent acting on his behalf. The goods bailed under the agreement are said to be those in a schedule to the Pinto master equipment register, but that was not put in evidence.
[8] The following terms and conditions of the agreement are relevant to disputes that arose between LHL Leasing Solutions Ltd and the new Pinto Ltd:
2. Rent: The lessee must pay the rent (including GST) by the instalments set out in this Agreement. The lessee shall upon demand by the Hirer pay all taxes, levies and charges (including GST) which may be imposed now or in the future upon the Hirer as a result of the leasing service or maintenance of the Equipment. So far as is permitted by law the Lessee must pay rent and otherwise comply with this Agreement even if the Equipment is not in working order or is partially or totally defective or damaged, provided however that the Hirer has employed best efforts to rectify all defects.
…
6. Use of equipment: The Hirer must: At its own expense keep and maintain the Equipment in good order and repair and in first class condition for equipment of its description.
…
10. Liquidated damages: If the Lessee fails to deliver up the Equipment to the hirer on expiration or termination of this Agreement, the Lessee must pay to the Hirer by way of liquidated damages, a monthly rent equal to the average monthly rent during the term of this Agreement.
…
19. Return of equipment: The Lessee must return the Equipment to the Hirer immediately if: (1) the initial period as set out in this Agreement
expires … The Equipment must be returned to the Hirer in the same condition it was in when the Lessee first took delivery of the equipment (reasonable wear and tear excepted). If at the time of equipment return any equipment including software (including but not limited to any manuals, certificates of registration, other documentation) are damaged or missing, at the election of the hirer either (a) repair or replace such damaged or missing equipment or software, or (b) pay the hirer the reasonable market value of such damage or missing equipment or software within five (5) working days of return.
20. Upgrade of equipment: If the Lessee notifies the Hirer that it wishes to upgrade the Equipment, the Hirer will give consideration to financing the upgrade provided: (1) the Lessee is not in default under this Agreement and (2) the Hirer is satisfied with the financial performance and position of the Lessee.
…
26. Waiver: The Hirer may waive its rights in respect of any breach of repudiation by the Lessee but no waiver of any one breach or act of repudiation affects the Hirer’s rights in respect of any further other or continuing breach or act of repudiation.
…
30. Set off: The Lessee is not entitled to withhold any payment or may any deductions from any payment when the Lessee claims to have a right of set off or counterclaim of any nature.
[9] There was also a written agreement between LHL Leasing Solutions Ltd, and Mr Leaupepe, under which Mr Leaupepe was to maintain the leased equipment. LHL Leasing Solutions Ltd relies on Mr Leaupepe’s performance of that service agreement to show its compliance with the service and maintenance obligations in cl 6 of the bailment agreement. Mr Leaupepe in turn subcontracted the maintenance work to Maxro, Mr Benney’s company.
[10] There were differences between LHL Leasing Solutions Ltd and the new Pinto Ltd under the master lease agreement:
[a] At the outset LHL Leasing Solutions Ltd invoiced Pinto Ltd at $9,059.94 per month plus GST, and Pinto Ltd paid. Later, it contended that rent was inclusive of GST and made deductions from its rent payments to re-balance its overpayments.
[b] There were swap-outs of equipment. Much of the equipment was old and not all of it was in good working order. Mr Leaupepe substituted new equipment from other sources for dispensers that were not working. Pinto Ltd paid rent for that new equipment and deducted that rent from its payments to LHL Leasing Solutions Ltd. LHL Leasing Solutions Ltd contends that Mr Leaupepe did not have its authority to make the substitutions and that Pinto Ltd is required to pay the rent in full without deductions.
[c] Pinto Ltd contends that LHL Leasing Solutions Ltd did not keep the equipment in good working order and first-class condition as required under cl 6. It says that it is entitled to withhold rent under the proviso in cl 2 of the lease. It did not pay all the rent under the agreement. LHL Leasing Solutions Ltd rejects the complaints of lack of servicing, and says that the rent is payable in full.
