Paper Reclaim Ltd v Aotearoa International Ltd HC Auckland Civ-2004-404-4728
[2005] NZHC 1278
•14 February 2005
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2004-404-004728
BETWEEN PAPER RECLAIM LTD
Plaintiff
AND
AOTEAROA INTERNATIONAL LTD
Defendant
Hearing: 28 January 2005
Appearances: Gary Judd QC for Plaintiff
Anthony Grant for Defendant Judgment: 14 February 2005
JUDGMENT OF HARRISON J
In accordance with R540(4) I direct that the Registrar endorse this judgment with the delivery time of 4.55 p.m. on the
14th day of February 2005
SOLICITORS
Wells & Co (Auckland) for Plaintiff Morrison Kent (Auckland) for Defendant
PAPER RECLAIM LTD V AOTEAROA INTERNATIONAL LTD HC AK CIV-2004-404-004728 [14
February 2005]
Introduction
[1] On 19 March 2004 Nicholson J delivered judgment on a claim by Aotearoa International Ltd against Paper Reclaim Ltd (PRL). Trial had occupied 23 sitting days and spanned the period from 7 May 2002 to 10 June 2003. The transcript of oral evidence totalled 520 pages. The agreed bundle of documents exceeded 5200 pages. In his subsequent costs judgment given on 30 August 2004 Nicholson J described it “as a case in which no forensic stone was left unturned or unthrown by counsel for either side” (para 55). He awarded Aotearoa costs and disbursements on an indemnity basis of $532,115.
[2] Originally Aotearoa and PRL were competitors in the wastepaper collection and sale industry in New Zealand. Nicholson J upheld Aotearoa’s claim, inter alia, that in 1984 or 1985 the parties entered into an oral agreement, known as the exclusive export contract, whereby PRL would only export its paper through Aotearoa. In exchange Aotearoa would not collect and bale wastepaper. In the course of his judgment Nicholson J noted:
[29] … Mr Cash [Aotearoa’s managing director] cannot stipulate when that meeting [with Messrs O’Rourke and Taylor, PRL’s principals] took place, apart from saying that it was before 31 March 1985 because as a consequence of the contract made at that meeting Aotearoa stopped purchasing and baling wastepaper and accordingly sold its baler. This is recorded in Aotearoa’s accounts as having occurred during the financial year ending 31 March 1985.
[30] Mr O’Rourke and Mr Taylor deny that there was such a meeting and contract.
[3] The Judge had the benefit of observing each of the three protagonists in the witness box over an extended period. He found that Mr Cash was a credible and reliable witness (para 59). By contrast he formed an adverse impression of Messrs Taylor and O’Rourke (para 60).
[4] PRL has appealed against Nicholson J’s judgments. Both appeals are due to be heard in the Court of Appeal on 28 July 2005. However, on 22 September 2004 PRL made a pre-emptive strike. It filed a fresh proceeding in this Court seeking an order setting aside the judgments. It alleged they were obtained by fraud in the
nature of Mr Cash’s knowingly giving false evidence that Aotearoa sold a baler in 1984/5. Aotearoa responded by filing an application to strike out the proceeding on the grounds that it had no reasonable prospects of success; that the evidence relied upon by PRL was not new and was capable of being discovered either prior to or during trial of the principal proceedings; and that Aotearoa will suffer serious delay and prejudice as a result.
[5] Randerson J heard Aotearoa’s application on 26 November 2004. He delivered judgment on 6 December 2004. In the result he adjourned the application for determination by me at a later date. Nevertheless, when giving judgment, Randerson J was clearly inclined in Aotearoa’s favour. He was critical of PRL’s failure to properly particularise or support its allegations of fraud with admissible and persuasive evidence (para 37). I infer that the Judge would have struck out the proceeding on this ground alone but for his assumption that PRL would likely have responded with a fresh and better particularised claim (para 39).
[6] In support of its originating application Aotearoa filed a formal affidavit from Ms Melissa Russell, a solicitor, annexing various documents. PRL responded with affidavits from Mr Michael Crawford, a former police officer and now a private investigator, and Mr Heinz Matysik, also a solicitor. Just prior to the hearing before Randerson J, Mr Crawford filed a further affidavit, together with one from Mr Winston Howarth. Following that hearing, and in accordance with leave granted, Ms Russell and Mr Cash have filed affidavits in reply. I regard it as significant, as did Randerson J, that neither Messrs Taylor nor O’Rourke have filed affidavits.
