Otakiri Limited v Freshmax NZ Limited

[2022] NZHC 183

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-000389

[2022] NZHC 183

BETWEEN

OTAKIRI LIMITED

Plaintiff

AND

FRESHMAX NZ LIMITED

Defendant

Hearing:	3 February 2022
Appearances:	E C Rutherford for Plaintiff M G Keall for Defendant
Judgment:	15 February 2022

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 15 February 2022 at 3.00 pm

pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar

Date ……………………………

OTAKIRI LTD v FRESHMAX NZ LTD [2022] NZHC 183 [15 February 2022]

Introduction

[1]    Otakiri Ltd1 was a fruit grower operating an orchard in the Bay of Plenty. Freshmax NZ Ltd2 is a fruit marketing and distribution company. Otakiri claims against Freshmax for lost revenue and incurred costs arising out of the 2018 harvest of its kiwiberry. Otakiri’s claim is scheduled for a two-week trial in May 2022.

[2]    In June 2019, Otakiri paid an agreed $40,000 as security for costs. At that time the parties agreed that the sum of $40,000 ought to be re-visited once a fixture had been allocated and the hearing time finalised.

[3]    Freshmax applies for leave to bring an interlocutory application out of time and seeks orders requiring Otakiri to increase the sum paid as security from $40,000 to $188,446.50. Leave is required as the deadline for the filing of interlocutory applications passed on 30 April 2021, some seven months prior to Freshmax’s application.

[4]The critical issues I must determine are twofold:

(a)Should leave be granted to bring the application out of time?

(b)If so, is it in the interests of justice for me to exercise my discretion and require additional security, particularly at this late stage of the proceedings?

Factual background

[5]    Between 2014 and 2018, Freshmax licensed Otakiri to grow a particular variety of kiwiberry known as “Hort Gem Tahi” (Tahi). This variety was owned by Freshmax and it had the exclusive right to sell Tahi commercially. Under the terms of Otakiri’s licence, it was required to grow a specified amount of Tahi, pursuant to volume estimates, and to take steps to ensure no Tahi was supplied to anyone other than the defendants. In exchange, Freshmax agreed to use its best efforts to market and sell all

1      Otakiri.

2      Freshmax.

of the Tahi that Otakiri produced, provided that it complied with the minimum quality specifications.

[6]    Compared to any previous season, the volume of fruit delivered to Freshmax from Otakiri in the 2017–2018 season was an increase of 400 percent, and the total volume of fruit grown by Otakiri was an increase of over 800 percent.

[7]    Otakiri sues for both breach of contract and breach of fiduciary duty. It says that in failing to market and sell the expected volumes of its fruit, Freshmax breached its contractual obligation to use its best efforts to market and sell all of the Tahi kiwiberry that Otakiri grew. Otakiri also says that Freshmax acted contrary to its fiduciary duties when it continued to take fruit from other growers, but not from Otakiri, and when it refused to pay Otakiri a return for the fruit it failed to sell.

Procedural history

[8]    In a joint memorandum filed with the Court on 7 June 2019, and adopted by the Court at [16] of the Court’s minute of 11 June 2019, it is recorded:

Security for costs

[16] On the basis of a provisional five-day trial estimate, the parties agree that the plaintiff will lodge security for costs with the High Court Registry in the sum of $40,000 by the 28 June 2019. The parties further agree that the sum of $40,000 ought to be re-visited once a fixture has been allocated and the required hearing time has been finalised.

[9]    In anticipation of the case management conference scheduled for 9 December 2020, the parties conferred and agreed to seek a two-week fixture. At that time, Freshmax also sought additional security for costs from Otakiri on terms substantially similar to the amount now sought in the current application.

[10]   On 8 December 2020, Otakiri advised Freshmax that it did not agree it was appropriate for the security to be increased.

[11]   In their joint memorandum to the Court dated 8 December 2020, the parties advised:

[7] The defendant is seeking a substantial increase to the funds currently lodged with the Court as security for costs now that the trial estimate has increased from one week to two weeks. The parties are still in discussion about that issue. If the matter is not resolved it is anticipated an application will be filed by the defendant in accordance with the agreed timetable proposed in this memorandum. It is not anticipated the disposal of that application will interfere with the proposed trial timetable.

[12]   At that time, interlocutory applications (including any for increased security for costs) were due on 19 February 2021. No application for increased security was filed by that deadline. The parties subsequently agreed to extend the deadline for filing interlocutory applications to 30 April 2021.3 At that time, Freshmax advised that it was “preparing an application in relation to security for costs”.4

[13]No application for increased security was filed by 30 April 2021.

[14]   The issue of security was not raised again by Freshmax until its memorandum of counsel dated 27 October 2021. No application was filed at that time, but Freshmax sought a further three weeks to file its application.

[15]   On 4 November 2021, Wylie J directed that Freshmax was to apply for leave to file an application seeking increased security, and a substantive application for increased security, by 19 November 2021. Freshmax filed its application for leave and for increased security on 2 December 2021 (the application is dated 30 November 2021).

