Precast NZ Limited v Anystep Limited
[2016] NZHC 203
•17 February 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-3171 [2016] NZHC 203
BETWEEN PRECAST NZ LIMITED
Plaintiff
AND
ANYSTEP LIMITED First Defendant
PETER JOSEPH EVANS
Second Defendant
Hearing: 9 February 2016 Counsel:
M J Fisher and A T Burnet for plaintiff
B Gustafson for defendantsJudgment:
17 February 2016
JUDGMENT OF KATZ J
This judgment was delivered by me on 17 February 2016 at 4:45pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Claymore Partners Limited, Auckland
Lowndes Jordan, Auckland
Counsel: M J Fisher, Auckland
B Gustafson, Auckland
PRECAST NZ LIMITED v ANYSTEP LIMITED [2016] NZHC 203 [17 February 2016]
Introduction
[1] The first defendant, Anystep Limited (“Anystep”) seeks an order for determination of a separate question prior to trial. The plaintiff, Precast NZ Limited (“Precast”) opposes that application. It says that, in the interests of efficiency and overall justice, all of the issues between the parties should be determined at one hearing.
[2] A court may make orders for the decision of any question separately from any other question, before, at, or after any trial or further trial in the proceeding.1 The separate question may be a question of law, a question of fact or a mixed question, incorporating both factual and legal issues.2 The burden is on Anystep to satisfy the Court that there are good reasons in favour of determination of a separate question.3
[3] Although each case will turn on its own merits, some of the issues commonly considered when determining whether there should be a pre-trial determination of a separate question are:4
(a) Will there be difficult demarcation between those issues to be addressed at the first trial and those left for the second?
(b) Will the proceedings be brought to an end?
(c) What potential time saving does the separate question offer? (d) How will appeals be dealt with?
(e) Are there any other practical considerations tending one way or
another?
1 High Court Rules, r 10.15(a).
2 Rule 10.14.
3 Karam v Fairfax NZ Ltd [2012] NZHC 887 at [58](d); Turners & Growers Ltd v Zespri Group
Ltd HC Auckland CIV-2009-404-4392, 5 May 2010 at [10].
4 Haden v Attorney-General (2011) 22 PRNZ 1 (HC) at [50]; Karam v Fairfax NZ Ltd, above n 3;
and Body Corporate 325261 v McDonough [2015] NZHC 764 at [30].
[4] I will address each of these issues in turn, after first setting out the relevant background.
Background
[5] Precast is the management company of the Stresscrete group of companies, which manufactures precast concrete components, and supplies them to the construction market. The Stresscrete Group is a joint venture between interests associated with Paul Cane and interests associated with Brett Russell. Mr Cane is the managing director of Precast.
[6] Anystep manufactures moulds for making precast concrete stairs. It has the right to use Anystep intellectual property rights to the Anystep Moulding System (“System”), which enables the cost effective installation of concrete stairs. The relevant intellectual property is owned by Anystep Technology Limited. Peter Evans is a director of Anystep.
[7] Pursuant to a licence agreement dated 22 December 2009 (“Licence Agreement”) Anystep granted Precast the exclusive rights (with one exception in the Kerikeri area) to use and sell the System in New Zealand for a term of 25 years, with an option to renew for a further term of 25 years.
[8] In August 2011, Precast acquired a 10 per cent shareholding in Anystep and in March 2012 Mr Cane was appointed a director of Anystep.
[9] Unfortunately, the working relationship between Mr Cane and Mr Evans was problematic. In May 2013, the non-Precast shareholders voted to remove Mr Cane as a director. The reasons for his removal are in dispute. By late December 2013, however, Precast had relinquished its 10 per cent shareholding in Anystep.
