Mayhew v Future Mobility Solutions Limited
[2019] NZHC 3302
•20 December 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-001292
[2019] NZHC 3302
BETWEEN WILLIAM MAYHEW
Plaintiff
CAROLINA SEALEGS
Second PlaintiffAND
FUTURE MOBILITY SOLUTIONS LIMITED
Defendant
SEALEGS INTERNATIONAL LIMITED
Second DefendantDAVID McKEE-WRIGHT
Third Defendant
Hearing: 27 November 2019 Appearances:
P Sills for the Plaintiffs
B Henry and A Kenright for the Defendants
Judgment:
20 December 2019
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 20 December 2019 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Solicitors: Shanahans, Auckland
Sargent Lawyers, Auckland
B Henry, Auckland P Sills, Auckland
Registrar/Deputy Registrar Date.......................................
MAYHEW v FUTURE MOBILITY SOLUTIONS LTD [2019] NZHC 3302 [20 December 2019]
Introduction
[1] Associate Judge Smith ordered a temporary stay of all claims in this proceeding in a judgment issued on 29 November 2018.1
[2]Central to his decision to order the stay were concerns that:2
(a)The plaintiffs’ claims in contract and pre-contractual misrepresentation against Sealegs International Ltd – set out in the second, fourth and fifth causes of action – are caught by arbitration clauses in two separate agreements that remove the claims from the court’s jurisdiction as claims that must be arbitrated.
(b)The remaining claims – based on negligent misstatement, misrepresentation and the Fair Trading Act 1986 and set out in the first, third and sixth causes of action – raise significant overlapping issues with the first-mentioned claims. If the remaining claims were to proceed in tandem with or ahead of the arbitration there would be real risks of inconsistent findings by two separate tribunals on issues which are common to all six claims (including conflicting findings potentially binding the defendant companies as privies) and a corresponding wasteful duplication of time and costs.
(c)Overall, it would not be in the interests of justice to have any of the claims in this proceeding proceed in tandem with those requiring arbitration and the arbitration should proceed first.
[3] The stay was coupled with leave expressly reserved to the parties to apply for an order lifting the stay once the arbitration is concluded, or if Sealegs (or any of the defendants) happen to delay the arbitration.3 There was no appeal against the terms of the leave that was granted.
1 Mayhew v Future Mobility Solutions Ltd (formerly Sealegs Corporation Ltd) [2018] NZHC 3112.
2 Set out at [70]–[86].
3 At [88].
[4] His Honour’s judgment makes plain that relevant to the assessment of the overall justice of a stay of all claims was the first and third defendants’ offer to arbitrate all claims in the proceedings (in addition to those the parties are contractually bound to arbitrate).4 But he observed it would be “for the plaintiffs to decide” whether to take up the offer.5
The application
[5] The plaintiffs have decided not to arbitrate all claims. They wish to proceed in this court with their claims against the first and third defendants. To that end they apply for orders:
(a)granting leave to discontinue claims made in this proceeding against the second defendant; and
(b)lifting the stay.
[6]The plaintiffs’ application is opposed by the defendants.
The plaintiffs’ arguments
[7] Counsel for the plaintiffs prefaced the arguments in support of the application with advice that the plaintiffs expressly do not rely on delay in progressing the arbitration as a reason for their application; they agree both sides had been ready to ask the President of the Arbitrators’ and Mediators’ Institute of New Zealand to appoint an arbitrator before the application was filed. The plaintiffs also do not rely on the alternative basis for Judge Smith’s reserving leave – which was that the arbitration has been concluded.
[8] But the plaintiffs say that circumstances have changed in that there will be no ongoing need to safeguard against the risks associated with “tandem” claims as:
4 At [39]
5 At [87].
(a)they will discontinue against Sealegs in this proceeding, assuming the Court gives leave to do so;6 and
(b)they have decided – at least for the present – to shelve the arbitration.
[9] At the hearing counsel acknowledged that the plaintiffs’ decision to shelve the arbitration is merely on the basis that “circumstances may change” and that, along with that “fluid” position, the risks that may arise from overlapping claims remain. To address this, counsel submitted that:
(a)the plaintiffs might be willing to give an undertaking not to re-activate arbitration against Sealegs until after the Court issues judgment on non- arbitrable claims. Counsel cautioned, quite properly, that he did not know what the outcome would be to his taking instructions on the matter: and
(b)even if an undertaking is not given, the plaintiffs would have no incentive to re-activate arbitration prematurely as they would face the sure outcome of a fresh imposition of a stay.