PRL’s claim
[7] PRL’s originating statement of claim, seeking to set aside Nicholson J’s judgment, materially pleaded as follows:
4. At the heart of Aotearoa’s claim was the allegation that during the course of the financial year ended 31 March 1985 Aotearoa and Paper Reclaim, who (it was alleged) were then competitors in the business of baling and selling wastepaper, entered into an agreement (which the High Court in the judgment called the ‘exclusive export contract’) by which they would modify the way in which they conducted their
respective businesses and work together in a cooperative strategy which would have certain components described in para [5] of the judgment.
5. The Court found that the allegation pleaded in the previous paragraph was proved.
6. The Court accepted (paragraphs [29] and [31] of the judgment) the evidence of Mr Paul Cash, Aotearoa’s principal, that there was a meeting:
‘29… which lasted most of a day and in which they reached an oral agreement that Paper Reclaim would only export its paper through Aotearoa and in turn, Aotearoa would not collect and bale waste paper and if it purchased and exported paper from any supplier other than Paper Reclaim or some existing suppliers, it would pay Paper Reclaim 50% of the profit from such transactions. This was the alleged exclusive export contract. Mr Cash cannot stipulate when that meeting took place, apart from saying that it was before 31 March 1985 because as a consequence of the contract made at that meeting Aotearoa stopped purchasing and baling waste paper and accordingly sold its baler.’
7. The Court found that the meeting was between 22 November 1984 and 31 March 1985 (para [31] of the judgment).
8. The Court accepted Mr Cash’s claim that the meeting took place before 31 March 1985 because the baler which Mr Cash said in evidence had been used in Aotearoa’s baling operation was sold during the year ended 31 March 1985, this being recorded in Aotearoa’s accounts for that financial year (paras [29] and [69] of the judgment).
9. The Court found that after the exclusive export contract was made, Aotearoa stopped collecting and baling paper and accordingly sold the baling machine (which had been used for that activity) during the financial year ended 31 March 1985 (paras [32] and [69] of the judgment).
[8] The claim then recited seven extracts from Mr Cash’s evidence-in-chief at trial and one brief sentence in cross-examination. In one extract Mr Cash said:
The financial statements for Aotearoa for the year ended 31 March 1985 record that the company’s paper baler was sold that year. I no longer have any records that would show when the machine was sold during the year. I recall that it was sold at auction. It was sold, following the agreement which I outline below.
Also, in answer to a question from Mr Gary Judd QC, PRL’s counsel, Mr Cash said that he sold the baler because Aotearoa had no further need for it following the oral agreement. These two passing statements constituted his only evidence at trial about
sale of the baler. All the other passages cited by PRL were limited to the date and nature of the alleged oral agreement.
[9] PRL’s statement of claim then alleged that Mr Cash’s evidence that Aotearoa gave up the collection and baling of wastepaper (and accordingly sold its baling machine during the financial year ended 31 March 1985), as a consequence of entering into the export contract, was crucial to the Court’s conclusion that the contract was made; that Mr Cash’s evidence was false and that he knew it to be false or gave it recklessly without caring for its truthfulness; and that as a consequence Aotearoa obtained judgment on the exclusive export contract by fraud and all other causes of action on which Aotearoa was successful were also tainted with fraud, and thus should be set aside.
[10]PRL’s critical allegation is as follows:
The evidence that Aotearoa was carrying on a business of purchasing and baling wastepaper using the baler the sale of which was recorded in the 31 March 1985 financial statements and that Aotearoa ceased to carry on that business and sold that baler because of the making of the exclusive export contract was false, because Aotearoa never carried on such a business, or alternatively never carried on such a business whilst its business premises were at 6 Fox Street.
[My emphasis]
[11] During argument Randerson J provisionally received a second amended statement of claim filed by Mr Judd that day. The Judge treated the document as forecasting the form of PRL’s prospective further amended pleading. While retaining the critical allegation of fraud (and adding the words “and in any event never owned and therefore never sold the Davis baler”), the new document particularised PRL’s case with these further allegations:
24.Aotearoa did not own, and never owned the Davis baler.
25.By reason that Aotearoa did not own, and never owned the Davis baler, the instrument [an instrument by way of security given to the Development Finance Corporation of New Zealand dated 19 August 1981] was a false and fraudulent document.
26.By reason that Aotearoa did not own, and never owned the Davis baler, the representation of ownership of it in Aotearoa’s financial statements was false and fraudulent.
27.By reason that Aotearoa did not own, and never owned the Davis baler, the representation of sale in Aotearoa’s financial statements for the year ended 31 March 1985 was false and fraudulent.
