Precast NZ Limited v Anystep Limited
[2015] NZHC 2375
•30 September 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-003171 [2015] NZHC 2375
BETWEEN PRECAST NZ LIMITED
Plaintiff/Respondent
AND
ANYSTEP LIMITED
First Defendant/ApplicantPETER JOSEPH EVANS Second Defendant
Hearing:
Further submissions:
28 September 2015
28, 29 September 2015
Appearances:
M J Fisher for Plaintiff/Respondent
B Gustafson for Defendants/ApplicantJudgment:
30 September 2015
JUDGMENT OF VENNING J
ON APPLICATION TO JOIN THIRD PARTY
This judgment was delivered by me on 30 September 2015 at 4.00 pm, pursuant to Rule 11.5 of the
High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Claymore Partners Limited, Auckland
Lowndes Jordan, Auckland
Copy to: M J Fisher, Auckland
B Gustafson, Auckland
PRECAST NZ LIMITED v ANYSTEP LIMITED [2015] NZHC 2375 [30 September 2015]
Introduction
[1] The first defendant, Anystep Limited (Anystep) applies for leave to join a third party, Paul Cane, to these proceedings.
Background
[2] I take the summary of the background from Thomas J’s decision on the plaintiff’s, Precast NZ Limited, (Precast) applications for injunction and summary judgment in respect of Anystep’s counterclaim:1
[4] Precast is the management company of the Stresscrete group of companies which manufactures precast concrete components, and supplies them to the construction market.
[5] The Stresscrete Group is a joint venture between interests associated with Mr Paul Cane and interests associated with Mr Brett Russell. Mr Cane is the managing director of Precast.
[6] Anystep manufactures moulds for making precast concrete stairs and owns the intellectual property rights to the Anystep Moulding System (the System) which enables the cost effective installation of concrete stairs.
[7] Mr Peter Evans is the executive director of Anystep.
[8] Pursuant to the Licence, Anystep granted Precast the exclusive rights
(with one exception) to use and sell the System in New Zealand for a term of
25 years, including an option to renew for a further term of 25 years.
[9] In August 2011, Precast acquired a 10 per cent shareholding in
Anystep.
[10] In March 2012, Mr Cane was appointed a director of Anystep.
[11] In the latter half of 2012, difficulties began to emerge in the working relationship between Mr Cane and Mr Evans.
[12] In May 2013, the shareholders with 90 per cent of the shares voted to remove Mr Cane as director of Anystep for allegedly not acting in the interests of Anystep. The actual reasons for his removal are in dispute.
…
[14] By late December 2013, Precast had relinquished its 10 per cent shareholding in Anystep.
[3] Anystep’s counterclaim relies on cl 10.2 of the Licence which provides:
1 Precast NZ Limited v Anystep Limited & Anor [2015] NZHC 1535.
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 Anystep Moulding System. This includes but is not limited to Anysteps moulds etc being included on the Licensee’s website.
(the support clause)
[4] The support clause places an obligation on Precast to support Anystep in relation to potential overseas contacts and interested parties which is central to Anystep’s counterclaim against Precast but it is also relevant to Anystep’s allegations against Mr Cane.
[5] The basis of the proposed claim by Anystep against Mr Cane is a breach of fiduciary duties owed by him as a director of Anystep at the relevant time. As relevant the draft proposed pleadings allege:
21.While a director of Any Step Mr Cane owed Any Step the following duties:
21.1To act in good faith by acting honestly and with a proper motive;
21.2To act in what the director believes to be the best interests of the company; and
21.3 To act for a proper purpose.
(Fiduciary Duties)
22. While a director of Any Step, Mr Cane acted in breach of his
Fiduciary Duties.
Particulars …
22.1In or around 2012 Mr Cane advised Mr Evans he wanted to buy out the other shareholders of Any Step.
22.2While a director of Any Step, Mr Cane acted for an improper purpose as he wished to prevent the value of Any Step’s revenue increasing to the point that it would cause an increase in the value of Any Step’[s] shares meaning he would have to pay more to buy out the other shareholders of any Step.
22.3 See the Breach of the Support Clause at paragraphs [10] to
[12] above.
