Mayhew v Future Mobility Solutions Limited (formerly Sealegs Corporation Limited)
[2018] NZHC 3112
•29 November 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-1292
[2018] NZHC 3112
BETWEEN WILLIAM MAYHEW
First Plaintiff
CAROLINA SEALEGS
Second PlaintiffAND
FUTURE MOBILITY SOLUTIONS
LIMITED (formerly SEALEGS CORPORATION LIMITED)
First Defendant
SEALEGS INTERNATIONAL LIMITED
Second DefendantDAVID MCKEE-WRIGHT
Third Defendant
Hearing: 12 November 2018 Appearances:
P D Sills for the Plaintiffs
B P Henry and S Singh for the Defendants
Judgment:
29 November 2018
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 29 November 2018 at 11.00am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Sargent Lawyers, Auckland P Sills, Auckland
Shanahans Family and Property Law, Auckland B Henry/S Singh, Auckland
MAYHEW v FUTURE MOBILITY SOLUTIONS LTD (formerly SEALEGS CORPORATION LTD) [2018] NZHC 3112 [29 November 2018]
[1] The defendants apply for an order staying the proceeding, on the grounds that the claims in the proceeding are required to be submitted to arbitration. The plaintiffs oppose the application.
The parties
[2] The first plaintiff (Mr Mayhew) is a businessman who resides in North Carolina, United States of America. He is the director and shareholder of the second plaintiff (Carolina).
[3] The first defendant (Future Mobility) is a New Zealand company that carries on business developing and manufacturing amphibious craft (including "Sealegs" products). The second defendant (Sealegs International) is a wholly owned subsidiary of Future Mobility. Sealegs International is responsible for international sales for and on behalf of Future Mobility.
[4] Carolina is a company incorporated under the laws of North Carolina. It carries on business reselling products supplied by Sealegs International.
[5] The third defendant (Mr McKee-Wright) is the chief executive officer of Future Mobility. Mr McKee-Wright is also a director of Sealegs International.
Background
[6] Mr Mayhew visited Future Mobility's factory at Albany in early 2014. He met with Mr McKee-Wright, and he was shown a promotional video for Sealegs products. He says that certain representations regarding the quality of Sealegs products were made to him in the course of this visit.
[7] On 26 June 2014 Mr Mayhew entered into a written agreement with Sealegs International (the 2014 Agreement), under which he was appointed as representative for the sale of Sealegs products in North Carolina and South Carolina (the Territory). The 2014 Agreement was for an initial term of 18 months, ending on 31 December 2015.
[8] Under the 2014 Agreement, Mr Mayhew agreed to purchase five boats, and to arrange for two stocking dealers, with showroom and office facilities, to service potential clients within the Territory. Sealegs International was to provide Mr Mayhew with information relating to the Sealegs products which would be necessary for the performance of Mr Mayhew's duties under the 2014 Agreement. Sealegs International would also provide all North America/New Zealand based training, parts and instruction, to ensure that Mr Mayhew could competently service its customers within the Territory.
[9] Mr Mayhew contends that the 2014 Agreement included implied terms that Sealegs International would facilitate, and would not hinder, his efforts to resell the Sealegs products in the Territory. He alleges that there was a further implied term under which the parties agreed to deal with each other pursuant to the 2014 Agreement fairly and in good faith. The defendants deny that there were any such implied terms.
[10] Mr Mayhew purchased one Sealegs craft (the First Craft), and he says that it had a number of defects. The defendants accept that he purchased the First Craft, and that he raised issues about it, but they deny that the First Craft had the defects alleged by Mr Mayhew.
[11] Mr Mayhew had another tour of Future Mobility's factory in early 2015. He says (and the defendants deny) that he and other attendees were told about the high quality of Sealegs products in the course of this visit.
[12] A second agreement (the 2015 Agreement) was entered into between Carolina and Sealegs International, on 19 March 2015. Under the 2015 Agreement, Sealegs International appointed Mr Mayhew or his nominee to be its reseller in the Territory, until 31 December 2016. Mr Mayhew's nominee was Carolina.
[13] The 2015 Agreement provided that Carolina would purchase one Sealegs craft (the Second Craft). The 2015 Agreement was renewable every 12 months, provided Carolina committed to purchase four Sealegs craft during the period, and complied with the requirements of the 2015 Agreement. Carolina was given exclusive reseller rights in the Territory for Sealegs products during the term of the 2015 Agreement.