[12] The whole thrust of PRL’s case was thus that Aotearoa never owned the baler but falsely misrepresented its ownership of the chattel in its financial statements including for the year ended 31 March 1985.
Evidence
[13] As noted, as a consequence of Aotearoa’s application to strike out, PRL filed affidavits in opposition. Mr Crawford’s evidence provided the factual foundation for PRL’s claim. I do not intend to repeat Randerson J’s extensive criticisms of it (paras 16-20). I respectfully endorse them. By way of illustration I refer to this passage from Mr Crawford’s first affidavit (para 16):
By way of summary, my investigations indicate that [Aotearoa] never owned the baling press described in the Instrument and in [Aotearoa’s] financial accounts. Never having been the owner of the baling press, the sale recorded in the 31 March 1985 financial accounts did not take place. [Aotearoa] did not carry on a baling business using the baler described in the financial accounts and accordingly did not cease to carry on such a business during the financial year ended 31 March 1985. The evidence as it stands at present indicates that [Aotearoa] pretended to be purchasing the baling press in order to obtain a loan from the Development Finance Corporation, and that the Instrument and the financial accounts which purport to show that [Aotearoa] owned the baling press are false and fraudulent.
[14] The rank inadmissibility of Mr Crawford’s assertion is obvious. It is an attempt to express a concluded opinion on the ultimate issue raised in the pleading based almost entirely upon hearsay statements by others. As Lord Buckmaster remarked in this very context, “… every particle of hearsay evidence … must be excluded” (Jonesco v Beard [1930] AC 298 at 301). Mr Howarth, one of those with whom Mr Crawford spoke, later swore an affidavit. Since 1983 he has operated a transport company which is involved in the collection and transportation of wastepaper for recycling. In this capacity he had daily dealings with both parties to this litigation. Apart from denying that he ever sold Aotearoa a Davis fully automatic 30 ton hydraulic press, he asserted that he never saw the machinery at
Aotearoa’s premises and that Mr Cash never mentioned it. He did acknowledge that Aotearoa owned a smaller baler.
[15] As noted, Mr Cash swore and filed his affidavit following the hearing before Randerson J. Not surprisingly, Mr Cash’s memory about the baler and its fate has suffered with the passage of time. But, by coincidence, Aotearoa’s ownership of the baler was relevant in unrelated proceedings in the High Court at about that time (which ultimately found their way to the Privy Council). The transcript of that trial includes evidence from a DFC representative that the company had granted Aotearoa an export suspensory loan of $6000 together with a term loan of $9000 to enable it to buy a baling machine. DFC, in its capacity as liquidator of another company, actually sold the baler to Aotearoa. Aotearoa did not keep the baler on its premises but on those of one of its suppliers, which carried out baling for it.
[16] In time Aotearoa suffered financial difficulties. DFC repossessed the press in late 1982. Thereafter Aotearoa conducted its baling operations by using other equipment. But it continued to repay DFC, and in time discharged the loan in full. Consequently the company acquired ownership of the baler. To the best of Mr Cash’s memory, Aotearoa sold the baler after he reached the oral agreement with Messrs Taylor and O’Rourke, which the company’s financial statements to 31 March 1985 accurately record.
Legal Principles
[17] It has been said by many Judges, and on many occasions, that a claim based on fraud is extremely serious. It must be properly particularised and proven to a high standard, commensurate with the severity of the allegation. In the context of an attempt to impeach a judgment on the ground of fraud, the same principles apply – “particulars of the fraud must be exactly given” (Jonesco v Beard (supra) per Lord Buckmaster at 300, applied in Ongley v Brdjanovic [1975] 2 NZLR 242 by Beattie J at 244, and in Shannon v Shannon [2002] 3 NZLR 567 by Potter J at para 51). It follows, in my judgment, that when filing an application to set aside a judgment a plaintiff alleging fraud must have an evidential foundation sufficient to establish a prima facie or arguable case (cf. Owens Bank Ltd v Etoile Commerciale SA [1995] 1
WLR 44 (PC) at 51C). The probative value and admissibility of its evidence must be apparent at that stage.
[18] There is no room for a provisional or equivocal claim, based on suspicion, to be bolstered by fishing expeditions through the problematical process of interrogatories and discovery. I agree with Randerson J when rejecting Mr Judd’s submission:
[13] … that, in a proceeding of this kind, the Court is obliged, in accordance with traditional strike out principles to treat the plaintiff’s allegations in the statement of claim as true. That is undoubtedly the general principle in cases where a strike-out application is brought on the ground first in R186(a). Generally, the Court does not go into the evidence … [although it] is not necessarily required to assume the correctness of factual allegations obviously put forward without any foundation.
