Lockwood Group Limited v Small

[2014] NZHC 178

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

CIV-2009-404-001019 [2014] NZHC 178

BETWEEN  LOCKWOOD GROUP LIMITED Applicant

ANDBARRY SMALL Respondent

Hearing:                   17 December 2013

Counsel:                  N W Taefi for Applicant

C S Withnall QC for Respondent

Judgment:                18 February 2014

JUDGMENT OF PANCKHURST J

The issues

[1]      This is an application by the plaintiff for an extension of time to seek leave to appeal, and for leave to appeal to the Court of Appeal, against a judgment of Venning J delivered on 16 November 2011. Two issues require consideration:

(a)       whether an extension of time is appropriate in the circumstances of this case, and

(b)whether  leave   to   appeal   to   the   Court   of  Appeal   against   the interlocutory decision is appropriate.

[2]      The proceeding, however, is in a procedural tangle.   The first statement of claim was filed in February 2009.   The interlocutory decision concerns the fifth statement  of  claim  filed  in  May  2011.    The  proceeding  was  entered  on  the

commercial list until Venning J ordered its removal to the Invercargill Registry.

LOCKWOOD GROUP LIMITED v SMALL [2014] NZHC 178 [18 February 2014]

Counsel for the plaintiff (Ms Grant, not Ms Taefi) considered that given the removal order, leave to appeal was not required; rather, Lockwood could appeal as of right within 20 working days. An appeal was initiated within this time limit.

[3]      On 23 July 2013 the appeal was to be heard by the Court of Appeal.  The Court questioned whether an interlocutory decision made in a proceeding entered on the commercial list could proceed absent leave to appeal having been granted.1    It concluded leave was necessary and declined to hear the appeal.

[4]      Accordingly, just over two years after Venning J’s decision in Auckland, I heard the application for an extension of time and leave to appeal sitting in Invercargill, so that an appeal to the Court of Appeal in Wellington could proceed.

Some background

[5]      Lockwood produces solid wood houses for fabrication by franchisees located throughout New Zealand.   In 2009 Mr Small contracted with a franchisee for a Lockwood home to be built at Te Anau.  A dispute arose between Mr Small and the franchisee.

[6]      On 19 September 2008  an arbitration agreement was concluded between Lockwood, Mr Small and the franchisee.  A clause of that agreement provided that the parties would not bad-mouth or speak negatively of the other parties during the course of the arbitration.  Lockwood considered that Mr Small breached this term of the agreement, including by contacting the presenters of the television programme, Fair Go, and making certain statements in that context.

[7]      In February 2009 Lockwood filed this proceeding which was entered on the commercial list at Auckland.   The statement of claim alleged only one cause of action, actual and anticipatory breach of the confidentiality term of the arbitration agreement.  The relief sought was an injunction, and costs.  A without notice interim

injunction was granted against Mr Small.

1      Pursuant to s 24G of the Judicature Act 1908.

[8]      From  the  beginning  of  2009  until  the  hearing  before  Venning  J  on

4 November  2011   there  were  numerous  developments.     These  included  an application to commit Mr Small for contempt of court, dismissal of that application, modification of the terms of the interim injunction, the filing of amended statements of claim, applications for further particulars and service of a notice to Mr Small to answer interrogatories.  The interrogatories were answered in late November 2011, shortly after Venning J’s interlocutory decision.

[9]      I shall refer to some aspects of the interlocutory history as required in the course of this judgment.

The required approach

[10]     Counsel disagreed about the approach to the present application.  Ms Taefi submitted that as the proceeding is not presently entered on the commercial list s 24G does not apply.   Instead, her submissions were directed to r 20.4 by which

20 working days is allowed for appeals as of right to the Court of Appeal.  The rule also provides power to extend time where appropriate.

[11]     Mr Withnall QC, however, submitted that s 24G applied so that leave was required and the leave application to be filed within seven days of the decision unless further time was allowed by this Court.   He further contended that the established principles governing leave to appeal in relation to a proceeding entered on the commercial list were therefore relevant.

