NZX Ltd v Ralec Commodities Pty Ltd
[2015] NZHC 3041
•3 December 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2011-485-1299 [2015] NZHC 3041
BETWEEN NZX LIMITED
Plaintiff/First Counterclaim Defendant
AND
RALEC COMMODITIES PTY LIMITED First Defendant/First Counterclaim Plaintiff
RALEC INTERACTIVE PTY LIMITED Second Defendant/Second Counterclaim Plaintiff
GRANT DAVIS THOMAS Third Defendant
GRANT THOMAS NOMINEES PTY LIMITED
Fourth Defendant
DOMINIC LUKE PYM Fifth Defendant
PYM FAMILY PTY LIMITED Sixth Defendant
NZX HOLDING NO 4 LIMITED Second Counterclaim Defendant
MARK RHYS WELDON Third Counterclaim Defendant
Hearing: 12-14 October 2015 Counsel:
B R Latimour, D J Cooper, B M Cash, R J Hollyman,
G M Boos, J P Danaher and L J Hardcastle for Plaintiff/ Counterclaim Defendants
T J North QC, J K Scragg, C V Nicholson, R M McGirr and
A R Williams for Defendants/Counterclaim PlaintiffsJudgment:
3 December 2015
NZX LTD v RALEC COMMODITIES PTY LTD [2015] NZHC 3041 [3 December 2015]
RESERVED JUDGMENT OF DOBSON J
Contents
Introduction ....................................................................................................................................... [1] Ralec application to strike out NZX’s fifth cause of action; NZX application for joinder of
additional defendants ........................................................................................................................ [7]
The rationale for the fifth cause of action .................................................................................... [12] An equitable assignment? ............................................................................................................. [19] Not a tenable cause of action? ..................................................................................................... [29] Joinder of additional defendants .................................................................................................. [31] The Hightower proceeding ........................................................................................................... [39]
Application to strike out the Ralec counterclaim ......................................................................... [44]
Ralec application to strike out fourth cause of action, and parts of third cause of action ........ [55] Third cause of action .................................................................................................................... [56] Fourth cause of action.................................................................................................................. [63]
NZX application to strike out parts of Ralec’s statement of defence, and that Ralec file a more
explicit statement of defence........................................................................................................... [71] Further particulars of loss/causation ........................................................................................... [104]
Ralec challenge to NZX refusal to answer interrogatories ........................................................ [129] The Weldon notebooks ................................................................................................................ [130] Formation of reasonable opinion as to financing and resourcing obligations ........................... [138]
Ralec access to redacted NZX documents ................................................................................... [144] Ralec application for further discovery ....................................................................................... [171]
Ralec application to regulate the terms on which NZX deals with former employees or contractors ..................................................................................................................................... [201]
Security for costs ........................................................................................................................... [216] Ralec application for costs on an abandoned cause of action .................................................... [222] Summary ........................................................................................................................................ [228] Costs on these applications ........................................................................................................... [229]
Introduction
[1] The plaintiff (together with the additional counterclaim defendants referred to as NZX) purchased the assets of certain embryonic businesses in Australia from the defendants (Ralec). These proceedings involve claims and counterclaims in which NZX seeks damages in respect of pre-contractual representations that were allegedly made by or on behalf of Ralec and relied on by NZX in purchasing all the assets of
those businesses.1
[2] NZX has pleaded causes of action for misrepresentation, misleading and deceptive conduct and breach of warranty. In addition, NZX claims against guarantors of the vendors’ performance for the breaches of the sale and purchase agreement (SPA) alleged against the vendors. Also, in a fifth cause of action first pleaded in the third amended statement of claim (3ASC) in July 2015, NZX brings a claim under s 11 of the Contractual Remedies Act 1979 (CRA). It pleads that the shareholders, as identified recipients of consideration under the contract, enjoyed an equitable assignment of benefits under it. On that premise, they are allegedly renders them liable for the obligations of Ralec as the assignor, up to the value of the benefits that each of the consideration recipients received.
[3] Ralec has counterclaimed for losses alleged to arise from NZX’s breach of its post-settlement obligations to adequately resource and support the businesses. Arguably, had it done so, that would have enabled the businesses to achieve certain performance targets which would have triggered additional obligations for NZX to make further payments to the consideration recipients.
[4] The latest pleading alleges losses, on NZX’s claim, in a range between A$20.7 million and A$37.55 million. For its part, Ralec particularises its loss in respect of additional payments not received at A$7 million for one defined payment, namely the grain market software instalment. It also claims a further unspecified amount that had been provided for, depending on the company’s performance, for a
bonus payment in relation to that software. Further, Ralec claims an Agri-Portal
1 In prior decisions I have referred to NZX’s acquisition as being of “the businesses”: Ralec contends there is a material distinction between the form of the transaction, being an acquisition of all the assets of the business, rather than of “the businesses”. NZX disputes that this distinction can be material.
purchase payment of A$6 million and an additional Agri-Portal payment of A$1 million. On one construction some, at least, of these heads of loss are pleaded on the basis that NZX’s breach of contract wrongly deprived Ralec of the opportunity of achieving those additional payments.
[5] The proceedings were commenced in 2011. Since I assumed responsibility for managing the proceedings in mid 2012, there have been interlocutory hearings occupying four days (as well as numerous telephone conferences) prior to the current three day hearing. The proceeding is set down for an eight week fixture commencing 2 May 2016.
[6] The scope of interlocutory disputes, and the manner in which they have been argued, give me cause for concern that both sides are overworking the issues that arise for determination on the claims and counterclaims. Concerns to optimise the just and efficient determination of the litigation are a factor in determining the present sequence of applications.
Ralec application to strike out NZX’s fifth cause of action; NZX application for joinder of additional defendants
[7] On 25 June 2015, NZX applied to join five additional defendants, in anticipation of pleading its fifth cause of action under s 11 of the CRA in its 3ASC.2
They would become the seventh to twelfth defendants in the proceeding. That cause of action pleads that the SPA contained provisions that effect an equitable assignment of benefits under the SPA, to the Ralec shareholders who are identified in the SPA as “consideration recipients”.
[8] The existing fourth and sixth defendants (Thomas Ltd and Pym Ltd) have entitlements to 27.34 per cent and 10.6 per cent respectively of the initial consideration that was paid, and two forms of the additional consideration that might have become payable (the grain volume bonus and additional grain market volume bonus). In addition, the third and fifth defendants (Thomas and Pym) would become entitled to 50 per cent each of the last form of additional consideration that might
have been payable under the SPA (the Agri-Portal bonus). The additional six
2 Filed 13 July 2015.
defendants NZX seeks to join are the majority of the additional consideration recipients who received parts of the initial payment and would be entitled to parts of the grain volume, and additional grain market volume, bonuses, ranging from
23.6 per cent to 2.16 per cent.
[9] To protect its position in relation to this additional claim, on 3 July 2015
NZX also commenced a separate proceeding against each of the proposed additional defendants (the Hightower proceeding).3 Without hearing from counsel, I agreed that service of the Hightower proceeding on the defendants, all of whom are resident in Australia, should proceed. That was so that the issues arising in that proceeding, if it were to be pursued, could be aligned with the application for joinder of those defendants in the existing proceedings. I did so, reserving all rights that the defendants would have to object to their involvement in either set of proceedings as if service had not been effected. I intended only that all those potentially involved
would know the range of issues likely to arise, when the issue was before me at the present hearing.