[d] At the end of the lease, Pinto Ltd did not return all the equipment to LHL Leasing Solutions Ltd. It says it was not required to do so, because LHL Leasing Solutions Ltd chose to collect the equipment itself.
The principles on applications to dismiss for want of prosecution
[11] Applications under r 15.2 are uncommon these days because under modern rules the court actively supervises the interlocutory stages of a proceeding so as to identify and address any delays in a timely way. The power to strike out for want to prosecution survives from the days before case management. The authority generally cited is Lovie v The Medical Assurance Society of New Zealand Ltd.1 Eichelbaum J surveyed earlier New
Zealand and English authorities and quoted Lord Diplock in Birkett v James:2
To justify dismissal of an action for want of prosecution the delay relied upon must relate to time which the plaintiff allows to lapse unnecessarily after the writ has been issued. …
A late start makes it the more incumbent upon the plaintiff to proceed with all due speed at a pace which might have been excusable if the action had
1 Lovie v Medical Assurance Society of New Zealand Ltd [1992] 2 NZLR 244.
2 Birkett v James [1978] AC 297 (HL) at 322.
been started sooner. It may be inexcusable in the light of the time that has already passed before the writ was issued.
[12] In the same case Lord Diplock also said:3
To justify dismissal of an action for want of prosecution some prejudice to the defendant additional to that inevitably flowing from the plaintiff’s tardiness in issuing his writ must be shown to have resulted from his subsequent delay (beyond the period allowed by rules of the court) in proceeding promptly with the successive steps in the action. The additional prejudice need not be great compared with that which may have been already caused by the time elapsed before the writ was issued but it must be more than minimal; and the delay in taking a step in the action if it is to qualify as inordinate as well as prejudicial must exceed the period allowed by rules of court for taking that step.
[13] In Lovie, Eichelbaum J summarised the principles extracted from earlier cases:4
1By itself, delay prior to the issue of proceedings cannot constitute inordinate and inexcusable delay for purposes of a striking out application.
2If such delay has occurred, further delay after issue of proceedings will be looked at more critically by the Court, and will be regarded more readily as inordinate and inexcusable than if the proceeding had been commenced earlier.
3 The defendant must show prejudice caused by the post-issue delay.
If however the defendant has suffered prejudice as a result of pre- issue delay, he will need to show only something more than minimal
additional prejudice to justify striking out the proceeding.
4An overriding consideration whether justice can be done despite the delay. As to that, all factors, including pre-issue prejudice in delay, have to be taken into account.
[14] I add that the previous conduct of a defendant is relevant. The defendant cannot rely on delay for which it is responsible: Allan v Sir Alfred McAlpine & Sons Ltd,5 one of
the founding cases. The cases in that decision exemplify real tardiness.
3 Above n 2, at 323.
4 Above n 1, at 253.
5 Allen v Sir Alfred McAlpine & Sons Ltd [1968] 2 QB 229 (CA) at 260.
[15] LHL Leasing Solutions Ltd began this proceeding on 19 December 2013. It did not provide initial disclosure until 14 February 2014. Pinto Ltd sought particulars, which were given in June 2014. In July 2014 Pinto Ltd filed a statement of defence and counterclaim and applied for security for costs. Associate Judge Osborne decided the
security for costs application on 30 September 2014.6 It was common ground that LHL
Leasing Solutions Ltd would not be able to pay any order for costs if Pinto Ltd were successful. Associate Judge Osborne assessed LHL Leasing Solutions Ltd’s prospects of success as extremely modest.7 He discounted the submission for LHL Leasing Solutions Ltd that Pinto Ltd had brought about its impecuniosity. While taking into account access to justice for LHL Leasing Solutions Ltd, he held that it should provide security for costs which he fixed at $43,000 to be paid in two tranches, $25,800 by 13 October 2014 and
$17,200 by the close of pleadings date. The proceeding was stayed until security was paid. He awarded Pinto Ltd costs on the application of $2,286.79. In December 2014
Pinto Ltd served a statutory demand on LHL Leasing Solutions Ltd for the costs order. These were paid in January 2015. In April 2015, Pinto Ltd applied to strike out because of the failure to pay the first tranche of security. In May 2015, Associate Judge Sargisson made an unless order unless the security was paid by 16 June 2015, and ordered LHL Leasing Solutions Ltd to pay costs on the application. The first tranche of security was paid on 16 June 2015.
