Property Sales Direct Ltd v Hawken Land Development LP
[2022] NZHC 403
•9 March 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1435
[2022] NZHC 403
IN THE MATTER of the Companies Act 1993 and the Limited Partnership Act 2008 BETWEEN
PROPERTY SALES DIRECT LTD
Plaintiff/First Counterclaim Defendant
AND
AND
HAWKEN LANE DEVELOPMENT LP
Defendant/Counterclaim Plaintiff
STEPHEN JOHN DAVIES
Second Counterclaim Defendant
Hearing: 3 March 2022 Appearances:
H Holmes for the Plaintiff/First Counterclaim Defendant E St John for the Defendant/Counterclaim Plaintiff
S Pasley for the Second Counterclaim Defendant
Judgment:
9 March 2022
JUDGMENT OF HARVEY J
This judgment was delivered by me on 9 March 2022 at 12 pm pursuant to R 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors/Counsel:
Keegan Alexander, P O Box 999, Shortland Street, Auckland Heritage Law, P O Bo 96135, Auckland
(E St John, Barrister, Auckland P O Box 105 270, Auckland City, Auckland) S Pasley, Robertsons Law, PO Box 2068, Auckland
PROPERTY SALES DIRECT LTD v HAWKEN LANE DEVELOPMENT LP [2022] NZHC 403 [9 March 2022]
Introduction
[1] In July 2019, Property Sales Direct Ltd (PSDL) commenced proceedings against Hawken Lane Developments LP over cancelled property contracts, seeking a refund of deposits paid and damages for loss of profits. Those substantive proceedings include a counterclaim by the defendant for breach of contract. A second counterclaim filed by the defendant in 2021 concerning caveat proceedings that the plaintiff pursued unsuccessfully, is also extant.
[2] A five-day fixture for the substantive proceeding is scheduled to commence on 4 April 2022, less than a month away.1 By an interlocutory application dated 9 February 2022, the plaintiff now seeks orders:
(a)Granting leave to serve a third-party notice on its former counsel,
Desmond Wood, under r 4.4 of the High Court Rules 2016; and
(b)For separate trials under r 10.4 of the High Court Rules of:
(i)PSDL’s claim against Hawken and Hawken’s first counterclaim against PSDL (the substantive claim); and
(ii)Hawken’s second counterclaim against PSDL and Mr Davies (the caveat claim).
[3] PSDL has clarified in written submissions that the application for separate trials is sought only if Mr Wood is joined following the Court’s decision on the application granting leave to serve a third-party notice and if the Court accepts Mr Davies’ contention that the second counterclaim is not sufficiently ready for trial. Hawken opposes the third party notice-joinder and separate trials application.
[4] The issue for determination is whether the third party notice application should be granted. If it is declined, then the separate trials application becomes redundant.
1 Property Sales Direct Ltd v Hawken Lane Development LP HC Auckland CIV-2019-404-1435, 20 May 2021 (Minute of Sussock AJ).
Background
The Substantive claim
[5] Hawken, a property developer, agreed to sell by individual sale and purchase agreements a number of lots in a development at Silverdale, Auckland to PSDL, another property developer, for which PSDL duly paid deposits. Subsequently, the lot boundaries were changed, and the sale and purchase agreements were cancelled – with the parties disagreeing as to who cancelled. Proceedings were then issued by PSDL on 12 July 2019 for the return of $522,129.98 it had paid to Hawken in deposits, along with damages of $56,523 for loss of profits.2 In response, Hawken alleged that PSDL breached the agreement by failing to pay monies as required and on 15 October 2020 filed a statement of defence and counterclaim for $588,013.05.3
The Caveat Claim
[6] On 30 March 2021, PSDL lodged a caveat against one of the lots owned by Hawken over which PSDL asserted an interest. On 8 June 2021, Katz J removed the caveat, and as set out in her reasons given on 15 June 2021, found, inter alia, that PSDL had no reasonably arguable case for the interest stated in the caveat.4 Following that, on 30 June 2021, the defendant filed an amended statement of defence and second counterclaim seeking damages against the plaintiff and against Stephen Davies, the plaintiff’s former solicitor, as agent, for loss due to the lodging of the caveat against lot 22.
