McKellar v Kiwirail Limited HC Auckland CIV-2010-404-6472
[2011] NZHC 208
•14 March 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-6472
BETWEEN CHRISTOPHER MCKELLAR Plaintiff
ANDKIWIRAIL LIMITED Defendant
Appearances: Mr D Hayes for Plaintiff
Mr A Whitehouse for Defendant
Judgment: 14 March 2011
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
14.03.11 at 10 am, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Counsel:
Mr David Hayes, Barrister, P O Box 9323, Hamilton
Russell McVeagh, P O Box 8, Auckland (A Whitehouse)
MCKELLAR V KIWIRAIL LIMITED HC AK CIV-2010-404-6472 14 March 2011
[1] The plaintiff was formerly the director of a company called Reservations Direct (NZ) Limited (“Reservations”) which provided internet based travel agency services. That company was appointed by the defendant as an agent for the sale of its services including rail bookings and interisland ferry bookings. Reservations received the price of the ticketed travel and was required to account to Kiwirail for the proceeds in due course. The defendant would pay Reservations a commission on the travel booked.
[2] Reservations owned various websites. It is not necessary to refer to them all but the name of one, gives the flavour of the titles of the websites. This proceeding involves consideration of four of Reservations websites. The plaintiff says that Reservations assigned the ownership of the websites to him on or about 1 November 2009. He was at all relevant times a director of Reservations.
[3] It is undisputed that Reservations got into financial difficulties and when the companies ceased trading, it owed money to the defendant. On 27 March 2009 the defendant cancelled the agency agreement with Reservations. In March 2009 the parties agreed that Reservations would activate redirections from its websites to that of the defendant. The reason for this was to ensure that enquiries that came to Reservations were not lost, as the website visitor to the Reservations site would be automatically transferred by a link to the defendant’s website at which Reservations and ticket sales were available.
[4] This last circumstance is relevant to the plaintiff’s statement of claim because the plaintiff alleges that it was an implied term of the agreement just mentioned that “the defendant would pay either a reasonable price for ownership of the websites or a reasonable sum for the use of the websites”.[1]
[1] Paragraph 8 statement of claim.
[5] Subsequently the parties met on 23 April 2009. Accounts of the purpose of this meeting and what occurred diverge between the two sides. The defendant says that the purpose was to make progress with having its unpaid debts satisfied by
Reservations. It would seem that there was discussion at the meeting concerning the
possibility that the defendant might acquire Reservations’s websites. At the time of this meeting the re-direction mechanism was still in effect and it continued after the meeting. No agreement proved to be possible concerning the defendant’s possible acquisition of Reservations’s websites. Therefore no agreement was reached concerning Reservations’s wish that the acquisition of the websites would result in an amount representing the value of those websites being offset against the Kiwirail debt.
[6] The plaintiff now claims as the assignee of Reservations against the defendant on the basis that he has a claim in quantum meruit in terms of which he is “entitled to a reasonable price for the purchase or use of the websites”.
[7] The defendant’s view of matters is that when Reservations got into financial difficulties Mr McKellar as its agent offered to re-direct web traffic from Reservations’s website to the defendant’s website. There was no agreement reached concerning the defendant acquiring the websites belonging to Reservations. The defendant denies that there was any expectation that it would pay for the re-direction being put into effect. It says that in any event the value to it of that particular addition to the defendant’s website was minimal. It further claims that by the purported assignment of Reservations’s claim for the plaintiff the plaintiff is positioning himself to defeat the defendant’s legitimate claim which it has against him and which is based on a personal guarantee that he gave of Reservations’s debt.
[8] The plaintiff accepts that the quantum of any claim that he brings is uncertain but he invites the Court to enter judgment on the matter of liability and to defer to a later stage consideration of the quantification of his claim.
[9] The issue for the Court is whether the plaintiff has succeeded in establishing that the defendant does not have a fairly arguable defence to the claim for summary judgment on liability.
[10] Mr Hayes, counsel for the plaintiff submitted to me that the question to be
determined was whether the “acceptance and use of the domain names and websites
by the defendant from 27 March 2009 until 18 June 2010 mean[t] that the plaintiff
could expect to be reimbursed for the provision of those services?”