[12]     In my view the application is governed by s 24G.   The judgment under consideration was delivered in relation to a commercial list proceeding and an aspect of the intended appeal is restoration of the proceeding to the list.   The Court of Appeal in dismissing the appeal last year did so on the basis that s 24G applied and, accordingly, that the failure to obtain leave was fatal.  It follows that I am bound to apply s 24G and to consider leave by reference to the principles applicable to a commercial list proceeding.   I think the test for an extension of time is similar, regardless of the approach to be taken.   But the principles relevant to leave are unique to the commercial list jurisdiction and require a different approach.

Extension of time

[13]     In considering whether to grant an extension of time to bring an appeal a number of matters fall for consideration.   These are the extent of the delay, the reason for the delay, whether an extension will occasion prejudice to other parties (over and above that involved in responding to an appeal) and whether there is substance in the proposed appeal.   Consideration of the first three factors is straightforward in this instance.  It is convenient, therefore, to deal with delay, the reasons for it and prejudice, before turning to whether a grant of leave is appropriate since that enquiry extends to the substance of the proposed appeal.

[14]     The chronological delay is lengthy, being over two years.   However, the reason for the delay is explained in an affidavit sworn by Ms Grant in support of the application.   She has deposed that she turned her mind to the issue of appeal and concluded that because of the removal order r 20.4 applied and Lockwood had

20 working days within which to file its appeal.   It did so on 13 December 2011. Counsel was “confident of the logic of this approach” since it seemed “completely incongruous” for Lockwood to have to seek leave within seven days when its proceeding had been taken off the list.

[15]     I note that the Court of Appeal said that leave was not sought because neither counsel had “turned their minds to this question”.  However, Ms Taefi appeared in the Court of Appeal, whereas Ms Grant had appeared in the High Court.

[16]     There is no suggestion of prejudice caused to Mr Small by the delay over and above the expense and further delay entailed in defending the appeal should leave be granted.  Indeed, the defendant was promptly on notice of the intended appeal; and a case on appeal, chronologies, a list of issues and written submissions were prepared for the July 2013 Court of Appeal hearing.

[17]     In these circumstances I am satisfied that an extension of time is appropriate provided the principles for granting leave to appeal in a commercial list context are satisfied.  In other words, the nub of the matter is whether this is a case for leave to appeal or whether, as Mr Withnall contended, the appeal lacks substance and the application should fail on that score.

Leave to appeal

[18]   The principles relevant to granting leave under s 24G are conveniently summarised in McGechan on Procedure.2

(a)       A high threshold for granting leave exists, as the Commercial List is designed to secure the expeditious completion of the interlocutory stages of a case and so minimise delays in its ultimate disposition.

(b)       Leave will only be granted where circumstances warrant incurring further delay.

(c)       Error of fact or law is generally insufficient; the case must be such as to create real detriment if not corrected, relate to an important question of law, or touch upon a matter of general or public importance.

(d)       Challenges to discretionary orders made by a Commercial List Judge will not lightly be initiated by the Court of Appeal.

[19]     These principles, however, are subject to qualification in at least one respect. A central aspect of the intended appeal is that the Judge was wrong to strike out various paragraphs in the operative statement of claim.  It has been recognised that leave  should  be  granted  more  readily  in  relation  to  a  successful  strike  out application, since the expeditious completion of the interlocutory stages of a case carries less weight when the judgment to be appealed has the effect of disposing of

the proceeding.  In that situation a lower threshold is appropriate.3

[20]     In considering whether a grant of leave is appropriate I need to consider four rulings made by Venning J, each of which is the subject of the intended appeal.  I shall do so by reference to four separate headings.  The submissions of counsel were almost entirely directed to the merits of these intended grounds of appeal.   The arguments gave the impression that it was for me to determine the merits, when that is not the case.   I must decide whether leave is warranted in light of the relevant principles and with an eye for the fact that certain paragraphs in the statement of

claim have been effectively determined by being struck out.

2      Andrew Beck and others McGechan on Procedure (looseleaf ed, Brookers) at [J 24G.01].

3      Meates v Taylor [Extension of time] (1992) 3 PRNZ 483 (CA), Opotiki Packing and Coolstore v

Opotiki Fruitgrowers Co-op (In Rec) (1998) 12 PRNZ 663 (HC).

