Murphys Development Limited v Guest
[2024] NZHC 214
•19 February 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-2233
[2024] NZHC 214
BETWEEN MURPHYS DEVELOPMENT LIMITED
First Plaintiff/First Counterclaim Defendant
HOMESTEAD BAY TRUSTEES LIMITED
Second Plaintiff/Second Counterclaim DefendantMANGAWHAI CENTRAL LIMITED
Third Counterclaim DefendantMDL CIVIL AND ENGINEERING LIMITED
Third Plaintiff/Fourth Counterclaim Defendant
AND
ANDREW JOHN DEXTER GUEST
First Defendant … continued over
Hearing: 7 February 2024 Counsel:
R K P Stewart / S Ma Ching for the First and Second Plaintiffs A S Butler KC / C W Gambrill for the First Defendant
A S Butler KC / R A Harrington for the Fourth Defendant
Judgment:
19 February 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
Solicitors/Counsel:
This judgment was delivered by me on 19 February 2024 at 2 pm.
Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Lee Salmon Long, Auckland Martelli McKegg, Auckland Mackenzie Elvin Law, Tauranga
B Hollyman KC and RKP Stewart, Shortland Chambers AS Butler KC, Auckland
B Prewett, Bankside Chambers, Auckland
MURPHYS DEVELOPMENT LIMITED v GUEST [2024] NZHC 214 [19 February 2024]
AND VIRANDA HOLDINGS LIMITED
Second Defendant
MARK ANDREW BRIDGMAN
Third DefendantFIORDLAND EXPERIENCE GROUP LIMITED
Fourth Defendant
Introduction
[1] The first plaintiff, Murphys Development Ltd (Murphys), and the second plaintiff, Homestead Bay Trustees Ltd (Homestead), are property developers. The first defendant, Mr Guest, was a director of both companies at material times.
[2] The nub of the allegations by Murphys and Homestead against Mr Guest in these proceedings is that Mr Guest obtained secret commissions from Murphys and Homestead, in respect of transactions between Murphys and a real estate agent, and Homestead and the fourth defendant, Fiordland Experience Group Ltd (Fiordland).
[3] Mr Guest denies the allegations. Mr Guest seeks leave to join two other directors of Murphys and Homestead, Mr Chen and Ms Xiao, as third parties. Mr Guest says that if he is liable to Murphys and/or Homestead, then Mr Chen and Ms Xiao are liable for the same loss, as a result of their negligence as directors.
[4] It is common ground that Mr Guest is out of time to file third party claims as of right.1 Murphys and Homestead oppose the joinder of Mr Chen and Ms Xiao. The primary issues are:
(a)whether one of the grounds in r 4.4(1) of the High Court Rules 2016 (HCR) exists; and
(b)if so, whether the Court should exercise its discretion and grant leave for the third parties to be joined.
Legal principles
[5]The relevant legal principles were summarised by Associate Judge Osborne in
Westwood Group Holdings Ltd v Rilean Construction (South Island) Ltd:2
(a)The defendant’s claim against the third party must be covered by one of the four grounds set out in r 4.4(1). A defendant may join the third party as of right within the time limit set down
1 Rule 4.4(2)(a) of the High Court Rules 2016.
2 Westwood Group Holdings Ltd v Rilean Construction (South Island) Ltd [2013] NZHC 1739 at [15].
in r 4.4(2)(a). An application outside this time limit requires leave of the Court (r 4.4(2)(b)).
(b)Where leave is sought, the Court must consider firstly whether one of the grounds in r 4.4(1) exists and secondly whether to exercise its discretion to join the third party: ANZ Banking Group (NZ) Ltd v Dairy Containers Ltd.
(c)In exercising its discretion, the Court must have regard to all relevant circumstances, including delay to the plaintiff (r 4.8).
(d)The interest of justice between all parties, however, is paramount. While any delay to the plaintiff is regrettable, the attainment of justice by the most efficient means is an overriding consideration: KPMG Peat Marwick v Cory- Wright & Salmon Ltd (in rec and liq).
(e)Where the defendant has not been guilty of unreasonable delay, a factor in favour of exercising the discretion will be whether the defendant could have joined the third party as of right if it had applied within the time limit: ANZ Banking Group (NZ) Ltd v Dairy Containers Ltd.
(f)Equally, unexplained or unacceptable delay by the defendant may result in leave being refused: Meroiti v National Australia Finance Ltd.