[10] Some of the additional defendants have foreshadowed a protest to New Zealand jurisdiction, in whichever context NZX may pursue them, but none were represented at the present hearing. Mr North QC could not exclude the prospect of any conflict between Ralec, for whom he and his instructing solicitors presently appear, and all of the proposed additional defendants.
[11] Ralec disputed that the claim under s 11 of the CRA could raise any tenable cause of action, and applied to have that fifth cause of action struck out as against the existing defendants. Ralec also argued that joinder should not, in any event, be permitted. The grounds cited included the delay in adding it (some four years after the proceedings were commenced) and the lack of any meaningful connection between the proposed additional defendants, and any component of the transaction
that occurred in New Zealand.
3 NZX Ltd v Hightower Holdings Pty Ltd CIV-2015-485-523.
The rationale for the fifth cause of action
[12] Section 11 of the CRA provides as follows:
11 Assignees
(1) Subject to this section, if a contract, or the benefit or burden of a contract, is assigned, the remedies of damages and cancellation shall, except to the extent that it is otherwise provided in the assigned contract, be enforceable by or against the assignee.
(2) Except to the extent that it is otherwise agreed by the assignee or provided in the assigned contract, the assignee shall not be liable in damages, whether by way of set-off, counterclaim, or otherwise, in a sum exceeding the value of the performance of the assigned contract to which he is entitled by virtue of the assignment.
(3) Unless it is otherwise agreed between the assignor and the assignee, the assignee shall be entitled to be indemnified by the assignor against any loss suffered by the assignee and arising out of—
(a) any term of the assigned contract that was not disclosed to him before or at the time of the assignment; or
(b) any misrepresentation that was not so disclosed. (4) This section shall be read subject—
(a) in the case of a mortgage of land, to subpart 8 of Part 3 of the Property Law Act 2007:
(b) [Repealed]
(c) in the case of a contract for the supply of goods or services to a consumer, to section 46 of the Consumer Guarantees Act 1993.
(5) Nothing in this section shall affect the law relating to negotiable instruments.
[13] The 1978 report of the Contracts and Commercial Law Reform Committee recommended the introduction of s 11 in the following terms:4
The problem therefore seems to us to amount to this: who, as between obligor and assignee should bear the risk of insolvency or disappearance of the misrepresenting assignor? We believe the assignee should do this. However, we could not expose an assignee to claims for damages of unlimited amount in a situation of which he may have been unaware. In the ordinary case, the assignee is not a guarantor of the assignor’s obligations. In protecting the obligor’s rights to set up as against an assignee the real
4 Contracts and Commercial Law Reform Committee Misrepresentation and breach of contract
[1978] NZCCLRCom 13 at [19.5].
bargain made with the assignor, we must not enlarge those rights by providing the obligor with another prospective defendant merely by reason of the assignment. Hence we suggest a limitation upon the assignee’s liability. The liability of the assignor to the obligor would remain unaffected.
[14] NZX has pleaded that s 11 of the CRA applies because the provision for payment of consideration by NZX in the SPA constituted an equitable assignment of the benefit of the contract to the consideration recipients. Clause 3.2 of the SPA is in the following terms:
3.2 Payment:
(a) The Purchaser shall pay the Purchase Price to Clear Interactive as agent for the Vendors, and:
(i) such payment to Clear Interactive shall constitute full discharge of its obligations to pay the Purchase Price to the Vendors; and
(ii) it shall not be bound to enquire as to the division of the
Purchase Price among the Vendors.
(b) Clear Interactive shall, in such manner as it sees fit, pay each Consideration Payment (to the extent that it becomes payable) to the Consideration Recipients entitled to that Consideration Payment as listed in the First Schedule or the Second Schedule, as applicable.
[15] The effect of s 11 of the CRA has been considered by the Supreme Court in Savvy Vineyards 3552 Ltd v Kakara Estate Ltd.5 That appeal concerned contracts that provided for the management of vineyards and purchase of the grapes produced, and which recognised the right of the manager/purchaser to assign its position under the contracts. Those controlling the original manager/purchaser had requested the owners of the vineyard properties to document what amounted to a novation of the
contracts in question. That documentation was not executed by the vineyard owning companies. However, the parties proceeded thereafter with the identified assignees carrying out the manager/purchaser role. When the original manager/purchaser company went into liquidation, the vineyard owners purported to terminate the contracts in reliance on a provision entitling them to do so if the other party passed into liquidation. If the original manager/purchaser remained involved as an assignor,
the termination would be effective, but if there had been a novation despite the lack
5 Savvy Vineyards 3552 Ltd v Kakara Estate Ltd [2014] NZSC 121, [2015] 1 NZLR 281.
of completed documentation, the liquidation of the original manager/purchaser
would not provide grounds for the vineyard owner’s termination.
[16] In the argument before me, NZX and Ralec sought to distinguish the consideration of s 11 of the CRA in Savvy Vineyards in different respects. The analysis in the Supreme Court included the following:
· that the language of s 11(1) rested on a false pre-supposition, namely that a contract as a whole, including the burden of it, is assignable;6
· that the purpose of the section was to clarify and simplify the law in relation to remedies for misrepresentation and breach of contract; and
· that the text of the section does not provide that the burden of a contract may be assigned and, when construed in light of its purpose, it is clear that it did not have that effect.7
[17] In that case, the Court was excluding the prospect that s 11 could be relied on as the source of an entitlement to assign the burden of a contract, when the law otherwise does not recognise such an entitlement. It would be consistent with the Supreme Court’s analysis that a tripartite arrangement between an original obligor, an assignee of those obligations and the other contracting party for the assignor to be substituted by the assignee would be treated as a novation. That legal status would pertain, irrespective of the label given to the re-arrangement of obligations by the parties.
[18] On the Law Reform Committee’s analysis, an assignment of benefits by a party in Ralec’s position would not alter Ralec’s on-going liability under the contract. It would not constitute a novation. However, if there was an equitable assignment of the benefits to which Ralec was entitled, then s 11 could operate to add the consideration recipients as being liable for breaches of the contract made out
against Ralec, up to the level of the benefit each had received. On the argument thus
6 At [90].
7 At [92].
far, I am not satisfied that the Supreme Court’s analysis precludes that application of s 11.
An equitable assignment?
[19] There is no prospect of a legal assignment in this case. NZX argues that the terms of cl 3.2(b) of the SPA, read in light of the provisions in the relevant schedules, constitutes an equitable assignment of the benefit of the contract. NZX acknowledged that for there to be an equitable assignment, the intention to transfer the right must be manifest, and the assignor must be intending to “part with his
dominion over the property”.8 Further, an equitable assignment requires the assignor
to have done everything that needs to be done by it to transfer rights in relation to the chose in action – the assignment must be “complete”.9 It argues the manifest intention was to assign the beneficial entitlement to payments under the contract, and the assignment was complete because nothing more was required for it to operate.