[14] Where a fraud proceeding of this kind is brought, the Court is being asked to entertain a collateral attack on a solemn and considered judgment of this Court outside the ordinary processes of appeal. There is an obligation on the plaintiff to produce some probative evidence to support its claim when the defendant applies to strike out…
[19] In addition to its obligation to particularise fraud fully, PRL must satisfy a number of other conditions. It must prove that the evidence (1) is fresh or new in the sense that it was unavailable at trial; (2) is material and raises a reasonable probability of success; and (3) establishes more than an error or even deceit, but goes to the heart of the judgment (Wentworth v Rogers (No.5) (1986) 6 NSWLR 534 (CA) at 538-539 per Kirby J; Shannon (supra) at para 51). PRL must meet a high evidentiary threshold to rebut Aotearoa’s application to strike out.
Decision
[20] I am satisfied that PRL’s proceeding has no prospect of success and is independently frivolous and vexatious, and an abuse of process. I can state my reasons shortly.
[21] First, at the hearing before me on 28 January Mr Judd realistically acknowledged that Mr Cash’s affidavit cast doubt upon PRL’s pleaded allegations. He submitted that PRL’s original case appeared strong but that its fundamental
premise of dishonesty was now weaker; in fact, it was no longer possible to say that Mr Cash acted dishonestly. Consequently, he accepted that Aotearoa’s accounts for the year ending 31 March 1985 may not have been falsified. Nevertheless, Mr Judd submitted, PRL’s allegations of fraud are adequately particularised in its draft second amended statement of claim submitted to Randerson J. Its pleadings can always be amended again. Utility and pragmatism demand that the best course would be to dismiss Aotearoa’s application, and allow PRL to proceed down the interlocutory path of discovery and interrogatories. It would then be in a better position to evaluate its prospects of ultimate success. This course, Mr Judd submitted, would allow Mr Crawford an opportunity to undertake further investigations and to review the state of PRL’s evidence.
[22] With respect, Mr Judd’s argument is fundamentally misconceived. PRL alleges that Mr Cash gave fraudulent evidence at trial; that is, he knew what he said was untrue or said it recklessly, without caring about its veracity. I am prepared to treat PRL’s draft document as particularising its case (although a plaintiff should never be in the position of such pleading uncertainty within three months of filing a proceeding, let alone one alleging fraud), and as constituting its latest remedial statement of claim. Its new, and cornerstone, claim is that “Aotearoa did not own, and never owned, the Davis baler”. From that premise its pleading reasons that the instrument by way of security was a false and fraudulent document, the representation of ownership of it in Aotearoa’s financial statements was fraudulent, and its representation of sale in the financial year ended 31 March 1985 was also fraudulent.
[23] I am satisfied that PRL has failed to provide an arguable evidentiary foundation for its claim. Its problems are compounded by the absence of any admissible evidence which might contradict or call into question Mr Cash’s recollection that the baler was sold at auction in the year ended 31 March 1985. PRL’s threshold claim that Aotearoa never owned the baler is untenable. Mr Judd has conceded his inability to maintain an assertion that Mr Cash acted dishonestly. And even if PRL proved at trial that Mr Cash was wrong about the baler, an inference of fraud does not logically follow. There is no evidence of falsehood, let alone fraud. The premise for PRL’s consequential allegations has gone.
[24] In these circumstances unsustainable particulars of fraud are meaningless. They offer no prospect of salvation. Nor does a request for further time to undertake an evidential fishing expedition. PRL’s claim has no reasonable probability of success, and is frivolous and vexatious on that ground alone (Birch v Birch [1902] P 130 (CA) per Vaughan Williams LJ at 136).
[25] Second, or alternatively, I agree with Mr Anthony Grant, Aotearoa’s counsel, that Mr Cash’s evidence about the time of sale of the baler was not materially decisive. I am satisfied that Nicholson J would not have reached a different conclusion on liability even if Mr Cash’s evidence on this subject was ultimately proven to be wrong. As the Judge himself observed, evidence on the existence of an oral exclusive export contract was at the heart of the case. All three principal witness – Mr Cash for Aotearoa, and Messrs Taylor and O’Rourke for PRL – were subject to intensive cross-examination. This forensic conflict, however protracted it may have been, afforded Nicholson J a full opportunity to assess the protagonists’ credibility. As noted, he accepted that Mr Cash was a truthful witness but, by contrast, rejected the evidence of both Messrs Taylor or O’Rourke as not credible.