[11] He also referred me to the judgment of the Court of Appeal in Morningstar (St Lukes Garden Apartments) Limited v Canam Construction Limited.[2]In that judgment the Court of Appeal, after referring to the judgment of Winkelmann J in Villages of New Zealand (Akaranga) Limited v Ministry of Health,[3]continued at paragraph 50:
It is sufficient to say that there is general agreement that a plaintiff will be able to establish a quantum meruit claim where the defendant asks the plaintiff to provide certain services, or freely accepts services provided by the plaintiff, in circumstances where the defendant knows (or ought to know) that the plaintiff expects to be reimbursed for those services, irrespective of whether there is an actual benefit to the defendant.
[2] Morningstar (St Lukes Garden Apartments) Limited v Canam Construction Limited. CA 90/05, 8 August 2006.
[3] Villages of New Zealand (Akaranga) Limited v Ministry of Health, HC Auckland, CIV 2003-404-5143, 6 April 2005.
[12] It as an open question whether the elements of the claim based in quantum meruit in this case have been made out. Findings of fact will ultimately need to be made by the Court. Given the circumstances that the plaintiff in March 2009 found itself in breach of its agency agreement with the defendant, and in a position where it owed money to it, it is entirely possible that it could have offered to provide the onward link to the defendant’s website as a interim measure and one designed to limit the defendant’s loss arising from the business relationship between Reservations and the defendant. It seems likely that at the time when the offer was made an expectation arose on both sides that there would need to be further discussions as to how the parties were to extricate themselves from the difficulties that they are in. The other outstanding issues, most obviously, included the arrears of money owed by Reservations but there was also the possibility that the defendant might acquire the websites.
[13] On the basis of the evidence filed on the summary judgment application it would appear that no agreement was ever reached about the price which the defendant might have to pay for the websites or that even if the parties did not
ultimately proceed with an agreement to buy and sell the websites or some other
commercial arrangement for the use, that the defendant would pay a reasonable amount for the services provided. Any such common understanding relating to the last point would have to be implied from all the circumstances and I do not believe that that is a matter that can be satisfactorily considered in the context of a summary judgment application.
[14] Mr Whitehouse for the defendant also submitted to me that there were real doubts about Mr McKellar's ability to make a claim for payment. Even if it were conceded that Reservations had a reasonable expectation of being compensated for the use of the sites, it did not follow that Mr McKellar did. There never seemed to have been any discussion between Mr McKellar and the defendant directly to the effect that he, and not Reservations, was the party now entitled to reasonable compensation for the use of the websites. Mr Whitehouse said that this could raise significant issues about whether a cause of action belonging to Reservations could be assigned to Mr McKellar. Mr Hayes sought to meet this point by arguing that Mr McKellar acquired the debt owing to Reservations. But I am not sure that the matter is that straightforward. A claim for compensation under quantum meruit is different from a right to sue on a debt that has been assigned.
[15] I also consider that Mr Whitehouse is correct in questioning whether this is an appropriate case for judgment for a liability. The Court would have to be clear about what services were to be compensated for. Quite apart from anything else that again brings the Court back to the question of the periods during which the redirection of website traffic occurred. About half the period during which the links were active lies in the pre-assignment period. There is doubt about the balance of the period when Mr McKellar claims for compensation as the successor to the rights of Reservations.
[16] There is also a possible defence available to the defendant by way of equitable set-off which would arise in the following circumstances. The plaintiff, as assignee from Reservations, would have acquired the rights that Reservations had against the defendant subject to equities that existed between those two parties. A right of set-off that had accrued prior to the point of when the assignment took effect could be one such claim. The outlines of the counter-claim include the proceeds of
sale of tickets purchased for which Reservations failed to account to the defendant. There are other claims including possible misuse by Reservations of the defendant’s intellectual property.
[17] But even apart from the question of possible equitable set-off, there is sufficient material disclosed by the defendant in opposition to the summary judgment which the defendant is able to point to that discloses the existence of a fairly arguable defence.
[18] It is also necessary to consider the alternative course of action for breach of the Fair Trading Act. The misleading or deceptive conduct which is relied upon by the plaintiff is said to consist of the defendant, in the face of the common understanding that it would compensate Reservations/Mr McKellar for use of the websites taking the advantage of having the website linked to its own website when it never intended to actually compensate Reservations/Mr McKellar. But whether it was implicit from the course of interaction between the parties that the defendant would provide compensation, is a moot point. Certainly the defendant does not admit that there was any express agreement to compensate. In those circumstances whether there has been misleading conduct constitutes a serious question which the defendant is entitled to put forward as amounting to a fairly arguable defence.
[19] The result is that the summary judgment application cannot succeed.