The strike out of paragraphs 31, 33, 36 and 37

[21]     Venning J struck out the following paragraphs from the fifth iteration of the statement of claim:

31.      On   a    date   currently   unknown   to   the   plaintiff   but   after

19 September 2008  and  on  or  shortly  prior  to  3  March  2009, Mr Small told Mr Mike Ross about the Odin dispute and said or

implied that Lockwood was:

(a)      Accountable for the construction failures of its franchisee

(b)      Legally liable for correction of the defects; and

(c)      Failing to meet its obligations in relation to the defects.

Or words to that effect.  At present, the plaintiff does not know the precise words used.

33.On a date unknown to the plaintiff but after 19 September 2008 and on   or   shortly   prior   to   25   March   2009,   Mr   Small   told Mr Norm Kensington about the Odin dispute and said or implied that Lockwood was:

(The same particulars and concluding sentence as in 31 followed).

36.On a date unknown to the plaintiff but after 19 September 2008 and on or shortly prior to 17 August 2009, Mr Small told other members of the public, the names of whom currently are unknown to the plaintiff, about the Odin dispute and said or implied that Lockwood was:

(The same particulars and concluding sentence as in 31 followed).

37.Alternatively, or in addition, on a date unknown to the plaintiff, Mr Kensington and/or Mr Ross republished the statements made to them by Mr Small, and detailed in paragraphs 31 and 33 above, to other members of the public, the names of whom currently are unknown to the plaintiff.  Currently, the plaintiff does not know the precise words used.

These  paragraphs  were  relevant  to  the  second  and  third  causes  of  action  in defamation and injurious falsehood.   By reference to these and other paragraphs Lockwood alleges that it was defamed, and claims a permanent injunction and damages of $1,110,000 by way of relief under each cause of action.

[22]     The effect of the interlocutory decision is to narrow the ambit of these two causes of action.  Mr Small faces further allegations of defamation based on:

an email sent to Fair Go dated 16 September 2008,4

an  email  copied  to  Ms  Batt,  a  franchisee  in  the  Queenstown  area,  on

16 November 2008,5

an email to Kevin Milne, a Fair Go presenter, on 19 February 2009,6

an email circulated to several Lockwood franchisees on 20 February 2009,7

a further email to Ms Batt which was forwarded by her by Lockwood on

24 February 2009.8

Each of these communications is alleged to be defamatory and/or to constitute injurious falsehood.

[23]     The obvious difference between the allegations left standing, and those struck out is that the latter relate to oral communications Mr Small is alleged to have had with Messrs Ross and Kensington, or with unknown members of the public, and that Mr Ross and Kensington similarly re-published what they were told to unknown members of the public.  The struck out paragraphs first appeared in the third iteration of the statement of claim dated 12 February 2010.  In a judgment delivered in April

2010 Allan J described these allegations as somewhat discursive and pointed out that the actual words alleged to have been used by Mr Small would have to be pleaded in the usual way.  Subsequently, Lockwood was ordered to provide further particulars of these allegations.

[24]     Venning J gave detailed reasons for his decision to strike out the paragraphs. He was requested not to strike out these paragraphs because the day before the hearing interrogatories had been served seeking answers from Mr Small to enable the words alleged to have been spoken by him to be identified and pleaded.   The

Judge found that it was not in the interests of justice to await a response to the

4      Fourth amended statement of claim, 3 May 2011, paragraphs 6 – 7.

5      Paragraphs 12 – 13.

6      Paragraphs 15 & 16.

7      Paragraphs 19 – 21.

8      Paragraphs 23 – 26.

interrogatories.  He noted how long the proceeding had been afoot, that a notice to provide  further  particulars  had  not  been  met,  that  directions  at  a  telephone conference to provide the particulars had not been met and that the only response was the service of interrogatories at the eleventh hour. The Judge considered it was a matter of discretion whether he deferred a decision on the strike out application until after the interrogatories had been answered.  Finally, he noted that should Lockwood obtain evidence of the specific words used, including details of when, where and the circumstances in which the statements were made, it could re-plead, provided the further allegations were within time, or leave to commence out of time was obtained, together with leave to amend the pleading (if required).

[25]     Ms Taefi advanced several arguments in relation to this aspect, including:

That the Judge did not apply Couch v Attorney-General9 which provides that caution should be exercised before summarily striking out a claim at an early

stage of a proceeding.

