Murren v Schaeffer
[2017] NZHC 163
•15 February 2017
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV-2015-442-000028 [2017] NZHC 163
BETWEEN JAMES JOSEPH MURREN AS
TRUSTEE OF THE JAMES J MURREN SPENDTHRIFT TRUST
First Plaintiff
DANIEL LEE Second Plaintiff
AND
GLENN SCHAEFFER Defendant
Hearing: 5 December 2016 and 31 January 2017 (in writing) Appearances:
A J Horne and J J K Spring for Plaintiffs
B N Nathan for DefendantJudgment:
15 February 2017
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
Introduction
[1] Mr Murren, as trustee of the James J Murren Spendthrift Trust, and Mr Lee sue Mr Schaeffer in respect of contributions they made to an intended investment in a vineyard and winery at Upper Moutere, Nelson. More detailed facts and a summary of the causes of action are set out in a judgment of the Court dated 6
November 2015.1
[2] As noted in that judgment there are five causes of action, the first under the Fair Trading Act 1986, the second for alleged negligent misstatement, the third for intentional misrepresentation, the fourth for fraudulent misrepresentation, and the
fifth for breach of the Nevada Deceptive Trade Practices Act.2 Apart from denials of
1 Murren v Schaeffer [2015] NZHC 2759.
2 Nevada Deceptive Trade Practices Act Nev Rev Stat § 41.600.
MURREN v SCHAEFFER [2017] NZHC 163 [15 February 2017]
various facts relied on by Mr Murren and Mr Lee, Mr Schaeffer pleads four affirmative defences. Two are at issue on the applications presently before the Court. First, in relation to each cause of action, Mr Schaeffer pleads abuse of process, alleging that the proceeding has been brought for an ulterior and collateral purpose, is improper and is an abuse of the Court’s process. Secondly, Mr Schaeffer says that this is a malicious prosecution.
[3] As well, Mr Schaeffer counterclaims against Mr Murren and Mr Lee seeking damages for abuse of process and, as a second cause of action, damages for malicious prosecution.
[4] Mr Murren and Mr Lee apply to strike out these two affirmative defences and the two counterclaims. Mr Schaeffer opposes these applications.
[5] Mr Schaeffer also applies for an order under r 8.21 of the High Court Rules directing that Mr Murren’s wife Heather Murren, who lives in Las Vegas, Nevada, give discovery of certain classes of documents.
Background to the allegations of abuse of process and malicious prosecution
[6] In an affidavit sworn on 12 July 2016 in support of an application for security for costs, Mr Schaeffer discloses the basis on which he says his relationship with Mr and Mrs Murren, and with Mr Lee, broke down. In July 2007 Mr and Mrs Murren are said to have introduced him to a woman named Sally Hopper. Mr Schaeffer and Ms Hopper became romantically involved. They broke up in March 2011. Disputes broke out between them in relation to property matters, with Ms Hopper filing proceedings against Mr Schaeffer shortly afterwards. At that point, Mr Schaeffer and Mr and Mrs Murren shared business interests in the vineyard and winery in New Zealand, an art fund, other art works, and an apartment in Auckland. Other investors were involved in the first two of these ventures. Mr Schaeffer says that once Ms Hopper started the property suit against him it became clear to him that Mr and Mrs Murren had sided with her and, as he put it, “wanted out of anything to do with me, especially if it could be economically damaging to me”.
[7] After giving a detailed account of negotiations to terminate some aspects of their intertwined affairs, Mr Schaeffer says it was clear to him, after his breakup with Ms Hopper, that Mr and Mrs Murren wanted nothing more to do with him. Other investors have informed him that Mr Murren, or Mrs Murren, approached them in
2012 to see if they were interested in joining a proceeding against him. He says it was only Mr Lee who took up the offer. He says that in light of all the information provided Mr Murren and Mr Lee have brought this case “for the ulterior motive of getting around the terms of the 2006 Agreement and trying to get their original money back ahead of other investors”. The reference to the 2006 agreement is to one of the alleged partnership agreements entered in relation to the vineyard and winery.
[8] In the second amended statement of defence the particulars given in relation to the positive defences of abuse of process and malicious prosecution reflect this narrative. The causes of action in the counterclaim rely on the particulars given in the statement of defence. Distilled, Mr Schaeffer pleads that the proceedings are malicious and vexatious, and have been brought for three collateral purposes:
(a) causing damage to Mr Schaeffer;
(b) avoiding the provisions of the 2002 and 2006 agreements;3 and
(c) receiving back the amount of their capital contributions in priority to other Limited Partners before dissolution or termination of Kiwi Ventures without relinquishing their ownership interest in it or in Woollaston Estates and without triggering the indemnity contained in the agreements.4
Application to strike out
Legal principles applying to applications to strike out
[9] The legal principles to be applied when considering an application to strike out all or part of a proceeding are well settled and are not in dispute in this case.
3 As may be seen from the judgment dated 6 November there was also a 2002 document, described here as an agreement.
4 The reference to Kiwi Ventures is to the vineyard and winery investment.
Rule 15.1 of the High Court Rules provides that the Court may strike out all or part of a pleading if it does not disclose a reasonably arguable cause of action or defence, as the case may be, or it is frivolous or vexatious or otherwise an abuse of the process of the Court. Rule 15.1(3) provides that instead of striking out the Court may stay all or part of the proceeding on such conditions as are considered just.
[10] The principles to be applied on an application under this rule are these:5
(a) Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.
(b) The cause of action or defence must be clearly untenable.
(c) The jurisdiction is to be exercised sparingly and only in clear cases.
This reflects the Court’s reluctance to terminate a claim or defence short of trial.