[26] Mr Cash’s evidence about sale of the baler occupied a minute part of the trial process. It was advanced as a reference point for his recollection of both the existence and date of the contract. Nicholson J expressly accepted Mr Cash’s evidence on this point (para 69). However, after reading this section of the judgment as a whole (paras 57-86), I am satisfied that the Judge’s favourable finding was just one among a number of grounds for his decision in Aotearoa’s favour. Mr Grant has carefully identified the others (paras 66, 67, 70, 71, 72, 74, 75, 77, 79, 83 and 121). Nicholson J’s conclusion in Aotearoa’s favour did not depend upon his finding on the baler.
[27] Mr Judd’s treatment of Aotearoa’s ownership and disposition of the baler in cross-examination of Mr Cash at trial only serves to reflect its inconsequence. The care with which Mr Judd discharged his professional responsibilities led Nicholson J to observe (para 62):
Mr Judd made a meticulous analysis of and submissions on inconsistencies and contradictions by Mr Cash with other evidence and within his evidence.
Having regard to the nature of such inconsistencies and contradictions and the factor that Mr Cash was largely relying on memory of a myriad of events which occurred up to 18 years earlier, although they reflect on the reliability of some of Mr Cash’s evidence, they do not cause me to have any substantial doubt about the credibility and reliability of his evidence on main points and in particular whether the alleged exclusive export contract was made and the content of its main terms.
[28] In the context of his challenge at trial Mr Judd gave cursory attention to ownership and sale of the baler during Mr Cash’s cross-examination. He was in possession of Mr Cash’s affidavits and written witness statements well in advance of trial. He barely questioned him on the subject. He accepted the veracity of Mr Cash’s account. I can only infer that, having fully prepared himself for trial, Mr Judd decided not to place any real weight upon the baler. Nicholson J relied upon it but to a limited extent, and his findings about the date and existence of the contract were supported on a range of other findings of fact.
[29] Third, and related to the second ground, PRL could easily have sought and obtained viva voce and documentary evidence about the baler well in advance of trial. Mr Crawford’s evidence, such as it is, is not new in the sense that it was unavailable in early 2003. He could have then interviewed each of the witnesses upon whose hearsay accounts he relied. In his first statement dated 2 November 2001 Mr Cash expressly identified Aotearoa’s financial statements for the year ended 31 March 1985 as a reference point for the date of sale of the baler. He also said that following the meeting with Messrs Taylor and O’Rourke he arranged for its sale, from memory at auction. Nicholson J narrated the same evidence.
[30] PRL had every opportunity to conduct full investigations into the veracity of Mr Cash’s account about the baler. Its significance now is no greater than it was in early 2003. The same evidence is available now as it was then. In my judgment PRL is seeking to use this proceeding as a means of mounting a collateral attack upon a considered judgment of this Court by raising an issue which is truly res judicata. Its claim is an abuse of process.
[31] Accordingly, I am satisfied that PRL’s statement of claim in its existing form and in its provisionally amended form discloses no reasonable cause of action and is also an abuse of the process of this Court. I make orders as follows:
1)Striking out PRL’s statement of claim; and
2)Staying PRL from filing any further proceedings to set aside the judgments of Nicholson J dated 19 March 2004 and 30 August 2004 on the grounds of fraud until final determination of appeals against those judgments.
[32] I understand that PRL’s appeal is scheduled for hearing in the Court of Appeal on 28 July 2005. I trust that counsel will identify well in advance of hearing the substantive issue or issues to be argued.
[33] Costs must follow the event; Aotearoa is entitled to costs on its successful application to strike out. I would consider favourably an application by Aotearoa for indemnity costs on a reasonable solicitor/client basis. I have in mind the figure of
$15,000. Both Randerson J and I have recorded our views that PRL’s proceeding was fundamentally misconceived from its inception, and that Aotearoa has been put to unnecessary expense and inconvenience as a result. However, if counsel are unable to agree, I request Aotearoa to file its memorandum within 14 days and PRL to file its memorandum in answer within a further 14 days. I will not require a memorandum in reply.
[34] I am aware that on 11 January 2005 PRL filed an application in this Court for a new trial in CP117/01 (CIV-2001-404-1799). PRL apparently relies on the same grounds as those advanced in support of this proceeding (although they are advanced within a different legal framework). PRL may require time to reconsider its application in the light of this judgment. However, if it wishes to pursue the application, I assume that Aotearoa will respond with an application to strike out. I request counsel to file a joint memorandum with the registry on this subject no later than 28 February 2005 so that it can allocate a fixture thereafter if necessary.
Rhys Harrison J
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