[14] The plaintiffs allege that the 2015 Agreement contained the same implied terms as those the plaintiffs allege were included in the 2014 Agreement. That is denied by the defendants.
[15] The plaintiffs allege that there were faults with the Second Craft (alleged issues with engagement of the electrical diff lock, and an alleged crack in the Sealegs System). Those allegations are denied by the defendants.
[16] The plaintiffs also allege that Mr McKee-Wright told Mr Mayhew that Future Mobility and Sealegs International were running down their operations in the United States. Various Sealegs International staff in North America were alleged to have quit their posts.
[17] Mr Mayhew says that Mr McKee-Wright and a North American representative of Sealegs International encouraged him to pursue market opportunities for Sealegs products in Canada. He says that he was given assurances by Mr McKee-Wright that he would be paid some form of commission in relation to the Canadian territory, but no commission or other payments were forthcoming.
[18] The plaintiffs say that they endeavoured to get Sealegs International to participate in various other market opportunities in North America, but the defendants failed to act on their initiatives. All of these allegations are denied by the defendants.
The plaintiffs' claims
[19]The plaintiffs plead six causes of action.
[20] First, Mr Mayhew claims against Future Mobility for alleged negligent misstatement arising out of the statements said to have been made by Mr McKee-Wright to Mr Mayhew in the course of the visit by Mr Mayhew to the Albany factory in early 2014. Mr Mayhew contends that the alleged representations (relating to the reliability and claimed high quality of the Sealegs craft) were false. He says that the alleged defects were readily apparent in the First Craft, and the defendants must have known of the defects. He asks for damages, to be quantified at trial, together with interest and costs.
[21] Future Mobility denies all of the allegations of misrepresentation, negligence, and damage alleged against it.
[22] In the second cause of action, Mr Mayhew alleges breach of contract by Sealegs International. He says that Sealegs International breached the 2014 Agreement by failing to provide him with necessary information relating to the Sealegs products, failing to ensure that he would be able to competently serve his customers within the Territory, and failing to facilitate (and/or hindering) his efforts to sell Sealegs products in the Territory. Mr Mayhew also contends that Sealegs International failed to repair the defects in the First Craft within a reasonable time, and that it generally failed to take any steps to enhance the sale of Sealegs products within the Territory. He says that the failure by Sealegs International to take any steps to enhance the sale of the Sealegs products within the Territory amounted to a breach of its duty to deal with him in good faith.
[23] As a result of the alleged breaches, Mr Mayhew says that he incurred costs in pursuing sales in the Territory that were hindered by Sealegs International, and that he lost the opportunity to sell Sealegs products to customers. He seeks damages, to be quantified at trial, interest, and costs.
[24]Again, the defendants deny the allegations in this cause of action.
[25] The third and fourth causes of action are brought by Carolina against Future Mobility (third cause of action) and Sealegs International (fourth cause of action). The third cause of action alleges that Future Mobility was responsible for representations made to Mr Mayhew in 2015, to the effect that Sealegs craft were reliable and of high quality. Carolina alleges that these statements were false, and were made negligently, as the Second Craft was found to be of poor quality shortly after the statements were made. Carolina alleges that these representations were made with the intention that Carolina would enter into the 2015 Agreement, and that it did enter into the 2015 Agreement in reliance on the representations. Carolina seeks damages from Future Mobility on its third cause of action, in a sum to be quantified at trial. It also seeks interest and costs.
[26] In its fourth cause of action, Carolina appears to allege that Sealegs International was also responsible for the representations said to have been made to Mr Mayhew and others in early 2015. It contends that these representations were false, as evidenced by the alleged poor quality of the Second Craft.
[27] Carolina alleges in the fourth cause of action that the 2015 representations were made with the intention of inducing it to enter into the 2015 Agreement, and that they had that effect. It alleges that it has suffered loss as a result, and it seek damages to be quantified at trial, interest, and costs.
[28] The defendants deny all of the allegations of breach of duty, causation, and alleged loss pleaded by Carolina in the third and fourth causes of action.
[29] In the fifth cause of action, Carolina alleges breach of contract by Sealegs International. Sealegs International is said to have breached the 2015 Agreement by failing to provide Carolina with necessary information in relation to the Sealegs products within a reasonable period of time, failing to maintain staff in North America that could provide training, parts or instructions to Carolina, and failing to ensure that Carolina would be able to competently service its customers within the Territory. Carolina also alleges that Sealegs International failed to facilitate, and/or hindered, its efforts to resell the Sealegs products within the Territory.