(d)The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.
(e) The Court should be particularly slow to strike out a claim in any developing area of the law, perhaps particularly where a duty of care is alleged in a new situation.
[11] On the fifth of these principles, in Couch v Attorney-General, Elias CJ and Anderson J observed “it is inappropriate to strike out a claim summarily unless the Court can be certain that it cannot succeed”.6 They said that particular care is required in areas where the law is confused or developing.
[12] Where a defect in a pleading can be cured by amendment, and the respondent to an application to strike out is prepared to make an amendment, the correct course
5 Attorney-General v Prince [1998] 1 NZLR 262 (CA); Couch v Attorney-General
[2008] NZSC 45, [2008] 3 NZLR 725.
6 At [33].
for the Court to follow is to permit an opportunity to amend rather than striking out the pleading.7
Abuse of process
Elements of the tort
[13] The tort of abuse of process is described by the Privy Council in Crawford Adjusters (Cayman) Ltd v Sagicor General Insurance (Cayman) Ltd.8 The relevant passage was cited and applied by the High Court in Robinson v Whangarei Heads Enterprises Ltd by Heath J. It is apposite to cite the same passage as it applies to the application under consideration. Heath J said:9
The Privy Council appear to have been unanimous in their view of the nature and extent of the tort of abuse of process. In my view, Their Lordships’ conclusion, on this topic, is best articulated in the judgment given by Lord Sumption. His Lordship said:
149. Abuse of process emerged as a tort considerably later than malicious prosecution and differs from it in significant respects. It applies to the initiation or conduct of civil proceedings. It is not necessary to prove malice. It is not necessary to show that the proceedings have gone to judgment. It is not even necessary to show that they were baseless, although in practice they often will be. The essence of the tort is the abuse of civil proceedings for a predominant purpose other than that for which they were designed. This means for the purpose of obtaining some wholly extraneous benefit other than the relief sought and not reasonably flowing from or connected with the relief sought. The paradigm case is the use of the processes of the court as a tool of extortion, by putting pressure on the defendant to do something wholly unconnected with the relief, which he has no obligation to do. Such cases are extremely rare. Although there is a moderately substantial body of case-law, there are only two reported cases in England in which the action has succeeded, both involving the now obsolete procedures for the arrest of debtors, which had an obvious potential for abuse. No case has succeeded in England since 1860, although Australian litigants appear to have been both more persistent and more successful. Like the tort of malicious prosecution as it was conceived to be before this case, abuse of process is on the verge of extinction, the only recent sightings being in Australia.
…
153. Once the tort had been established, the courts consistently declined to extend it so as to cover cases in which the defendant was genuinely seeking the relief prayed in the writ but for an ulterior motive, even if that motive were malicious or improper. Insolvency proceedings were and perhaps still are commonly initiated with a view to obtaining some benefit which will flow from the insolvency other than the recovery of the debt or
7 Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 (HC).
8 Crawford Adjusters(Cayman) Ltd v Sagicor General Insurance (Cayman) Ltd [2013] UKPC 17, [2014] AC 366 [Sagicor].
9 Robinson v Whangarei Heads Enterprises Ltd [2013] NZHC 2247 at [34].
a dividend. In King v Henderson [1898] AC 720, the creditor intended to obtain the dissolution of his partnership with the debtor, which would automatically follow from his bankruptcy. In the Australian case of Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR
509, the creditor hoped to discover from the bankrupt’s examination who had instigated him to make certain defamatory statements. In neither case was the creditor’s conduct tortious. He truly wanted a bankruptcy order, which was the purpose for which the proceedings were designed. Once that was demonstrated, the reason why he wanted it no longer mattered. In Dowling, Isaacs J put the point in this way at pp 521-522:
“If the object sought to be effected by the process is within the lawful scope of the process, it is a use of the process within the meaning of the law, though it may be malicious, or even fraudulent, and in the circumstances the fraud may be an answer; if, however, the object sought to be effected by means of the process is outside the lawful scope of the process, and is fraudulent, then – both circumstances concurring – it is a case of abuse of that process, and the court will neither enforce nor allow it to afford any protection, and will interpose, if necessary, to prevent its process being made the instrument of abuse”.
[14] In reproducing this passage I have placed emphasis, as did Heath J, on certain portions of the citation.
The case for Mr Murren and Mr Lee
[15] In support of their application Mr Murren and Mr Lee say, first, that their claim is simply for the return of money they invested with the defendant, together with interest, which is a proper purpose, and a successful outcome will simply be the lawful result of the causes of action pleaded. Secondly they say that even if the proceeding can be shown to be an attempt to circumvent partnership agreements, that cannot constitute an improper purpose as those agreements have no application to the claims. The Court has already determined, in a judgment dismissing an application by Mr Schaeffer in protest to the jurisdiction of this Court, that the plaintiffs’ claims are not made under, and nor do they involve the effect or interpretation of, the partnership agreements, nor can their claims be brought under
those agreements.10 Specifically the Court found that the proposed 2002 partnership
agreement never came into existence, and that Mr Schaeffer is not a party to the
2006 partnership agreement.
[16] Thirdly, Mr Murren and Mr Lee say that the contention that they are bringing this proceeding in order to cause Mr Schaeffer damage is not particularised and it is
10 Murren v Schaeffer, above n 1, at [32], [34] and [35].
not alleged (nor could it be alleged) that any damage he suffers will be any more, or different from, the natural results of a lawful and proper civil process resulting in a judgment in their favour.