23. Mr Cane’s breach of his Fiduciary Duties as a director of Any Step
has caused Any Step a loss of opportunity to market outside New
Zealand to potential customers on the Reids list and to a South
African company.
[6] The pleading at paragraphs [10] to [12] against the plaintiff, alleges, inter alia:
11.2 At a meeting in November 2012 attended by Mr Lawley, Mr Cane, John Blacklow and Mr Evans, Mr Lawley stated that Reids would supply, via email, a list of potential companies from the UK who would be interested in buying Any Step’s machines.
11.3 Mr Lawley later informed Mr Evans he had supplied this list via email to Mr Cane who subsequently refused to pass it over to the other directors of Any Step;
11.4 On 16 November 2012 Mr Lawley sent the Any Step directors a letter stating Reids wanted to engage with Any Step Limited as a distributor overseas;
11.5 After further negotiations Mr Lawley informed Mr Evans in telephone conversations, and in an email on 19 and 20
March 2013:
11.5.1 that Mr Cane had forbidden him to pass over this potential customer information to Any Step and he (Mr Lawley) felt compelled to comply as Mr Cane’s company was his largest NZ customer and he could not jeopardise this relationship.
11.5.2 That Mr Cane had recommended that Reids investigate the product of Any Step competitor, Charcon.
…
11.7 Precast was also contacted by a potential purchaser of the Any Step Moulding System by a South African company [in] February 2013. Precast did not pass that information onto Any Step.
Precast’s position
[7] The application for leave to join is opposed by Precast. It raises two broad grounds of opposition:
(a) first, that as a matter of jurisdiction there was no question or issue between Anystep and Mr Cane that related to or was connected with
the subject matter of the proceeding brought by the plaintiff against the defendant;
(b)second that, alternatively, there is no evidential basis to suggest or show that Anystep could have suffered loss for any breach of fiduciary duty by Mr Cane, so there was no real question in issue between Anystep and Mr Cane that ought to be determined between Precast and Anystep.
[8] In the course of his oral submissions Mr Fisher developed and explained the first point. Essentially it is that the third party procedure was not available where, as here, the defendant has issued a counterclaim against the plaintiff. If Anystep considered it had a claim against Mr Cane the appropriate course was for it to have joined him as an additional counterclaim defendant at the time that it issued its counterclaim against Precast. As it had not done so leave was now required and any such application for leave would be opposed by Precast.
[9] As Mr Gustafson had not appreciated that Mr Fisher’s point was that there was no jurisdiction for the Court to grant leave to Anystep to issue a third party notice given the counterclaim and Anystep’s rights were limited to joining him as an additional counterclaim defendant, leave (which was not opposed) was granted to Mr Gustafson to file further submissions on this point. Leave was also granted to Mr Fisher to respond. I have now had the benefit of those further submissions from counsel.
Decision
[10] The relevant rules are:
4.4 Third parties
(1) A defendant may issue a third party notice if the defendant claims any or all of the following:
(a) that the defendant is entitled to a contribution or an indemnity from a person who is not a party to the proceeding (a third party):
(b) that the defendant is entitled to relief or a remedy relating to, or connected with, the subject matter of the proceeding from a third party and the relief or remedy is substantially the same as that claimed by the plaintiff against the defendant:
(c) that a question or issue in the proceeding ought to be determined not only between the plaintiff and the defendant but also between—
(i) the plaintiff, the defendant, and the third party; or
(ii) the defendant and the third party; or
(iii) the plaintiff and the third party:
(d) that there is a question or an issue between the defendant and the third party relating to, or connected with, the subject matter of the proceeding that is substantially the same as a question or an issue arising between the plaintiff and the defendant.
5.57 Counterclaim against plaintiff and another person
(1) A defendant who has a counterclaim against the plaintiff along with any other person (whether a party to the proceeding or not) for any relief relating to or connected with the original subject matter of the proceeding may, within the time allowed for filing a statement of defence, file a statement of the counterclaim and serve a copy on the plaintiff and that other person (to be referred to as a counterclaim defendant).