[16] No further steps were taken in 2015. In February 2016 Pinto Ltd applied under r 15.2 of the High Court Rules to strike out for want of prosecution. Associate Judge Doogue decided the application in May 2016.8 He found that LHL Leasing Solutions Ltd had delayed in prosecuting the proceeding but that any prejudice arising from the delay was not more than minimal. He dismissed the application and ordered that costs lie where they fell. At the date of his decision, neither side had made discovery. LHL Leasing Solutions Ltd filed its current statement of claim at the end of May 2016. Pinto Ltd sought a review of Associate Judge Doogue’s decision. Lang J dismissed the review
application.9 He found delay both before the start of the proceeding and since. He held
6 LHL Leasing Solutions Ltd v Pinto Ltd [2014] NZHC 2397.
7 At [30].
8 LHL Leasing Solutions Ltd v Pinto Ltd [2016] NZHC 1017.
9 LHL Leasing Solutions Ltd v Pinto Ltd [2016] NZHC 1777.
that the delay from June 2015 until Pinto Ltd filed its dismissal application was unexplained and inordinate.10 He held, however, that Pinto Ltd could not point to any prejudice referable specifically to the delay after June 2015. He upheld the finding of Associate Judge Doogue that Pinto Ltd had not shown that it had suffered something more than minimal prejudice from the delay. He noted that discovery had not been provided yet, and said:11
If the lists are grossly deficient because records have been lost or destroyed Pinto may be entitled to ask the Court to revisit the issue of dismissal again. Similarly, Pinto has not said it will be unable to call evidence to prove its defences and counterclaims. Rather, it has expressed a concern that it may not be able to do so. That issue may also need to be revisited once Pinto has had an opportunity to review the discovery provided by LHL and Mr Leaupepe.
[17] While dismissing the application for review, he amended the security for costs directions to require LHL Leasing Solutions Ltd to pay the second tranche forthwith. He directed costs to lie where they fell. The second tranche of security was paid the day after his judgment.
[18] Discovery was directed during August 2016. LHL Leasing Solutions Ltd filed an affidavit of documents on 12 August 2016. In the same month Pinto Ltd applied to strike out or for further and better discovery. That was heard on 17 November 2016. By then, the parties agreed on orders for further discovery. Associate Judge Sargisson made orders by consent in November 2016 and ordered LHL Leasing Solutions Ltd to pay costs on that application - $5663. In January 2017 LHL Leasing Solutions Ltd filed a second affidavit of documents. In February 2017, affidavits by Mr Raki and Mr Leaupepe were filed confirming that their discovery was complete.
[19] Pinto Ltd filed its second application under r 15.2 in March 2017. It relies on delay in the proceeding generally and also on failure to pay the order for costs made by
Associate Judge Sargisson in November 2016.
10 At [49].
11 At [51].
[20] As Pinto Ltd failed in its first application to dismiss for want of prosecution, it needs leave under r 7.52 of the High Court Rules:
7.52 Limitation as to second interlocutory application
(1) A party who fails on an interlocutory application must not apply again for the same or a similar order without first obtaining the leave of a Judge.
(2) A Judge may grant leave only in special circumstances.