[30] Carolina also alleges that Sealegs International breached the implied duty of good faith, by failing to take steps to maintain or enhance sales within the Territory, by acting in a manner designed to shut down opportunities for the sale of products within the Territory, and by withdrawing support for Carolina within the Territory. Carolina says that it incurred costs in progressing sales within the Territory that were hindered by Sealegs International, and it suffered additional loss by way of lost opportunity to sell Sealegs products. Again, it claims damages to be quantified at trial, interest and costs.
[31] The allegations of breach, causation, and loss in the fifth cause of action are all denied by the defendants.
[32] The sixth and last cause of action, against all defendants, is for alleged breach of the Fair Trading Act 1986 (the FTA). The plaintiffs say that, at all material times, the defendants were acting in trade, and that their conduct was misleading and deceptive, in breach of s 9 of the FTA. The alleged representations that the First Craft, the Second Craft, and the Sealegs products were of high quality, the statements that the defendants intended to grow the Sealegs products business in the United States, and that Mr Mayhew and Carolina would be rewarded for their efforts in growing that business within the Territory, are all said to have been misleading and deceptive, contrary to s 9 of the FTA. The plaintiffs say that they were misled by the representations into believing that the First Craft, the Second Craft, and the Sealegs products were of high quality, and that returns on investing in the growth of the business in the United States were likely to be positive and strong. They say that they relied on the defendants' misleading and deceptive conduct by purchasing the First Craft and the Second Craft, and by incurring costs in an effort to grow the business in the United States. They seek compensation under s 43 of the FTA.
[33] Again, the defendants deny any misleading or deceptive conduct, and the damage allegedly suffered by Mr Mayhew and Carolina.
Arbitration clauses in the Agreements
[34]The 2014 Agreement contained the following provision:
(U) DISPUTE RESOLUTION
In the event of any dispute or difference which may arise between the parties concerning either the interpretation of this agreement, or any matter arising under this agreement or any matter arising under this agreement, which cannot be settled amicably and in good faith between the parties within 7 days from the dispute arising
Such dispute or difference shall be referred to a single arbitrator to be agreed upon by the parties or their representative/nominee. The decision of the arbitrator (including any decision as to which party shall bear costs of the arbitration) shall be final and binding upon the parties.
[35]The 2015 Agreement contained the following clause:
X DISPUTE RESOLUTION
In the event of any dispute or difference which may arise between the parties concerning either the interpretation of this agreement, or any matter arising under this agreement, which cannot be settled amicably and in good faith between the parties within 7 days from the dispute arising, such dispute or difference shall be referred to a single arbitrator to be agreed upon by the parties or their representative/nominee. If the parties are unable to agree on a single arbitrator within 14 days, the arbitrator shall be appointed by the President of the Institute of Arbitrators in New Zealand. The decision of the arbitrator (including any decision as to which party shall bear costs of the arbitration) shall be final and binding upon the parties.
Relevant provisions of the Arbitration Act 1996
[36]Sections 6 and 7 of the Arbitration Act 1996 (the Act) materially provide:
6Rules applying to arbitrations in New Zealand
(1)If the place of arbitration is, or would be, in New Zealand,—
(a)the provisions of Schedule 1; and
(b)those provisions of Schedule 2 (if any), which apply to that arbitration under subsection (2),—
apply in respect of the arbitration.
…
7Arbitrations and awards outside New Zealand
If the place of arbitration is not in New Zealand, articles 8, 9, 35, and 36 of Schedule 1, with any necessary modifications, apply in respect of the arbitration.
[37] The parties appear to have their places of business in different States, so any arbitration which might take place would appear to be an international arbitration.1 However, my immediate concern on this application is whether the plaintiffs' claims should be allowed to proceed in the Court in New Zealand, and that issue is covered by a clause in the First Schedule to the Act which applies regardless of whether any arbitration would be international or domestic, and regardless of whether the place of arbitration would be in New Zealand. Clause 8 of the First Schedule provides:
1 Clause 1(3) of the First Schedule to the Arbitration Act 1996.
8 Arbitration agreement and substantive claim before court
(1)A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.
(2)Where proceedings referred to in paragraph (1) have been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.
[38] In this case, the defendants made their stay application at the same time as they filled their statement of defence.