Relevant legal principles

(a) Leave to bring application out of time

[16]   The Court has broad powers to make such orders as may be required in the interests of justice where its orders are not complied with.5 Were it otherwise, respect for the rule of law would be seriously undermined.6

3 Joint memorandum dated 26 March 2021 at [7].

4 At [4].

5      Andrew Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HR7.48.01].

6      Kidd v van Herren [2019] NZCA 275, (2019) 24 PRNZ 596 at [41], citing Global Torch Ltd v Apex Global Management Ltd (No 2) [2014] UKSC 64, [2014] 1 WLR 4495.

[17]   Rule 7.48 of the High Court Rules 2016 (enforcement of interlocutory orders) reflects the Court’s inherent jurisdiction to make such orders.7

[18]   Rule 7.48 is to be read together with r 1.9 (amendment of defects and errors) and r 1.5 (non-compliance with rules). Ultimately, the overall objective is to ensure the just, timely and inexpensive determination of the proceedings.8

[19]   The approach to be adopted is similar to the exercise of discretion under r 7.7 which requires a party to seek leave before bringing an interlocutory application after the close of pleadings. The Court of Appeal in Elders Pastoral Ltd v Marr,9 held that in order to obtain leave after the close of pleadings the following “three formidable hurdles” must be met:

(a)It is in the interests of justice to grant leave;

(b)Granting leave will not significantly prejudice the other parties; and

(c)Granting leave will not cause significant delay.

(b) Security for costs

[20]Rule 5.45 of the High Court Rules reads:

Order for security of costs

(1)        Subclause (2) applies if a Judge is satisfied, on the application of a defendant, –

(a)that a plaintiff –

(i)is resident out of New Zealand; or

(ii)is a corporation incorporated outside New Zealand; or

(iii)is a subsidiary (within the meaning of section 5 of the Companies Act 1993) of a corporation incorporated outside New Zealand; or

(b)        that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff's proceeding.

7      Taylor Bros Ltd v Taylors Textile Service (Auckland) Ltd (1987) 1 PRNZ 483 (HC) at 484–485.

8      Rule 1.2; see also Minister of Education & Ors v Carter Holt Harvey Ltd [2020] NZHC 1979 at [10]; Body Corporate 366611 v Downer NZ Ltd [2019] NZHC 2656 at [25].

9      Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA) at 385.

(2)        A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.

(3)An order under subclause (2) –

(a)requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient –

(i)by paying that sum into court; or

(ii)by giving, to the satisfaction of the Judge or the Registrar, security for that sum; and

(b)may stay the proceeding until the sum is paid or the security given.

Analysis and decision

(a)Should leave be granted to bring the application out of time?

[21]   There are three factors that weigh against the granting of leave: the significant delay, the absence of any reasonable excuse for the late application, and prejudice to Otakiri given the reasonably imminent commencement of trial.

[22]I address these three factors in turn.

[23]   The delay in filing the application was significant and Freshmax had ample opportunity to bring its application within time. Freshmax knew that Otakiri was insolvent at a reasonably early stage in the proceedings. That is apparent from the express agreement of the parties in June 2019 that the issue of security should be re- visited. All outstanding interlocutory applications were due to be filed by 30 April 2021, following an agreed extension to the deadline by the parties. The application was not filed until 2 December 2021, some seven months after the deadline.

[24]   Freshmax raised the issue of security again in late October 2021, but still no application was filed at that time. Furthermore, Freshmax failed to comply with the further deadline imposed by Wylie J in his minute of 4 November 2021, namely a deadline of 19 November 2021. Indeed, the application for leave and security was not filed until 2 December 2021.

[25]There have thus been multiple breaches of timetable directions.

[26]   In seeking to explain the delay in making the application, Freshmax has referred to COVID-19 and the various lockdowns. However, Mr Keall has responsibly accepted that COVID-19 is only one factor and does not provide a full explanation for Freshmax’s tardiness. In the circumstances there is no reasonable excuse for the delay, and I accept the submission of Ms Rutherford that it was reasonable for Otakiri to have assumed post-30 April 2021 that Freshmax had abandoned any proposal for further security. There may have been little activity in the proceedings between April 2021 and October 2021, but again that is not a reasonable explanation for why there has been such a significant delay in making the current application.

[27]   As to the third factor, namely prejudice, I accept the submission of Mr Keall that the question of whether Otakiri has suffered material prejudice from the delay is an important consideration.

[28]   Ms Rutherford submitted that the trial is now less than four months away and the parties are ready to proceed. Mr Townshend, the managing director of Otakiri, says in his affidavit that Otakiri has had to divert considerable time and effort away from the collation of evidence in preparation for trial in order to meet the challenge presented by this current application. He says the timing of the application has prejudiced Otakiri for no good reason; it could quite reasonably have been dealt with in the first half of 2021 without issue.

