Midgen Enterprises Limited v Morgan

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-000445 [2014] NZHC 1799

BETWEEN
MIDGEN ENTERPRISES LIMITED

Plaintiff

AND

STEWART MORGAN First Defendant

WATER GUARD NZ LIMITED Second Defendant

Hearing: 30 July 2014

Appearances:

D W Grove for Plaintiff
H Hui for Defendants

Judgment:

1 August 2014

JUDGMENT OF COURTNEY J

This judgment was delivered by Justice Courtney on 1 August 2014 at 3.00 pm
pursuant to R 11.5 of the High Court Rules

Registrar / Deputy Registrar

Date.....................................

MIDGEN ENTERPRISES LTD v MORGAN & OR [2014] NZHC 1799 [1 August 2014]

[1] These are the reasons for my decision yesterday granting the plaintiff, Midgen Enterprises Ltd leave to discontinue its claim.

[2] Midgen sold its business to Stewart Morgan/Water Guard in late 2013. Under the contract stock already ordered at the date of possession was to be stored by Midgen at Now Couriers with the storage costs borne by Mr Morgan. In February 2014 Mr Morgan and Water Guard moved the stock to another storage facility. Midgen brought these proceedings to enforce the contract, alleging conversion of the stock. It obtained an interim injunction under which the stock was moved back to premises that it controlled, though it had to meet any difference in
cost between the storage facilities pending reconciliation of the stock costs.1 There

has not been a reconciliation but in January 2015 Mr Morgan/Water Guard will be required by the terms of the contract to purchase all remaining stock held by Midgen.

[3] In the meantime Water Guard has counterclaimed against Midgen alleging misrepresentations inducing the purchase of Midgen’s business. The counterclaim is, as yet, largely unquantified, but seems likely to be in the order of several hundred thousand dollars. I was not required to express any view on the strength of the counterclaim.

[4] Midgen indicated its intention to discontinue its claim. Because interim relief had been granted it was required to obtain leave to do so.2 Midgen said that it is content to store the stock in accordance with the interim injunction but that any loss that may ultimately be found to have sustained will be modest, perhaps less than
$10,000 and it did not wish to be engaged in High Court proceedings for that amount of money. It said further that because it is absorbing the difference between the costs of the storage facilities it is very unlikely that it will be found to owe any money to Mr Morgan or Water Guard.

[5] Mr Morgan and Water Guard did not want Midgen to discontinue its proceeding. Their main concern was that there may be a loss to them, albeit modest,
as a result of the cost of transferring the stock in accordance with the injunction and

1 Midgen Enterprises Ltd v Morgan & Anor [2014] NZHC 704.
2 High Court Rules, r 15.20.

if the plaintiff were permitted to discontinue they would no longer have the benefit of Midgen’s undertaking as to damages filed in support of the interim injunction application.

[6] I granted Midgen leave to discontinue because I could not see that there was prejudice to the defendants that would justify forcing Midgen to remain in the proceedings as a plaintiff. Mr Morgan and Water Guard will only have a claim for the cost of transferring the stock if they prevail in the conversion claim but Fogarty J, who granted the interim injunction, considered their position to be weak. Their counterclaim can continue unaffected. The undertaking as to damages was given only in relation to the injunction application so discontinuance will not disadvantage Mr Morgan and Water Guard in relation to the counterclaim.

[7] There remains a possibility that Midgen could resume its claim for the additional costs of moving and storing the stock pursuant to the terms of the interim injunction in the Disputes Tribunal. That prospect seems remote, however, not least because any attempt to do so will likely be met with the defence that there is in existence the substantial counterclaim on foot in the High Court.

[8] Costs were allowed on a 2B basis in accordance with Mr Grove’s calculation.

P Courtney J

CaseChat Overview and Summary

In the case of Midgen Enterprises Limited v Morgan, the plaintiff, Midgen Enterprises Limited, sought leave to discontinue its proceedings against the defendants, Stewart Morgan and Water Guard NZ Limited. The case revolved around a business sale agreement, under which Midgen had sold its business to the defendants in late 2013. As part of the agreement, Midgen was to store stock already ordered at the time of possession at Now Couriers, with storage costs to be borne by the defendants. However, in February 2014, the defendants moved the stock to another storage facility, prompting Midgen to commence proceedings alleging conversion of the stock. Midgen obtained an interim injunction, under which the stock was returned to premises under Midgen's control. The defendants subsequently filed a counterclaim against Midgen, alleging misrepresentations that induced the purchase of Midgen's business, which was estimated to be in the order of several hundred thousand dollars.

The court was required to decide whether Midgen could discontinue its proceedings against the defendants. Midgen argued that it was content to store the stock in accordance with the interim injunction and that any loss it may ultimately sustain would be modest, perhaps less than $10,000. The defendants opposed the discontinuance, arguing that there may be a loss to them, albeit modest, as a result of the cost of transferring the stock in accordance with the injunction. They also expressed concern that if Midgen were permitted to discontinue the proceedings, they would no longer have the benefit of Midgen's undertaking as to damages filed in support of the interim injunction application. The court considered that there was no prejudice to the defendants that would justify forcing Midgen to remain in the proceedings as a plaintiff. The defendants would only have a claim for the cost of transferring the stock if they prevail in the conversion claim, but the court considered their position to be weak. The court also noted that the undertaking as to damages was given only in relation to the injunction application, so discontinuance would not disadvantage the defendants in relation to the counterclaim.

The court granted Midgen leave to discontinue its proceedings, as it could not see that there was prejudice to the defendants that would justify forcing Midgen to remain in the proceedings as a plaintiff. The defendants' counterclaim could continue unaffected. The court also noted that there remained a possibility that Midgen could resume its claim for the additional costs of moving and storing the stock pursuant to the terms of the interim injunction in the Disputes Tribunal. However, the prospect seemed remote, not least because any attempt to do so would likely be met with the defence that there is in existence the substantial counterclaim on foot in the High Court. The court awarded costs on a 2B basis in accordance with Mr Grove's calculation.

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established

Hearing:	30 July 2014
Appearances:	D W Grove for Plaintiff H Hui for Defendants
Judgment:	1 August 2014