Offer by Future Mobility and Mr McKee-Wright to participate in arbitration
[39] At the hearing, Mr Henry told me that he had instruction from Future Mobility and Mr McKee-Wright that they would provide undertakings to the Court to arbitrate the claims made against them by the plaintiffs, on the same terms as the respective Dispute Resolution clauses in the 2014 Agreement and the 2015 Agreement.
[40] As Mr Sills had no instruction on that proposal, I invited him to advise by 5.00pm on 14 November whether the issue could be resolved on that basis, or whether a judgment on the defendants' stay application would be required. Mr Sills later advised that the matter had not been resolved, and that a judgment would be required.
The parties' arguments
Matters not in dispute
[41] At the hearing, Mr Sills accepted that he would have difficulty arguing that the defendants' stay application should not succeed in respect of the second, fourth and fifth causes of action. However, he submitted that the plaintiffs should be permitted to proceed with their claims in the first, third and sixth causes of action.
[42] I consider that Mr Sills' concessions in respect of the second, fourth and fifth causes of action were properly made. The second and fifth causes of action are both
breach of contract causes of action, to which the arbitration provisions in the 2014 Agreement and the 2015 Agreement respectively apply. Article 8(1) leaves the Court with no discretion but to order a stay of those claims.2
[43] The fourth cause of action alleges that Carolina was induced to enter into the 2015 Agreement by allegedly false representations made on behalf of Sealegs International, including a representation that the Sealegs craft were reliable and of high quality. As the 2015 Agreement is said to be governed by New Zealand law,3 Carolina would be entitled to damages for any proved misrepresentation in the same manner and to the same extent as if the alleged representations had been terms of the 2015 Agreement that had been breached.4 And in the fifth cause of action Carolina claims damages (inter alia) for supplying Sealegs products with defects to Carolina.
[44] In all of those circumstances I am satisfied that Carolina and Sealegs International could not have intended that the misrepresentation claim in the fourth cause of action would be heard in a different tribunal (the Court) from the breach of contract claims in the fifth cause of action (an arbitral tribunal).5
The defendants
[45] For the defendants, Mr Henry submitted that all of the issues raised by Mr Mayhew and Carolina are covered by the arbitration clauses in the Agreements.
[46] Mr Henry referred to Article 8 of the First Schedule to the Arbitration Act 1996, and to the following statement in Sim's Court Practice (NZ):6
Article 8 is intended to emphasise the Court's recognition of procedures for the resolution of disputes other than litigation and is evidence Parliament's intention that, other than the named cases, litigation should not be permitted
2 There is no suggestion that the dispute resolution clause in either of the Agreements is null and void, inoperative or incapable of being performed, and nor is there any suggestion that the plaintiffs' claims in these causes of action raise disputes that do not fall within the respective dispute resolution clauses.
3 Clause V of the 2015 Agreement.
4 Contract and Commercial Law Act 2017, s 35(1)(a).
5 Fiona Trust Corp v Privalov [2007] 4 All ER 951 at [13] per Hoffmann LJ: "… the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal."
6 Sim's Court Procedure (looseleaf ed, Lexis Nexis NZ Ltd) at AART8.1.
to obtrude into arbitration: Forestry Corporation of New Zealand and Citic Ltd t/a Central North Forest Partnership v Attorney-General (1999) 16 PRNZ 262 (HC).
Article 8(1) removes the initial discretion which was available under the Arbitration Act 1908 and reflects the emphasis in the new Act on limiting judicial intervention in arbitral proceedings. The courts' position in regard to art 8(1) has been summarised as follows:
If a party requests a stay, the Court must order a stay if two preconditions are met. They are:
(a)there is a dispute and the subject matter of the proceedings is the subject matter of an operative arbitration agreement; and
(b)the request is made either before or when the party submits its first statement on the substance of the dispute. The request cannot be made after submission of the party's first statement.
… Whether or not a stay will be granted depends upon the scope of the arbitration clause in question. That is always a matter of construction of the document. …
[47] Mr Henry submitted that there is a presumption that the parties intended any dispute arising from their relationship to be determined by the same tribunal, and that the arbitration provisions should be construed accordingly.7 He submitted that the Court should interpret the dispute resolution clauses (U) and X widely, to encompass any disputes arising between the parties, including those pleaded in the statement of claim. The operative words in the dispute resolution clauses "matter arising under this agreement", and the use of the word "any" to refer to such matters, signals a clear intention to provide a wide scope for the clauses, ensuring that all aspects of the disputes could be dealt with in one forum, namely an arbitral proceeding.