[10] In early 2014 a precast concrete manufacturer based in Ashburton, McIntosh Precast Ltd (“McIntosh”), contacted Mr Evans seeking to buy an Anystep Mould in order to manufacture and sell precast concrete stairs in Ashburton. Anystep was unable to make the sale due to its exclusive licence arrangements with Precast. Some time later, however, Ancon Building Products Pty Ltd (“Ancon”), an
Australian based company which Anystep had agreed could sell the Anystep System in Australia, sold an Anystep Mould to McIntosh. The circumstances of that sale are not entirely clear (and will be an issue for trial).
[11] Precast then commenced these proceedings. It appears that Precast’s key concern, given the breakdown in its relationship with Anystep, is that Anystep might sell its moulds to overseas entities (such as Ancon) in circumstances where Anystep knows, or ought to know, that those entities intend to on-sell the moulds in New Zealand. Precast says that any such conduct would be in breach of the Licence Agreement.
[12] Precast sought an interim injunction to protect its position through to trial. In particular, it sought to restrain Anystep from assisting anyone to purchase the System where Anystep knew “or ought reasonably to know” that the System would be used in New Zealand. Precast’s interim injunction application was ultimately resolved by Anystep providing appropriate undertakings.
[13] Meanwhile, Anystep filed a counterclaim, alleging a breach of clause 10.2 of the Licence Agreement, which provides:
Clause 10.2: The Licensee agrees to support the Licensor in respect to (potential) overseas contacts and interested parties who are interested in licence or purchase options of the [System]. This includes but is not limited to Anysteps moulds etc being included on the Licensee's website.
[14] Anystep claimed that Precast breached this clause through Mr Cane refusing to forward to the other directors of Anystep a list that had been provided to him by Reid Construction Limited (“Reid”) of United Kingdom companies who might be interested in buying the System. Anystep claimed to have lost potential sales opportunities as a result. Anystep sought a declaration that the breach was repudiatory, entitling it to cancel the Licence Agreement.
[15] Precast denied Anystep’s counterclaim and sought summary judgment in respect of it, on the basis that it was doomed to fail. Precast argued that no written notice of failure to comply with the Licence (as required by clause 6.2.1 of the Licence Agreement) was given and, as a result, Anystep was not entitled to terminate
the Licence Agreement. It further said that Anystep had affirmed the Licence
Agreement.
[16] Thomas J heard Precast’s summary judgment application in May 2015. She found that Anystep did not have an enforceable right to terminate the Licence Agreement, because a notice had not been given and, in any event, Anystep had affirmed the Licence.5 Her Honour was not persuaded, however, that a claim for damages by Anystep could not succeed. Anystep’s counterclaim based on clause
10.2 was accordingly permitted to continue to trial, albeit with the scope of any possible relief limited to damages.
[17] Following the hearing before Thomas J, Anystep amended its pleading to include a further counterclaim, this time based on clause 8 of the Licence Agreement. Anystep says that this further counterclaim, unlike the one under clause
10, does give rise to a right on its part to terminate the Licence Agreement.
[18] Clause 8 (Assignment) provides that:
8.1 The Licensor shall not assign its interest under this Agreement to any party without having that party covenant with the Licensee in terms of this agreement.
8.2 The Licensee shall be entitled (subject to the prior written consent of the Licensor, which will not be unreasonably withheld or delayed) to assign its rights hereunder to any third party provided the Licensee remains liable for the payments due to the Licensor pursuant to clause 4.1 hereunder.
[19] Anystep alleges that Precast breached this clause by, without seeking
Anystep’s consent:
(a) selling an Anystep machine to Bradford Precast Limited (“Bradford”) and granting an exclusive licence to Bradford to operate the System in Canterbury and Otago (“Bradford breach”); and
(b) selling an Anystep machine to Balcrom Limited (“Balcrom”) and
granting a further licence to operate the System in Canterbury and
Otago to Balcrom Limited (“Balcrom breach”).
5 Precast NZ Ltd v Anystep Ltd [2015] NZHC 1535.
[20] Anystep relies on a letter it sent on 25 July 2015 as giving rise to a right to terminate the Licence Agreement for the alleged breaches of clause 8.2. Precast disputes that a right to terminate has arisen, pursuant to that letter or otherwise.