Security for costs application
[20] The defendant has applied for an order that the plaintiff pay security for costs. The ground upon which the application is made is essentially that the plaintiff is impecunious and that his case is misconceived and lacks merit.
[21] Dealing with the first issue, the applicant particularises the assertion of inpecuniosity in the following ways:
(i) The plaintiff is a sickness beneficiary;
(ii) The plaintiff has no other known source of income;
(iii) The plaintiff does not appear to have any assets;
[22] In his notice of opposition the plaintiff does not dispute inpecuniosity but says that the defendant has contributed to the inpecuniosity of the plaintiff by cancelling the contract between itself and Reservations. Essentially the position that the plaintiff takes on the inpecuniosity issue is that the defendant caused financial difficulties for it by pricing sales which it made itself, at a lower cost than what Reservations needed to charge, in order to sell the defendant’s services profitably. Also, the plaintiff says the defendant created a further advantage for itself by selling fares with a more advantageous refund policy to the public. By these means the plaintiff says the defendant undercut Reservations. The third factor which caused financial difficulty for Reservations was that a change had come about to credit card policy which required that payment had to be made direct to the defendant. What is notable is that impoverishment is not said to result from the breaches of legal obligation which are the subject matter of the present proceeding. The last point would seem to have very little to do with the defendant at all.
[23] This is a case where the most that the Court can say is that there is a bona fide allegation of impoverishment. But not a great deal of weight can be given to that feature because of the uncertainty surrounding the case generally.[4] The authority that I have just referred to, Ariadne, makes it clear, though, that impecuniosity in these circumstances is an issue which I can take account of as to the extent of security for costs which is to be fixed, if that is the order of the Court.
[4] Ariadne Australia Limited v Kupe Group (1991) 4 PRNZ 563.
[24] It is also relevant to an application for security for costs, where the prospects of success in a case are doubtful, that that will be a factor that will increase the chances of the plaintiff having an order for security for costs made against it.[5]
[5] Attorney General v Transport Control Systems (NZ) Limited [1982] 2 NZLR 19.
[25] Dealing with the merits of the claim, I have already touched upon some of the issues that will arise in this case in the course of considering the summary judgment application. That part of the present proceeding was concerned with the rather different issue of whether there was a fairly arguable case. But from my
consideration of the evidence before the Court I am left with the impression that, as
the defendant as submitted, there is a lack of clarity about the steps in the reasoning which the plaintiff adopts in formulating his claim. For present purposes though, that consideration leads me to the conclusion that plaintiff’s claim is not a convincing one.
[26] I consider that that factor points to the desirability of making an order for security for costs.
[27] Mr Hayes, rightly reminded me in his submissions, of the risk that by making an order for costs in a case where the claimant is impecunious that the Court might thereby indirectly bring an end to a deserving plaintiff’s rights of action. That consideration, though, is to be balanced against the additional factor which was mentioned by Eichelbaum J in Weld Street Takeaways and Fisheries Limited v
Westpac Banking Corporation:[6]
[6] Weld Street Takeaways and Fisheries Limited v Westpac Banking Corporation 1986 1 NZLR 741.
6. The court should have regard to these competing considerations.
The power to order security should not be used as an instrument of oppression, as by shutting out a small company from making a
genuine claim. But on the other hand an impecunious company not
made subject to any constraint by security may use its inability to pay costs as a means of exerting unfair pressure on a defendant.
[28] Although the Chief Justice was referring in that case to the position where a small company is the claimant, the same reasoning applies where the claimant is a individual.
[29] I consider that an order ought to be made but that it will be a relatively modest one in all the circumstances.
[30] The orders I make are as follows.
a) The application for summary judgment is dismissed. The parties should confer on timetabling of the proceedings from this point
forward;
b)The plaintiff is ordered to pay security for costs in an aggregate amount of $15,000 in three equal tranches on 29 April 2011, 30 June
2011, and 31 August 2011. The security is to be given in the form of cash which is to be paid to the Registrar of the High Court at Auckland to be held on interest bearing deposit pending further direction of the Court.
[31] The proceeding is to be listed in a Chambers List in April and the Registrar is to notify the parties of the date when that is to occur. If the parties are able to submit a consent memorandum ahead of the Chambers List mention, counsel’s appearances will be excused.
[32] The parties should confer on and come to agreement on the matter of costs. I would have thought that the starting point is that the default position under the rules applies so that costs ought to be reserved. But in case there are some aspects of the matter that I have overlooked, I reserve leave to Counsel to file brief memoranda
within 14 days.
J.P. Doogue
Associate Judge
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