[48] Mr Henry referred to the "strong New Zealand policy in favour of enforcing contractual arbitration provisions".8
[49] Mr Henry also referred to the judgment of this Court in Sure Care Services Ltd v At Your Request Franchise Group Ltd, where the Court was considering the application of an arbitration provision to claims of misrepresentation, breaches of express and implied contract terms, and breach of the FTA. Andrews J considered that
7 Referring to Fiona Trust and Holding Corp v Privalov, above n 5.
8 Marnell Coraco Associates Inc v Sensation Yachts Ltd (2000) 15 PRNZ 608, at [62].
the Court should refer to arbitration any issue "touching" any matter under the agreement.9
[50] Mr Henry submitted that the first and third causes of action in this case relate to representations made leading to the Agreements; the pleading states that these representations induced the plaintiffs to enter into the Agreements. Those claims are within the scope of dispute resolution clauses.
[51] As for the sixth cause of action, under the FTA, Mr Henry submits that the cause of action only "became operative" as a consequence of the plaintiffs having entered into the Agreements. The sixth cause of action arises directly out of the negotiations and alleged conduct under the Agreements. He submitted that the parties are all "actively intertwined in the dispute", and to the extent that some of them are not parties to the Agreements that should not be a bar to the granting of the stay order sought.10
The plaintiffs
[52] Mr Sills submitted that the arbitration clauses cannot encompass disputes arising:
(i)with non-parties to the Agreements; or
(ii)outside of the Agreements.
Article 8(1) does not apply where there is no arbitration agreement between the parties.
[53] Mr Sills acknowledged that even where parties to a proceeding are not both parties to an arbitration agreement, the Court does retain jurisdiction to stay the proceeding, either under r 15.1(3) of the High Court Rules 2016 or in its inherent jurisdiction (including for reasons of sensible case management). However the
9 Sure Care Services Ltd v At Your Request Franchise Group Ltd [2010] 3 NZLR 102.
10 Referring to Montgomery Watson NZ Ltd v Milburn NZ Ltd HC Christchurch CP 86/00, 9 October 2000.
jurisdiction to order a stay in such circumstances should only be exercised in rare and compelling circumstances.11 There must be a real risk of unfairness or oppression to the defendant if the Court proceeding were allowed to continue. Considerations of costs, convenience and the interests of justice may weigh in favour of a stay. However, the onus is on the applicant for a stay to satisfy the Court that such circumstances exist.12
[54] Mr Sills submitted that on a proper construction of the arbitration provisions in this case, it is clear that they do not apply to Future Mobility and Mr McKee-Wright. The dispute provisions expressly refer to disputes between "the parties", and neither comes within that category.
[55] Mr Sills then submitted that there are no special circumstances, or rare or compelling circumstances, that would justify the Court exercising its discretionary power to stay the proceedings against Future Mobility or Mr McKee-Wright. It would be unfair to effectively extend the contractual terms to include non-parties.
[56] The Sure Care Services case cannot assist the defendants, as the wording of the arbitration provision in that case ("touching" any matter under the agreement) was different. That expression is broader in scope than the expression "under this agreement" used in the present case. "Under this agreement" is also narrower than the expression "arising under or in connection with this Agreement", which was the expression in issue in Bowport Ltd v Alloy Yachts International Ltd.13
[57] Addressing the plaintiffs' claims under the FTA, Mr Sills submitted that the claims against Sealegs International under s 9 of the FTA do not arise under the 2014 Agreement or under the 2015 Agreement, inter alia because the losses include costs incurred by the plaintiffs in an effort to grow the business in the United States. The relevant arrangements and costs were not part of the 2014 Agreement or the 2015 Agreement.
11 Referring to Danone Asia Pacific Holdings Ltd & Ors v Fonterra Cooperative Group Ltd [2014] NZHC 1681.
12 At [54]-[55].
13 Bowport Ltd v Alloy Yachts International Ltd [2004] 1 NZLR 361.
Discussion and conclusions
[58] The first and the third causes of action are solely against Future Mobility. Future Mobility is not a party to any relevant arbitration agreement, and accordingly the defendants are not entitled to rely on Article 8(1) to obtain a stay of these two causes of action. They must rely on r 15.1 of the High Court Rules.
[59]Rule 15.1 provides:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
(4)This rule does not affect the court’s inherent jurisdiction.