The strike out application
[7] On 5 October 2021, the plaintiff filed an omnibus interlocutory application seeking, inter alia, to strike out the Caveat claim. Brewer J issued a judgment on 18 November 2021 dismissing the strike-out application while concluding that the second counterclaim should continue as part of the proceedings, giving reasons:5
2 The Plaintiff’s statement of claim was amended on 24 September 2020.
3 The Defendant’s first statement of defence was filed on18 September 2019.
4 Hawken Lane Development LP v Property Sales Direct Ltd [2021] NZHC 1410.
5 Property Sales Direct Ltd v Hawken lane Development LP [2021] NZHC 3119 at [16].
(a)The catalyst for the filing of the second counterclaim was a reasons judgment of Katz J on 15 June 2021 which followed her results judgment of 8 June 2021 ordering the removal of the caveat in question because there were no grounds to support the plaintiff’s claim to a caveatable interest in lot 22. The caveat was not lodged by the plaintiff until 30 March 2021 and was not discovered by the defendant until 29 April 2021. This explains the amendment to the counterclaim.
(b)Neither the plaintiff nor Mr Davies took issue with the filing of the second counterclaim. They both filed statements of defence. Neither took steps to amend the timetable.
(c)It is in the interests of justice for all matters in dispute between the parties to be determined in the scheduled hearing if that can be done fairly.
(d)I do not accept that there is insufficient time between now and 4 April 2022 to timetable the pre-trial matters necessary for the hearing of the second counterclaim. The subject of the second counterclaim is straightforward. Discovery should be limited. Mr Maloney for the defendant emphasises that the defence does not want to risk the trial date. He submits:
37.However, the hearing is set down for five days, which should be more than sufficient to accommodate additional evidence relating to the Second Counterclaim. The plaintiff intends to call three witnesses (including Mr Davies), and the defendant only intends to call two. No expert evidence is to be called in relation to either claim.
(e)I do not accept that there are difficult questions of legal privilege. There may well be issues of privilege. But, these can be identified and resolved pre-trial if necessary.
(f)In my view the relief sought in the counterclaim is, in a real sense, related to or connected with the subject-matter of the proceeding. The subject-matter of the proceeding is the agreement and how the actions of the plaintiff and the defendant are to be construed having regard to their obligations under the agreement. The caveat in question was filed by the plaintiff as a result of the plaintiff’s participation in the agreement. There is a clear common factual matrix going to the construction and performance of the agreement and going to whether there was reasonable cause to lodge the caveat.
(g)Given the judgment of Katz J, there are credible and substantial grounds for the second counterclaim.
[8] PSDL says that they raised both in submissions and in oral argument at the hearing before Brewer J that if the second counterclaim was not struck out then the plaintiff would need to join Mr Wood as a third party, as the barrister who advised PSDL regarding the caveat.
Application for leave to issue a third-party notice
Plaintiff ’s/First and Second Counterclaim Defendants’ submissions
[9] Mr Holmes for PSDL submitted that the proposed third party, Desmond Wood, should be joined as PSDL believed it had a caveatable interest on reasonable grounds based on unequivocal advice from Mr Wood which proved to be wrong. Accordingly, PSDL considered it has a right to an indemnity from Mr Wood for any damages and costs that may be awarded in favour of Hawken.
[10] Mr Holmes argued that if Hawken’s second counterclaim is to be heard in the context of this proceeding, then Mr Desmond Wood must be joined as a third party as there will be substantial overlap between the claim by Hawken against PSDL and Mr Davies and the claim by PSDL against Mr Wood. Additionally, issues arising from the third-party claim and the second counterclaim ought to be determined not only between Hawken, Mr Davies and PSDL, but also between Mr Davies, PSDL and Mr Wood. With respect to the separate trials application, if the joinder is granted, Mr Holmes submitted it was appropriate that the principal dispute between the parties be separated from the caveat dispute for reasons of practicality and to enable Mr Wood the opportunity to enter any defence.