[20] Ralec argued that the manifest intention on the wording and circumstances of the negotiation of the SPA was that there would be no assignment. Mr North referred to a draft of the SPA which had included the consideration recipients as parties, but they were excluded before it was finalised, apparently at Ralec’s suggestion. Arguably, if it remained the intention that they have status as parties, then they would have continued to be included as such.
[21] Mr North also argued that the consideration recipients had no defined entitlement because purchase monies were to be paid to Clear Interactive (now Ralec) as an agent for both of the Clear companies, and that Clear Interactive was to deal with the amounts received “… in such manner as it sees fit”.
[22] I do not accept that the wording relied on is sufficient to deny the consideration recipients an entitlement to be paid amounts, in the proportions set out in schedules to the SPA. A distinction is to be made between their entitlement to be paid, and Ralec as their agent having a discretion as to the manner in which
payments would be processed and disbursed. For example, it seems likely that the
8 Smith v Perpetual Trustee Co Ltd (1910) 11 CLR 148 (HCA).
9 Property Law Act 2007, s 50(7).
consideration recipients would be entitled to enforce their rights to receive payments by invoking the Contracts (Privity) Act 1982, subject to conceding the entitlement of Ralec to determine the manner in which such payments were to be effected.
[23] The evidence included a draft of the form of letter to be dispatched by Mr Thomas to all the consideration recipients, as drafted for him by Ralec’s accountants, to advise about disbursement of the first tranche of consideration received from NZX. The factors considered were the amount required to clear Ralec’s liabilities and the extent of a contingency that should be withheld, before an initial disbursement of $4 million was made.
[24] There is no suggestion that the net amount available would be paid other than in the proportions set out for all shareholders in the schedule to the SPA. The decisions to be made by Ralec as to the manner of disbursement do not qualify the entitlement of the consideration recipients recognised in cl 3.2(b). The form in which the payment was made was to reflect advice from the company’s accountants and lawyers “… tak[ing] into consideration that each shareholder situation differs and in light of that the taxation consequences relating to each shareholder will
differ”.10 The proposed advice to shareholders indicated that in the first instance the
payment would be treated as a “return of capital”, with that description being in quotation marks, giving rise to a prospect that such a characterisation might not be a conventional one.
[25] The form of transaction contemplated by cl 3.2 does not involve Ralec stepping out of the process so as to leave NZX to account to the consideration recipients in the proportions set out in the schedules to the SPA. On the contrary, NZX’s obligations are only to make payments to Ralec as agent for the vendors and it is not required to enquire as to the division of the purchase price, even among the two Ralec companies, let alone the disbursement beyond them to the consideration recipients. In addition, it is arguably inconsistent with Ralec parting with its “dominion over the property” to retain a discretion as to the manner in which it
accounted to those beneficially entitled.
10 Exhibit I to affidavit of Grant David Thomas sworn 15 September 2015.
[26] On the other hand, the consideration recipients clearly have a beneficial entitlement to the defined proportions of whatever sums do become available for distribution, subject to recognition of Ralec’s power to determine the manner in which the proceeds would be disbursed, including the prudent extent of retentions. An equitable assignment can, in other contexts, operate in just that way.
[27] In a broader sense, there are competing equities at play. From NZX’s perspective, it is facing substantial counterclaims for repudiating the SPA brought only by the Ralec companies which have no beneficial interest in any recovery. NZX has raised a range of points to justify its view that some of the shareholders of Ralec are funding its participation in the litigation. There are, at the least, serious questions as to the solvency of the Ralec companies, although Mr North argued that
there is no evidence of their insolvency.11 That is just the situation contemplated by
the Law Reform Committee in recommending the enactment of s 11.
[28] On the other hand, the consideration recipients are likely to have varying degrees of commitment to pursuit of the counterclaim, and they have a variety of levels of financial interest in any success with it. They were paid out the first tranche of consideration at the end of 2009 pursuant to a contract that they were not parties to, and which some may have had minimal or no involvement in negotiating. There is no equivalent in Australia to s 11 of the CRA, and absent exceptional circumstances justifying a lifting of the corporate veil to attack them via their shareholdings in the Ralec companies, they would reasonably assume that they were immune to any claims arising out of pre-contractual representations made in Ralec’s name.
Not a tenable cause of action?
[29] The difficulties confronting NZX in making out a claim under s 11 do include questions of law. However, some issues, including whether an equitable assignment
11 The SPA annexed financial statements for both companies as at 30 June 2009, showing for one a deficit of net assets of more than $1 million, and for the other net assets of some $88,000. There is no suggestion that either company has done more since completion of the SPA than defend the NZX claim and pursue the counterclaim. For the purposes of the argument on security for costs in June 2012, it was accepted that Ralec companies were impecunious: NZX Ltd v Ralec Commodities Pty Ltd [2012] NZHC 1585 at [8].
was effected, also depend on matters of fact that are not appropriately resolved on the affidavit evidence available thus far. Unless the prospect of an equitable assignment can be eliminated, it is not appropriate to treat the cause of action as untenable. I am accordingly not prepared to strike out NZX’s fifth cause of action as against the existing defendants because Ralec cannot discharge the onus of establishing that there is no tenable cause of action. Although the new claim against existing defendants may be discrete in the legal sense, it adds relatively little to the overall scale of the issues in contention. Its removal would not significantly reduce the case the existing defendants have to answer.
[30] NZX’s application for leave to join additional defendants is to be assessed on a broader basis. A first consideration is the relative weakness of the cause of action that would be advanced under s 11.
Joinder of additional defendants
[31] NZX’s application to join the additional defendants is to be considered under r 4.56 of the High Court Rules. That gives a judge a power, at any stage of a proceeding, to order the joinder of an additional party because:
(a) the person ought to have been joined; or
(b) the person’s presence before the Court may be necessary to adjudicate
on and settle all questions involved in the proceeding.
[32] A somewhat unusual combination of factors is relevant to the decision on this application. Generally, the Court adopts a liberal approach to joinder.12 In considering whether the proposed additional defendants ought to have been joined, and whether their presence before the Court is necessary to adjudicate on and settle all questions involved in the proceeding, the Court can have regard to matters not directly covered by those considerations, such as the relative strength of the claim
against the proposed additional defendants, and delay in bringing the application.
12 McGechan on Procedure (online looseleaf ed, Brookers) at [HR4.56.04].
[33] On a narrow view, there is no imperative to join the additional defendants. NZX’s claims are for pre-contractual misrepresentation, and if the allegations of material misrepresentation and reliance are made out, NZX could succeed on existing causes of action against the existing defendants. The reason for seeking joinder of the additional defendants is to add solvent entities that would increase NZX’s chances of being able to enforce any substantial judgment it obtains. Further, joinder would complete the circle from NZX’s perspective by including entities who would be vulnerable as defendants to its claim, coincidentally with those who have a beneficial interest in Ralec’s counterclaim against it. There are likely to be tactical advantages in matching claims and counterclaims in that way, at least in terms of the dynamic of any settlement initiatives.
[34] Because some of the consideration recipients are already defendants in the action, the remainder of the consideration recipients are not strictly necessary for the purpose of determining whether the cause of action can be made out. That is so, provided that the additional defendants against whom NZX might subsequently pursue the same type of claim are on notice to stop time running for limitation purposes.
