Power Farming New Zealand Limited v South West Contracting (2002) Limited
[2022] NZHC 2275
•7 September 2022
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2004-025-484
[2022] NZHC 2275
BETWEEN POWER FARMING NEW ZEALAND LIMITED
Plaintiff/ApplicantAND
SOUTH WEST CONTRACTING (2002) LIMITED
Defendant/Respondent
Hearing: 22 August 2022 (by AVL) Appearances:
J A MacGillivray for Plaintiff P C Gilbert for Defendant
Judgment:
7 September 2022
JUDGMENT OF ASSOCIATE JUDGE LESTER
POWER FARMING NEW ZEALAND LIMITED v SOUTH WEST CONTRACTING (2002) LIMITED [2022]
NZHC 2275 [7 September 2022]
[1] Power Farming New Zealand Limited (PFNZ) applies to strike out the counterclaim of South West Contracting (2002) Ltd (South West) for want of prosecution.
[2] The proceeding has been in abeyance since September 2006 when South West failed to pay security for costs. As a result the entire proceeding was stayed on 16 May 2007. As explained below, the commercial reality was that PFNZ was content in the circumstances with its own modest claim being stayed as a result of South West’s failure to pay security given South West’s apparent impecuniosity.
[3] It was not until 14 years after the stay was ordered that in September 2021 South West paid the security to its solicitor’s trust account.
[4] PFNZ says it is prejudiced in its ability to defend the counterclaim because of what it says is inordinate and excusable delay.
[5] Counsel for PFNZ has set out the background in full which, as it is accepted by counsel for South West, I adopt and set out below.
Background
[6]Taken from the submissions of Mr MacGillivray, counsel for PFNZ:
4.At the start of the 2002/2003 hay baling season, South West contracted Ag Southland Limited to set up the respondent’s tractor-baler combination. During that season, South West experienced difficulties with operating the baler and Ag Southland was contracted to carry out repairs and maintenance. South West blamed Ag Southland for the issues. Ag Southland’s view was that the difficulties were caused by operator error. South West refused to pay Ag Southland’s invoices.
5.In October/November 2003, South West then contracted Taieri Tractors Limited to carry out work on the baler. South West says that Taieri failed to rectify the incorrect set up of the tractor/baler combination. As with Ag Southland, Taieri put South West’s ongoing issues down to operator error. South West refused to pay Taieri’s invoices.
6.In mid-2004, Ag Southland commenced this proceeding in the District Court claiming around $24,000 in unpaid invoices. South West filed a defence and an unquantified counterclaim.
7.In Late 2004, Taieri Tractor’s issued liquidation proceedings against South West, which had failed to satisfy a statutory demand for payment of approximately $22,000 in unpaid invoices. The District Court claim was put on hold pending resolution of the liquidation proceeding.
8.During 2004, Ag Southland changed its name to Power Farming Southland Limited and Taieri Tractors changed its name to Power Farming Otago Limited. In 2005, the two companies were amalgamated to become Power Farming New Zealand Limited.
9.Following amalgamation, the liquidation proceeding was withdrawn on the basis that South West’s counterclaim in the District Court proceeding now also affected the Taieri claim.
10.In August 2005, South West filed an amended counterclaim, which quantified its loss for the first time. South West claimed that Ag Southland’s negligence caused it to lose profits totalling
$404,004.00 during the 2002/2003 season, and that Taieri’s negligence caused it to lose profits totalling $276,969 during the 2003/2004 season.
11.In August 2006, Power Farming applied for security for costs and further and better discovery. Its application for security was granted. This was on the basis that the whole proceeding was stayed until security was posted. South West was in significant financial difficulties and given its impecuniosity as well as the size of the counterclaim relative to the claim, Power Farming was prepared to accept that a consequence of the stay would be that it would be unable to proceed with its claim until or unless security was paid.
(footnotes omitted)
[7] Accordingly, a key issue from the outset was whether there was faulty workmanship by PFNZ or operator error.
Legal principles
[8] The application is brought pursuant to r 15.1 of the High Court Rules 2016 (the Rules), which provides:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
This rule does not affect the court’s inherent jurisdiction.
[9] McGechan on Procedure provides that there are three well settled main requirements.1 These were succinctly summarised by Eichelbaum CJ in Lovie v Medical Assurance Society New Zealand Ltd:2
[T]he applicant must show that the plaintiff has been guilty of inordinate delay, that such delay is inexcusable, and that it has seriously prejudiced the defendant. Although these considerations are not necessarily exclusive, and at the end one must always stand back and have regard to the interests of justice, in this country, ever since NZ Industrial Gases Ltd v Andersons Ltd [1970] NZLR 58 it has been accepted that if the application is to be successful, the applicant must commence by proving the three factors listed.
[10]Accordingly, the three requirements are:
(i)inordinate delay;
(ii)that the delay is inexcusable; and
(iii)serious prejudice
[11] It is common ground there has been inordinate delay by South West in pursuing its counterclaim.
Is delay excusable?