[21] It did not seek leave in its notice of application. When I raised the matter, Mr Sim applied orally for leave. Mr Denholm did not submit that leave should not be granted. The ground put forward to allow leave for a second application is that Lang J expressly contemplated that there might be a further application once LHL Leasing Solutions Ltd and Mr Leaupepe had made discovery. Pinto Ltd says that in the light of the discovery now made by LHL Leasing Solutions Ltd, it has fresh cause to apply for dismissal. On that basis I grant leave. Pinto Ltd’s application cannot be dismissed on the basis that it is simply trying to re-argue a matter on which it has already been unsuccessful.
No issue estoppel
[22] For a large part of its case, Pinto Ltd relies on findings made against LHL Leasing
Solutions Ltd by Associate Judge Doogue and Lang J in the earlier application under r
15.2. In Joseph Lynch Land Co Ltd v Lynch, the Court of Appeal accepted the possibility that some decisions made on interlocutory applications may give rise to an issue estoppel:12
While we acknowledge that points decided in interlocutory proceedings may in certain circumstances lead to an estoppel, the rationale is less powerful in an interlocutory context. Therefore the justice of the case must be compelling before a decision which is in substance interlocutory is held to prevent the later ventilation of an issue. … While an interlocutory judgment can contain a determination which is final for estoppel purposes, care must be taken not to allow the doctrine of issue estoppel, designed to prevent injustice to one litigant, from causing the greater injustice to the other. In our judgment the ultimate question is concerned not so much with the character of the earlier decision, i.e. whether it should be regarded as final or
12 Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA) at 43.
interlocutory. The question is rather whether in the circumstances it is reasonable to regard the earlier decision as a final determination of the issue which one of the parties now wishes to raise.
[23] The findings in the earlier decisions Pinto Ltd relies on are that there was inordinate and inexcusable delay by LHL Leasing Solutions Ltd. It wishes to argue only the questions of serious prejudice and whether a fair trial is possible.
[24] Those findings cannot found an issue estoppel. That is because the findings of delay made by Associate Judge Doogue and Lang J were not fundamental to their decisions. Issue estoppel applies only to determinations which are fundamental to a decision and without which it cannot stand.13 A useful test is to ask whether it was possible to appeal against a finding which has been put forward as founding an issue estoppel. If there can be no effective appeal against a determination, it is not possible to
regard it as fundamental to the judgment.
[25] The delay findings by Associate Judge Doogue and Lang J were not fundamental to their decision because, even though they made those findings against LHL Leasing Solutions Ltd, they found against Pinto Ltd on the application to dismiss. It is accordingly necessary to examine afresh questions of delay, as well as the submissions as to prejudice.
Pre-issue delay
[26] It is common ground that the bailment ended on 20 December 2010. This proceeding was not started until three years afterwards. There is no explanation for the time taken to issue the proceedings. Even before the end of the agreement, the parties had instructed their lawyers and there had been correspondence in which each side set out their respective contentions. Pinto Ltd’s payment of rent and LHL Leasing Solutions Ltd’s performance of its maintenance obligations could be ascertained at the end of the bailment. Whether Pinto Ltd had returned all the equipment could be ascertained shortly afterwards. There is no reason why proceedings could not have been issued as a matter of course in the first half of 2011. There was accordingly a delay of approximately two-and-
a-half years before the proceeding was filed.
13 Talyancich v Index Developments Ltd [1992] 3 NZLR 28 (CA) at 38.
[27] With reasonable diligence this case could have been heard and a decision given by mid-2015. That allows for pleadings, discovery, reasonably prompt resolution of an interlocutory application, exchange of evidence and a hearing of no more than five days. It assumes that both sides would work co-operatively towards a hearing without stalling tactics. It allows a cushion for contingencies. The extra time above that taken by parties using normal due diligence counts as delay. That is not only the extra two years up to now but also further time to hearing.
Responsibility for the delay
[28] LHL Leasing Solutions Ltd is not, however, solely responsible for the extra time taken. Some of the time has been taken up with Pinto Ltd’s security for costs application and the stay that followed until security was paid.