…
(6) The court may at any time order that a counterclaim to which subclause (1) applies be struck out, upon such terms as it thinks just, if it appears—
(a) that, by reason of the counterclaim, the plaintiff is likely to be unduly delayed in obtaining relief; or
(b) that the trial (if a trial is necessary) is to be held at a place where it could not be held if a counterclaim defendant had been made defendant to an independent proceeding by the defendant in respect of the subject matter of the counterclaim; or
(c) that the relief sought in the counterclaim is not related to or connected with the original subject matter of the proceeding.
[11] Leave is required to issue the third party notice as the time to issue the third party claim as of right has expired.2 The general principles in relation to leave were
2 High Court Rules, r 4.4(2)(a).
helpfully summarised by Associate Judge Osborne in Westwood Group Holdings
Limited v Rilean Construction (South Island) Limited:3
[15] The general principles which I adopt are as follows (as I stated them in Walter Peak Corporate Trustee Ltd v Anderson Lloyd):4
(a) The defendant’s claim against the third party must be covered by one of the four grounds set out in r 4.4(1). A defendant may join the third party as of right within the time limit set down in r 4.4(2)(a). An application outside this time limit requires leave of the Court (r 4.4(2)(b)).
(b) Where leave is sought, the Court must consider firstly whether one of the grounds in r 4.4(1) exists and secondly whether to exercise its discretion to join the third party: ANZ Banking Group (NZ) Ltd v Dairy Containers Ltd.5
(c) In exercising its discretion, the Court must have regard to all relevant circumstances, including delay to the plaintiff (r
4.8).
(d) The interest of justice between all parties, however, is paramount. While any delay to the plaintiff is regrettable, the attainment of justice by the most efficient means is an overriding consideration: KPMG Peat Marwick v Cory- Wright & Salmon Ltd (in rec and liq).6
(e) Where the defendant has not been guilty of unreasonable delay, a factor in favour of exercising the discretion will be whether the defendant could have joined the third party as of right if it had applied within the time limit: ANZ Banking Group (NZ) Ltd v Dairy Containers Ltd.7
(f) Equally, unexplained or unacceptable delay by the defendant may result in leave being refused: Meroiti v National Australia Finance Ltd.8
(g) In cases of serious delay that risk prejudicing the plaintiff, the court may be prepared to make an order for joinder on conditions designed to preserve the hearing date for the plaintiff’s claim against the defendant: Total Air Supply Company Ltd v Total Air Supply Company (2007) Ltd.9
3 Westwood Group Holdings Limited v Rilean Construction (South Island) Limited [2013] NZHC
1739 at [15].
4 Walter Peak Corporate Trustee Ltd v Anderson Lloyd HC Dunedin CIV-2009-412-389, 9
December 2011 at [8].
5 ANZ Banking Group (NZ) Ltd v Dairy Containers Ltd CA156/92, 17 December 1992.
6 KPMG Peat Marwick v Cory-Wright & Salmon Ltd (in rec and liq) CA77/94, 20 May 1994.
7 ANZ Banking Group (NZ) Ltd v Dairy Containers Ltd, above n 3..
8 Meroiti v National Australia Finance Ltd CA128/90, 6 December 1990.
9 Total Air Supply Company Ltd v Total Air Supply Company (2007) Ltd HC Auckland CIV-2008-
404-7627, 10 January 2011.
(h) Avoiding duplicity of proceedings and preventing the same question being tried with different results militate in favour of allowing the application. The overriding purpose of the third party rules is to enable all the issues to be dealt with in one action: Turpin v Direct Transport Ltd.10
(i) There is, however, a need to strike a balance between all the parties’ interests. The extent to which the plaintiff is necessarily involved in the issues between the defendant and the third party is a consideration. Equally, it can be oppressive and unjust to involve a third party in a proceeding where much of the proceeding will not involve that third party.
(j) The Court may have regard to the relative strengths and weaknesses of the parties’ cases, including the case against the proposed third party and the likelihood of recovery: Dairy Containers Ltd v NZI Bank Ltd.11
[12] As noted, Mr Fisher argued there was no jurisdiction for Anystep to issue third party proceedings. As it had a counterclaim against Precast, it had to join Anystep as an additional counterclaim defendant under r 5.57. The third party procedure was not available to it. There was no issue in common between the plaintiff’s proceeding (in terms of the statement of claim and relief sought) and the defendant’s proposed third party claim. As Anystep was outside time to join Mr Cane as a counterclaim defendant as of right, leave was required which would be opposed.