(g)In cases of serious delay that risk prejudicing the plaintiff, the court may be prepared to make an order for joinder on conditions designed to preserve the hearing date for the plaintiff’s claim against the defendant: Total Air Supply Company Ltd v Total Air Supply Company (2007) Ltd.
(h)Avoiding duplicity of proceedings and preventing the same question being tried with different results militate in favour of allowing the application. The overriding purpose of the third party rules is to enable all the issues to be dealt with in one action: Turpin v Direct Transport Ltd.
(i)There is, however, a need to strike a balance between all the parties’ interests. The extent to which the plaintiff is necessarily involved in the issues between the defendant and the third party is a consideration. Equally, it can be oppressive and unjust to involve a third party in a proceeding where much of the proceeding will not involve that third party.
(j)The Court may have regard to the relative strengths and weaknesses of the parties’ cases, including the case against the proposed third party and the likelihood of recovery: Dairy Containers Ltd v NZI Bank Ltd.
(footnotes omitted)
[6] As in Westwood, in this case Mr Guest relies on an alleged right to a contribution from Mr Chen and Ms Xiao under s 17(1)(c) of the Law Reform Act 1936 (LRA), which provides:
17Proceedings against, and contribution between, joint and several tortfeasors
(1)Where damage is suffered by any person as a result of a tort (whether a crime or not)—
…
(c) any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if sued in time have been, liable in respect of the same damage, whether as a joint tortfeasor or otherwise, so, however, that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability in respect of which the contribution is sought.
[7]Again, I adopt Associate Judge Osborne’s summary of the relevant principles:3
(a)The essence of the right to a contribution lies in the liability to a common demand (Halsbury’s Laws of England).
(b)The elements necessary for a defendant to succeed in joining a third party pursuant to s 17(1)(c) of the Law Reform Act 1936 are:
(i)The plaintiff has suffered damage as a result of a tort;
(ii)The defendant is a tortfeasor liable in respect of that damage;
(iii)The third party is also a tortfeasor liable in respect of that same damage.
(c)Damage does not mean ‘damages’; it means the harm suffered by another person: Birse Construction Ltd v Haiste Ltd (Watson & Ors third parties).
(d)The damage must be the same. In other words, the harm caused by the proposed third party must be the same as that caused to the plaintiff by the defendant.
(e)The phrase ‘joint tortfeasors or otherwise’ in s 17(1)(c) includes concurrent tortfeasors as well as joint tortfeasors. While the damage must be the same, the causes of action (the specific torts) may be different.
3 At [18].
(footnotes omitted) The relevant allegations by the parties The claim by Murphys
[8]It is not necessary to set out the factual background in detail. Murphys sold
three lots of land in 2015 and Murphys was liable to pay a real estate agent commission on those sales, pursuant to a services agreement. Murphys’ decision to enter into the services agreement was recorded in a resolution of Murphys’ board dated 24 August 2015, signed by Mr Guest, Mr Chen and Ms Xiao.
[9] Murphys pleads that Mr Guest received a secret commission from the real estate agent, in breach of various duties owed by Mr Guest to Murphys. The pleaded duties include: a fiduciary duty; a duty under s 131 of the Companies Act 1993 (Companies Act) to act in good faith and in the best interests of Murphys; a duty under s 133 of the Companies Act to exercise his powers as a director for a proper purpose; and a duty under s 137 of the Companies Act to act with the care, diligence and skills that a reasonable director would exercise in the same circumstance.
The claim by Homestead
[10] In 2014, Homestead made an oral agreement with Fiordland in respect of Homestead’s development of land near Queenstown. There is a dispute regarding the terms of the oral agreement. Homestead contends that it granted Fiordland an exclusive right to market 12 of the developed lots. Mr Guest contends that Fiordland agreed to underwrite the purchase of 12 developed lots.
[11] Whatever the arrangement was, Homestead paid approximately $918,000 to Fiordland pursuant to it. In 2016, Homestead and Fiordland entered into a written agreement which purports to affect a surrender of their prior oral agreement. Mr Guest, Mr Chen and Ms Xiao signed the written agreement on behalf of Homestead. Fiordland received a payment of $600,000 under the 2016 agreement.
[12] Homestead pleads that it entered into the agreements with Fiordland as a result of misrepresentations made by Mr Guest and Mr Guest’s failure to disclose that he
was a beneficial owner of shares in Fiordland. Homestead pleads that Mr Guest received a secret commission from the payments made by Homestead to Fiordland.