[29] Delay in providing security is not always an excuse. In Matai Industries Ltd v Jensen, there was delay of four years.14 The plaintiff said that for two of those years it had difficulties in providing security. Tipping J was not impressed:15
I do not find at all persuasive the plaintiff’s contention that its own failure to give security constitutes an excuse for not prosecuting its action with due diligence. Equally unattractive is the plaintiff’s proposition that defendants who obtain an order for security, which must ex hypothesi be regarded a justified, bring the prejudice inherent in the plaintiff’s delay in complying with the order on themselves. Mr Atkinson even went so far as to submit that a defendant who obtains an order for security exchanges his right to a speedy trial for the right not to have to face the risks inherent in being sued by an impecunious plaintiff.
[30] Tipping J appears to have assumed that the plaintiff in that case would be able to comply with the order for security for costs. But many security for costs decisions are made on the tough-minded basis that security should be ordered, even though the plaintiff lacks funds. That was the case here. LHL Leasing Solutions Ltd needed outside funding if it was to continue the proceeding. The time taken to deal with the application for
security for costs cannot be held against LHL Leasing Solutions Ltd. It was also
14 Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (HC).
15 At 546-547.
reasonable to allow time for Mr Raki to find funds for security. There is no evidence as to his financial position and any related entities, but in the absence of any such information, I allow six months for security to be provided.
[31] The application by Pinto Ltd in April 2015 to strike out for non-payment of security for costs cannot be held against it. Its application was well-founded because security had not been provided. LHL Leasing Solutions Ltd was solely responsible for the delay from the end of March 2015 until Pinto Ltd filed its first application under r 15.2 in February 2016. Pinto Ltd is responsible for the time taken up with its unsuccessful application to dismiss and its unsuccessful application for review from February 2016 to August 2016.
[32] As a counsel of perfection, LHL Leasing Solutions Ltd might have resisted the first application under r 15.2 by showing that it was busying itself with the proceeding and was intent on pressing on diligently to hearing. But that may involve too harsh a judgment on a litigant in the position of LHL Leasing Solutions Ltd. In practice, a common tendency when faced with such an application is to focus on resisting that application, even if that involves giving less attention to prosecuting the proceeding to a hearing. It is hard to say that LHL Leasing Solutions Ltd’s successful opposition to the first application under r 15.2 was inexcusable or inordinate delay.
[33] Even allowing for time taken with steps taken by Pinto Ltd, LHL Leasing Solutions Ltd was responsible for about a year of the extra time taken above the one-and- a-half years I have allowed in paragraph [27] above. That is shown up by the time taken by LHL Leasing Solutions Ltd to make discovery. Under normal diligence, it would have provided its lawyers early on with all documents so that a discovery affidavit could be prepared.
[34] In applications under r 15.2, a defendant may properly wait until the time is ripe to apply for dismissal without having spurred the plaintiff on.16 In this case, Pinto Ltd did jump up and bark. It applied to strike out when security for costs was not paid. It made
an earlier application under r 15.2 albeit unsuccessfully. It chivvied LHL Leasing
16Allen v Sir Alfred McAlpine & Sons Ltd, above n 5, at 257-258, and see also the submission of counsel at 238: “It is not the duty of the fox, if the hounds are temporarily off-scent, to jump up and bark.”
Solutions Ltd on discovery. If it cannot be held against a defendant to lie low and wait before applying, it cannot count against a defendant if it tries to prod a plaintiff into action. I find that there has been delay by LHL Leasing Solutions Ltd since the start of the proceeding. While the defendant has to take responsibility for some of the time, up to this point approximately a year more than the normal time required lies squarely with LHL Leasing Solutions Ltd. That delay is inordinate and in the absence of any explanation it is inexcusable.
