Quingdao Zoono Biotech Company Limited v Zoono Limited
[2021] NZHC 3343
•9 December 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-253
[2021] NZHC 3343
BETWEEN QINGDAO ZOONO BIOTECH COMPANY LIMITED
PlaintiffAND
ZOONO LIMITED
First Defendant
PAUL RUSSELL HYSLOP
Second DefendantZOONO GROUP LIMITED NEW ZEALAND
Counterclaim Plaintiff
LINGCHEN QI
Counterclaim Defendant
On the papers: 9 December 2021 Appearances:
No appearance for the Plaintiff S L Cogan for the Defendants
Judgment:
9 December 2021
Reissued:
20 December 2021
JUDGMENT OF ASSOCIATE JUDGE TAYLOR
This judgment was delivered by me on 9 December 2021 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
Solicitors:
…………………………. Registrar/Deputy Registrar
Lodder Law Ltd (Nick B Lodder),Auckland, for the Defendants
Counsel:
S L Cogan, Quay Chambers, Auckland, for the Defendants
QINGDAO ZOONO BIOTECH COMPANY LIMITED v ZOONO LIMITED [2021] NZHC 3343 [9 December 2021]
Introduction
[1] The defendants and counterclaim plaintiff in this proceeding apply under r 15.2 of the High Court Rules 2016 (the Rules) to strike out the plaintiff’s claim for want of prosecution.
[2] The proceeding concerns conflicting claims of breach of contract, deceit and misrepresentation in relation to various partnership, distribution and agency agreements between the parties, and their surrounding negotiations. It has been stayed for more than a year, with the plaintiff having failed to pay court orders for security for costs and costs.
Background
Parties
[3] The plaintiff in this proceeding is Qingdao Zoono Biotech Co Ltd (Qingdao). Qingdao is a company incorporated in Qingdao, Shandong Province in the People’s Republic of China. It distributes products supplied by the first defendant to China.
[4] The first defendant in this proceeding is Zoono Ltd (Zoono). Zoono is a wholly owned subsidiary of Zoono Group Ltd NZ (ZGL NZ), which in turn is a wholly owned subsidiary of an Australian company of the same name. The wider Zoono Group operates in Australia and New Zealand, specialising in the development, manufacture and distribution of antimicrobial solutions.
[5] The second defendant in this proceeding is Mr Paul Russell Hyslop. Mr Hyslop is the global managing director and CEO of ZGL NZ.
[6]The counterclaim plaintiff in this proceeding is ZGL NZ.
[7] The counterclaim defendant in this proceeding is Mr Lingchen Qi. Mr Qi is the sole director and CEO of Qingdao. Like Qingdao, he is based in China.
Facts
[8] In 2013, Zoono sought to expand its operations into China. It says it elected to work with Mr Qi on the basis of his representations that he had extensive and well- funded contacts and on the promise of shares in the company that would distribute Zoono’s products.
[9] On 29 May 2013, ZGL NZ entered into a partnership agreement with Mr Qi and others, establishing Qingdao as the distribution company for Zoono products in China. On the same day, Zoono signed a distribution agreement with Qingdao.
[10] In June 2014, ZGL NZ cancelled the partnership agreement and Zoono cancelled the distribution agreement. A dispute arose between Zoono and Qingdao about Zoono products that Qingdao retained. Messrs Hyslop and Qi met in July 2014 to try to resolve the dispute. An agency agreement was signed on 26 August 2014 between another Zoono entity, Zoono Medical Ltd and Qingdao. The terms of that agreement are disputed.
[11] Qingdao says the agency agreement fully and finally settled all legal disputes arising from the cancellation of the partnership and distribution agreements. It says Zoono agreed to pay Qingdao USD400,000 in settlement within 18 months of the date of the agency agreement.
[12] Zoono, meanwhile, claims that under the agency agreement it was to pay Qingdao a commission totalling 10 per cent of all sales to Qingdao’s new Chinese distributor from 26 August 2014 to 26 February 2016, with that commission being capped at USD400,000.
[13] Qingdao sued Zoono for breach of the agency agreement. It sought judgment in the sum of USD390,000. It also brought a deceit claim against Mr Hyslop for statements he allegedly made during the July 2014 settlement negotiations.