[17] Fourthly, Mr Murren and Mr Lee say that allegations of ill will and malice are irrelevant as they are not elements of the tort of abuse of process. Thus they say that how they feel about Mr Schaeffer in relation to Ms Hopper and her disputes with him had nothing to do with the subject-matter or the issues in the proceeding. They say there is no legal basis for the proposition that it would be an abuse of process for them to seek the return of money they invested with Mr Schaeffer by reason only that they allegedly feel ill-will and malice towards him. They are entitled to their views, which are irrelevant to the tort.
[18] Finally, Mr Murren and Mr Lee say that the remaining arguments by Mr Schaeffer are matters for trial, including his view that their allegations of fraud have no sufficient factual basis, and that their substantive claims lack merit. As to the allegation that Mr Murren and Mrs Murren have influenced Mr Lee to bring this proceeding, and attempted to influence other investors to also sue Mr Schaeffer, they say this is irrelevant to any issue in the proceeding, and Mr Schaeffer’s allegations that he has suffered stress and anxiety as a result of the proceeding are also irrelevant to the issue of whether or not the proceeding is an abuse of process. As counsel puts it, there is no legal basis for Mr Schaeffer to allege that Mr Murren and Mr Lee are not entitled to seek the return of their money because doing so has allegedly caused stress and anxiety to Mr Schaeffer.
The case for Mr Schaeffer
[19] For Mr Schaeffer, Mr Nathan submits that, in terms of the test enunciated in Sagicor,11 the intention of Mr Murren and Mr Lee is to bring about Mr Schaeffer’s downfall by use of the proceedings for a purpose other than for which it is designed. He says that this is a factual question which needs to be determined at trial. He says that it is an abuse of process to bring “a meritless and statute-barred claim for the
illegitimate purpose of putting improper pressure on the [defendant], causing harm to
11 Sagicor, above n 8.
the [defendant] and avoiding the terms of the agreements which the plaintiffs clearly
entered into”.12
[20] On this basis he says that the pleadings in relation to abuse of process mirror the elements of the tort and, if all the facts pleaded are assumed to be true (as they must be on an application to strike out), then the abuse of process claim would succeed.13
[21] In response to the contentions of Mr Murren and Mr Lee, Mr Nathan says that it is irrelevant that their claims are simply money claims: that was the position in Sagicor. He says that this proceeding is not, in itself, an abuse of process as it is not an attempt to relitigate issues already decided by the Court in its judgment on the protest to jurisdiction. The protest did not concern the improper purposes of Mr Murren and Mr Lee in bringing this proceeding, which are now squarely in issue. He says the allegations of ill will and malice are relevant as they are part of the combination of facts which Mr Schaeffer says will be proved at trial, establishing that Mr Murren and Mr Lee have brought the proceeding for purposes other than those for which they are designed. He says that Mr Schaeffer’s allegation that Mr and Mrs Murren influenced Mr Lee is relevant to the purposes the plaintiffs intended to achieve in bringing the proceeding. He says Mr Schaeffer’s allegations that he had suffered stress and anxiety as a result of the proceedings are relevant to
the loss he says he has suffered and his subsequent entitlement to damages.14
[22] Mr Nathan notes that a claim may be dismissed as an abuse of process even though this is not alleged in the proceedings. In Muir v Judicial Conduct Commissioner the High Court dismissed the claim at trial on this basis, in the exercise of its inherent jurisdiction. This was upheld by the Court of Appeal.15
[23] Mr Nathan submits there is already compelling evidence before the Court in support of the abuse of process claim. In this respect he refers to the evidence given
12 In the sentence quoted, counsel has used the word “plaintiffs” not defendant, as reproduced,
evidently in error.
13 Attorney-General v Prince, above n 5; Couch v Attorney-General, above n 5.
14 Powell v Koene [2003] DCR 341 at [34] and [35].
15 Muir v Judicial Conduct Commissioner [2013] NZHC 989, (2013) 26 NZTC 21-019 at [171]; Bradbury v Judicial Conduct Commissioner [2014] NZCA 441, [2015] NZAR 1 at [99] and [108].
by Mr Schaeffer in relation to the events surrounding his relationship with Ms Hopper which I have summarised in part earlier in this judgment. He says there is further evidence in Mr Schaeffer’s affidavit that Mr Murren acknowledged that he was a limited partner in the vineyard and winery venture and could not exit the investment of his own accord. Mr Nathan says this shows that Mr Murren had been investigating how he might force an exit from this venture, but had realised that the
2002 and 2006 agreements did not allow this to occur, yet he now seeks to do so. He says that in 2012 Mrs Murren approached other investors in the venture to see if they were interested in joining a suit against Mr Schaeffer, an attempt which was unsuccessful with the exception of Mr Lee. Mr Nathan says Mr and Mrs Murren then attempted to put pressure on Mr Schaeffer to buy them out, but he declined. Thus, Mr Nathan submits that Mr and Mrs Murren had tried various measures to put pressure on him, to cause him harm, and to circumvent the 2006 partnership agreement in order to get their money back. When these various attempts failed they decided to bring what he describes as “a set of baseless and vexatious proceedings to try and achieve their desired result”.
[24] Mr Nathan elaborates on his submission that the claims are baseless. He says it is questionable whether there were ever any misrepresentations, that if there were it is implausible that Mr Murren and Mr Lee relied in any way on them, that no issues were raised when cheques were written in payment of contributions and at no point between 2002 and 2013 was Mr Schaeffer asked by either Mr Murren or Mr Lee for details of the ownership structure or shareholdings in the venture. They declined invitations to inspect records at the relevant accountant’s office. Further, there is evidence that Mr Murren and Mr Lee were given written information about the vineyard which disclosed Mr Schaeffer’s holding of 80 per cent of the shares in the vineyard company, Woollaston Estates Limited, but raised no issue at the time. This occurred in 2006. As a result Mr Nathan says this raises limitation issues in relation to the causes of action under the Fair Trading Act 1986 and the Nevada Deceptive Trade Practices Act which have three year and four year limitation periods respectively. The remaining causes of action are also time-barred: they have a six year limitation period, and the final payment by Mr Murren was in 2008 and by
Mr Lee in 2006.16 Mr Nathan says there is no evidence of fraud which would extend the six year limitation period. He also observes that Mr Murren and Mr Lee could have ascertained the legal ownership in Woollaston Estates Limited by way of a company search on the New Zealand Companies Office website.