[13] The submission raises the issue whether a defendant who has issued a counterclaim against the plaintiff may still rely on the third party procedure rather than joining that person as a counterclaim defendant (provided that the application comes within the ambit of r 4.4).
[14] I do not see any need to read down the provisions of r 4.4. Importantly, r 4.4 provides a number of circumstances in which a third party may be joined. Anystep relies on r 4.4(1)(c): “that a question or issue in the proceeding ought to be determined not only between Precast and Anystep, but also between Anystep and Mr Cane”. Whether the third party procedure is available to a defendant who has issued
a counterclaim will depend on the nature of the proposed third party claim and the
10 Turpin v Direct Transport Ltd [1975] 2 NZLR 172 (SC).
11 Dairy Containers Ltd v NZI Bank Ltd [1993] 1 NZLR 160 (HC) at 167.
particular aspect of r 4.4 relied upon. I note that in Xelocity Limited v Bay Audiology Limited,12 for example, the Court granted leave to join a third party where the defendant had an extant counterclaim against the plaintiff.
[15] As McGechan on Procedure notes the phrase used in r 5.57 “[a counterclaim] for any relief relating to or connected with the original subject matter of the proceeding” is identical to that used in the context of r 4.4(1)(b) and (d).13
[16] The purpose of r 5.57 is to limit the joinder of additional counterclaim defendants unless the relief sought in the proposed claim is sufficiently related to the plaintiff’s claim against the defendant, the original subject matter of the proceeding.14
[17] In the present case, the relief sought against Mr Cane is for damages for loss of opportunity, based on breach of the fiduciary duties contemplated by s 131 of the Companies Act 1993. The remedy sought is quite different and distinct to the relief Anystep seeks against Precast which is for breach of cl 10.2, the support agreement, and is quite different to the claim Precast makes against Anystep. On that basis, r 5.57 does not support the joinder of Mr Cane as an additional counterclaim defendant.
[18] However, r 4.4 relating to the joinder of third parties is not so constrained. Whether Mr Cane acted in the way alleged, namely failing to disclose the potential clients to Anystep, is a question that ought to be determined in the current proceeding between all parties, including Mr Cane. In this context proceeding is defined as “any application to the Court for the exercise of civil jurisdiction other than an interlocutory application”. The definition is broad enough to include the defendant’s application to the Court by its counterclaim against the counterclaim
defendant Precast. It is not, as Mr Fisher submitted, limited to the plaintiff’s claim.
12 Xelocity Ltd v Bay Audiology Ltd HC Auckland CIV-2009-404-001744, 18 June 2010, per
Associate Judge Faire.
13 HR5.57.04.
14 Flett v Robinson [1968] NZLR 190.
[19] At the relevant time Mr Cane was director of both Precast and Anystep. His (on Anystep’s case) deliberate inaction during November 2012 supports Anystep’s counterclaim against Precast for breach of the support clause but also supports Anystep’s claim against Mr Cane personally for breach of his fiduciary duty as a director of Anystep.
[20] It follows that I do not consider there is any jurisdictional bar to the application, particularly where, as here, Anystep relies on r 4.4(1)(c).
[21] I turn to the second ground of opposition.
[22] Mr Fisher’s second ground of opposition was that there was no basis to suggest or show that Anystep could have suffered loss for any alleged breach of fiduciary duty by Mr Cane so there was no real question in issue.