[35] In my assessment, the two most relevant considerations weighing against the joinder application are the relative weakness of the cause of action, and the delay in it being advanced. Although it is not untenable, there are material problems for NZX in succeeding on its cause of action under s 11 of the CRA. The prospects of the new cause of action should be seen in the context of what it would add to the strengths of NZX’s claims, as it has presented them thus far on the existing causes of action. On that analysis, it is difficult to say that the additional defendants are necessary parties.
[36] I have not overlooked the importance to NZX of sufficient solvent parties to meet any significant award it might obtain in the proceedings, but that does not equate with “necessity” where prospects for a subsequent claim can be preserved, which will occur on the form of orders I contemplate. Nor have I overlooked the claimed unfairness of NZX having to defend very substantial counterclaims brought against it by the Ralec parties who are unlikely to be able to meet any significant
award of costs (beyond amounts ordered by way of security for costs) when the consideration recipients will enjoy the proceeds of any damages by virtue of their beneficial interests in the claim, without the discipline of being exposed to the risk of adverse costs if they lose. Again, I do not see that as rendering the involvement of the remaining consideration recipients “necessary” in NZX’s claims.
[37] As to delay, the attempt to attribute liability under s 11 of the CRA comes nearly six years after NZX paid the initial consideration under the SPA, and four years after its proceedings were commenced. NZX’s submissions invited me to consider the content of an affidavit of Elizabeth Jane Rose, filed in support of the application for joinder. Ms Rose is corporate counsel with NZX. Her affidavit, sworn 25 June 2015, explains the rationale for the application, focusing on the perceived unfairness of NZX being sued by insolvent companies that are, on NZX’s analysis, inevitably being provided with substantial resources by shareholders who would benefit from any judgment on the counterclaim. Ms Rose deposes that it was only after completion of the extended discovery process in April 2015 that NZX was able to undertake a review of its claim. However, I am not persuaded that the underlying principles on which any claim invoking s 11 of the CRA rests, could not have reasonably been identified for NZX at a substantially earlier stage in this protracted litigation. Given the competing equities as I have reviewed them, that extent of delay in pursuing the proposed additional defendants is a material factor weighing against joinder.
[38] For all these reasons, I am not prepared to order the joinder of the proposed additional defendants.
The Hightower proceeding
[39] NZX’s fallback position if leave was not granted was to pursue the Hightower proceeding, with a view to seeking concurrent hearing of that proceeding with the present proceeding. It can be assumed that any of the defendants in the Hightower proceeding who wished to take an active part in opposing it are likely to file protests to the jurisdiction of the New Zealand High Court. If such protests were unsuccessful, there may be relatively limited differences between the defendants in
that case and those in the present, on the substance of their defence to the claim under s 11 of the CRA. There may also be prospects of cross-claims if defendants in the Hightower claim contend that they should be indemnified by one or more of the existing defendants for any liability to now pay to NZX some part of the settlement proceeds they received.
[40] However, in the unusual sequence in which these prospects have arisen, I am satisfied that the Hightower defendants should be afforded the opportunity of awaiting the outcome of the present proceedings before having to defend NZX’s claim against them under s 11, unless for their own reasons they wish to have that determined at the same time as the s 11 claim is pursued against the existing defendants.
[41] I accordingly intend ordering a stay of the Hightower proceeding pending substantive judgment in the present proceeding. That is subject to any of the defendants in the Hightower proceeding making application either to bring on any protest to jurisdiction that may be filed, or take other steps designed to achieve a resolution of those claims contemporaneously with the present.
[42] I was assured by counsel for NZX that there is proof of service on all the defendants in the Hightower proceedings, so they are formally on notice as to the nature of the claims against them. NZX has therefore preserved its position in terms of any limitation arguments that might subsequently be raised. The proposed additional defendants can either take no part unless and until NZX’s fifth cause of action succeeds against the existing defendants, or be more proactive by indicating that (subject to being unsuccessful in any protest to New Zealand jurisdiction) they wish the claim to be brought on as against them contemporaneously with the case in NZX’s fifth cause of action against existing defendants. Although factual differences in the circumstances of the proposed additional defendants would remain for determination in any subsequent proceeding, it seems likely that, to the extent that the issues of law are the same for the existing and proposed defendants, determinations on those issues of law in the present proceedings are likely to be determinative in any subsequent proceeding.
[43] I will defer an order staying the Hightower proceeding for a period of
20 working days to enable the defendants in that proceeding to elect which course they intend to chart. At the end of that period, I will either stay that proceeding generally, or as against each of the defendants that has not indicated an intention to take steps in them.
Application to strike out the Ralec counterclaim
[44] The defendants to the counterclaim (who for present purposes I will simply refer to as NZX) applied to strike out Ralec’s counterclaim against them. Alternatively, NZX sought a stay of the Ralec counterclaim until the consideration recipients were joined as claimants under the counterclaim. If that alternative ensued, it would provide a different means by which NZX could plead its fifth cause of action, which relies on s 11 of the CRA, against all the consideration recipients.
[45] The primary ground for the strike out application was that the terms of the SPA effected an equitable assignment to the consideration recipients of the benefit of further instalments of consideration payable by NZX. If that was so, NZX would argue that Ralec could not make out any loss as that had only been incurred by the consideration recipients.
[46] NZX relied on authorities for the proposition that an assignor of contractual entitlements cannot sue to recover losses arising from a breach of the assigned benefit, at least not without joining the assignees of those benefits.
[47] If it is found that there was indeed an equitable assignment, then there is at least a credible argument that Ralec, as assignor, cannot sue for losses that have been incurred by the assignees. The more recent of the decisions cited on behalf of NZX for this proposition was that of the English Court of Appeal in Three Rivers District
Council v Governor and Company of the Bank of England.13 The status of an
assignor and assignees where there has been an equitable assignment arose in that case in most unusual procedural circumstances, but the observations as to standing
appear to be of general application. In that case, the liquidators of Bank of Credit
13 Three Rivers District Council v Governor and Company of the Bank of England (No 1) [1996] QB 292 (CA).
and Commerce International SA (BCCI) were sponsoring some 6,000 depositors with the bank as plaintiffs in a claim against the Bank of England for misfeasance in public office. The depositors were not exposed to costs in the litigation, but would benefit as to part of any proceeds if the liquidators had a net success for which they accounted to all unsecured creditors of BCCI. The Bank of England had taken the point that the depositors had completed equitable assignments of their entitlements as depositors to the liquidators. Staughton LJ described the pleading as “extraordinarily convoluted”, and expressed a lack of surprise that none of the cases
cited to the Court of Appeal was directly in point because:14
… it is unlikely that anybody in the past has adopted the form of pleading used in this case; …
[48] The position was summarised by Staughton LJ in the following terms:15
The issue is, whether the assignor of a chose in action retains a cause of action, when the assignment is equitable. All are agreed that, as a procedural requirement, he may if the court thinks fit be compelled to join the assignee as a party; so too an equitable assignee who sues alone may be required to join the assignor. In either case the effect is to avoid double jeopardy, to save the debtor from the risk that he may have to pay twice.
[49] Ralec does not accept any prospect that an equitable assignment occurred, and accordingly did not join issue on whether both an assignor and assignee must both be claimants, if it was found that an equitable assignment had occurred.