[25] Mr Nathan says that Mr Schaeffer has arranged for the proportion of the shares in the venture which he held on trust for Mr Murren and Mr Lee and other investors to be transferred to Kiwi Ventures in accordance with the contribution each investor made. Therefore, neither Mr Mullen nor Mr Lee has suffered any loss. The matter of which they complain – that they do not hold a registered ownership interest as shareholders – has been remedied, yet they still maintain this proceeding, from which an ulterior motive may be inferred.
[26] Finally, Mr Nathan says that there was no response to the abuse of process claim when it was first pleaded on 21 June 2016, and a response only ensued when Mr Schaeffer filed and served an application for third party discovery against Mrs Murren on 9 August. From this it may be inferred that the strike out application is an attempt to circumvent the non-party discovery application, which he suggests may be because Mr Murren and Mr Lee know that Mrs Murren has documents which would tend to prove the abuse of process claim.
Discussion
[27] The pleading of abuse of process, and applicable particulars of the pleading, are contained in paragraph 85F of the second amended statement of defence. Mr Schaeffer says the proceeding has been brought for an ulterior and collateral purpose and is improper and an abuse of the Court’s process, in four ways, which I summarise thus:
(a) The proceedings are malicious, vexatious and have been brought for the improper and collateral purpose of causing damage to Mr Schaeffer and avoiding the provisions of the 2002 and 2006 agreements. By way of particulars in support of this allegation Mr Schaeffer cites a breakdown in his relationship with Mr Murren and Mr Lee. He pleads that since that occurred Mr Murren and Mrs Murren have been motivated by malice and
16 Limitation Act 1950, s 4(1)(a).
ill will towards him and have wished to sever all ties with him and recover their investment, that Mr Murren and Mr Lee have endeavoured to do so by seeking to have Mr Schaeffer buy them out and by investigating ways that they and other investors could bring the partnership to an end, but these endeavours have failed, and Mr and Mrs Murren have induced Mr Lee to bring this proceeding also. Other attempts to influence other investors to be parties have failed.
(b)Mr Schaeffer says Mr Murren and Mr Lee have brought this case for the improper and collateral purpose of avoiding the
2002 and 2006 agreements and in particular receiving back their capital contributions in priority to other investors, before dissolution or termination of the limited partnership, without relinquishing their ownership interests in the investment assets, and without triggering the indemnity in the agreements. By way of particulars of this allegation Mr Schaeffer cites terms from the agreements, but does not give any particulars of the way in which he says Mr Murren and Mr Lee have brought this case for the purpose of avoiding them.
(c) Mr Schaeffer says the various allegations made by Mr Murren and Mr Lee of misrepresentation and reliance are implausible, have been made in circumstances where any claims based on them are statute-barred, and that they are vexatious and an abuse of process.
(d)The allegations of fraud or deceit by Mr Murren and Mr Lee have no proper or plausible basis in fact, are improperly made, and are vexatious and an abuse of process. Mr Murren and Mr Lee’s purposes in bringing the case are outside the Court’s process and would provide them with a collateral advantage which would not otherwise be available at law.
[28] There is sufficient evidence before the Court to show that Mr Schaeffer”s formerly good relationships with Mr Murren, Mr Lee, and Mrs Murren have broken down. Equally, it is clear Mr and Mrs Murren have wished to sever all ties with Mr Schaeffer, to recover their investment in the vineyard and winery, and have looked at ways to effect this, including asking Mr Schaeffer to pay them and by investigating ways that they and other investors could bring the partnership to an end. There is nothing objectionable in those allegations. It is trite to state that commercial relationships do break down, and when they do one party or other looks at ways to bring those relationships to an end. It is not uncommon for those endeavours to include approaches to other parties who may be similarly affected. I do not see any of these particulars as having any prospect of supporting, on their
own, a finding that this case has been brought for an improper and collateral purpose of causing damage to Mr Schaeffer. It is entirely possible that Mr and Mrs Murren have been motivated by malice and ill will towards Mr Schaeffer, believing they have grounds to do so as a result of the breakdown in his relationship with Ms Hopper who is a personal friend of Mrs Murren. Again there is nothing objectionable in that.
[29] Turning to the second element of the pleading, bringing a case which may have the effect of avoiding provisions of written agreements, or receiving a refund of capital contributions in priority to others and at an earlier point than might otherwise be the case, is a proper purpose of litigation. Nothing in this pleading supports the allegation that the case has been brought for an ulterior and collateral purpose, or is improper and an abuse of the Court’s process. It may be that at trial Mr Schaeffer will succeed because the document he says prevails will be found to do just that. Alleging otherwise is a legitimate purpose of litigation.
[30] The third element does not advance matters either. Many cases are brought on the basis of allegations which defendants consider to be implausible. If the claims are statute barred they will fail as a result of separate pleadings to that effect.
[31] The fourth element of the defence will also be determined by facts at trial. It does not specify the purpose relied on, nor the collateral advantage. If the former is to damage Mr Schaeffer, there is no damage pleaded that is not the foreseeable consequence of a case of this kind. If the collateral advantage referred to is avoiding contractual provisions, it is dealt with at [29].