Prejudice arising from delay
[35] In Policy Management Ltd v Colonial Mutual Life Assurance Society Ltd,17
Associate Judge Gendall listed these factors as relevant to prejudice under r 15.2:
[a] The age of the proceeding; [b] the extent of the delay;
[c] discovery and other steps in the proceeding taken by the parties; [d] the availability of witnesses and their need to recall events;
[e] the complexity of the issues which witnesses are intending to recall; [f] whether the limitation period has passed;
[g] the dimming of memories and the effect it will have on cross- examination;
[h] the length of time to trial;
[i] prejudice in having a proceeding pending indefinitely; and
[j] whether there has been any default by the defendant.
[36] Obviously not all of them require consideration in every case. The inquiry goes to causation – whether any identified delay has had a prejudicial effect on Pinto Ltd. Any prejudice to Pinto Ltd is to be assessed against the circumstances in December 2013 when LHL Leasing Solutions Ltd began this proceeding. The enquiry is into additional
prejudice on top of that at the start of the proceeding.
17 Policy Management Ltd v Colonial Mutual Life Assurance Society Ltd HC Wellington
CIV-1996-485-1, 21 December 2005 at [59].
[37] In December 2013 the agreement had ended three years before. Pinto Ltd’s sales team, which had liaised with customers and Mr Leaupepe, had been disbanded and Pinto Ltd no longer employed them. The only person left in its employ was Mr Sutherland, its director. He had not had direct contact with customers. In 2011 Mr Benney, the director of Maxro New Zealand Ltd, Mr Leaupepe’s sub-contractor, had died. His widow has since advised that he held few, if any, records relating to servicing of equipment bailed in the agreement. While differences had become apparent during the agreement and lawyers had exchanged correspondence airing the differences between the parties, Pinto Ltd does not seem to have done much to collate documents and record information in anticipation of a proceeding by LHL Leasing Solutions Ltd. It was accordingly already at a disadvantage at the start of the proceeding.
[38] Under Birkett v James18 LHL Leasing Solutions Ltd was within its rights in starting a proceeding based on breaches of contract which had occurred in the last six years. If it had prosecuted its claim with reasonable diligence, Pinto Ltd would not be able to complain of prejudice. It would have to defend the proceeding with the disadvantages it was under at December 2013. It would need to rely on rounding up its former staff who had dealt with customers and with Mr Leaupepe and hope that they would still have good memories. It would also have to hope for fruitful discovery by LHL Leasing Solutions Ltd.
[39] Information from its former staff and by LHL Leasing Solutions Ltd would be relevant to LHL Leasing Solutions Ltd’s performance of it maintenance obligations under clause 6 of the agreement. It would also be necessary to ascertain the location and condition of equipment at the end of the agreement.
[40] As to the present circumstances, there are two matters of additional prejudice. Pinto Ltd refers to:
[a] the limited evidence it can now offer in its defence; and
[b] the outcome of discovery by LHL Leasing Solutions Ltd.
18 Above n 2.
[41] Before considering those, I deal with an additional matter not relied on in submissions. Pinto Ltd also applied for leave to join Mr Leaupepe as third party. The basis for the claim is his alleged authority to act on behalf of LHL Leasing Solutions Ltd in the swap-out arrangements. As it is more than six years since the end of the agreement, the claim against Mr Leaupepe based on warranty of authority is now statute-barred. Pinto Ltd had the opportunity earlier to join Mr Leaupepe. His authority was clearly
signalled as an issue in Associate Judge Osborne’s security for costs decision.19 Pinto Ltd
cannot use its inability to join Mr Leaupepe as a ground of prejudice because it could have done so earlier.
Witness availability and reliability
[42] Pinto Ltd’s defence on the equipment servicing issue will turn in large part on showing that the proviso in cl 2 of the master lease agreement was triggered because LHL Leasing Solutions Ltd did not employ best endeavours to rectify defects. It seems to be common ground that Mr Leaupepe abandoned any maintenance work in 2009. LHL Leasing Solutions Ltd blames Pinto Ltd for that, because it had stopped payments thereby cutting off funds to pay Mr Leaupepe. Pinto Ltd says that the problems with defective equipment went back earlier than that.