[21] Anystep submits that the issues relating to the alleged Bradford and Balcrom breaches should be resolved first. It proposes that the following separate question be determined pre-trial (or perhaps, more correctly, as stage one of a two stage trial):
Did [Precast’s] failure to comply with the notice dated 25 July 2015 served on [Precast] give [Anystep] the contractual right to terminate the [Licence Agreement] for the Bradford Breach and the Balcrom Breach as defined in the Amended Statement of Defence and Counterclaim?
Will there be difficult demarcation between those issues to be addressed at the first trial and those left for the second?
[22] Against this background, I now turn to consider whether there are likely to be demarcation difficulties between the issues to be addressed at the first trial and those left for resolution at the second trial, if Anystep’s application is granted.
[23] Anystep submitted that the issues are discrete. In determining the proposed separate question the Court will only need to focus fairly narrowly on the two transactions between Precast and Bradford and Balcrom (respectively). Having determined the facts of what occurred, the Court will then need to determine if what occurred constituted a breach of the Licence Agreement, and whether the termination provisions have been complied with. The Court will not need to consider the issues raised by Precast’s claim against Anystep or Anystep’s clause 10 counterclaim.
[24] Precast submitted that such an analysis was overly simplistic. Precast summarised the various issues requiring determination by the Court as follows:
(a) on a proper construction of the Licence Agreement:
(i) whether Anystep knew that the Anystep mould it sold to
Ancon would be used in New Zealand;
(ii) whether Anystep had such knowledge if the Court finds it ought reasonably to have known that the mould would be used in New Zealand;
(iii) whether it is an implied term of the Licence Agreement that the parties act in good faith towards each other and in particular whether Anystep was bound to refer to Precast the inquiry from McIntosh to purchase an Anystep mould;
(iv) whether it is an implied term of the Licence Agreement that Anystep is obliged to supply to Precast the rubber extrusions needed to use an Anystep mould;
(v) whether Precast is entitled to sell the Anystep moulds and sub- licence their use at its discretion;
(vi) whether such sales and sub-licencing constitute an assignment within the meaning of clause 8 of the Licence Agreement;
(b) whether a final injunction should issue in terms of the form of relief sought by Precast in the statement of claim;
(c) whether a final order by way of mandatory injunction should issue requiring Anystep to supply the rubber extrusions to Precast during the term of the Licence Agreement (Precast intends to file an amended pleading to this effect);
(d) in the event that Anystep is found to be in breach of the Licence Agreement, an assessment of the damages suffered by Precast consequent upon the breach, which will include an assessment of the damages suffered by Bradford arising from competition from McIntosh in breach of the exclusive rights granted to Precast under the Licence Agreement;
(e) in the event the Court were to construe the Licence Agreement to require Anystep’s consent to sales and sub-licensing:
(i) whether Anystep has by its conduct consented to Precast’s sales and sub-licencing;
(ii) whether, if Precast is found to have been in breach of the Licence Agreement, Anystep has by its conduct affirmed the Licence Agreement thereby disentitling it from terminating it;
(iii) whether Anystep is in any event estopped by its conduct from asserting that such sales and sub-licensing constitute a breach of the Licence Agreement or entitle Anystep to terminate the Licence Agreement.
(f) in the event the Court should find that Anystep is entitled to terminate the Licence Agreement for breach:
(i) whether the letter of 25 July 2015 was effective to terminate the Licence Agreement after the expiration of 30 days;
(ii) whether Anystep’s subsequent solicitors’ letter of 29 January was effective to terminate the Licence Agreement.
(g) whether Precast’s conduct in relation to communications with Reid Construction and/or a South African company constituted a breach of the Licence Agreement and if so whether Anystep has suffered any damages as a consequence.