[32] Taken element by element, therefore, the particulars in my opinion do not support the contention that this case has been brought for an ulterior and collateral purpose of causing damage to Mr Schaeffer. The damage to Mr Schaeffer which is alleged is not described in the particulars in paragraph 85F. In paragraph 117, which appears in the counterclaim, it is said that the proceedings have caused Mr Schaeffer unnecessary stress and anxiety, damage to his reputation and pecuniary loss in defending the case. He claims general damages in the sum of $100,000 and exemplary damages in the sum of $500,000 together with costs on an indemnity
basis. Stress, anxiety, damage to reputation and defence costs are predictable consequences of a civil proceeding, not consequences which can be isolated and categorised as extraneous to, and not flowing from, the relief sought.
[33] Mr Nathan says that when all the particulars are taken together they satisfy the test articulated by Lord Sumption in Sagicor. I do not agree. It is necessary to show, in order to establish either a defence or a claim based on abuse of process, that the case has been brought for a predominant purpose other than that for which a civil proceeding is designed. This means that it has been brought for a predominant purpose of obtaining “some wholly extraneous benefit other than the relief sought
and not reasonably flowing from or connected with the relief sought”.17 The only
benefit to Mr Murren and Mr Lee which is pleaded by Mr Schaeffer is that by bringing this case they may avoid certain contractual provisions by which he says they will otherwise be bound. The first difficulty with this is the earlier findings of the Court on these contractual provisions, to which I have already referred. Quite apart from that, that is not a purpose which in my opinion can be properly categorised as only extraneous, and not reasonably flowing from or connected with the relief sought, which is a monetary award by way of return of investment capital and interest. Rather, consideration of the documents will be part of the trial process, and if, as Mr Schaeffer suggests, it will be necessary to circumvent the provisions of those documents for Mr Murren and Mr Lee to succeed, he will no doubt argue at trial that that should not occur. That, however, is an issue which is integrally involved with the relief sought. It cannot, in my view, be described in any way as a wholly extraneous benefit.
[34] The reason for bringing a case may also be malicious or improper, without the case becoming an abuse of process. Mr Murren and Mr Lee are entitled to bring a case against Mr Schaeffer based on causes of action which they allege arise from their commercial dealings irrespective of their personal feelings towards him. Equally, they may approach others to also bring proceedings seeking the same or similar relief, without criticism. Indeed, the High Court Rules make specific
provision for class actions to be brought, and it is not uncommon for steps to be
17 Sagicor, above n 8, at [149].
taken by intending or actual plaintiffs to engender interest from others who may feel they have a similar entitlement to a remedy.
[35] All the other issues raised by Mr Schaeffer are for determination at trial. The question of whether there were any representations and, if so, whether they were made negligently, intentionally or fraudulently is for Mr Murren and Mr Lee to establish. It is for them to show that their claims are not out of time. It is for them to show that their claims are not barred by contractual provisions. In short, it is for them to establish their case in accordance with the application of legal principles to the evidence adduced. In the end they may fail. Indeed, in the end it may appear that their claims were frivolous, even vexatious. That would not, however, make them an abuse of process. For that to be established it must be shown that there was a predominant purpose other than the purpose which is evident from the case Mr Murren and Mr Lee bring. As pleaded, that is only said to be the purpose of avoiding agreements, and causing damage to Mr Schaeffer. I have found that the former is an integral part of the causes of action, and the pleadings do not allege damage to Mr Schaeffer beyond that which might reasonably be expected to follow from a claim of this nature.
[36] For these reasons I am satisfied that the allegations of abuse of process by way of a defence and by way of a counterclaim should be struck out.
Malicious prosecution
Elements of the tort
[37] The elements of the tort of malicious prosecution are summarised in Rawlinson v Purnell Jenkinson & Roscoe.18 Hammond J discussed the origins of the tort of malicious prosecution, where the “prosecution” in question is not a criminal prosecution but a civil proceeding. The judgment sets out and discusses rulings his Honour had made during a jury trial. After recording that he had advised the jury
that there was at least a possibility that New Zealand might recognise a tort of
18 Rawlinson v Purnell Jenkinson & Roscoe [1999] 1 NZLR 479 (HC) at 486-488.
malicious prosecution, his Honour recorded, referring to his earlier indication to the parties:19
As to the elements of the tort, I took the view that, in the circumstances, I should proceed by analogy to the present law relating to malicious institution of criminal proceedings. And, I can see no reason, in principle, why the continuation of proceedings – after the true position is known – should not sustain an action.
[38] His Honour set out the ruling he had given to the jury on the elements of the tort. That ruling is recorded in the following terms:20
3. I said that for the purposes of the trial I took the view that the elements of the tort would be that:
(a) the defendant must have advanced a civil cause (here the proceeding for a non-molestation order) against the plaintiff;
(b) the application must have been ultimately resolved in the
plaintiff’s favour;
(c) the defendant must have had no reasonable and probable cause for bringing the civil proceeding;
(d) the defendant must have acted maliciously in instituting or continuing the civil proceeding; and
(e) and damage of a kind for which the law will allow recompense must have been caused to the plaintiff.
[39] Mr Schaeffer relies on this passage in support of his contention that he may defend the present action on the basis that it is a malicious prosecution, and sue Mr Murren and Mr Lee by way of counterclaim on the same basis.
[40] Two months after the judgment in Rawlinson v Purnell Jenkinson & Roscoe was issued, the Court of Appeal in van Heeren v Cooper, reiterated the five issues to be decided in favour of a plaintiff if an action for malicious prosecution is to succeed.21 These are phrased in the context of a claim following a criminal prosecution; they mirror the five issues identified by Hammond J in a civil context.