That it was legitimate for Lockwood to administer interrogatories and wrong

of the Judge to strike out the paragraphs in advance of their being answered.

That  in  the  circumstances  it  was  simply  premature  to  strike  out  the paragraphs, since it could not be said that there was no arguable cause of action, or that the pleadings were otherwise frivolous or vexatious, or an

abuse of process.

[26]     In my view there is limited substance in this intended ground of appeal.  The key points are that the allegations are of long standing, they remain obscure and devoid of detail, further particulars have been sought but not provided and there is every indication that obtaining evidence of the words alleged to have been spoken will  be  most  difficult.    I  regard  the  reliance  upon  Couch  as  misplaced.    The Supreme Court was considering a novel cause of action.  That is not the case here.

The    relevant    allegations    comprise    part    of    a    conventional    claim    in

9      Couch v Attorney-General [2008] 3 NZLR 725 (SC).

defamation/injurious falsehood, but suffer from the major deficiency that the words said to be defamatory of the plaintiff remain unknown.

The Kensington claim

[27]     An aspect of the first cause of action alleging breach of contract is that Mr Small made negative statements to Mr Kensington and that this resulted in his deciding not to purchase a Lockwood show home and relocate it onto a section he owned.  Certain dates were in evidence at the time of the hearing in November 2011. Lockwood alleged that Mr Small made such negative comments to Mr Kensington after September 2008 and before 25 March 2009.  After March 2009 the show home was offered for sale, Mr Kensington inspected it and took advice concerning his proposal to relocate it to his section.  Such advice dissuaded him from continuing with   the   proposal.      Lockwood’s   database   records   were   consistent   with Mr Kensington’s   account.      The   record   showed   that   on   26   March   2009

Mr Kensington spoke to a Lockwood employee concerning the negative reports he had  received  from  Mr  Small.    Yet,  it  is  common  ground  that  subsequently  he explored the purchase of the show home, but then decided not to proceed with the venture.  The Lockwood database record of Mr Kensington’s expression of interest was dated 10 May 2009, and his decision not to proceed was dated 26 May 2009.

[28]     Venning J found:10

Lockwood’s own records are inconsistent with the proposition that anything Mr Small said to Mr Kensington affected Mr Kensington’s decision not to proceed.    Its  own  records do  not  support  its  pleading that  the  negative comments made by Mr Small to Mr Kensington caused Mr Kensington to cancel his intention to buy.

The Judge also criticised the pleading that the loss of the Kensington transaction was “worth” approximately $110,000 to  Lockwood.   He said the claim must be for special damages and that r 5.33 required Lockwood to plead particulars supportive of the amount claimed.

[29]     On my reading of the  judgment  it  is  apparent  that Venning J  was  most influenced by the evidence before him, in particular that from Lockwood’s own

10 At [57].

records.  This confirmed that Mr Kensington’s interest in the show home post-dated his discussions with Mr Small, yet he assessed the show home proposition and ultimately decided against it for reasons unrelated to anything Mr Small had told him.  I see the concern about the loss of the transaction being “worth” $110,000 to Lockwood as an add-on, rather than the basis of the decision to strike out this particular special damages claim.

[30]     To my mind the Judge’s reasoning is highly persuasive, if not compelling.  I

doubt that there is any substance in this intended ground of appeal.

Further particulars of the claim for general damages of $1 million for lost sales

[31]     In  paragraph  42(a)(iv)  of  the  statement  of  claim  Lockwood  alleged  that negative statements made by Mr Small to named individuals, franchisees and members of the public caused:

Loss of up to 10 sales to Lockwood.  This belief is based on the fact that the sales of Lockwood products in Odin’s former franchise territory11  in the period after Mr Small’s negative comments were made decreased to zero in

2009 and one for 2010, which is disproportionate to the decrease in sales in the market generally.

[32]     Venning  J  considered  that  this  paragraph  did  not  plead  a  causative  link between Mr Small’s conduct and the loss of the $1 million.   He noted that a disproportionate decrease in sales was alleged in Odin’s area of operation, as compared to the market generally.  However, no details were pleaded supportive of the disproportionate decrease, nor was it pleaded how Mr Small’s actions could have had a particular impact in the Odin franchise area.  Finally, there were no particulars provided to show that the loss of 10 sales caused a total loss of $1 million.