[11] Counsel contended that if the Court orders that Mr Wood should be joined, then he would require sufficient time to properly prepare. With the trial set to commence on 4 April next, there will be insufficient opportunity for Mr Wood to do so. Therefore, according to counsel, it is necessary for the caveat claim to be separated from the substantive proceedings. Mr Holmes argued that there is merit in Mr Wood being joined, given his involvement in the caveat proceedings.
[12] Counsel for Mr Davies, who also intends to bring a claim against Mr Wood, supported the joinder application, submitting that it is in the interests of justice that the claims against Mr Wood be heard concurrently with Hawken’s claims against them, so that the matter may be fully resolved without the need for subsequent recovery action requiring effectively a re-hearing of the majority of issues.
[13] In response to Hawken’s concerns about delay, Mr Holmes for PSDL submitted that Hawken themselves must bear some responsibility. They filed the second counterclaim on the close of pleadings and served it a day later. Hawken then did not seek any directions for the disposition of that proceeding. In addition, the plaintiff’s new solicitors had just been instructed, yet it was the plaintiff who had to bring the issues to the Court’s attention by way of memorandum in September 2021. Hawken then required formal applications which were opposed until November 2021 when all but one of the applications was agreed. Moreover, according to counsel, Hawken made no provision for discovery in their proposed timetable by either counterclaim defendant. There were also delays caused by the end of year vacation period and difficulties that the plaintiff had in securing Mr Wood’s files, all of which were compounded by issues of privilege and the impacts of Covid-19.
[14] Regarding the claims by Hawken that the ulterior purpose for seeking trials was to somehow thwart Hawken, Mr Holmes submitted that such an allegation was not credible and was, in any event, denied by PSDL.
Defendant/Counterclaim Plaintiff ’s submissions
[15] Mr St John argued that, in summary, there was insufficient time between now and the trial to accommodate the addition of Mr Wood. He submitted that the lack of sufficient time was because PSDL had unreasonably delayed filing its application, since, by the time Brewer J dismissed the plaintiff’s application to strike out the second counterclaim, PSDL was effectively on notice that it needed to join Mr Wood at the earliest opportunity. Moreover, Mr St John underscored that Brewer J had determined the claims should be heard together and, therefore, PSDL’s current application was an attack on that judgment.
[16] Counsel also argued that Brewer J had directed the parties to confer to try and reach agreement on a revised timetable to accommodate the points raised by PSDL. However, the plaintiff did not take steps to seek leave to issue a third party notice, did not address issues of legal privilege and did not agree to a new timetable. Indeed, according to counsel, Hawken’s proposals were met with “unhelpful responses” from PSDL’s counsel.
[17] Further, Mr St John submitted that PSDL has been responsible for the unreasonable delay which should not be visited on Hawken. As early as 8 July 2021, PSDL sought Mr Wood’s file which was obtained two months later, on 7 September. Less than two months after that, on 28 October, PSDL outlined its claims against Mr Wood. Counsel contended that accordingly, it was misleading for PSDL to say there was difficulty associated with the pandemic to secure copies of Mr Wood’s file and that they were not provided until late November 2021. According to counsel, the file was provided on 7 September and contained everything PSDL needed to prepare its claim against Mr Wood. It should have done so as part of its omnibus application on 5 October 2021. At the very least, by November 2021, PSDL knew that it needed to join Mr Wood since this is one of its grounds for seeking strike out of the second counterclaim – if it were not struck out, PSDL would need to apply to join Mr Wood. Simply put, counsel argued, there is no reasonable explanation as to why PSDL waited a further three months to bring its claim against Mr Wood.
[18] Mr St John submitted that Hawken denies it is responsible for any delay affecting the ability of PSDL to file its claim against Mr Wood. In any case, according to counsel, the allegations set out in para 27 of the plaintiff’s submissions are the same as those made before Brewer J on 11 November 2021. The Judge rejected those complaints, holding that the second counterclaim could not have been brought earlier as it relates to the judgment of Katz J issued on 15 June 2021.