[41] In Robinson v Whangarei Heads Enterprises Ltd,22 Gilbert J cited a passage from Sagicor, where the Privy Council said:23
19 At 488.
20 At 484-485.
21 van Heeren v Cooper [1999] 1 NZLR 731 (CA) at 737.
22 Robinson v Whangarei Heads Enterprises Ltd [2015] NZHC 1147, [2015] 3 NZLR 734 at [48].
The case for recognising the existence of the tort for civil proceedings as well as in criminal proceedings seems to me far more grounded in logic than the case for refusing to extend it. Although the private prosecutor may take on the mantle of the state in criminal proceedings and although the coercive power of the state may be present in the prosecution by the DPP of offences, the central and critical species of wrongdoing is the same in malicious prosecution of civil proceedings. It is the procuring by malice of the discomfiture (at least) or the ruin (not infrequently) of the person against whom the action is taken for reasons disassociated with the professed purpose of the proceedings. Proceedings motivated by nothing more than malice are capable of wreaking devastation whether in pursuit of criminal prosecution or private action. Where it can be demonstrated that the court’s procedures do not provide an adequate remedy (or in this case no remedy at all) there can be no logic for denying the person who has suffered the same harm by the institution of civil proceedings as he who has been the victim of criminal proceedings. Indeed, it is not difficult to envisage cases where the harm will be considerably greater.
[42] In Willers v Joyce, the Privy Council has accepted that the tort of malicious prosecution is available in respect of civil proceedings, by a majority of five to four.24
[43] I accept for present purposes that the tort of malicious prosecution is recognised in New Zealand in the context of civil proceedings.
Malicious prosecution, as pleaded
[44] The pleading by Mr Schaeffer is in paragraph 85G of the second amended statement of defence and counterclaim. Mr Schaeffer says the proceeding by the plaintiffs against him constitutes malicious prosecution in that:
(a) the plaintiffs have brought these proceedings against the defendant; (b) there has been no finding of liability against the defendant;
(c) the plaintiffs have no reasonable or probable cause for bringing the proceedings;
(d) the plaintiffs have acted maliciously in bringing the proceedings for the purpose of causing damage to the defendant; and
23 Sagicor, above n 8, at [119].
24 Willers v Joyce (2016) 4 LRC 550 (SC).
(e) he suffered damage as a result.
[45] In relation to the third of these allegations Mr Schaeffer pleads as particulars that:
And:
The various allegations by the plaintiffs of misrepresentation and reliance by the plaintiffs are implausible and have been made in circumstances where any claims based on them are statute barred and are vexatious and an abuse of process
The plaintiffs’ allegations of fraud or deceit by the defendant have no proper or plausible basis in fact, are improperly made and are vexatious and an abuse of process.
[46] No further particulars are given at any point in the pleading. Notably, there are no particulars of the alleged conduct constituting malice. These would have been given as particulars of paragraph 85G.4.
[47] In the counterclaim it is pleaded that as a result of this proceeding Mr Schaeffer has suffered unnecessary stress and anxiety, damage to his reputation, and pecuniary loss in defending it. His claims for damages are the same as in his claim that the proceeding is an abuse of process. There are no particulars of alleged malice.
The case for Mr Murren and Mr Lee
[48] Mr Horne for Mr Murren and Mr Lee adopts the description of the elements of the tort given by Hammond J. He says the element of malice is not the lay meaning of spite or ill-will, rather it requires an intent by a plaintiff to use a legal process for something other than its legally appointed or appropriate purpose.25 He adopts Lord Toulson’s description of malice in this context in Willers v Joyce: as “a wrongful act, done intentionally, without just cause or excuse” and, further, his
Lordship’s statements that the tort requires proof that the defendant “deliberately misused the process of the court”, or brought the proceeding “not for the bona fide purpose of trying the issue but to secure some extraneous benefit to which he has no
colour of right”, so that “the proceedings were not a bona fide use of the court’s
25 Rawlinson v Purnell Jenkinson & Roscoe, above n 18, at 489, where his Honour sets out his direction to the jury on this point.
process”.26 Mr Horne says that the allegations relied on in support of this defence and counterclaim are those which are relied on in relation to the abuse of process claim, and they are insufficient for the same reasons.
[49] Mr Horne says that a malicious prosecution is not committed until the proceeding that is alleged to be malicious has been ultimately resolved in the plaintiff’s favour. For this he relies on the second element of the tort identified by Hammond J.27 This is supported by Sagicor and this requirement is not altered by the decision in Willers v Joyce.
The case for Mr Schaeffer
[50] Mr Nathan says that a counterclaim is available to Mr Schaeffer on the basis that this is a malicious civil claim by Mr Murren and Mr Lee. He says each of the elements of the tort set out by Hammond J and by the Court of Appeal in van Heeren v Cooper will be satisfied at trial. He also says that the issues raised in relation to malicious prosecution are available to Mr Schaeffer as a defence. He acknowledges that the second requirement identified by Hammond J is that the earlier proceeding must have been resolved, reflecting the requirement that a criminal proceeding must have been terminated in a way which has not incriminated the plaintiff. However, he says there is no need for such a rigid requirement in a civil context.
[51] Mr Nathan draws support for this position from the judgment of the Court of Appeal in van Heeren v Cooper. First, he says that whilst in a criminal context there is a need to avoid duplication and conflicting court decisions, which may occur if a plaintiff were free to pursue a malicious prosecution action without an exonerating determination of the original proceeding, there is no danger of that occurring in a civil context. He says the issue of whether Mr Murren and Mr Lee have brought this claim maliciously can be determined at the same time as all other issues and there will be no duplication or risk of conflicting court decisions.