[50] As I have found that it is inappropriate to determine that contested issue at this stage, NZX cannot make out the primary legal premise relied on in seeking to strike out the counterclaim. Whilst it is arguable that there has been an equitable assignment, it is premature to determine that in the absence of contested evidence on the status of the consideration recipients that can only be assessed appropriately in the context of trial.
[51] The alternative basis for NZX’s application to strike out was that even if there
has not been an equitable assignment, the consideration recipients would be entitled to bring a claim under the Contracts Privity Act and should therefore be recognised
14 At 298B, C.
15 At 298G.
as the only proper plaintiffs. However, an entitlement to pursue a claim in reliance on the extended rights of action afforded under the Contracts Privity Act would be less than an obligation that the consideration recipients need be the plaintiff. Accordingly, it does not constitute a disqualifier of Ralec as the contracting party with the legal entitlement to enforce compliance with the SPA. If non-parties asserting a benefit under the contract sued to recover losses suffered in reliance on the Contracts Privity Act, they could not recover without protecting NZX from the prospect of a second claim from the contracting party. However, that prospect, when the consideration recipients have not pursued proceedings, could not be sufficient to deny standing to Ralec as the party to the contract claiming breach of obligations arising under it.
[52] Ralec is well and truly on notice that NZX will oppose its counterclaim on grounds including its inability to make out any loss. One aspect of that is NZX’s contention that there has been an equitable assignment of rights to consideration under the SPA, for which the consideration recipients could be the only proper claimants. If NZX makes out the existence of an equitable assignment at trial, and Ralec has elected not to join the consideration recipients as those entitled to any amount of damages made out on the counterclaim, then Ralec and the consideration recipients could not complain if relief is denied as a result of their having run this risk.
[53] Ralec and the consideration recipients should appreciate that if one or more of the consideration recipients are joined as counterclaim plaintiffs, there is likely to be a strong case for NZX obtaining leave to expand the pleading in its fifth cause of action invoking s 11 of the CRA against those who would then be parties to the litigation.
[54] In the meantime, I am not prepared to strike out the Ralec counterclaim, nor is it appropriate to stay the counterclaim pending any clarification as to the extent of the counterclaim plaintiffs.
Ralec application to strike out fourth cause of action, and parts of third cause of action
[55] Ralec applied to strike out all of the fourth cause of action, and parts of the third. The principal ground for the application was alleged non-compliance with time limits within which any claims on behalf of NZX had to be notified.
Third cause of action
[56] NZX’s third cause of action is a claim for breach of a warranty provided by the vendors that all information given by or on behalf of any vendor “… was, when given, and is now, true, complete and accurate in all material respects”. The vendor has indemnified the purchaser for all losses arising out of any breach or non- fulfilment of any of the warranties or any of the obligations of the vendors under the SPA. The relevant provision also included a limitation on the liability of vendors in respect of the warranties which required notice of any claim by the purchaser to be given to the vendors “… in good faith and in reasonable detail within 24 months after completion”. There were also quantum limitations eliminating individual claims below A$20,000, and eliminating combined claims if they did not aggregate to A$100,000 or more. There was a further limit on the maximum of aggregated liability under the warranties of A$20 million.
[57] Completion of the SPA occurred on 30 October 2009. Therefore any sufficient notice of a claim for breach of warranty had to be notified by 30 October
2011. The proceedings had been commenced by then so, to the extent claims had not been adequately notified before then, the statement of claim would constitute notice, to the extent that it cited breaches of warranty. The original statement of claim certainly did that in respect of some claimed breaches of warranty.
[58] However, NZX’s more recent pleadings have expanded the allegations of breach of warranty. Ralec takes the point that allegations of representations that constitute a breach of warranty which have only appeared in more recent amendments to the statement of claim must be excluded as being notified out of time. On Ralec’s analysis, numerous components of representations that are alleged
to have been incorrect were new in 3ASC, in that they had not been pleaded previously.
[59] It may be possible to undertake a detailed comparison of the representations complained of in each iteration of the statement of claim in order to identify any representations that were not complained of within the two year period. However, that abstract analysis would not be sufficient to provide an answer, given NZX’s response to this application, which argues that the more extensive detail in its re- pleading does no more than provide greater particulars of claims that were, in more general terms, adequately notified at an earlier stage. On any comparison of original and current pleadings, NZX urged that I adopt the same approach as applies in considering whether an amended pleading introduces a new cause of action. That is, whether the amended pleading is something substantially different from what was previously pleaded. Does it constitute a new case varying so substantially from the previous pleading that it would involve investigation of factual or legal matters or
both that were different from what had already been raised?16
[60] Although that approach may be a fair proxy for the analysis required, it is not automatically the same. The immediate question is what is the scope of claims for breach of warranty that were notified within two years of completion? The warranty provision required that notice had to be given “in good faith and in reasonable detail”. That introduces a factual inquiry as to which of the claims said by Ralec to have been notified only after the two year period can reasonably be treated as coming within the claims that were notified within that period. As a matter of proportionality and good order, I am reluctant to embark on that analysis in the context of this application, for the purposes of determining whether, and to what extent if at all, the allegations of misrepresentation were sufficiently notified.
[61] NZX took a discrete point, namely that the tenability of the cause of action had already been determined by Gendall J in his judgment on NZX’s application to set aside Ralec’s protest to New Zealand jurisdiction.17 NZX submitted that, despite
it being interlocutory in character, determinations as to the tenability of the causes of
16 Transpower New Zealand Ltd v Todd Energy Ltd [2007] NZCA 302 at [61].
17 NZX Ltd v Ralec Commodities Pty Ltd HC Wellington CIV-2011-485-1299, 22 November 2011.
action in that judgment create an issue estoppel preventing a further challenge by
Ralec at this time.
[62] Given the protracted interlocutory history in this case, and the extent to which discovery and further research has led to re-pleading of the NZX allegations, I would not be prepared to dismiss Ralec’s current challenge to these parts of the third cause of action, simply on the basis that the same argument had been determined against them in Gendall J’s judgment. Ralec’s point is that there are new claims for breaches of warranty, only raised in pleadings after both the two year time limit and Gendall J’s judgment. However, the link between entirely new, and expanded or re- pleaded, allegations is too blurred to make final determinations to preclude some elements at this juncture.
Fourth cause of action
[63] Guarantees of performance by the vendor were provided by key shareholders, the third to sixth defendants (Messrs Thomas and Pym and their companies). Clause 17 of the SPA specified that the guarantees would be limited as to extent so that Mr Thomas and his company would, in aggregate, be liable to a maximum obligation on their guarantee of A$2 million, and separately Mr Pym and his company’s liability would be subject to the same maximum. In addition, that clause provided that the guarantee would only apply in respect of claims made by the purchaser within 18 months of the date of the SPA. That would mean that any claim under the guarantee would have to be made by 5 April 2011.
[64] The only NZX written communication within the relevant time frame that could constitute the making of a claim against the guarantors was a letter dated
9 December 2010. NZX relies on the following content of that letter as being sufficient to make a claim against the guarantors:
… NZX considers the information provided by the Guarantors and the Vendors in connection with the determination of those targets in Clause 3 of the Third Schedule of the SPA, including forecasts, projections, models, revenues and costs information (including information against which contracts had been signed), was materially misleading and inaccurate.