[14] Zoono and ZGL NZ counterclaimed against Qingdao alleging breaches of all three agreements and misrepresentation. ZGL also counterclaimed against Mr Qi,
alleging he personally made misrepresentations that induced ZGL NZ into entering the partnership agreement.
Procedural history
[15] The proceeding commenced on 15 February 2019. Various pleading documents and timetabling memoranda were traded over the ensuing months, the particulars of which are not relevant to the present application.
[16] Zoono and Mr Hyslop applied for security for costs on 9 December 2019. Qingdao and Mr Qi also applied for security for costs against ZGL NZ. A hearing on the applications was held on 25 May 2020.
[17] On 10 June 2020, Zoono’s application for security for costs was granted, and Qingdao and Mr Qi’s application for security for costs was dismissed.1
[18]Pursuant to r 5.45 of the High Court Rules, Qingdao was ordered to pay
$35,000 into court as security for costs, in the following instalments:2
(a)first, $8,750 to be paid immediately following the sealing of orders in favour of security for costs;
(b)secondly, $8,750 to be paid upon service of Qingdao’s briefs of evidence;
(c)thirdly, $8,750 to be paid within five working days of receipt of Zoono and Mr Hyslop’s briefs of evidence; and
(d)finally, $8,750 to be paid ten working days before the commencement of trial.
1 Qingdao Zoono Biotech Co Ltd v Zoono Ltd [2020] NZHC 1282..
2 At [46].
[19] The Court stated the proceeding was to be stayed unless Qingdao provided security in accordance with those orders. It also awarded Zoono costs. Qingdao and Mr Qi did not appeal the decision.
[20] On 1 July 2020, the Court sealed both the order for security for costs and an order for costs in the amount of $17,101 in respect of Zoono and Mr Hyslop’s successful application for security of costs.
[21] Neither the security for costs nor the costs order has been paid. Qingdao’s proceeding has been, and remains, stayed.3
[22] On 28 October 2020, the plaintiff’s solicitors and counsel were granted leave to withdraw.4 The apparent predicate for the withdrawal was that Qingdao and Mr Qi breached a contingency fee arrangement with their solicitors and counsel. In an affidavit in support of the withdrawal application, the former solicitor on the record, Mr Simpson Tong, deposes that Mr Qi has informed him he has no further funds, will not be able to raise further funds in the future and that he and Qingdao will be unable to pay the security for costs.5
[23] It does not appear that Qingdao or Mr Qi have instructed new counsel. Qingdao has taken no steps to progress its claim since the security for costs and costs orders were made.
[24]In recent list hearings, no one has appeared for Qingdao or Mr Qi.6
3 See Qingdao Zoono Biotech Co Ltd v Zoono Ltd CIV-2019-404-253, 26 November 2020 (Minute of Associate Judge Bell) at [3].
4 Qingdao Zoono Biotech Co Ltd v Zoono Ltd CIV-2019-404-253, 28 October 2020 (Minute of Associate Judge Bell).
5 Affidavit of Simpson Tong affirmed 21 September 2020 at [9].
6 See, for example, Qingdao Zoono Biotech Co Ltd v Zoono Ltd CIV-2019-404-243, 24 November 2021 (Minute of Downs J) at [1].
Application to strike out plaintiff’s claim for want of prosecution
Interlocutory application
[25] On 20 August 2021, Zoono, Mr Hyslop and ZGL NZ filed an interlocutory application to strike out Qingdao’s claim for want of prosecution. The application seeks orders:
(a)that Qingdao’s claim be dismissed; and
(b)that costs be awarded on the application and Qingdao’s claim as a whole.
[26]The application advances three grounds on which the orders are sought.
[27] The first ground is that, despite demands, Qingdao has failed to pay the first instalment of the security for cost order. That instalment is now more than a year overdue.
[28] The second ground is that, despite demands, Qingdao and Mr Qi have failed to pay the costs order of $17,101.00 in respect of Zoono and Mr Hyslop’s successful application for security for costs.