[10] Counsel went on to submit that the risks from overlapping claims would be reduced significantly if leave is given now to discontinue against Sealegs in this proceeding. He added that he has confidence that it was feasible to remove all references to Sealegs from the pleadings in an amended statement of claim; and therefore, it can be anticipated that there would not be (or need to be) any overlap between claims that would be recast in this proceeding and claims that “belong” to the arbitration. He proposed that the plaintiffs be given the opportunity to file and serve a draft amended statement of claim for the court’s consideration.
[11] Counsel submitted also that the courts have consistently begun from the principle that a plaintiff is entitled to sue whom it chooses and cannot be compelled to
6 Under High Court Rules 2016, r 15.20(4).
proceed against a defendant that it is no longer willing to sue, absent a compelling reason.7
Assessment
[12] I agree with counsel for the defendants – though not for all the reasons the defendants rely upon – that the case for lifting the stay at this point is not made out, and that it is premature to give leave to discontinue.
[13]My reasons may be stated briefly.
[14] First, I note that Judge Smith did not give leave to apply to lift the stay for the purpose it is being used for and his judgment has not been appealed. Judge Smith expressly reserved leave for either the conclusion of the arbitration process or a situation where any of the defendants were responsible for delay.8 Leave is now sought on the basis that the arbitration has been abandoned by the plaintiffs, though expressly without a guarantee that this is on a permanent basis.
[15] Secondly, even putting that to one side, so long as the right to arbitration lives on – and it does – the risks of tandem proceedings remain. As Judge Smith observed, the pleadings relating to the claims against the first and third defendants in the first and third causes of action are, in significant respects, indistinguishable from those in the “related” claims against Sealegs in the second, fourth and fifth causes of action; and that position will remain even if even the latter are discontinued, only to reappear as claims in an arbitration.9 He also points out that the issues in the fifth cause of action are likely to overlap in the sixth (and remaining) cause of action under the Fair Trading Act.10
7 See Perpetual Trust Ltd v Mainzeal Property and Construction Ltd [2012] NZHC 223 at [6].
8 Mayhew v Future Mobility Solutions Ltd (formerly Sealegs Corporation Ltd), above n 1, at [88].
9 See, for instance, at [79].
10 At [84] and [86].
[16] Thirdly, it is difficult to see how discontinuance against Sealegs means it can be anticipated with confidence that the risk of significant overlap would not remain between the tandem proceedings. 11 The claims against Sealegs are at the core of the overall proceeding in this Court. A radically different pleading would be required to expunge the overlap.
[17] And while counsel has offered to provide a draft amended statement of claim, given such a statement of claim was not presented with the application the question of whether or not the claims or allegations against the second defendant can be successfully excised from the other pleadings remains a matter of speculation.
[18] Amended pleadings were not put to the defendants and the Court in support of the application. The defendants have not had a chance to respond. Looking at the factual foundation for the claims, in my view a continuing issue of overlap seems inevitable.
[19] There is also no certainty that the plaintiffs will not prematurely re-activate the arbitration proceeding. The plaintiffs have left the door wide open on that possibility. The belated suggestion of an undertaking is no answer. As with amended pleadings, if an undertaking was intended to be relied upon, it should have been put unequivocally in support of the application. The fear that a stay could be re-imposed may be a disincentive, but the deliberate fluidity of the plaintiffs’ “commitment” not to re- activate arbitration suggests otherwise. It would be small comfort to the defendants to have to seek a further stay with all the attendant costs (not to mention time and cost spent on this proceeding before a further stay could take effect).
[20]I am not therefore satisfied that the case for uplifting the stay is made out.
[21] The remaining question is whether the plaintiffs should in any event be given leave to discontinue against Sealegs – which would presumably go hand in hand with a partial uplifting of the stay to enable the discontinuance to be implemented.
11 See the discussion in Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-Operative Group Ltd [2014] NZHC 1681 at [93]–[96]. That case was upheld on appeal in Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-Operative Group Ltd [2014] NZCA 536.
[22] The starting point is that generally a plaintiff is entitled to discontinue, unless constraining it from doing so is necessary to address some injustice that would otherwise occur due to the way in which it has conducted the proceeding to that point.12 In Walton Security Systems Ltd v Applied Engineering & Technology Ltd Eichelbaum J said a plaintiff is entitled to select against who it wishes to proceed; but that once defendants have been joined in a statement of claim the question whether a party should be removed is a matter of discretion.13 He considered - taking guidance from the rule on joinder (currently encapsulated in r 4.56) – that relevant to the discretion to discontinue was whether a party’s presence may be necessary to adjudicate upon and settle all questions involved in the proceedings. In Mainzeal Corp Ltd v Contractors Bonding Ltd the Court adopted a framing of joinder in terms of whether a proposed defendant’s rights or liabilities to any party to the action in respect of the subject-matter of the proceeding could be directly affected by any order which may be made in the action.14
[23] While it is not the rule on joinder that is to be applied directly here, I am influenced by similar considerations.