The cases
[60] In Sure Care Services Ltd v At Your Request Franchise Group Ltd, Andrews J dealt with a stay application (on an application for review of a decision of an Associate Judge), in circumstances where the third plaintiffs were not parties to the relevant arbitration agreement, and nor was the second defendant.14 Andrews J was not satisfied that the Associate Judge had been wrong in law to order a stay of the third plaintiffs' claims, pending the outcome of the arbitration (involving the other plaintiffs and the first defendant).
14 Sure Care Services Ltd v At Your Request Franchise Group Ltd, above n 9.
[61] Her Honour referred to the judgment of Young J in Montgomery Watson NZ Ltd v Milburn NZ Ltd.15 Montgomery Watson and Aquatec-McDow joint venture ("Aquatec") were parties to an arbitration agreement. A dispute arose over Montgomery Watson's design of a tank that was a component of a waste water treatment plant. Aquatec contended that Montgomery Watson's design of the tank was faulty, and it sought to set off damages associated with the failure against fees it owed to Montgomery Watson. Montgomery Watson contended that the tank failed because of negligence by three companies (Milburn and two others) who had supplied materials or components used in the construction of the tank. Those three companies were not parties to the arbitration agreement.
[62] Aquatec purported to refer its dispute with Montgomery Watson to arbitration, but Montgomery Watson did not wish to arbitrate unless the three other companies participated. They were not willing to do so. Montgomery Watson then issued proceedings against the three companies, and Aquatec, and sought an injunction to prevent the arbitration proceeding. Aquatec sought an order directing a stay of the litigation.
[63] Young J granted the stay. His Honour ordered the stay on the basis that there could be a doubling up of costs, and the possibility of inconsistent findings in the different proceedings or arbitrations.
[64] The claims by Montgomery Watson against Aquatec were covered by the arbitration agreement, and they had to be stayed. His Honour also stayed the claims against the other three defendants, who were not parties to the arbitration agreement. If Montgomery Watson were permitted to pursue its claims against those defendants, those defendants could perhaps be expected to join Aquatec as a third party. If that happened, the proceeding might then run on in parallel with the arbitration between Aquatec and Montgomery Watson. Young J considered that permitting a process of that sort could be used to subvert the arbitration agreement between Aquatec and Montgomery Watson. His Honour ordered the stay of the proceedings on the basis that Montgomery Watson could apply to have the stay lifted in relation to its claims
15 Montgomery Watson NZ Ltd v Milburn NZ Ltd, above n 10.
against the first three defendants upon determination of the arbitration process between it and Aquatec (or a settlement of its dispute with Aquatec).
[65] In Sure Care Services Ltd, Andrews J relied on the judgment of Young J in Montgomery Watson, and also referred to r 1.2 of the High Court Rules, which requires the rules of Court to be applied in a way that will best secure a just, speedy, and inexpensive determination of the proceeding. In view of r 1.2, and the judgment in Montgomery Watson, Andrews J was not satisfied that the Associate Judge had erred in law in ordering a stay of the third plaintiffs' claims pending the outcome of the arbitration.
[66] In Danone Asia Pacific Holdings Pte Ltd & Ors v Fonterra Cooperative Group Ltd,16 the supply agreement between the defendant's parent company, Fonterra Ltd (Fonterra), and the first plaintiff (Danone AP) contained an arbitration clause. Neither the second to eighth-named plaintiffs nor the named defendant ("FCGL", a wholly-owned subsidiary of Fonterra) were parties to the arbitration agreement. The eight plaintiffs commenced arbitral proceedings against Fonterra and Fonterra Australia, and the Fonterra parties submitted in the arbitral proceeding that, as the second to eighth plaintiffs and Fonterra Australia were not parties to the supply agreement, the arbitrators did not have jurisdiction to determine claims advanced by them. Danone AP and the second to eighth plaintiffs then commenced a Court proceeding against FCGL.
[67] FCGL applied for a stay of the Court proceeding, until further order of the Court (and at least until final determination of the arbitration proceedings).
[68] Venning J concluded that jurisdiction to stay the proceeding did exist, either under r 15.1(d), which applies where a pleading is "an abuse of the process of the Court", or in the Court's inherent jurisdiction. The Judge noted that in this context it will, for example, be an abuse of process to issue duplicate proceedings involving the same parties,17 but that a stay would only be ordered in rare and compelling circumstances, where the costs, convenience and the interests of justice (including
16 Danone Asia Pacific Holdings Pte Ltd & Ors v Fonterra Cooperative Group Ltd, above n 11.
17 At [37].
consideration of the plaintiff's right of access to the Court) weighed in favour of a stay. The onus will be on the applicant to satisfy the Court that such circumstances exist.