[29] The third ground is that Qingdao has failed to prosecute its claim since its counsel withdrew from the proceeding on 23 September 2020. Qingdao and Mr Qi have not instructed new counsel, have not taken any formal steps in the proceeding and have not engaged with Zoono, Mr Hyslop and ZGL NZ. The proceeding has been stayed for over a year, during which time Qingdao has been in breach of two Court orders. There is nothing to suggest Qingdao will continue to prosecute its claim. While the proceeding remains stayed, Zoono and Mr Hyslop are subject to a contingent liability of USD 390,000, and ZGL NZ is precluded from pursuing its counterclaim against Mr Qi.
Affidavit of Paul Russell Hyslop
[30] Mr Hyslop has produced an affidavit in support of the interlocutory application to strike out Qingdao’s claim, sworn on 29 November 2021.
[31] In the affidavit Mr Hyslop deposes that, despite repeated demands since 2 July 2020, Qingdao has failed to comply with the Court’s security for costs and costs orders. Over a year has passed and there is no sign of Qingdao progressing its claim. He deposes that Qingdao and Mr Qi’s lawyers have withdrawn from the proceeding and it does not appear any new counsel have been instructed. He deposes the delay is causing Zoono serious prejudice.7
Absence of notice of opposition
[32] No notice of opposition to the strike out application has been filed, despite directions Qingdao and Mr Qi were to do so by 24 September 2021.8
Submissions
Applicants’ Submissions
[33] Mr Simon Cogan, for Zoono, Mr Hyslop and ZGL NZ, submits Qingdao has taken no steps to prosecute its claim since June 2020. It has breached Court orders as to security for costs and costs. He submits there is nothing to suggest this situation will change.9
[34] Mr Cogan submits it is “well settled” there are three requirements for an application to succeed under r 15.2 of the High Court Rules. Zoono, Mr Hyslop and ZGL NZ must show:10
7 Affidavit of Paul Russell Hyslop dated August 2021 at [3.1]–[3.5].
8 See Qingdao Zoono Biotech Co Ltd v Zoono Ltd CIV-2019-404-253, 17 September 2021 (Minute of Associate Judge Sussock) at [3(b)].
9 Applicant’s Submissions dated 17 November 2021 at [1.1].
10 At [4.2], citing Lovie v Medical Assurance Soc NZ Ltd [1992] 2 NZLR 244 (HC) at 248.
(a)Qingdao has been guilty of inordinate delay;
(b)such delay is inexcusable; and
(c)such delay has seriously prejudiced Zoono, Mr Hyslop and ZGL NZ.
[35] If these factors are established, the Court must then consider whether the overall interests of justice would allow Qingdao’s case to proceed.11
[36] Of the first factor, Mr Cogan reiterates Qingdao has taken no steps to advance its claim since the security for costs and costs orders were made against it. It has breached those orders, and the proceeding has consequently been stayed. Qingdao and Mr Qi have not instructed new counsel and have failed to engage with Zoono, Mr Hyslop and ZGL NZ. Mr Cogan submits these circumstances constitute inordinate delay.12
[37] Of the second factor, Mr Cogan submits it is inexcusable that the delay has been a year and half and has involved the breach of two Court orders. No reason has been advanced for the delay and nor could any reason excuse the delay. Mr Cogan submits that the “inescapable inference” is that Qingdao cannot, or simply will not, pay. It has had sufficient time to arrange alternative funding and to secure new counsel. There is no evidence it has done so.13
[38] Of the final factor, Mr Cogan submits Qingdao’s failure to prosecute its claim means Zoono and Mr Hyslop have had an unresolved contingent liability of USD390,000 hanging over them since early 2019. As well, Mr Hyslop has an allegation of deceit hanging over him that “would be a source of personal and professional discomfort for any commercial person”. Finally, ZGL NZ is prejudiced by the delays in that, so long as the proceeding is stayed, it is precluded from pursuing its counterclaim against Mr Qi.14
11 At [4.3]. While Mr Cogan does not cite authority, one case standing for this proposition is
Commerce Commission v Giltrap City Ltd (1997) 11 PRNZ 573 at 577.