[12] South West claims its delay is excusable as the events leading to its counterclaim left it in a position where it was not able to post security. In short, South West asserts PFNZ’s actions are the reason it did not have the funds to provide security.
1 Robert Osborne (ed) McGechan on Procedure (online ed, Thomson Reuters) at [HR15.2.01].
2 Lovie v Medical Assurance Society New Zealand Ltd (1992) 2 NZLR 244 at 248.
[13] The short answer to this submission is found in the Reasons for Judgment of Associate Judge Christiansen in respect of the ordering of security dated 18 September 2006.3 At [10] of that Judgment:
[10] There is insufficient material in support of Mr Forde’s claim that his company’s financial position is due in significant part to the reasons he attributes. I accept Mr MacGillivray’s position that “such is the magnitude of South West’s indebtedness that it cannot credibly be said that South West’s impecuniosity was, as a result of the plaintiff’s alleged negligence, even if the quantum of the claim is taken at face value.
(emphasis added)
[14]The security set as $10,000 was described as a “modest but meaningful sum”.
[15]Mr Gilbert, counsel for South West, submitted PFNZ:
… through its acknowledged negligence was responsible for South West’s impecuniosity and now relies on an effectively (sic) gaging (sic) order preventing the respondent’s claim from being heard.
[16] This submission goes too far. PFNZ has never acknowledged negligence and, even if it had, such was not a significant cause of South West’s financial predicament as per the passage from Associate Judge Christiansen’s decision set out at [13] above.
[17] McGechan on Procedure at 15.2.03(3)(c) notes a delay caused by obtaining legal aid or other necessary funding has previously been accepted as an acceptable explanation for delay4 but here, the extent of the delay is such that I find it to be inexcusable.
[18] While in Lovie, Eichelbaum CJ noted delay prior to the issue of proceedings cannot constitute inexcusable delay,5 if such delay has occurred, further delay after the issue of the proceedings will be looked at more critically. Here, the first instance of negligent work allegedly took place in December 2002. The counterclaim for that work was first issued in 30 July 2004 but not quantified until August 2005. Here, the
3 Power Farming Southland Ltd v South West Contracting (2002) Ltd HC Christchurch CIV-2004-025-000485, 18 September 2006.
4 Robert Osborne (ed), above n 1, at [HR15.2.03(3)(C)].
5 Lovie v Medical Assurance Society New Zealand Ltd, above n 2, at [253].
pre-commencement delay is not particularly long, but it does mean the first instance of allegedly negligent work is now nearly 20 years ago.
[19] As noted by Mr MacGillivray, counsel for PFNZ, impecuniosity is one ground for the imposition of security for costs. While some degree of delay might be excusable, for example, while actively applying for litigation funding, simply taking no steps for want of funds cannot be excusable delay. Impecuniosity cannot be a good excuse for delay in posting security as otherwise it would be an excuse in every case of delay where the party with the benefit of security invokes r 15.2 of the Rules.
[20] Mr Gilbert submitted PFNZ elected not to apply to strike out earlier and chose to let sleeping dogs lie and he suggests if a company with the benefit of security chooses not to apply to strike out earlier: “… then to some extent it has brought the current position upon itself …”.
[21] As PFNZ notes, there was no point in pursuing its own modest claim against an impecunious defendant. Mr Gilbert’s submission runs contrary to the observation in McGechan on Procedure at [HR15.2.08(1)] that a prior warning letter is unnecessary and possibly unwise as it might stir the “sleeping dog” into action. Put bluntly, the longer South West failed to pay security, the stronger PFNZ’s position on a strike out for want of prosecution became.6
Prejudice
[22] It is clear that prejudice is the most important factor, the key issue being, can justice still be done? General prejudice can be inferred from the sheer lapse of time whereas specific prejudice has to be proved on the facts of the case. Generally, the longer the delay, the more likely that fair trial rights will have been prejudiced. Statutory limitation periods can legitimately be used as a marker of the likely prejudice to a claim.7 Here, Mr MacGillivray notes the total delay is approximately two and
6 See Allen v Sir Alfred McAlpine & Sons Ltd [1968] 2 QB 229, [1968] 2 WLR 366 at 382 (“… the defendant, instead of spurring the plaintiff to proceed to trial, can with propriety wait until he can successfully apply to the Court to dismiss the plaintiff’s action for want of prosecution …”.
7 Krakauer v Katz [1954] 1 WLR 278 cited in Greening v Ormond [1961] NZLR 965.
a half times the standard six year limitation period and longer than the 15 year longstop under the Limitation Act 2010.
General prejudice
[23] PFNZ says no one within its business involved in the relevant dealings with South West during 2002 to 2004 remains an employee, with the exception of one employee. None of the former staff are known to the current personnel at PFNZ. PFNZ does not know how long ago the relevant former employees left or where they went.
[24] Assuming those employees can be located and they can be convinced to co-operate, they will have to try and accurately remember, with appropriate detail, events that took place 18 to 20 years ago. There is something in what Mr MacGillivray says that once people are no longer have a connection they become reluctant witnesses. That reluctance will be compounded here by the delay. It is all too easy for such a witness to simply say they do not recall the events in issue.