[25] It was common ground that determination of a number of these issues will require the Court to interpret the Licence Agreement. Further, it seems likely that both parties will seek to rely on fairly extensive “factual matrix” evidence, and probably also evidence of post contractual conduct, as informing the correct interpretation of the Licence Agreement. In particular, there is likely to be extensive evidence relating to the circumstances in which the Licence Agreement was entered
into, including evidence of the parties’ negotiations. Factual matrix evidence will likely be relevant to all of the interpretation issues, not simply those relating to clause 8.2.
[26] Precast further submitted that evidence relating to whether Anystep assented to the breach, affirmed the Licence Agreement or is otherwise estopped from treating the conduct as a breach of the Licence Agreement or as giving rise to a right to terminate, will also be relevant to the question of termination and is also likely to be extensive. I accept that submission.
[27] In light of these matters, I accept Precast’s submission that potentially difficult demarcation issues may arise if issues relating to the proper construction of the Licence Agreement are separated out into two hearings. Contextual and background evidence, as well as evidence of subsequent conduct, may have to be given twice. There would be a real risk of the first trial impacting on the conduct or outcome of the second trial. Difficult questions of issue estoppel could arise. In the event that different Judges presided over the first and second trials, there would be the potential for conflicting findings of fact and credibility regarding the factual matrix evidence. Indeed this could potentially occur even if the same Judge presided over both trials. Further, there would be a risk of inadvertent disqualification of a Judge who expressed views at the first trial on issues that could potentially impact on
the second trial.6
[28] It necessarily follows that the preferable course (in the absence of strong countervailing reasons) would be for all issues relating to the interpretation of the Licence Agreement to be resolved at the same hearing.
Will the proceedings be brought to an end?
[29] If resolution of Anystep’s proposed separate question would likely bring the
proceedings to an end, this would be a strong factor in favour of granting Anystep’s
application.
6 See Turners & Growers Ltd v Zespri Group Ltd HC Auckland CIV2009-404-4392, 5 May
2010at [11].
[30] It was common ground, however, that resolution of the separate question would not bring the proceedings to an end. It would still be necessary to have a second trial to determine a number of issues. Precast summarised the remaining issues for the second trial as follows:
(a) On a proper construction of the Licence Agreement:
(i) whether Anystep knew that the Anystep mould it sold to
Ancon would be used in New Zealand;
(ii) whether Anystep had such knowledge if the Court finds it ought reasonably to have known that the mould would be used in New Zealand;
(iii) whether it is an implied term of the Licence Agreement that the parties act in good faith towards each other and, in particular, whether Anystep was bound to refer to Precast the inquiry from McIntosh to purchase an Anystep mould;
(iv) whether it is an implied term of the Licence Agreement that Anystep is obliged to supply to Precast the rubber extrusions needed to use an Anystep mould;
(b) In the event that Anystep is found to be in breach of the Licence Agreement, an assessment of the damages suffered by Precast consequent upon the breach, which will include an assessment of the damages suffered by Bradford arising from competition from McIntosh in breach of the exclusive rights granted to Precast under the Licence Agreement;
(c) Whether Precast’s conduct in relation to communications with Reid and/or a South African company constituted a breach of the Licence Agreement and if so whether Anystep has suffered any damages as a consequence.
[31] Accordingly, although determination of the proposed separate question may narrow the scope of the issues to be determined at a second trial, such a trial would still be necessary. Anystep did not contend otherwise.
What potential time saving does the separate question offer?
[32] Having a two stage trial rather than a single trial is unlikely to offer any real potential time savings. On the contrary, it is likely to give rise to inefficiencies, duplication, and delay in final determination of all of the issues between the parties.
[33] Although the second trial may arguably be narrower in scope as a result of the first trial, any time or cost savings are likely to be eliminated by the need to prepare for two trials, including the need to call a number of witnesses twice and to adduce evidence of the background context in both trials.
[34] While the determination of a separate question before trial will likely result in a speedier decision on Anystep’s clause 8 counterclaim, it will delay the determination of Precast’s claim for injunctive relief and damages. (I note that not all relief sought is the subject of Anystep’s undertakings or the interim orders of Thomas J). It would also delay the determination of Anystep’s clause 10 counterclaim.