12 At [4.4]–[4.5].
13 At [4.6]–[4.9].
14 At [4.10]–[4.11].
[39] Concluding, Mr Cogan submits the overall justice of the case favours dismissal of Qingdao’s claim. It has had ample opportunity to progress its proceeding and has omitted to do so. This has left Zoono, Mr Hyslop and ZGL NZ in a “holding pattern”, in which they are unable to resolve Qingdao’s claim against them or to pursue their counterclaim. Mr Cogan submits Qingdao’s claim should be dismissed, with costs accordingly.
Respondents’ submissions
[40] The Court did not receive any submissions on behalf of Qingdao or Mr Qi, or any other contact or correspondence prior to the hearing from either.
Legal principles
[41]Rule 15.2 provides:
15.2 Dismissal for want of prosecution
Any opposite party may apply to have all or part of a proceeding or counterclaim dismissed or stayed, and the court may make such order as it thinks just, if—
(a)the plaintiff fails to prosecute all or part of the plaintiff’s proceeding to trial and judgment; or
(b)the defendant fails to prosecute all or part of the defendant’s counterclaim to trial and judgment.
[42] The rule gives the Court a wide discretion to make an order for dismissal “as it thinks just”.15 The applicable test is as described in Mr Cogan’s submissions.
[43]First, whether a delay is inordinate is fact-specific.16 “Inordinate” means:17
… a period of time which had elapsed which was materially longer than the time which was usually regarded by the Courts and the profession as an acceptable period of time.
15 See Andrew Beck and Others (eds) McGechan on Procedure (online ed, Thomson Reuters) at [HR15.2.08(4)]..
16 Allen v Sir Alfred McAlpine & Sons Ltd [1968] 2 QB 229 at 268 (CA)..
17 Tabata v Hetherington [1983] TLR 764 (CA).
[44] Secondly, explanations should always attend significant delays. If “a credible excuse” is not made out, the natural inference is that the delay is inexcusable.18
[45] Thirdly, a paramount consideration is whether the failure to prosecute results in serious prejudice to the opposite party. The presence or absence of serious prejudice can be determinative of an application for dismissal of a claim.19
[46] Finally, the overriding consideration is whether justice can be done at trial despite the delay.20
Discussion
[47] I have little to add here that is not already canvassed in Mr Cogan’s submissions. But, to relate the facts to the statements of principle set out above, I emphasise that a period of complete inactivity of a year and a half is “materially longer” than a Court would consider acceptable in the ordinary course. The delay is properly characterised as inordinate.
[48] Further, no excuse for the delay, let alone a credible one, has here been made. The delay appears to be related to Qingdao and Mr Qi’s impecuniosity, but this fact has not been clearly communicated. Neither Qingdao or Mr Qi (or representatives thereof) have appeared in recent list hearings. They remain in breach of court orders. The delay is inexcusable.
[49] I consider Zoono, Mr Hyslop and ZGL NZ have been seriously prejudiced by the delay. The former two are prejudiced in having unresolved contingent liabilities and allegations of deceit remain against them; the latter is prejudiced in being unable further to assert its claim against Mr Qi.
18 NZ Industrial Gases Ltd v Andersons Ltd [1970] NZLR 58 (CA) at 62, citing Allen v Sir Alfred McAlpine & Sons Ltd, above n 16, at 267-268..
19 Compare Commerce Commission v Giltrap City Ltd (1997), above n 11 (absence of serious prejudice) with R H & P L Papps Ltd v Amity Inns Ltd (1997) 11 PRNZ 558 (HC) (presence of acute prejudice).
20 Commerce Commission v Giltrap City Ltd (1997), above n 11, at 579.
[50] Finally, having regard to the overriding consideration of whether justice can be done at trial notwithstanding the delay, I consider Qingdao and Mr Qi’s complete inactivity to be a strong pointer that they have no intention of advancing the proceeding to trial. In that event, the claim should not be allowed to further vex Zoono, Mr Hyslop and ZGL NZ. Nor should it burden any more of this Court’s resources.
[51]It is just that Qingdao’s claim be struck out.
Conclusion
[52] Under r 15.2 of the High Court Rules, I dismiss this proceeding for want of prosecution.
[53] As the successful parties on this application and in the proceeding as a whole, the defendants and counterclaim plaintiff are entitled to costs on a 2B basis.
…………………………….. Associate Judge Taylor
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