[52] Secondly, Mr Nathan says that in a criminal context proof of guilt in a first proceeding has been recognised as a complete defence to a malicious prosecution
26 Willers v Joyce, above n 24, at [55].
27 Rawlinson v Purnell Jenkinson & Roscoe, above n 18, at 484.
claim. In contrast, in the present case the Court can decide whether Mr Schaeffer is liable on the misrepresentation claims at the same time it decides whether the elements of a malicious prosecution are satisfied. He says this would be an efficient use of judicial resources, and a just, less expensive, and more expeditious way of dealing with all issues.
[53] Thirdly, Mr Nathan notes that there are no procedures in criminal prosecutions akin to those in civil claims such as the pleading of affirmative defences and the bringing of counterclaims. Thus in a civil context all issues can be determined efficiently and expeditiously in one proceeding.
[54] Finally, Mr Nathan notes that the tort of malicious prosecution in a civil context is a developing area of law both in England and New Zealand, and submits that the courts should be particularly slow to strike out a claim in any developing area of the law.28
Discussion
[55] As the law stands at present there has been sufficient recognition that a cause of action based on the tort of malicious prosecution is available in New Zealand in a civil context, but it is necessary to decide whether it is also a defence to a civil suit. I am not satisfied that it is, nor that it can be. The tort of malicious prosecution in a civil context is derived from the same tort in a criminal context where authoritative expositions of the necessary elements of the tort include the termination, however it
may be described, of a proceeding in favour of a defendant.29 Counsel did not draw
any authority to my attention, nor have I been able to find any authority, to support the proposition that it is not necessary for this element to be proved in a civil context. Further, I do not see any basis in theory why that should be the case. The tort is recognised as a pathway to recompense because an earlier proceeding has been wrongly brought, to use neutral language. Necessarily the latter point must be shown before an entitlement to recompense arises. It is not a defence to a claim, separate from defences directed at the merits, to show it was brought with qualifying
malice. In Willers v Joyce, Lord Toulson described the necessary element of malice
28 Attorney-General v Prince, above n 5, at 267-268; Couch v Attorney-General, above n 5, at [33].
29 The defendant in the earlier proceeding being the plaintiff in a claim of malicious prosecution.
in terms that show that failure of the claim on the merits is a necessary ingredient, because if the case has not failed an absence of reasonable and probable cause cannot be shown. His Lordship said:30
The combination of requirements that the claimant must prove not only the absence of reasonable and probable cause, but also that the defendant did not have a bona fide reason to bring the proceedings, means that the claimant has a heavy burden to discharge.
[56] Thus, it could not assist Mr Schaeffer in any way to plead malicious prosecution as a defence. If the judgment of the Court at trial is that the plaintiffs succeed on one or more of their causes of action, neither the second nor the third element of the tort – no reasonable and probable cause for bringing the proceedings
– would have been satisfied. Even if malice were shown, still, two of the four elements would not have been satisfied. Conversely, if the plaintiffs entirely fail at trial, on the basis of not establishing their case or because other positive defences prevail, a further defence of malicious prosecution would add nothing.
[57] I do not see any basis on which to conclude that the application of this tort as a defence is a part of a developing area of the law.31 I find that it is not available as a defence and this defence should therefore be struck out.
[58] A counterclaim is, in essence, a cross claim by a defendant against a plaintiff which could be brought as a separate proceeding. Indeed, r 5.58(3) of the High Court Rules provides that subject to issues about when a counterclaim should be tried, a counterclaim after service must proceed in the same manner as if the defendant had commenced an independent proceeding against the plaintiff. Once this, the conceptual nature of a counterclaim, is recognised, the correct outcome of the application to strike out the counterclaim by Mr Schaeffer for malicious prosecution readily emerges. In short, his counterclaim has been filed before his cause of action has arisen, as each of the elements of the tort, which are recognised in all the cases to which reference is made in this judgment, are not yet established. Specifically, it is not yet shown that this proceeding is without foundation, nor can
that be shown until the proceeding has been resolved in Mr Schaeffer’s favour.
30 At [56].
31 See [11] above.
Mr Schaeffer plainly believes that he will succeed in his defence of the plaintiffs’ claims, but the necessary elements of the tort on which he seeks to sue by way of counterclaim rely on facts, the possible existence of which lies in the future. At this point Mr Schaeffer is not in a position to do more than foreshadow an intention to sue for malicious prosecution as a response to a claim which he believes to be without merit and brought for improper purposes. An actual claim, however, is premature.
[59] In my view, there is little room, if any, to argue otherwise. Reference to just two passages from the judgments in Willers v Joyce demonstrates that the need for an earlier unsuccessful outcome is infused into the tort. First, Lord Toulson said, during the course of his discussion of the meaning of malice in relation to the tort of
malicious prosecution:32
... As applied to malicious prosecution, it requires the claimant to prove that the defendant deliberately misused the process of the Court. The most obvious case is where the claimant can prove that the defendant brought the proceedings in the knowledge that they were without foundation (as in Hobart CJ’s formulation). But the authorities show that there may be other instances of abuse. A person, for example, may be indifferent whether the allegation is supportable and may bring the proceedings, not for the bona fide purpose of trying that issue, but to secure some extraneous benefit to which he has no colour of right. The critical feature which has to be proved is that the proceedings instituted by the defendant were not a bona fide use of the court’s process. In the Crawford case Mr Delessio knew that there was no proper basis for making allegations of fraud against Mr Paterson, but he did so in order to destroy Mr Paterson’s business and reputation.