…
NZX gives Ralec Interactive and Ralec Commodities as Vendors and each of the Guarantors notice that it reserves all its rights and remedies under the SPA and at law.
[65] NZX argued that this letter was sufficient to communicate that it was making a claim, and invokes the contra proferentem rule that the requirement ought to be narrowly interpreted against the guarantors as the parties seeking to limit their obligations.
[66] In contrast, Ralec argued that the NZX letter was inadequate because it did not describe the nature or extent of any claim being asserted, which would be necessary for the claim to be “made”.
[67] I consider there may be some merit in Ralec’s argument. A distinction could be drawn between serving notice of an intention to make a claim, and making a claim. Arguably, the NZX letter of 9 December 2010 had the first character, but not also the second.
[68] However, an ultimate determination on the adequacy of what was conveyed in that letter is a question of fact that, as with other contentions sought to be argued by the parties on a number of issues, is not appropriately resolved prior to trial. In this regard, I also agree with the approach adopted by Gendall J in finding it inappropriate to rule, at a preliminary stage as a matter of law that a claim on the
guarantors had not been made.18
[69] Ralec also raised other grounds for claiming that the causes of action could not succeed, such as that the warranties relied on had not been breached. Without expressing any view on the tenability of those additional defences, they all require factual determinations that cannot be made prior to trial.
[70] The initiative for Ralec to reduce the possible bases for liability by invoking the time limit on the warranties provision, and eliminating the prospect of liability for the guarantors on a similar argument, is understandable. If either, or indeed both,
causes of action were able to be excluded as untenable on the material thus far
18 NZX Ltd v Ralec Commodities Pty Ltd, above n 17, at [33]–[36].
available, that outcome would most likely make a material reduction in the scope of issues at trial. However, the basis for claiming untenability on both causes of action involves issues of fact that cannot safely be resolved at this stage. I accordingly dismiss Ralec’s application to strike out parts of the third cause of action, and the fourth cause of action in NZX’s statement of claim.
NZX application to strike out parts of Ralec’s statement of defence, and that
Ralec file a more explicit statement of defence
[71] Ralec’s current statement of defence (3SOD), which responds to 3ASC, was filed on 31 July 2015.
[72] On any measure, 3SOD is a substantial document. It runs to 188 pages, and was intended by Ralec to be read together with a separate book of particulars organised in 43 schedules and running to another 159 pages, together with an even larger volume of detailed references to discovered documents.
[73] NZX criticised 3SOD as being argumentative, containing criticism and submission rather than pleading, and setting out commentary and evidence rather than material facts. Notwithstanding the claimed prolixity, NZX also complained that some of Ralec’s pleading was evasive and failed to plead to the substance of NZX’s allegations.
[74] An early example is the extent of response to para 7 of 3ASC. That alleges that NZX entered into the SPA to acquire all of the business of Clear, and that the business was principally that of designing and building software solutions and developing and operating commodity trading platforms. The pleading included conventional reliance on the precise terms of the SPA as if pleaded in full, and that capitalised terms in 3ASC are those terms as defined in the SPA.
[75] The response in para 7 of 3SOD runs to nearly five pages. Having similarly pleaded reliance on the full terms of the SPA, the defence pleaded the SPA was in respect of the sale and purchase of assets, and the assumption of obligations by NZX as purchaser. It goes on to plead that by abandoning causes of action previously pleaded, NZX was estopped from claiming loss or damage arising from breach of
certain express and implied terms. Ralec’s response to the confined allegation of entry into the SPA also extends to allegations that, in respect of obligations assumed under the SPA, NZX has procured NZX Holding No 4 Limited to operate the businesses, and that as the latter company is not a party to the proceeding, it could not make any claim for relief. Extensive particulars are provided as to the respects in which NZX allegedly failed to develop the businesses. The lengthy response to para 7 ends with the customary “…. they otherwise deny para 7”.
[76] Mr North’s explanation for this form of pleading was that it was helpful in signalling the full terms on which Ralec would defend the claims against it. He also argued that it was appropriate to put NZX on notice of the full range of arguments that would be advanced, so as to facilitate reconsideration by NZX of the asserted weaknesses in its position. That comment applied in particular to the very extensive detailed cross-reference to discovered documents and the particulars in the separate volume, which were available to NZX by way of cross-referencing from specific paragraphs in 3SOD.
[77] The pleading requirements for statements of defence are set out in r 5.48 of the High Court Rules, which provides:
5.48 Requirements of statement of defence
(1) The statement of defence must either admit or deny the allegations of fact in the statement of claim, but a defendant does not have to plead to an allegation that does not affect that defendant.
(2) A denial of an allegation of fact in the statement of claim must not be evasive. Points must be answered in substance. If for example, it is alleged that the defendant received a sum of money, it is not sufficient to deny receipt of the particular amount. Rather, the defendant must deny receipt of that sum or any part of it, or set out how much was received. When a matter is alleged with circumstances it is not sufficient to deny it as alleged with those circumstances. In all cases a fair and substantial answer must be given.
(3) An allegation not denied is treated as being admitted. (4) An affirmative defence must be pleaded.
(5) The statement of defence must give particulars of time, place, amounts, names of persons, nature and dates of instruments, and
other circumstances sufficient to inform the court, the plaintiff, and any other parties of the defendant's defence.
[78] In justifying the expanded responses, Mr North cited Marley New Zealand
Ltd v Skellerup Rubber Services Ltd.19 In that case, Wylie J observed:20
[17] In recent years, the High Court Rules have moved towards favouring greater disclosure. A series of bare denials is not generally acceptable under principles of modern pleading. Nor is a statement of defence which consists of a series of denials which do no more than put the plaintiff to proof and provide no answer in substance to what is alleged. Obviously, however, what detail is necessary will depend upon the facts of each case.
[79] After hearing argument on the appropriate scope of the pleading, I accept that
Ralec’s response to the allegation of entry into the SPA in para 7 of 3ASC could:
· admit entry into a written agreement and its date;
· plead intention to rely on its full terms;
· deny that it constituted an agreement for the sale of businesses, but rather constituted an agreement for the sale and purchase of assets and the assumption of post-settlement obligations by the purchaser;
· (if NZX’s characterisation of the principal nature of the business acquired was not accepted) deny the characterisation of the business as described, and plead with equivalent brevity the nature of the businesses to which the assets sold related.
[80] As a matter of pleading, the remainder of the response to para 7 is not required to comply with Ralec’s obligations, and is unnecessary and distracting. I accept that in other contexts the additional content may have utility, in particular in any settlement negotiations, and in enabling Ralec to justify claims that no part of its defence or its own counterclaim can come as a surprise to NZX. However, that is not the purpose of pleading in a statement of defence. Rather, it should be focused
on concise statements as to how many of the factual allegations in the statement of
19 Marley New Zealand Ltd v Skellerup Rubber Services Ltd [2013] NZHC 1653.
20 Citations omitted.
claim are admitted and, to the extent they are denied, the principal reasons why they are denied. That is to be achieved without pleading matters of evidence.