How will appeals be dealt with?
[35] The determination of a separate question could well give rise to an appeal by the unsuccessful party on that issue.
[36] Anystep submitted that, because the issues are discrete, any appeals on the separate question would not necessarily have to delay determination of the remaining issues. While that may be correct (subject to the demarcation issues on contractual interpretation matters that I have identified above) it would still be potentially inefficient and expensive for the parties to have to pursue (or defend) multiple appeals rather than just one.
Are there any other practical considerations tending one way or another?
[37] Anystep argued that the determination of a separate question is appropriate in this case because such a course would expeditiously resolve the issue of whether or not what has become a “highly toxic and uncertain” business arrangement between Precast and Anystep can be terminated by Anystep or not. The parties’ relationship is currently dysfunctional and Anystep is anxious to obtain clarity as to whether it is entitled to bring the relationship to an end or not. Once the parties have certainty regarding that issue, they can then proceed to work through the remaining (less urgent) issues, that only give rise to damages claims rather than rights of termination.
[38] In other words, the separate question process is proposed on the basis that it would enable the status of the parties’ ongoing contractual relationship to be resolved expeditiously, so that the parties know where they stand moving forwards. This issue, Anystep submitted, is of greater urgency than the remaining issues between the parties.
[39] Anystep also referred to the comments of Dobson J in Shuttle Petroleum
Distribution Ltd v Chevron New Zealand, where his Honour stated that:7
One conventional advantage usually attributed to determination of separate question is that they will answer some material questions that are otherwise at large for the litigants. This enables a sensible reassessment of their litigation risks, which is generally likely to encourage some form of settlement discussions.8
[40] Anystep submitted that that is the position here. It submitted that once the parties have certainty as to whether Precast will effectively continue to be involved in the future of the Anystep moulding system in New Zealand, then damages in relation to the other issues will become a matter for negotiation and the second trial may not be necessary.
[41] I am not persuaded that determination of the issue as to whether Anystep is entitled to terminate the Licence Agreement is realistically likely to provide much
assistance to the parties in reaching agreement as to whether the other alleged
7 Shuttle Petroleum Distribution Ltd v Chevron New Zealand HC Wellington CIV-2002-485-826,
5 September 2008 at [32].
breaches occurred and what damages flow from them (if any). I do accept, however, that the issue of whether Anystep is entitled to terminate the Licence Agreement is arguably the most “urgent” of the various issues between the parties, given that determination of that issue will hopefully provide the parties with certainty regarding their ongoing contractual relationship.
[42] The degree of urgency is not such, however, that the issue should be severed off and dealt with ahead of all the other issues, in circumstances where:
(a) There are difficult demarcation issues, for the reasons set out at [22]
to [28] above.
(b) Determination of the separate question will not bring proceedings to an end.
(c) There are unlikely to be any time savings in terms of overall resolution of the litigation. On the contrary, determination of a separate question prior to trial is likely to delay resolution of the proceedings, increase costs, and be inefficient.
(d) The proposed course will likely result in multiple appeals.
[43] The preferable course, in my view, is for the proceedings to be set down for trial as soon as is reasonably practicable, so that all issues in dispute between the parties can be resolved without further delay. Given that there is currently an outstanding discovery application, as well as a further injunction application, I make no formal directions in that respect. It may well be, however, that timetable directions through to trial can be made at the forthcoming interlocutory hearing to address those issues.
Result
[44] Anystep has not discharged the burden of showing that it is appropriate that the separate question it has proposed should be determined before trial. The application is accordingly dismissed.
[45] My preliminary view is that Precast, as the successful party, should be entitled to the costs of this application on a 2B scale basis. As I have not heard fully from the parties on costs issues, however, leave is reserved to file memoranda if agreement cannot be reached based on this indication. Any memorandum from Precast is to be filed and served by 4 March 2016, with any response from Anystep
to be filed and served by 18 March 2016.
Katz J
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