[24] The defendants say, collectively, that the plaintiffs should not be permitted to discontinue at this point against Sealegs. They say that:
(a)Sealegs may be responsible for indemnifying the other two defendants. This is on the basis that the same essential contractual relationships lie at the core of the parties’ overall dispute, and Sealegs’ removal by discontinuance may well not in fact extricate it from a ‘pared down’ proceeding. This appears to be on the basis that if the first and second defendants were found liable – which all defendants deny – a key causative element of that liability would be Sealegs’ poor performance of its contracts with the plaintiffs; and Sealegs should therefore indemnify one or both of them. The argument, it seems, continues that
12 Perpetual Trust Ltd v Mainzeal Property and Construction Ltd, above n 7, at [6].
13 Walton Security Systems Ltd v Applied Engineering & Technology Ltd HC Wellington A144/85, 1 December 1986.
14 Mainzeal Corp Ltd v Contractors Bonding Ltd (1989) 2 PRNZ 47 (HC) at 50; citing Pegang Mining Co Ltd v Choong Sam reported only in (1969) 2 MLJ 52 (PC).
the first and third defendants could not adequately present the defence of indemnity without Sealegs being a party.
(b)Also complicating matters is the issue of discovery. Sealegs is likely to have documents that are relevant to the core dispute relating to its performance of its contracts.
(c)These matters require that Sealegs remains joined to the proceedings at this point pending the outcome of arbitration (and the related question of whether the plaintiffs choose to proceed with it or to abandon it altogether).
[25] There does not appear to be hard evidence of the suggested indemnity rights. Further, if the stay is eventually lifted, the other defendants could seek to issue third party notices against Sealegs. Whether that would ever be required, given that the other defendants are its parent company and its director, is a related but unanswered question.15 I am not presently convinced therefore that a vague assertion about rights of indemnity, on its own, constitutes the sort of prejudice required to deny discontinuance.
[26] But when the issues of indemnity and discovery are taken collectively, along with the fact that the same essential contractual relationships lie at the core of the parties’ overall dispute, I agree that the Court should be circumspect about giving leave to discontinue against Sealegs at this point. Sealegs’ removal by discontinuance may well not extricate it from a “pared down” proceeding, and access to Sealegs’ documents may well be necessary for resolving core factual disputes.
[27] To borrow Barker J’s expression in Mainzeal v Contractors Bonding, “these difficult matters do not require resolution now”.16 The proceeding remains stayed for the present. The correct time to address the appropriateness of Sealegs remaining in
15 See Walton Security Systems Ltd v Applied Engineering & Technology Ltd HC Wellington A144/85, 1 December 1986.
16 Mainzeal Corporation Ltd v Contractors Bonding Ltd 1989) 2 PRNZ 47 (HC) at 49.
this proceeding, at least until discovery is resolved, is when the arbitration is completed or otherwise at an end.17
[28] In the meantime, the public policy arguments raised by the plaintiffs – that they should not be compelled to incur costs seeking relief against a party (Sealegs) which they do not wish to (or legally cannot) successfully pursue in these proceedings – have little force because the proceeding against Sealegs is stayed. Furthermore, once arbitration is at an end the stay in relation to Sealegs will inevitably continue save only for the possibilities of discovery and questions of indemnity.
Result
[29] The application for leave to discontinue against Sealegs and to lift the temporary stay of the plaintiffs’ claims in this proceeding is declined.
[30] The leave reserved by Judge Smith for the parties to apply for a lift of the stay continues. I observe that any lifting of the stay he envisaged presumably applies to the proceeding insofar as it relates to the first and third defendants, and not to Sealegs, but I need not comment on that matter further. I also reserve leave to seek leave to discontinue the proceeding against Sealegs once the arbitration is at an end, at which point issues of indemnity and discovery can be considered at the same time.
Costs
[31] As costs follow the event under the statutory costs regime the defendants are entitled to costs. There is no reason why costs would not be on a 2B basis. If the parties cannot agree as to the quantum of costs they may file memoranda within fifteen working days.
Associate Judge Sargisson
17 The question of indemnity can also be considered then.
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