[25] In his submissions, Mr Gilberts points out that the owner of the plaintiff company, Mr Maber, was present at the crucial time and was aware of what happened concerning the baler not working correctly. However, as Mr Maber was not one of the technicians who actually worked on the baler, he is not going to be able to provide first hand evidence on the key issue of workmanship.
[26] As noted at [6]-[7], the issue of operator error has been alive from the start. PFNZ says its staff went to site when South West reported the machinery was not operating properly but that when its staff operated the machinery it was fine. That is disputed by South West again, putting the focus on witness availability and their ability to recall events which by the time of a hearing would be over 20 years ago.
[27] The fact is, following enquiries made by PFNZ, the potential witnesses it has spoken to so far have only a vague recollection of the dispute and do not remember any details. This is the classic diming of memories resulting from delay.
[28] Mr Gilbert submits that what former employees can or cannot remember is not the point. He says the issue with the baler arose because the work carried out by PFNZ meant the power cable from the baler was not connected to the tractor as provided for in the Workshop Manual.
[29] Mr Gilbert submits that a significant factual issue in relation to the electrical connection claim has been conceded by PFNZ and he relies on the contents of a letter of Tompkins Wake dated 29 November 2005 annexed to an affidavit sworn for the purposes of this application. Mr Gilbert says the way in which the power supply was set up, as described in PFNZ’s solicitor’s letter, is inconsistent with the requirements of the baler’s Workshop Manual.
[30] Mr Gilbert, given this acknowledgement, submitted the issue of liability was one for expert evidence only. However, PFNZ in its solicitor’s letter of 29 November 2005, explained its position on this issue in detail. The factual starting point for an expert assessment on the power cable/connection point is not certain.
[31] Mr Gilbert’s point can only go so far. Even if the Workshop Manual in relation to the electrical connection was not complied with, it does not follow that such was a breach of contract. If the way the baler was set up at the time was a reasonable and proper way of completing the work, then no breach of contract will have occurred.
[32] There is a separate area of allegedly poor workmanship in relation to the hydraulic connection between the tractor and the baler. This issue is no less complicated than the electrical connection issue as to whether following the Workshop Manual guidelines was significant.
[33] Further, determining quantum will be problematic. What profits South West could have made in the years in issue, had the baler been operating, will depend on the contracts that were available at that time, weather conditions and the like. It is not clear that discovery from South West of its business records for the seasons in issue and leading up to them is still available.
[34] Mr Gilbert’s submission that liability could be determined by experts engaged by each party highlights the fact that the equipment in issue is no longer available, having been sold by South West it seems in 2006 or 2007. Mr Gilbert submitted there are similar set ups in operation in the Southland area and they could be examined. However, those machines would be compared against is far from clear. The electrics and hydraulics set up from 2002-2004 would have to be replicated on that machinery. Nor is this an answer to PFNZ’s primary position that the machinery problems were due to operator error asserted by PFNZ from the outset.
[35] As to specific prejudice, PFNZ notes that in 2006 it sought further and better discovery from South West including requests for documents relating to the maintenance history of the machinery post-March 2004. Mr Gilbert submitted that changes made by South West resulted in it fixing the problem with the baler, something PFNZ said it had been unable to achieve. That South West says it fixed the baler begs the question of why after March 2004 it was not then able to continue trading in order to fund the security ordered in September 2006. That South West claims it fixed the baler, in my view, highlights the significance of the machinery no longer being available. If, some time after March 2004, the fault with the machinery was rectified, then given the litigation continued through to the stay in May 2007, one would have expected those documents to have been at the forefront of South West’s case as on South West’s case such would establish the remedial work required to address the claimed negligence. Alternatively, given South West says the documents relating to this work were internal records, PFNZ could have been invited to inspect the remedial work so it could see the error of its ways.
[36] Standing back, the case has been in abeyance for too long. The real issue is not how South West wishes to present its case but whether PFNZ’s ability to defend the claim in the way it wishes, has been prejudiced. The prejudice is serious. Key witnesses are unavailable or have no real recollection of what happened. Their evidence on issues not thought about for nearly 20 years will be said by South West to be unreliable. The machinery, both tractor and baler, in question are no longer available for testing or inspection. Those issues are particularly relevant to breach and PFNZ is also prejudiced in respect of causation and quantum through the delay.
[37] I am satisfied that this is a case where South West’s counterclaim should be struck out for want of prosecution and I so order.
[38] PFNZ is content to have its own claim struck out as it had long since made the decision there was no point in pursuing the claim. The reality is that PFNZ had become the defendant in this proceeding, given its claim was for a modest sum. There is an order striking out PFNZ’s claim.
Costs
[39] Counsel for PFNZ seeks leave to file a memorandum in respect of costs. That is to be filed within 10 working days of the date of this Judgment and to be not more than five pages. Counsel for South West to reply within 10 working days not more than five pages.
Associate Judge Lester
Solicitors:
Tompkins Wake, Hamilton (for Plaintiff) P C Gilbert, Wellington (for Defendant)
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