[29]   The deadline for the serving of Otakiri’s briefs of evidence was 1 February 2021, although by agreement it has now been extended to 8 February 2021. I accept that the timing of the application has caused some prejudice to Otakiri, for the reasons given by Mr Townshend, although I acknowledge, as Mr Keall submitted, that this factor should not be overstated.

[30]   As to any countervailing prejudice to Freshmax, it already has substantial security in the sum of $40,000. Furthermore, and as discussed below, if Freshmax is successful at trial it would in principle be able to seek non-party costs from the shareholders of Otakiri, who the Court understands have been funding the prosecution of the proceedings.

[31]   In this case, where there have been multiple breaches of timetable directions by Freshmax and the absence of any reasonable excuse for its failure to comply with deadlines, the general concern of the Court that parties to litigation comply properly with procedural requirements should be given significant weight.

[32]   I conclude that it would not be in the interests of justice to grant Freshmax leave to bring its application out of time. To do so would be in breach of the objective in r 1.2, namely the just, speedy, and inexpensive determination of the proceedings. Accordingly, leave is refused.

[33]   It is not strictly necessary for me to address the merits of the security application itself. However, in order to avoid any doubt, I briefly address this issue below.

(b)        Is it in the interests of justice for me to exercise my discretion and require additional security, particularly at this late stage of the proceedings?

[34]   Otakiri accepts that it will be unable to pay Freshmax’s costs (i.e. the defendant’s costs) if it is unsuccessful in the proceedings. The question under r 5.45(2) of the High Court Rules is therefore whether it is “just in all the circumstances” for the Court to order security for costs. The discretion of whether or not to order security and the quantum of that security is not fettered and a “careful assessment of the circumstances of the particular case” is required.10 The courts have repeatedly emphasised that access to the courts for a genuine plaintiff is not likely to be denied.11

[35]   A relevant factor in declining security for costs will be undue delay by the defendant in applying for security, especially when doing so has allowed the plaintiff to “continue to prosecute its claim and incur expense, thereby contributing to its

10 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13]–[14].

11 A S McLachlan Ltd v MEL Network Ltd, above n 10, at [15]; see also Westpac New Zealand Ltd v Adams [2013] NZHC 3112 at [27]; Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [23](b).

adverse financial position”.12 While not being decisive, relevant considerations as to delay include:13

(a)Whether the application was made as soon as the defendant became aware, or could with reasonable enquiry have become aware, of the plaintiff’s likely inability to meet costs.

(b)Whether there has been needless delay in the application, particularly if it was designed to prejudice the plaintiff.

(c)Whether and if so to what extent the delay has prejudiced the plaintiff, such as where a plaintiff has expended substantial sums to bring a proceeding to the brink of trial.

[36]   I have already addressed the issue of delay above. Here, the application was not made as soon as the defendant became aware of the increase in trial duration (from one week to two weeks) and the delay has been needless at least in the sense that there is an absence of a reasonable excuse.

[37]   In addition to those factors, I find that the following factors also support a finding that it would not be in the interests of justice to grant the application for further security:

(a)As noted above, Freshmax already has the benefit of security in the substantial sum of $40,000. Furthermore, the risk of any barren costs award may be ameliorated or avoided altogether (if Freshmax is successful at trial) by an ability to seek a non-party costs award against the shareholders of Otakiri, who are funding the litigation.

(b)The commencement of the trial is imminent. It is scheduled to commence in May 2022. Any risk to the postponement of that trial should at this stage be avoided as far as possible. If the trial were to be

12 Highgate on Broadway Ltd v Devine, above n 11, at [23](c). See also GJ New Zealand Holdings Ltd v Chase [2020] NZHC 446 at [36]; Eurekly Ltd v Crimson Consulting Ltd [2022] NZHC 24 at [78].

13 Jo v Johnston [2013] NZHC 552 at [19].

postponed it is unlikely that there would be a trial until mid-2023 at the earliest.

(c)While there may be some merit to Mr Keall’s submission that Otakiri faces formidable obstacles in establishing both breach of contract and breach of fiduciary duty, this is not one of those cases where I can safely conclude at this stage that Otakiri’s claim lacks all merit. Otakiri’s claims appear reasonably arguable, and I note that at no stage has Freshmax brought any strike out application.

(d)I doubt that Freshmax’s actions, the subject of the pleadings, can be said to have caused Otakiri’s impecuniosity.14 On the evidence before me, Otakiri was experiencing significant financial difficulties before the 2018 season began. However, that finding does not assist Freshmax; it is simply a neutral factor.

[38]   I conclude that it would not be in the interests of justice to grant the application for further security.

Result

[39]   The application by Freshmax for leave to bring an interlocutory application out of time is dismissed.

[40]I also dismiss the application for further security for costs.

As to costs on the current applications, I am of the preliminary view, having succeeded, that Otakiri is entitled to costs on a 2B basis plus disbursements. If the parties cannot agree on costs, then brief memoranda are to be filed within 14 days (no more than three pages).

Associate Judge P J Andrew

14     Highgate on Broadway Ltd v Devine, above n 11, at [23](a).