[69] Venning J reviewed a number of authorities, and noted that in all of those cases at least one of the plaintiffs and one of the defendants in the Court proceedings were parties to the relevant arbitration agreement. That was not so in the case before the Judge, where only the first plaintiff, Danone AP, was a party to the arbitration agreement. Nevertheless, His Honour granted the stay sought in the interests of justice. Among the factors which led to that conclusion were the likely substantial degree of factual overlap between the claims in the arbitration and the claims in the Court proceeding. Venning J concluded that it would not be in the interests of justice for both claims to proceed in tandem. Considerations of cost, convenience, and justice required that the factual matters be determined first, and it was appropriate that that should be done in the arbitration. Duplication in resources and the risk of inconsistent findings would be oppressive to FCGL, and might also result in delay if differences in factual or legal findings were to form the basis of any subsequent appeal.18 There was also a distinct possibility of an issue estoppel arising, especially as FCGL was a subsidiary of Fonterra Ltd and there was a sufficient nexus or mutuality of interest as between Fonterra and FCGL in relation to the issues raised in the arbitration and the current proceedings for them to be privies.19 His Honour ordered a temporary stay of the Court proceeding, reserving leave to the Danone plaintiffs to seek to lift the stay in the event that Fonterra delayed in pursuing the arbitration proceeding.
Application of the r 15 principles in this case
[70] Mr Sills did not resist Mr Henry's submission that the second cause of action (which alleges breach of contract against Sealegs International) will have to go to arbitration, and there is a significant overlap in the issues likely to arise in that cause of action and the issues that will arise in the first cause of action.
[71] First, both causes of action are concerned with the 2014 Agreement. Secondly, the first 30 paragraphs of the statement of claim are common to both causes of action.
18 At [94].
19 At [87]-[88], referring to Hamed Abdul Khaliq al Ghandi Co v New Zealand Dairy Board (1999) 13 PRNZ 102 (CA).
Thirdly, the issue of whether the First Craft contained the defects alleged by Mr Mayhew will have to be traversed in both causes of action.
[72] The representations relied upon in the first cause of action are said to have been made by Mr McKee-Wright and by Future Mobility (in Future Mobility's case, in videos prepared by it, in which it is said to have made representations about the quality of Sealegs craft). Mr Mayhew contends that the representations were false, "in that the First Craft purchased by [Mr Mayhew] shortly afterward contained [the defects complained of] and was of poor quality".
[73] In the second cause of action, Mr Mayhew alleges that Sealegs International breached the 2014 Agreement (inter alia) by "failing to facilitate and/or hindered [Mr Mayhew's] efforts to sell the Products in the Territory by:
(i)Supplying the First Craft with [the defects complained of by Mr Mayhew] to [Mr Mayhew]".
[74] In their statement of defence, the defendants deny that the First Craft contained the defects alleged by Mr Mayhew, and it is apparent that that will be an important issue in both causes of action. There would be an obvious risk of inconsistent findings on that important issue if the claims in these causes of action were heard in different forums. It would also be inefficient for the parties to be putting resources into two separate proceedings (the Court proceeding and a parallel arbitration proceeding), in which separate tribunals would be asked to make determinations of fact on the same issue.
[75] I bear in mind also that Sealegs International is a wholly-owned subsidiary of Future Mobility. The two companies would appear to be privies, and if that is right one may be bound by any adverse finding against the other. In such circumstances I think it would be oppressive to require Future Mobility and Sealegs International to prepare for separate hearings on the same issue.
[76] Considerations of cost and convenience, and the interests of justice, favour the grant of a temporary stay of Mr Mayhew's claims in the first cause of action, pending
the issue of an award in the arbitration of his claims which are presently comprised in the second cause of action in this proceeding. As the plaintiffs did not oppose the stay order sought in respect of the second cause of action, and as I have reached the view that all causes of action should be stayed pending the arbitration of the issues in the second, fourth and fifth causes of action, it is appropriate that the arbitration proceeding be heard and determined first.
[77] In the third cause of action, Mr Mayhew or Carolina (it is not clear which) alleges deceit against Future Mobility, based on representations allegedly made by both Future Mobility and Sealegs International between January and March 2015. The representations are said to have amounted to representations that "Sealegs craft were reliable and of high quality". The plaintiffs go on to plead that the representations were false, "in that the Second Craft purchased by [Carolina] shortly afterwards was of poor quality". They say that Future Mobility must have known that was so.