[23] Obviously, to succeed in its claim against Mr Cane Anystep will have to establish a loss. However, it does not at this stage of the proceeding have to quantify the loss to justify the issue of a claim against Mr Cane. The head of claim against Mr Cane is a well recognised and established one, namely the breach of the fiduciary duty (grounded in s 131 of the Companies Act) owed by a director to a company. At all relevant times Mr Cane was a director of Anystep and owed it fiduciary duties. The issue will be his actions (or inaction), particularly during November 2012, in relation to business opportunities that he was aware of which Anystep could potentially have taken advantage of. The fiduciary duty includes a duty to act in good faith in the best interests of the company and not to have placed himself in a position in which his personal interests or duties to other persons (such as Precast) were likely to conflict with the duties to the company. There may be a breach if a director uses a corporate opportunity or information or, in this case, fails to make use of it for the benefit of the company. The doctrine, which is generally referred to as a
doctrine of corporate opportunity, is well established.15
15 Vrij v Boyle [1995] 3 NZLR 763; Architectural Finishes Ltd v Holden CA272/95; 7 April 1997;
and He v Chen [2014] NZCA 153.
[24] Mr Fisher has previously advanced a similar argument on Precast’s application for summary judgment in response to Anystep’s counterclaim. That application was dismissed by Thomas J in her decision of 3 July 2015.16 The Judge was not prepared to say that any loss claimed by Anystep would be purely speculative. She considered that Anystep should have the opportunity to make inquiries and prepare its case. Anystep is similarly entitled to time to obtain and prepare evidence on the basis of the loss of opportunity claimed in relation to the claim against Mr Cane.
[25] As to the other, more general considerations Mr Fisher submitted that Anystep had delayed in making the application for leave. It had known for some time of the existence of the list but had not applied to join Mr Cane until 17 August
2015. He referred in particular to an affidavit of Mr Evans of Anystep of 13
February which referred to the meeting in November 2012 attended by Mr Lawley, Mr Cane, Mr Blacklow and Mr Evans, which referred to Mr Lawley’s intention to supply the list. He noted Mr Evans said that Mr Lawley later informed him that the list had been supplied. In a subsequent affidavit of 28 May 2015 Mr Evans rejected Mr Cane’s denial that he deliberately withheld the list.
[26] A number of points can be made in response. In Mr Cane’s affidavit of 10
March 2015 he denied and put in issue whether Mr Lawley passed on to him a list of potential customers from the UK. He said:
… Mr Lawley never passed on to me a list of potential customers from the UK. I have never had any such list in my possession. Had I had such a list I would have passed it onto Anystep. I also deny that I ever told Mr Lawley not to send such a list to Anystep.
[27] It was only in Mr Cane’s last and most recent affidavit of 21 May that he accepted he received the list:
Since reading Mr Evan’s third affidavit, I have undertaken a search of my old emails. I have found one potentially relevant email from Derek Lawley sent to two UK staff of Reids to which I was copied in, dated 1 November
2012, relating to the matters discussed at the meeting on 1 November 2012.
…
16 Precast NZ Limited v Anystep Ltd & Anor, above n 1.
[28] As Mr Gustafson submitted it would have been imprudent and inappropriate to have joined Mr Cane personally as a party and to accuse him of deliberately committing an act of bad faith, essentially dishonesty until there was actual evidence of the list in issue, rather than relying on Mr Lawler’s statements, particularly when Mr Lawler had made an affidavit for Precast. The application was made within three months of that affidavit and within one month of judgment on Precast’s unsuccessful summary judgment application.
[29] Next, in any event, any delay in applying has not prejudiced Precast given the stage the proceeding is at. This case does not yet have a substantive fixture allocated. There have been a number of interlocutory applications to date. Lists of documents are not due for exchange until Friday of this week. There is no reason to consider that the addition of Mr Cane as a party will delay or prejudice Precast in the allocation of a fixture for its claim against Anystep.
[30] To the extent costs are a consideration, while the factual issues are relevant to the counterclaim and the third party claim against Mr Cane, the legal issues against Mr Cane are quite separate. Precast need not be involved in those issues.
[31] As to other general factors, the interests of justice supports the issue of the third party notice in this case. Duplicity of proceedings on the same issue, (namely Mr Cane’s actions in relation to the corporate opportunity potentially available to Precast) should be avoided as should the risk of different findings in separate proceedings on that issue.
Result
[32] For the above reasons the application for leave to issue a third party notice against Mr Cane in terms of the draft amended statement of counterclaim and third party claim is granted.
Costs
[33] Costs are to follow the event. Anystep is to have costs on a 2B basis together with disbursements on the application and all steps associated with it.
Venning J
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