[33]     These difficulties had earlier been highlighted at a hearing before Allan J.  He delivered a judgment dated 9 March 2011 in which the Judge recorded that counsel for Lockwood acknowledged the need to plead sufficient particulars to establish the causative link between the actions of Mr Small on the one hand, and the losses

sustained by Lockwood on the other.   Accordingly, Allan J made a direction that

11     Odin was the name of the franchisee who supplied Mr Small’s Lockwood house at Te Anau.

further particulars of the alleged losses, and how they were caused by the defendant, be provided.

[34]     The fifth iteration of the statement of claim (and a further draft iteration provided to Venning J but not filed) did not address the deficiency.   In the circumstances Venning J provided one last chance to provide the further particulars.

[35]     Ms Taefi in foreshadowing the intended ground of appeal questioned whether the further particulars were necessary.   She submitted there had been a failure to distinguish between pleadings on the one hand, and evidence on the other.   She suggested that both the link between Mr Small’s conduct and the downturn in the Odlin  franchise  area,  and  the  disparity between  that  downturn  and  the  national downturn were matters of evidence and not appropriate for further particulars. Counsel  accepted  that  Lockwood  will  need  to  prove  both  causation  and  the

$1 million loss at trial, but she questioned whether further particulars were required.

[36]     This, it seems to me, was to resile from the concessions made almost three years ago before Allan J.  I accept that the distinction between pleaded particulars and evidence can sometimes be elusive.  That said, it seems that the present pleading in relation to this aspect of the claim is inadequate.  It is not apparent how allegations that Mr Small made negative and possibly defamatory statements about Lockwood to Fair Go, to Messrs Ross and Kensington (both resident in the Waikato area) and to unknown members of the public, caused a disproportionate downturn in Lockwood’s trade in the Fiordland/Central Otago area.   Nor does the last filed iteration of the statement of claim give proper notice to Mr Small of the case he must meet in relation to the alleged $1 million loss.  I accept there may be room for this particular deficiency to be met by the provision of financial records, as opposed to pleaded particulars.  No doubt if pertinent financial information was supplied to Mr Withnall that might meet the situation.

[37]     But, I am far from satisfied that the submission that nothing more is required at this stage because evidence at trial will repair the breach is sustainable.

Removal from the commercial list

[38]    Venning J concluded that the proceeding did not readily fall within the categories  set  out  in  s  24B  of  the  Judicature Act  1908.    There  is  no  ongoing commercial relationship between the parties.   Lockwood and Mr Small were in a contractual relationship while the arbitration was on foot until about September

2009.   Two of the causes of action, defamation and injurious falsehood, lack a commercial flavour.  The Judge also concluded that Lockwood had not pursued its proceeding in a manner consistent with that expected of cases on the commercial list. As at November 2011 the proceeding was two years, nine months of age. Interlocutory progress had been slow, in part on account of Lockwood’s failure to comply with Court directions.  In these circumstances removal of the proceeding was ordered.

[39]     The  reasons  given  for  making  the  order  seem  cogent.     This  was  a discretionary evaluation.  The order was made by a commercial list Judge, and the appeal points raised do not address the principles relevant to overturning an exercise of discretion.

Conclusion

[40]     In my view the intended grounds of appeal lack substance and do not justify leave being granted.  To the extent that elements of the claim have been struck out there were compelling reasons for taking that course of action.

[41]     The  direction  to  provide  further  particulars  and  the  removal  order  are procedural and not determinative, as is a strike-out.  But, the merits of these grounds are also dubious.  For these reasons leave is refused and an extension is not required.

[42]     Although  I  have  approached  this  matter  on  the  basis  of  the  principles applying to commercial list interlocutory appeals, I am of the view that a standard appeal  filed  out  of  time  and  requiring  leave  would  have  encountered  similar difficulty through the need to demonstrate that the appeal had substance.

[43]     Costs must follow the event, and are awarded to the defendant on a 2B basis together with disbursements as approved, including travel costs.

Solicitors:

Stewart Germann Law Office, Auckland
Race and Douglas, Dunedin