The combination of requirements that the claimant must prove not only the absence of reasonable and probable cause, but also that the defendant did not have a bona fide reason to bring the proceedings, means that the claimant
has a heavy burden to discharge.
[60] Two factors emerge from this citation. First, the use of the past tense in relation to the defendant’s action: “... the defendant deliberately misused the process of the court”, “... the defendant brought the proceedings in the knowledge they were without foundation”, “... the proceedings … were not a bona fide use of the court’s
process”.33
32 At [55] and [56]. The passage cited at [55] of this judgment is included in this citation as it is relevant in this context also.
33 At [55].
[61] The second point that emerges is the necessity for a claimant to prove the absence of reasonable and probable cause. It is not possible to establish the absence of reasonable and probable cause until the outcome of the proceeding which is called into question, along with its proponent’s motive, is established.
[62] Secondly, Lord Mance in Willers v Joyce said:34
Two points arise from this [a reference to the Sagicor judgment]. First, liability for malicious pursuit of civil proceedings can arise from an unfounded claim, if the claimant’s ‘dominant’ motive is to injure, even if he believes the claim to be well-founded and intends to ‘injure’ the defendant by pursuing it to judgment. ...
[63] Again, his Lordship referred to an unfounded claim. It is not yet established, and may not be, that the plaintiffs’ claim is unfounded.
[64] Although the rarity of decisions in relation to malicious prosecution in both New Zealand and the United Kingdom might be thought to indicate that this may be a developing tort, the recent decisions in Sagicor and Willers v Joyce do not in my view suggest that the enunciation of the elements of the tort by Hammond J in
Rawlinson,35 were in any way materially wrong. The decision in Willers v Joyce was
directed at whether the tort of malicious prosecution is available as a cause of action in a civil context, having its genesis in a criminal context as its name states, a point the Supreme Court decided in the affirmative by a bare majority, and already decided the same way in New Zealand. The judgments of their Lordships contain various enunciations of the meaning of malice. Nothing in the judgments in Sagicor or Willers v Joyce suggests, however, that there is any doubt over whether it is necessary for there to have been resolution of an earlier proceeding, brought without reasonable and probable cause. It cannot in my view be said that this is an emerging area of the law, a cause of action in its fledgling stages, or that the necessary ingredients of a successful claim are confused or a matter of debate. The Court must be hesitant to strike out a cause of action or defence in such circumstances, but in my opinion they are not present. It must be remembered, too, that the reason for striking out the counterclaim on the basis of malicious prosecution is that it is premature and
thus discloses no reasonably arguable cause of action as matters stand. This does not
34 At [139].
35 Rawlinson, above n 18, at 486-488.
mean that when and if the necessary elements of a cause of action for malicious prosecution are able to be established, a claim could not be brought by Mr Schaeffer.
[65] Mr Nathan urged on me a number of reasons why he says Mr Schaeffer can plead malicious prosecution as a counterclaim now, rather than in a separate proceeding after awaiting a decision in his favour on the claim now before the Court. He sought to distinguish the situation in a civil proceeding from the processes involved in a criminal prosecution – see [51]-[53] above.
[66] Whilst I acknowledge the clear differences between civil proceedings and criminal proceedings, in my view this argument does not prevail over the need for the facts which give rise to the elements of the tort to have occurred before Mr Schaeffer sues. The argument overlooks the principle that plaintiffs are entitled to act with malice in bringing a proceeding in the sense of doing so with spite or with ill will, but are not entitled to act with malice in the sense of having an ulterior motive for bringing a case, and doing so without a proper basis. The latter course of conduct lays the foundation for a claim of malicious prosecution. The point has not been reached where that has occurred.
[67] I have considered whether the counterclaim should be stayed until such time as the principal claims have been determined, rather than being struck out. Given that the pleading as it stands would require significant amendment in order to provide the particulars of malice alleged by Mr Schaeffer, I see no advantage in that course. As it stands the counterclaim is an abuse of process in terms of r 15.1 of the High Court Rules as it does not disclose a reasonably arguable cause of action, because its constituent elements must rely on facts which have not yet occurred. In my view the correct course is to strike out the counterclaim.
Application for non party discovery
[68] Mr Schaeffer applies for an order that Mrs Heather Murren of Las Vegas, Nevada, give discovery of certain classes of documents. Mrs Murren is the wife of the first-named plaintiff. After amendment at the hearing, the application is in the following terms:
(a) All documents that are or have been in Heather Murren’s control dated between 1 March 2011 and 15 June 2015 inclusive that support or adversely affect the allegations in paragraphs 85F and 85G of the second amended statement of defence;
(b)If the documents have been but are no longer in Heather Murren’s control, when they ceased to be in her control and who now has control of them.
[69] As a consequence of the order made in this judgment striking out the defences and counterclaims for abuse of process and malicious prosecution, the pleadings in paragraphs 85F and 85G of the second amended statement of defence are struck out, and consequently no basis remains for this application.
Outcome
[70] I make the following orders:
1. The affirmative defences of abuse of process are struck out.
2. The affirmative defences of malicious prosecution are struck out.
3. The counterclaim for abuse of process is struck out.
4. The counterclaim for malicious prosecution is struck out.
5. The application for non party discovery by Mrs Heather Murren is dismissed.
6. Costs are reserved in all respects.
[71] As a consequence of this judgment, Mr Schaeffer will need to re-plead. An opportunity should be given to Mr Murren and Mr Lee to re-plead before that, should they wish to do so. Sequential time limits of 15 working days each are set for these steps. The Registrar will convene a case management conference after 30
working days.
J G Matthews
Associate Judge
Solicitors:
Minter Ellison Rudd Watts, Auckland
Duncan Cotterill, Nelson
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