[43] It has obtained affidavits from three former employees who dealt with customers and Mr Leaupepe. Unsurprisingly, the tenor of their evidence is that while they recall in general terms that there were problems with obtaining working equipment for Pinto Ltd’s customers, with the passage of time they can no longer be specific.
The outcome of discovery
[44] Lang J declined to dismiss the proceeding on the basis that disclosure of documents might have a bearing on prejudice. I deal with it on the basis that full discovery by LHL Leasing Solutions Ltd might alleviate other aspects of prejudice. Mr Leaupepe co-operated with LHL Leasing Solutions Ltd in providing documents for
discovery. Mr Raki and Mr Leaupepe depose that there are no remaining discoverable
19 Above n 6, at [16]-[21].
documents. Prejudice to Pinto Ltd is to be assessed on the basis that there are no further documents to be disclosed.
[45] Pinto Ltd points to shortcomings in the discovery. Examples cited were:
[a] There are few, if any, documents to show what Maxro (Mr Benney) did. [b] There are no records of payment to Maxro.
[c] While there are some records of work being done on defective equipment in some cases, the documents do not cast any light on the question whether all complaints as to defects in equipment were attended to.
[d] There are no records of job sheets or similar records to show how complaints were dealt with, which might show that calls had been attended to.
[e] There are no records of routine inspections to ensure that equipment was kept in good working condition.
[f] There is very little correspondence disclosed between Mr Leaupepe and
LHL Leasing Solutions Ltd.
[g] There is minimal discovery of correspondence between Mr Leaupepe,
Pinto Ltd’s customers, third party contractors and Pinto Ltd.
[h] There are no records of payments to Mr Leaupepe for services.
[46] The effect of the shortage of records is that the case will turn primarily on oral testimony. In a hearing on the claims for breach of the master lease agreement, LHL Leasing Solutions Ltd starts with an initial advantage. It will prove the terms of the contract and then show less than complete performance by Pinto Ltd: defaults in payment of rent and defaults in return of the bailed equipment at the end of the agreement. Pinto Ltd will be required to prove on the balance of probabilities its affirmative defences: that the swap-out arrangements were made with Mr Leaupepe acting within his ostensible or
actual authority, that LHL Leasing Solutions Ltd failed to employ best endeavours to rectify defects within the proviso under cl 2, and that Mr Raki undertook to collect the equipment himself and did not require Pinto Ltd to return it.
[47] Those matters, especially Mr Leaupepe’s authority and the efforts to remedy defects, will turn on oral evidence. Pinto Ltd has material which might be found substantially helpful under s 37 of the Evidence Act 2006 to impeach Mr Raki’s veracity but, even so, it will be at a significant disadvantage in trying to prove its defences with witnesses who may be difficult to locate and who may have only a dim recollection of events up to 10 years ago, where they cannot reasonably be expected to remember anything more than matters of general impression. While Pinto Ltd was already under that disadvantage at the start of the hearing, that must have increased with the lapse of three-and-a-half years since and the prospect of a hearing next year. That increased disadvantage is more than minimal.
Can justice be done despite the delay?
[48] On this aspect, all factors including pre-issue prejudice and delay are taken into account. The GST question is no longer in issue, and a hearing is not required. Pinto Ltd’s defence that the rent amount was GST included has now been resolved and it is over.
[49] The main issue on the swap-out arrangements is Mr Leaupepe’s actual or ostensible authority. That will require an examination of these dealings: between LHL Leasing Solutions Ltd and Mr Leaupepe, between LHL Leasing Solutions Ltd and Pinto Ltd, and between Mr Leaupepe and Pinto Ltd. While Mr Raki and Mr Leaupepe are still available, the former staff of Pinto Ltd are not. If they could be found, it is unlikely that they could be expected to clearly recall dealings from up to 10 years ago. A fair hearing on that issue is no longer possible.