[13] Homestead pleads the tort of deceit and breach of various duties by Mr Guest; a fiduciary duty; a duty under s 131 of the Companies Act to act in good faith and in the best interests of Homestead; a duty under s 133 of the Companies Act to exercise his powers as a director for a proper purpose; and a duty under s 137 of the Companies Act to act with the care, diligence and skills that a reasonable director would exercise in the same circumstance.
Mr Guest’s response
[14] Mr Guest says that any money that he received in respect of the transactions came to him legitimately for services provided by a company he controls, the second defendant, Viranda Holdings Limited.
Mr Guests’ allegations against Mr Chen and Ms Xiao
[15] Mr Guest has not filed a draft statement of claim setting out his claims against Mr Chen or Ms Xiao. However, the basis of the claims is fully set out in the notice of application and the written submissions of counsel for Mr Guest.
[16] Mr Guest proposes to argue that if Murphys or Homestead has suffered a loss, arising from Murphys’ engagement of the real estate agent or from Homestead’s agreements with Fiordland, then Mr Chen and Ms Xiao are liable to the companies for failing to exercise reasonable care and skill as directors when approving those transactions.
Does one of the grounds in r 4.4(1) of the High Court Rules 2016 exist?
[17] Rule 4.4(1)(a) of the HCR provides that a defendant may issue a third party notice if the defendant claims a contribution or an indemnity from a person who is not a party to the proceeding.
[18] Mr Guest argues that the claims against him include claims of tortious lability, entitling him to join Mr Chen and Ms Xiao as concurrent tortfeasors based on their alleged negligence as directors of Murphys and Homestead.
[19] Counsel for Murphys and Homestead submitted that the proposed contribution claims would duplicate Mr Guest’s already pleaded defence of contributory negligence by Murphys and Homestead. I accept that the factual basis of the claims of contributory negligence is substantially the same as the factual basis of the claims that Mr Chen and Ms Xiao are concurrent tortfeasors. However, a claim of contributory negligence by Murphys and Homestead is discreet from a claim for contribution against directors of those companies under the LRA, and the elements of each claim are not identical. Where the same pleaded facts give rise to two claims that are discrete then each claim should be pleaded separately.
[20] Counsel for Murphys and Homestead submitted that there is no basis for joinder because the claim for contribution is illogical. Murphys and Homestead argue that Mr Chen and Ms Xiao were entitled to rely on information and professional or expert advice given by a co-director, Mr Guest, absent reasons for questioning that information or advice, relying on s 138 of the Companies Act.
[21] The thrust of the argument is that if Murphys and Homestead succeed on the facts, that will involve findings that Murphys and Homestead entered into the transactions with the real estate agent and Fiordland because of misrepresentations by Mr Guest to Mr Chen and Ms Xiao, and Mr Guest’s concealment of relevant information from them. On that basis, counsel submits, there is no possibility of a finding of negligence against Mr Chen and Ms Xiao.
[22] That submission may be correct in as far as it goes. However, Murphys and Homestead also plead negligence against Mr Guest, under s 137 of the Companies Act. One possible outcome at trial is that Murphys and Homestead fall short in proving what are in essence allegations of dishonest conduct by Mr Guest, but succeed in proving that Mr Guest was negligent while performing his duties as a director of Murphys and Homestead. While that potential outcome may perhaps seem unlikely
given the agreed facts and the pleaded facts, it is a possible finding open on the plaintiffs’ pleadings.
[23] If that finding is made, then it is also possible that Mr Chen and Ms Xiao would be exposed to liability owed to Murphys and Homestead for failing to exercise reasonable care and skill when performing their duties as directors, rendering them concurrent tortfeasors for the same damage.
[24] While I accept the plaintiffs’ submission that the claim for contribution from Mr Chen and Ms Xiao does not appear to be a strong one based on the limited evidence currently available, it is a tenable claim based on the plaintiffs’ pleadings. Mr Guest ought to have the opportunity to bring his claim for contribution against Mr Chen and Ms Xiao unless there are discretionary factors which weigh against a grant of leave.
Whether the Court should exercise its discretion and grant leave for the third parties to be joined
Mr Guest’s delay in applying for leave
[25] Murphys and Homestead argue that the transactions approved by Mr Chen and Ms Xiao have been in issue since this proceeding was commenced in November 2021, and Mr Guest has offered no reasonable explanation for his delay in seeking to join Mr Chen and Ms Xiao.
[26] Counsel for Mr Guest pointed to the broadening of the allegations against Mr Guest in the third amended statement of claim dated 17 May 2023.