[78] The plaintiffs then plead in the third cause of action that the representations were made with the intention that Carolina would be induced to enter into the 2015 Agreement, and that Carolina was so induced.
[79] Mr Sills did not oppose the plaintiffs' fourth and fifth causes of action being stayed, and while both of those causes of action are against Sealegs International, the third cause of action contains a number of pleadings which are for practical purposes indistinguishable from pleadings in the fourth cause of action. The same alleged representations form the basis of both causes of action, and the representations are said to have been false in the same respects. In each case the representations are said to have been made with the intention of inducing Carolina to enter into the 2015 Agreement, and in each case the representations are alleged to have had that effect. In each case it is alleged that Future Mobility must have known of the issues with the Sealegs products and/or with the Second Craft. In effect, what is alleged in the third cause of action as deceit by Future Mobility, is repeated in the fourth cause of action as pre-contractual misrepresentations by Sealegs International.
[80] With the issues being identical or near-identical, there is obvious scope for conflicting findings of fact if the third and fourth causes of action are heard in separate
tribunals. And there is a similar prospect of inefficient and wasteful use of the parties' resources if they are required to prepare evidence and submissions, and argue the same issues, in those separate tribunals. The issue of privies being bound by findings in a proceeding in which they were not named as parties also arises with the third cause of action. For all of the reasons that persuaded me that there should be a temporary stay of the first cause of action pending the determination (by arbitration) of the issues in the second cause of action, I am satisfied that there should be a temporary stay of the third cause of action pending the arbitration of Carolina's claims in the fourth cause of action.
[81]The last cause of action, against all defendants, is under s 9 of the FTA.
[82] As with their other causes of action, the plaintiffs repeat the first 30 paragraphs of their statement of claim. They then say that the conduct of the defendants was misleading and deceptive in that:
(a)they represented that the First Craft, Second Craft and the Sealegs products were of high quality;
(b)they represented that they intended to grow the (Sealegs) business in the United States, and that Mr Mayhew and Carolina would be rewarded for their efforts in growing that business.
[83] Next, the plaintiffs say that they were misled by the representations just referred to, including the representations that the First Craft, Second Craft and the Sealegs products were of high quality. They also allege that they were misled by representations that returns on investing in the growth of the business in the United States were likely to be positive and strong. They say that they incurred costs, and suffered loss accordingly, in their efforts to grow the business in the United States. They seek compensation under s 43 of the FTA.
[84] It will be seen that the issue over the quality of the First Craft and the Second Craft is again raised in this cause of action. Also, the repetition of the first 30 paragraphs of the statement of claim in this cause of action, inevitably means that a
number of issues which will arise in the arbitration between Carolina and Sealegs International (the issues in the fifth cause of action, in which breach of contract is alleged) are also likely to arise in the FTA cause of action. For example, the allegations in paragraphs 23 through to 30 of the statement of claim, where it is alleged that the first and/or second defendants were deliberately running down the United States Sealegs business, are all denied by the defendants, and those allegations will apparently be in issue in both the breach of contract arbitration between Carolina and Sealegs International and the FTA claim against all defendants.
[85] Again, the scope for wasted expenditure of effort pursuing substantial elements of the dispute in separate tribunals, and the risk of conflicting findings if that occurs, is obvious.
[86] I have come to the view that the first five causes of action should be stayed pending completion of the arbitration of the issues in the second, fourth and fifth causes of action, and I think the same result must follow with the sixth cause of action.
[87] There will accordingly be a temporary stay of the proceeding as a whole, pending the issue of an arbitration award or awards following the arbitration of the disputes in the second, fourth and fifth causes of action. It will be for the plaintiffs to decide whether or not they will take up the defendants' offer to arbitrate all of the issues in the proceeding, including those raised by the first, third and sixth causes of action.
Result
[88] I grant a stay of the proceeding, pending further order of the Court. Leave is reserved to the parties to apply by memorandum to lift the stay following the issue of an arbitration award or awards on the issues presently comprised in the plaintiffs' second, fourth and fifth causes of action, and leave is reserved to the plaintiffs to apply to lift the stay in the event of the defendants or any of them delaying the arbitration process.
[89] Costs are awarded to the defendants (one set) on a 2B basis, with disbursements to be fixed by the Registrar.
Associate Judge Smith
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