[19] As to the submission that required formal applications from PSDL, Mr St John referred to Muir J’s minute of 30 September 2021 where the Judge said he was not prepared to entertain multiple informal interlocutory applications and that the plaintiff would need to apply in the usual way, with applications properly supported by evidence. In response, PSDL filed its omnibus application five days later, on 5 October. To reiterate, PSDL could have applied for joinder then but failed to do so.
[20] Counsel contended that joinder should not be granted if doing so would prejudice the hearing date. By leaving its application to the last minute, PSDL has sought to jeopardise the upcoming hearing. Its proposed solution, of separate trials, comes at Hawken’s expense and would unfairly prejudice Hawken, to the advantage of PSDL. If granted, this will enable the Plaintiff to have had its claim heard without
having to contend with the counterclaim, and in circumstances where it could have brought its application to join Mr Wood months ago. In any event, counsel submitted that if leave is refused, there is nothing to prevent PSDL and Mr Davies from bringing their claim for contribution against Mr Wood in separate proceedings. That approach would be consistent with the Court of Appeal decision, Meroiti v National Australia Finance Ltd where an application for joinder made at a late stage in the proceeding was dismissed.6
[21] Finally, Mr St John submitted that an order for separate trials should not be made where there is a real risk that the matters to be traversed in each trial may substantially overlap, issues of res judicata or conflicting findings may result from the trials, or substantially more Court time would be taken by separate trials. Counsel pointed out that Brewer J had already confirmed that the matters to be traversed will substantially overlap if the claims are heard separately. For these reasons, counsel argues that the current application should be dismissed.
Legal principles
[22]Rule 4.4 of the High Court Rules provides:
(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:
6 Meroiti v National Australia Finance Ltd CA128/90, 6 December 1990, at 7.
(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.
A third-party notice must be issued within—
(a) 10 working days after the expiry of the time for filing the defendant’s statement of defence; or
(b)a longer time given by leave of the court.
[23]Rule 4.8 is also relevant:
(a)On an application seeking leave to issue a third, fourth, or subsequent party notice, the court must have regard to all relevant circumstances, including delay to the plaintiff.
(b)On the making of an application of that kind, the court may grant or refuse leave or grant leave on just terms.
[24] In Westwood Group Holdings Limited v Rilean Construction (South Island) Limited, Associate Judge Osborne underscored several important overarching considerations:7
[15] The general principles which I adopt are as follows (as I stated them in
Walter Peak Corporate Trustee Ltd v Anderson Lloyd):
(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.
(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).
7 Westwood Group Holdings Limited v Rilean Construction (South Island) Limited [2013] NZHC 1739 at [15]; citing Walter Peak Corporate Trustee Ltd v Anderson Lloyd HC Dunedin CIV-2009- 412-389, 9 December 2011 at [8].
(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.
(f) Equally, unexplained or unacceptable delay by the defendant may result in leave being refused: Meroiti v National Australia Finance Ltd.
(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.
(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.
(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.
Discussion
[25] The claim against Mr Wood meets the criteria of r 4.4(1). Had PSDL acted within the statutory timeframe they would have been able to join Mr Wood as of right per r 4.4(2)(a). However, that period having lapsed, the question now is whether leave to issue the third-party notice should be granted under r 4.8.
[26] I accept that there is a risk of serious prejudice to Hawken if the fixture date is jeopardised because of the present application, or if the Substantive Claim is heard before the Caveat Claim, and that there is an obvious desirability of dealing with all issues at the same time. Moreover, I agree with Mr St John that the joinder application should have been progressed before now, less than two months out from the trial date.
[27] As canvassed with counsel at the hearing, Mr Spring’s letter of 28 October 2021 to Mr Wood, acting as PSDL’s solicitor, set out in some detail the issues relevant to a potential claim. Mr Spring’s letter cited two examples from Mr Wood’s correspondence to PSDL’s then solicitors, dated 30 April 2021:
I have every confidence that any application to set aside the caveat will be comfortably defended. On that note, if any [sic] when you receive the usual notice from LINZ challenging the caveat, you should forward that notice to me promptly to take steps to sustain the caveat.