[50] I also find that a fair hearing on the claim for rent is no longer possible insofar as it requires findings whether LHL Leasing Solutions Ltd employed best endeavours to rectify all defects. With relatively sparse documents on key aspects and the lapse of time,
a hearing in which witnesses, if available, will be required to rely on dim memories cannot be expected to produce a fair result.
[51] As to the claim for failure to return equipment, there are better prospects of a fair hearing. Pinto Ltd’s case on prejudice did not focus on this cause of action. It is common ground that at the end of the agreement Pinto Ltd returned only a few items of equipment. Pinto Ltd seems to have a case supported by contemporary documents that LHL Leasing Solutions Ltd agreed that it would collect the equipment itself. If LHL Leasing Solutions Ltd is able to establish breach of contract by Pinto Ltd in failing to return the equipment, there will be a question whether it can claim liquidated damages under cl 10. Mr Raki appears to have treated the liquidated damages clause as entitling his company to monthly rent indefinitely, no matter what the value of the equipment might have been, regardless of the condition of the equipment and whether some of it had been returned. There is evidence that the equipment had been manufactured in the late 1990s and by the end of the lease was obsolete. Some of it had been cannibalised to keep other equipment operating. If LHL Leasing Solutions Ltd is not able to rely on its liquidated damages clause, it will need to show its actual losses from the non-return of the equipment. That will be for it to prove. Pinto Ltd need do no more than put LHL Leasing Solutions Ltd to proof. Pinto Ltd is likely to be able to rely on evidence from its director, Mr Sutherland, without having to look around for former staff to give evidence. Given those issues, a fair trial remains possible. I am therefore satisfied that the case can go to hearing on that cause of action.
The unpaid costs
[52] Pinto Ltd also relied on the failure by LHL Leasing Solutions Ltd to pay costs of
$5,663 ordered on 30 November 2016. The failure to pay is a delay in the prosecution of the claim. Mr Denholm advised that arrangements were being made to pay the costs. Following the hearing his instructing solicitors sent proof of payment of the costs. With that payment, the default has been remedied. No order is required. Without that payment I would have made an unless order.
The counterclaim
[53] Pinto Ltd’s counterclaim seeks damages for breach of contract by LHL Leasing Ltd in not keeping the equipment in good repair. It indicated that if I dismissed the application it would no longer continue its counterclaim.
[54] While in form a counterclaim, it was run as an affirmative defence to the claims for non-payment of rent.20 If the rent claims succeeded, the counterclaim would fail and vice versa. Any judgment on the counterclaim would be barren. Just as a fair hearing for the rent claims is not possible, the counterclaim also goes.
Outcome
[55] LHL Leasing Solutions Ltd is entitled to continue with its claim for failure to return equipment, but not its other causes of action. Paragraphs 7 to 23 inclusive and paragraph 28(a) of the current statement of claim are struck out. That aside, the application is dismissed.
[56] The counterclaim by Pinto Ltd is dismissed.
[57] As the parties have had divided success, I make no order as to costs.
[58] I give provisional directions through to hearing for this proceeding. The Registrar is to arrange a telephone case management conference to allow them to be reviewed.
[a] The close of pleadings date is 22 December 2017.
[b] LHL Leasing Solutions Ltd is to serve its statements of evidence and list of documents for the bundle by 12 February 2018.
[c] Pinto Ltd is to serve its statements of evidence and list of further documents for the bundle by 12 March 2018.
20 For recognition in another context that some counterclaims, based on the same matter, are in substance defences, see Neck v Taylor [1893] 1 QB 560 (CA) and Onop Properties Ltd v Fallon Properties Ltd (1988) 1 PRNZ 261 (HC).
[d] LHL Leasing Solutions Ltd is to file and serve the common bundle of documents by 26 March 2018.
[e] LHL Leasing Solutions Ltd is to file and serve its opening submissions, which shall contain a chronology by 16 April 2018.
[f] The case will be heard for four days beginning 23 April 2018.
[59] Leave is reserved to apply for further directions.
Associate Judge R M Bell
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