[81] The complaint of unnecessarily prolix responses in 3SOD is made in respect of 33 paragraphs.21 Of the paragraphs objected to on this ground, I am not persuaded that the content of those between (and inclusive of) 11 and 64 are objectionably prolix. In para 91, the particulars following (a) to (c) are more matters of evidence, or possibly argument against the factual proposition of para 91 of 3ASC being made out. That constitutes unwarranted prolixity.
[82] In para 92, the eight pages of particularised denials do include matters of evidence. However, assessed on its own, and given the detail pleaded in para 92 of
3ASC, I do not find the response objectionable.
[83] Paragraph 95 of 3ASC extends to more than two pages of detailed information provided by Ralec to NZX. The response in 3SOD runs to nearly five pages, and similarly extends to matters of evidence but not to an extent that is objectionable, given the detail of the pleading it responds to.
[84] The response in para 97 of 3SOD is discursive, with a preponderance of detail that is evidentiary and not a matter of pleading. Quotations from specific documents, which might be helpful in following the rationale for the pleading, are not a matter of pleading. Their content ought to be reflected only in a high-level summary of the effect of their content. The same observation applies to para 98.
[85] Paragraph 111 of 3ASC pleads seven respects in which IT representations were either misleading and deceptive, or constituted misrepresentations. In Ralec’s response, the majority of the particulars stray into evidentiary matters. The response ought to be confined to propositions reflecting a concise summation of the factual matters said to be relevant to the denials.
[86] Paragraph 121 of 3ASC is a confined pleading that Ralec must indemnify
NZX against any loss arising out of any breach or non-fulfilment of any of the
21 Paragraphs 7, 11, 12, 22, 24-33, 42, 54-56, 57-59, 64, 91, 92, 95, 97, 98, 111, 121, 129, 140 and
143(a) and (f).
warranties contained in the SPA. The response in para 121 of 3SOD is appropriate except for the particulars which are matters of evidence or argument.
[87] Paragraph 129 of 3ASC pleads performance of a component of the Clear business after its purchase by NZX, as part of the factual circumstances that are pleaded elsewhere to amount to a breach of representation. In responding, para 129 of 3SOD pleads some three and a half pages of comment on that aspect of the business, including substantial particulars. Each of the particulars is a matter of evidence and not appropriate as a matter of pleading.
[88] Paragraph 140 of 3ASC pleads eight respects in which NZX alleges it was induced to enter into the SPA by representations by or on behalf of Ralec. Ralec’s response in denying reliance runs to 12 pages and includes quite detailed particulars that extend to matters of evidence.
[89] Ralec’s claim that NZX did not rely on any of the alleged misrepresentations is likely to be a substantial issue at trial. In para 140, the provision of detail supporting the alleged lack of reliance cannot be confusing for NZX in preparing for trial. If Ralec were now ordered to remove the extent of detail provided, and subsequently raised other arguments against NZX’s claimed reliance, NZX would be most unlikely to have any basis for complaining that it was misled by the scope of the grounds pleaded for the denial of reliance. Accordingly, this is one paragraph where the extensive pleading could not be criticised as unhelpful or confusing.
[206] The most pertinent parts of the second letter include the following:
· … both NZX and Ralec have the right to approach a witness in this matter. Subject to the matters we outline below, you can speak to NZX or Ralec or both if you chose to do so …
· You are not required to speak with either party …
· You must be careful not to disclose any confidential information which you are aware of relating to NZX …
· Any lawyer involved in this matter must not treat a witness or potential in an overbearing or misleading way and if asked must inform a witness or potential witness of their right to decline to be interviewed.
[207] The source of the professional obligation allegedly breached is chapter 13 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008. Edited extracts which give the relevant flavour of the obligations are as follows:
13.10.4 A lawyer engaged in any proceeding does not have the sole right
to call or discuss the case with a witness. …
13.10.5 A lawyer must not treat a witness or potential witness in an
overbearing or misleading way …
13.10.6A lawyer must not discourage a witness or potential witness from discussing the case with the lawyer acting for the other party or otherwise obstruct access to that witness or potential witness by the lawyer acting for the other party. A lawyer is, however, entitled to inform a witness or potential witness of the right to decline to be interviewed by the other party and of any relevant legal obligations.
[208] In short, Ralec argued that the communications on behalf of NZX breach the quoted components of 13.10.4 and 13.10.5. The response on behalf of NZX was that the qualification in the latter part of 13.10.6 applies, putting into context the terms of the first and second letters and taking them outside the constraints in 13.10.4 and
13.10.5.
[209] The evidence for NZX is that it used two forms of confidentiality constraint in its contracts with the relevant personnel. There is some doubt as to which of those two forms of confidentiality constraint applied in relation to various of the recipients of the communication from NZX’s solicitors. However, Ralec’s argument was advanced on the implicit concession that NZX was able to enforce one or other of the constraints on each of the recipients of its letters. Both forms of constraint are in broadly expressed terms, survive termination of the employment or contract, and prevent the employee/contractor from disclosing any details of any aspect of NZX’s business. On the present argument, it is to be assumed that NZX could make out an enforceable confidentiality obligation against each of the recipients in one or other of the forms that were provided.
[210] The submissions for NZX sought to justify the terms of its first letter as not discouraging former employees and contractors from discussing the case with Ralec, but instead simply indicating that before the recipients had any discussions with Ralec’s advisers, NZX wanted to support them and inform them of their rights and other legal obligations. However much the literal terms of the first letter justify that construction, I persist with the view that it amounted to a “warning shot” across the bows of each recipient that would discourage them from having contact with Ralec’s solicitors.
[211] Ralec complained that the second letter created the impression that its recipients were required to contact NZX before talking with Ralec’s advisers, and that the on-going confidentiality obligations owed to NZX created a barrier to their participating in the proceeding. It was argued that this constituted a breach of the Rules of Conduct and Client Care.
[212] Ralec’s advisers were also sensitive to the possible implication in the second letter that they were themselves guilty of inappropriate or improper conduct in the attempts they had made to discuss the litigation with the recipients of the first letter. The relief Ralec sought on the present application was for an order directing solicitors for both parties to commit to the terms of a joint letter which was drafted on behalf of Ralec. Such a letter was intended to clarify the prejudicially misleading impressions given by the first and second letters. It was argued for NZX that its
letters did no more than remind the recipients of their relevant legal obligations, consistently with the acknowledged right to do so in r 13.10.6 of the Rules of Conduct and Client Care.
[213] Mr Latimour argued for NZX that Ralec’s expectation of the topics it was entitled to discuss with former NZX employees and contractors wrongly extended to the content of all documents provided to Ralec on discovery, including those for which confidentiality was claimed. He submitted that any such expectation was wrong, because claimed confidentiality of documents can be maintained, notwithstanding the discovering party’s obligation to disclose the contents of confidential documents for the purposes of the litigation. Mr Latimour cited a decision of the Commercial Court Division of the English High Court in the
following terms:37
[29] … I do not, however, accept that the effect of disclosure is in any way to alter any duty of confidence owed by (say) an employee or former employee (save that compliance with the obligations of disclosure would, obviously, not be a breach of duty). Subject to any special order of the Court the receiving party is entitled to use the documents disclosed for the purpose of the action. He may show the documents to a potential witness or provider of relevant information. But that does not mean that the witness is absolved from any duty of confidence he may owe to an opposing party (or anyone else). Fulfilment of that duty may preclude him from answering some of the questions that may be asked of him. The fact that the disclosing party has been compelled to disclose the documents to the receiving party does not alter that duty.
