Raph Engle Concepts Limited v SCL Holdings Limited

[2014] NZHC 1421

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-3145 [2014] NZHC 1421

BETWEEN

RAPH ENGLE CONCEPTS LIMITED

Plaintiff

AND

SCL HOLDINGS LIMITED First Defendant

SCL INDUSTRIES LIMITED PARTNERSHIP

Second Defendant

Hearing:	On the papers
Appearances:	R J Hollyman for plaintiff I Williams for first defendant No appearance for second defendant
Judgment:	24 June 2014

JUDGMENT OF LANG J [on costs]

This judgment was delivered by me on 24 June 2014 at 9.30 am, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

RAPH ENGLE CONCEPTS LIMITED v SCL HOLDINGS LIMITED [2014] NZHC 1421 [24 June 2014]

Application by Raph Engle Concepts Limited for summary judgment against

SCL Industries Limited Partnership

[1]      On 13 September 2013, I was scheduled to hear an application by Raph Engle Concepts Limited (“REC”) for summary judgment against the second defendant, SCL Industries Limited Partnership (“Industries”), on the fifth cause of action.  Industries had initially opposed the application, but withdrew its opposition shortly before the hearing.

[2]      At the commencement of the hearing I therefore entered summary judgment against Industries on the fifth cause of action in the sum of €515,295.02.1     I am satisfied that REC is entitled to costs on its application for summary judgment against Industries under this head.  REC is therefore awarded costs on a Category 2B basis against Industries, together with disbursements as fixed by the Registrar.

Application by SCL Holdings Limited for summary judgment against REC

[3]      I then heard an application by the first defendant, SCL Holdings Limited (“Holdings”), for summary judgment against REC in respect of the four causes of action pleaded against it.  Holdings was not named as a defendant in the fifth cause of action, in respect of which I entered summary judgment against Industries.

[4]      During the hearing, counsel for REC accepted that its claim against Holdings under the third cause of action could not succeed.  As a result, I was required to determine whether Holdings also had a complete defence to REC’s claim under the first, second and fourth causes of action.

[5]      The fourth cause of action related to a claim in respect of monies derived from a contract that Industries had entered into with Nestle.   Holdings was not a party to that particular contract.  Given that REC’s claim was based on its contractual relationship with Holdings, I held that REC had no claim against any monies that either Industries or Holdings may have received in respect of the Nestle contract.

[6]      The first and second causes of action were based on the alleged existence of a fiduciary relationship  between  REC  and  the  two  defendants.    REC  alleges  that Holdings and Industries breached their fiduciary obligations as trustees in failing to account to REC for funds they knew were impressed with a trust in REC’s favour. Those funds were derived from contracts that Holdings had entered into with third parties.

[7]      I held  that  it  was  arguable  that  a  fiduciary relationship  existed.    It  was therefore necessary for me to consider Holding’s secondary argument, which was that it had not received any payments in respect of the contracts in question.  REC accepted that, if Holdings had never received any payments in respect of these contracts, its claim against Holdings could not succeed.

[8]      Holdings advanced this aspect of its defence on the basis of sworn assertions made by its Chief Executive Officer, Mr Philip Bates, to the effect that Holdings had not received any funds in respect of the contracts that were the subject of the claim. I concluded, for the reasons set out in my judgment, that the Court should not decide the case until REC had had the opportunity to test Mr Bates’ assertion through a limited discovery process.2    I therefore deferred the entry of summary judgment so that this could be completed.

[9]      The discovery process subsequently revealed that Mr Bates’ assertions were incorrect, and that Holdings and/or its subsidiaries had received four payments in respect of the contracts referred to in the pleadings.  These totalled more than $2.6 million.   Not surprisingly, this discovery prompted Holdings to withdraw its application for summary judgment.

Costs: the arguments

[10]     Counsel for REC acknowledges that costs are generally reserved when an application for summary judgment is withdrawn.   He submits, however, that the circumstances of the present case are such that an award of costs is appropriate.  He also argues that REC should be entitled to an award of increased costs to reflect the

fact that  it has  been  put to  considerable time and  effort to disprove Mr Bates’

assertions.

[11]     Holdings  disagrees.    It  submits  that  it  acted  reasonably  in  applying  for summary judgment, and that costs should therefore be reserved.  It also opposes, for the same reason, REC’s claim for increased costs. It argues that the issue of costs should be determined following trial, when the merits of the substantive arguments for each party will be determined.

Decision

[12]     When Holdings applied for summary judgment, it relied at least in part on the Mr Bates’ assertions that Holdings had received no payments whatsoever in respect of the contracts to which the proceeding relates.  Holdings asked the Court to accept those assertions at face value, and on that basis to enter summary judgment against REC on its substantive claims.  Summary judgment would obviously have removed REC’s ability to investigate the position further through the discovery process.

[13]     The importance of Mr Bates’ assertions was therefore such that Holdings was under a positive obligation to ensure that they were correct before asking the Court to rely upon them.   As matters now stand, Holdings’ argument that it had never received any monies should not have been advanced because it was factually incorrect.  It took the discovery process to reveal that fact.

[14]     It can therefore be argued that Holdings failed in its duty to ensure that Mr Bates’  evidence  was  factually  correct.     Had  it  complied  with  that  duty,  the application for summary judgment would have been dismissed once the Court determined  that  a  fiduciary  relationship  arguably  existed  between  REC  and Holdings.   Disposition of the application for summary judgment would not have required the parties to undergo the discovery process leading to the discovery that Mr Bates’ evidence was not correct.

[15]     Having said that, several factors persuade me that it would be premature at this stage to make an award of costs against Holdings.  First, it is not possible at this stage to determine how easy or difficult it would have been for Holdings to identify

the payments in question as having been derived from the contracts with which this proceeding is concerned.  Given that at least some of the payments were apparently made to subsidiaries, it may not have been obvious to Mr Bates that they were derived  from  those contracts.    Secondly,  the application  for summary judgment forced REC to abandon one cause of action, and I held that another was untenable. To that extent Holdings can be regarded as the successful party.  Thirdly, Holdings may yet prevail in its argument that the parties were not in a fiduciary relationship. Fourthly, the discovery process would have been necessary in any event, even if Holdings had not advanced its secondary argument that it had not received any funds.

[16]     I have therefore reached the view that the appropriate course of action is to reserve costs at this stage.  Costs on the application for summary judgment can be determined by the trial Judge, who will have a much better grasp of all of the issues to which I have referred.  If REC succeeds, one would expect it to receive costs on the withdrawn application for summary judgment.  Whether those costs should be increased may depend upon the trial Judge’s perception as to whether Holdings ought to have readily appreciated that the payments in question were potentially relevant to the present proceeding.

[17]     If Holdings succeeds at trial, it may be able to persuade the Judge that it is entitled to an order for costs on its application for summary judgment or that costs should lie where they fall.  Again, that decision can only be made once all of the relevant facts are known.

Result

[18]     Costs on the withdrawn application for summary judgment are reserved and shall be determined by the trial Judge.

Lang J

Solicitors:

Metro Law, Auckland

Kemps Weir Lawyers, Auckland
Counsel:
R J Hollyman, Auckland

I Williams, Auckland