[27] I accept that Mr Guest could have filed his application for leave to join third parties much sooner than he did. However, the pressing question is whether Murphys and Homestead will suffer prejudice if Mr Chen and Ms Xiao are joined at this stage of the proceeding.
[28] The proceedings are set down for a 10 day trial commencing on 24 March 2025. The close of pleadings date is 23 February 2024. The plaintiffs’ evidence is due by 28 March 2024 and the defendants’ evidence is due by 24 May 2024.
[29] The pre-trial timetable will require adjustment regardless of whether Mr Chen and Ms Xiao are joined as parties, for two reasons:
(a)Mr Guest’s claim against the third defendant, Mr Bridgman, now proceeds as a third party claim. Mr Bridgman has not yet taken any steps. It is unknown whether he will defend the claim, and whether he can be compelled to provide discovery; and
(b)there is further discovery due from Homestead to Fiordland.
[30] If Mr Chen and Ms Xiao are joined as third parties it is unlikely that they will be obliged to provide any discovery. All relevant documents in their possession should have been included in the discovery previously provided by Murphys and Homestead. If there are documents that have been overlooked, then any discovery from Mr Chen and Ms Xiao is likely to be minimal.
[31] Therefore, it will be possible to adjust the pre-trial timetable to introduce a timetable for pleadings against and by Mr Chen and Ms Xiao without putting the 2025 fixture in jeopardy. This should not cause any further disruption to the timetable than already resulting from the claim against Mr Bridgman and the need for further discovery from Homestead.
[32] Counsel for Murphys and Homestead submitted that Mr Chen and Ms Xiao will be prejudiced if they are joined because they will need to file their own pleadings and they will be compelled to take independent legal advice. These requirements would have been unavoidable if Mr Guest had joined Mr Chen and Ms Xiao as of right under r 4.4(2)(a) of the HCR. The prejudice identified by counsel arises from the fact that Mr Chen and Ms Xiao will be joined as parties to a proceeding against their will, rather than from any delay in doing so. That is the type of prejudice that every party to litigation faces.
[33] Mr Chen and Ms Xiao may need to take independent legal advice, however, there appears to be much common ground in their positions and the positions of
Murphys and Homestead. It is not obvious that Mr Chen and Ms Xiao will require independent legal representation throughout these proceedings.
[34] As counsel for Mr Guest submitted, Mr Chen and Ms Xiao are already intimately involved in this proceeding as the key protagonists. It is inevitable that they will be giving evidence on behalf of Murphys and Homestead. The factual basis of the third party claims is the same as the factual basis of the claims against Mr Guest. Joining Mr Chen and Ms Xiao will not materially add to the complexity or length of what is already a complex proceeding.
[35] Counsel for Murphys and Homestead submitted that if Mr Chen and Ms Xiao are not joined as third parties, it would remain open to Mr Guest to bring a subsequent proceeding against them for a contribution as concurrent tortfeasors, should Mr Guest be found liable as a tortfeasor. That would involve two separate proceedings traversing the same complex factual background, a wholly unattractive proposition.
Conclusion and orders
[36] When the interests of the parties are weighed, I am satisfied that it is in the interests of justice for leave to be granted to Mr Guest to join Mr Chen and Ms Xiao as third parties.
[37] The first defendant is granted leave to issue third party notices to Hongbiao (Brian) Chen and Dan (Cassie) Xiao.
[38] The first defendant shall file and serve the third party notices and statement of claim on Mr Chen and Ms Xiao by 8 March 2024.
[39] This proceeding is currently scheduled for a case management conference before Associate Judge Sussock on 18 March 2024 at 9.30 am. The agenda for that conference should include any further directions required in respect of the third party claims.
Costs
[40] During the hearing on 7 February 2024, I discussed the issue of costs with counsel, including costs in respect of:
(a)Mr Guest’s application for further discovery from Murphys;
(b)Murphys and Homesteads’ application for leave to discontinue their claims against Mr Bridgman; and
(c)Fiordland’s application for further discovery from Homestead.
[41] My preliminary view is that Mr Guest is entitled to one award of 2B costs in respect of his application for leave to join Mr Chen and Ms Xiao as third parties, with all other costs to lie where they fall.
[42] I direct counsel to confer regarding costs. If the parties are unable to reach agreement on costs, then:
(a)the first defendant may file and serve submissions on costs, of no more than five pages, by 1 March 2024;
(b)the first plaintiff and the second plaintiff may file and serve submissions on costs, of no more than five pages, by 8 March 2024; and
(c)I will determine costs on the papers.
Associate Judge Brittain
0
1
1