[214] I am not persuaded that the terms of the second letter, considered either on its own or in the context of the warning shot in the first letter, constitute a breach of r 13.10 of the Rules of Conduct and Client Care. NZX has protected its position by imposing widely expressed confidentiality obligations, which survive termination of the employment or contractual arrangement. In the litigation, NZX has asserted confidentiality over substantial volumes of non-public information which has only been provided to Ralec to fulfil NZX’s discovery obligations in the proceedings. That creates a situation that NZX is arguably entitled to protect, within the
contemplation of r 13.10.6.
37 Porton Capital Technology Funds (A Body Corporate) v 3M UK Holdings Ltd [2010] EWHC
114 (Comm); confirmed in Versloot Dredging BV v Hdi Gerling Industrie Versicherung AG [2013] EWHC 581 (Comm), where the Court stated the principle from Porton as being that the confidentiality obligation does not cease following disclosure.
[215] It follows that there is no basis on which I could require the parties to send any form of joint communication. However, this outcome does not preclude Ralec’s advisers having on-going contact with the recipients of the second letter, provided such communications conform to the legal position as considered on the present application.
Security for costs
[216] NZX applied for an order increasing the quantum of security for costs previously ordered against the counterclaim plaintiffs. I first made orders for security for costs in my July 2012 judgment.38 At that stage the provisional quantum I indicated was as follows:
• in respect of interlocutory applications - $25,000 for NZX and
$10,000 for Mr Weldon;
•for preparation of briefs and other steps in preparation for trial up to commencement of trial - $35,000 for NZX and $5,000 for Mr Weldon;
•prior to trial, in respect of trial costs - $60,000 for NZX and $15,000 for Mr Weldon.
[217] In March 2014, I ordered that an increase in security for costs in respect of discovery and inspection stage of the counterclaim should be paid in an additional sum of $10,000.39
[218] Ralec is content to meet this level of security. NZX argued that the scale of the proceedings, and in particular Ralec’s counterclaim, has extended since I made these earlier assessments to an extent justifying an increase in the amounts I have provisionally ordered. No specific extent of increase was stipulated in NZX’s written submissions, and Mr Latimour suggested that an additional $150,000 for preparation and trial may be warranted. Mr Scragg opposed on the basis that the scope of the counterclaim has not increased and that it is effectively as it was
originally pleaded.
38 NZX Ltd v Ralec Commodities Pty Ltd, above n 11, at [55].
39 NZX Ltd v Ralec Commodities Pty Ltd [2014] NZHC 376 at [51].
[219] The scale of the counterclaim is certainly significantly larger than I contemplated in July 2012. It remains difficult to accurately differentiate the scale of work reasonably required to prepare and present NZX’s defence to the counterclaim, from the work involved in the pursuit of NZX’s own claims. The extent of interlocutory disputes reflects a “no holds barred” approach on both sides, and it is reasonable to project that the same approach will apply to contesting all factual and legal issues at trial.
[220] Each side blames the other for conducting itself unreasonably in progressing interlocutory issues and preparing the case for trial. To the extent that the detail of dealings is revealed to the Court, I incline to the view that both sides must accept some responsibility. The imperative of being ready for trial in May next year should focus the minds of the parties and their advisers on what is genuinely in issue, and relegate matters that are peripheral.
[221] I am not inclined to revisit the level of security for costs on the remainder of interlocutory steps. However, there is a clear case for a material uplift in the quantum of security in respect of trial costs. For there to be meaningful level of security, I consider an additional $60,000 is appropriate for NZX (making a total of
$120,000), and an additional $10,000 for Mr Weldon (making a total of $25,000). I direct that the security for the penultimate stage of preparation of briefs and for trial previously ordered of $35,000 for NZX and $5,000 for Mr Weldon (if it has not been paid) is to be paid by 2 February 2016. The quantum in respect of trial costs, in the increased amounts I have just ordered, is to be paid by 1 April 2016.
Ralec application for costs on an abandoned cause of action
[222] In 2ASC and 3ASC, NZX no longer pursues what was its original second cause of action. It alleged breaches by Messrs Thomas and Pym of obligations in relation to the management of the businesses, including after completion of the SPA. NZX now accepts that that cause of action has been abandoned.
[223] Ralec sought an award of costs for the work unnecessarily undertaken in pleading to that cause of action, reviewing potentially relevant documents for discovery purposes, and undertaking other preparation in defence of it.
[224] NZX opposes a discrete determination of costs on this point, submitting that the normal position should be adopted so that costs for steps taken in a proceeding other than in dealing with interlocutory applications should await the substantive determination of the whole proceeding.
[225] No sum was specified in Ralec’s submissions in support of this application, but I was invited to take into account that NZX had “… continued to litigate these hopeless causes of action for four years without regard to the costs being incurred unnecessarily …”.
[226] It would be difficult to quantify discretely any appropriate sum at this stage of the proceedings. As NZX submits, the factual matters raised by the pleading are also relevant to other claims and counterclaims. The Court will be much better informed as to the relative merit in awarding costs against NZX on this abandoned cause of action after a substantive determination has been made. At that stage, the relativity involved can more appropriately be assessed in the round.
[227] I accordingly decline to deal with the application prior to substantive determination of the proceedings.
Summary
[228] The outcome of the present arguments is as follows:
(a) Ralec’s application to strike out NZX’s fifth cause of action, and its applications to strike out all of the fourth cause of action, and parts of the third cause of action, are all declined.
(b)NZX’s application for joinder of additional defendants to its fifth cause of action is declined and the parallel Hightower proceedings is stayed on terms.
(c) NZX’s application to strike out the Ralec counterclaim is declined.
(d)NZX’s application to strike out parts of Ralec’s statement of defence and to require the filing of a more explicit statement of defence has succeeded in parts.
(e) Ralec’s application for greater particularity of the loss and causation pleaded by NZX is declined. NZX’s application on the same point is granted in part.
(f) Ralec’s challenge to NZX’s refusal to answer interrogatories is declined.
(g)Ralec’s application for access to more of NZX’s redacted documents is granted in part.
(h)Ralec’s application for further discovery is upheld for a minor part of the categories sought.
(i) Ralec’s application to constrain NZX’s contact with former employees
is declined.
(j)NZX’s application for increased security for costs is granted in respect of trial costs.
(k) Ralec’s application for an order for costs on a cause of action that
NZX has abandoned is deferred.
Costs on these applications
[229] The overall merits of the positions contended for the respective parties are somewhat more nuanced than that summary might suggest. I have previously aired my concerns at a lack of proportionality in the interlocutory disputes, and that influences my attitude to awards of costs.
[230] Allowing for the offsetting entitlement Ralec would otherwise have for its measure of success, I make a single award of costs in favour of NZX in respect of all
the present applications in the sum of $12,500, together with disbursements as allowed by the Registrar, including the travelling costs for two counsel.
Dobson J
Solicitors:
Bell Gully, Wellington for plaintiff and counterclaim defendants
Duncan Cotterill, Wellington for defendants and counterclaim plaintiffs
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