[28]Then again on 3 May 2021:
On the face of that summary, which is the same as I had, Property Sales Direct appears to have an impeccable position from which it should comfortably sustain its caveat.
…
You should let him [Mr Cary] know my views and make him aware that he has a pretty good chance of succeeding if there is a challenge.
[29]Mr Spring then said that Mr Wood’s advice was wrong:
for reasons that should have been apparent to a practitioner with expertise in the subject matter of the dispute, and exercising reasonable degrees of care and skill.
[30] Then after outlining the loses PSDL claims it suffered as a result of the dismissal of the caveat proceedings by Katz J, Mr Spring concluded his letter by stating that if Mr Wood did not reply within 15 working days “PSDL will look to bring proceedings against you for damages associated with your advice.” In short, at that point in time, 28 October 2021, the position could not have been any clearer that there was every likelihood, in the absence of a reasonable explanation acceptable to PSDL, that Mr Wood was going to face proceedings. Everything PSDL needed to commence the proceedings it said it was going to file was already within its possession or control at that date, as evidenced by the letter just cited.
[31] As foreshadowed, PSDL had intimated in its letter that it considered there were reasonable grounds for proceeding against Mr Wood on 28 October 2021. While issues of discovery may remain relevant to any future professional indemnity claim, a lack of discovery did not appear to inhibit Mr Spring’s warning to Mr Wood about the risk of potential proceedings. To this day PSDL has confirmed that Mr Wood has still not replied to the letter of 28 October in any meaningful way. Put another way, I do not accept that the bringing of an application to formally involve Mr Wood was
dependant on discovery. Mr Wood had given unequivocal advice on at least two occasions in writing and that advice was found by Katz J to be incorrect. Moreover, PSDL was put on notice by Brewer J at the strike-out hearing that he considered there was sufficient time between November 2021 and 4 April 2022 to timetable the pre- trial matters for the second counterclaim.8 His Honour made this finding having been informed by PSDL at the hearing that they intended to join Mr Wood. Accordingly, I agree that PSDL was on notice that they needed to bring this joinder application in a timely way and were capable of doing so. That they have not done so counts against the granting of leave.
[32] In any event, any prejudice to PSDL and Mr Davies by the refusal of the joinder application will be comparatively minor. Both PSDL and Mr Davies may file a separate proceeding against Mr Wood if they consider that necessary. There was nothing to prevent them from doing so, from the moment Katz J’s decision was issued. Indeed, as foreshadowed, as late as October 2021, PSDL said that they would “look to bring proceedings” against Mr Wood. While any such proceeding may canvass similar issues as those in the caveat claim to be heard next month, its scope would be narrow
– whether Mr Wood gave incorrect legal advice to PSDL which they relied on in seeking to sustain the caveat.
[33] In short, my conclusion is that it would not be in the interests of justice to unduly prejudice the hearing and Hawken by allowing leave on that basis alone. With fixtures at a premium, and this particular proceeding spanning some three years already due to delays, I am not persuaded that the reasons for and consequences of granting the application override the need for the substantive hearing to proceed on 4 April next as planned. Indeed, the present situation could be seen to be of PSDL and Mr Davies’ own making. For these reasons, the application for leave to issue a third- party notice on Mr Wood is dismissed.
8 Property Sales Direct Ltd v Hawken lane Development LP, above n 5, at [16(d)].
Separate trials application
[34] As the joinder application has been dismissed, PSDL’s application for separate trials is now rendered moot and is dismissed on that basis.
Decision
[35] The application for leave to issue a third-party notice is dismissed. To avoid doubt, the application for separate trials is also dismissed.
[36] Hawken is entitled to costs as the successful party. If costs cannot be agreed, memoranda of up to 7 pages can be exchanged and filed within 15 working days.
Harvey J
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