Saba Yachts Limited v Anae HC Auckland CIV-2007-404-1049
[2007] NZHC 1922
•27 June 2007
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2007-404-1049
BETWEEN SABA YACHTS LIMITED Applicant
ANDARTHUR ANAE Respondent
Hearing: 18 June 2007
Counsel: J J S Shaw for Applicant
I F Williams for Respondent
Judgment: 27 June 2007 at 4.30pm
JUDGMENT OF ASSOCIATE JUDGE D H ABBOTT
This judgment was delivered by me on 27 June 2007 at 4:30 p.m. pursuant to Rule 540(4) of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors: L W Divers, Churton Hart & Divers, P O Box 82040, Highland Park, Auckland
Fax: (09) 533-9482
Counsel: J J S Shaw – (In-house counsel) Saba Yachts Limited, P O Box 91129, Auckland
Fax: (09) 379-5075
I F Williams, P O Box 4338, Auckland
Fax: (09) 377-6956
SABA YACHTS LIMITED V ANAE HC AK CIV-2007-404-1049 27 June 2007
Introduction
[1] The applicant, Saba Yachts Limited, applies to set aside a statutory demand issued by the respondent, Arthur Anae. The demand seeks payment of a judgment of
$97,154.75 plus legal costs and interest awarded in the District Court at Auckland both to Mr Anae and to his company Fish Pacific Limited. The judgment in favour of Fish Pacific was subsequently set aside on appeal, but an appeal against the judgment in favour of Mr Anae was dismissed.
[2] Saba applies to set aside the demand on the grounds that there is a substantial dispute over costs and interest payable to Mr Anae, that it is has a set-off in respect of a costs entitlement in respect of the District Court proceeding as a consequence of the appeal, and has a counterclaim arising out of Saba’s dealings with Mr Anae.
[3] Mr Anae opposes the application. He says that even if there is any basis to the disputes raised or set-off claimed in respect of costs and interest, there is still as sum in excess of $100,000 which is indisputably due to him. He says that the demand should not be set aside on the ground of the alleged counterclaims because even if there is any possible basis for them (which the applicant has not shown) the claims have either been determined in earlier proceedings or should have been raised in them and should not be taken into account at this stage.
Relevant background
[4] Mr Anae entered into a written agreement with Saba in May 2003. Mr Anae was acting on behalf of a company then to be formed (Fish Pacific Limited) for the construction of a tuna fishing boat. Mr Anae paid a deposit on behalf of Fish Pacific. Fish Pacific was subsequently incorporated and purported to ratify the agreement.
[5] The boat was not built. In March 2004 Fish Pacific purported to cancel the contract, and sought refund of the deposit paid by Mr Anae. Saba did not refund the deposit.
[6] Fish Pacific issued a claim in the District Court at Auckland seeking recovery of the deposit that had been paid, plus interest and costs. Saba defended the claim on various grounds, one of which was that there was no enforceable contract as Fish Pacific was unable to ratify the agreement by reason of it being an overseas company. As a consequence, Mr Anae was added as a plaintiff. Both Fish Pacific and Mr Anae sought recovery of the deposit on the grounds of unjust enrichment in the event that the agreement was held to be unenforceable. Saba raised various matters by way of set-off and counterclaim, including a claim that it had undertaken work to a value exceeding the deposit so that it was not unjustly enriched by retention of the deposit.
[7] An initial application for summary judgment was unsuccessful, but the plaintiffs obtained judgment against Saba on 20 December 2005 after a three-day defended hearing. Judgment was given for the sum of $97,154.75 (the amount of the deposit) plus interest from the date of cancellation (22 March 2004) to date of judgment. Judgment was also entered against Saba on its counterclaim for the value of work allegedly carried out under the agreement, with the District Court Judge holding that Saba had not proved that work was done pursuant to the agreement and had not proved it had suffered any loss.
[8] Saba appealed against the judgment. Whilst the appeal was pending there was correspondence between solicitors about costs. Fish Pacific and Mr Anae sealed their judgment (including the costs and interest they were claiming) on 7 April 2006. Saba wrote challenging aspects of the costs calculation but did not challenge the sealed judgment.
[9] The appeal was heard on 31 July 2006 and judgment given on 21 November
2006. Saba was successful in having the judgment in favour of Fish Pacific set aside on the ground that as an overseas company it was unable to ratify the contract. Saba’s appeal against the judgment in favour of Mr Anae was dismissed.
[10] Mr Anae issued the statutory demand which is the subject of the present application. It was served on Saba on 19 February 2007. The sum sought under the demand comprises the judgment sum of $97,154.75, costs and disbursements of
$22,361.44 as claimed in the judgment sealed on 7 April 2006, and interest at 7.5%
from the date of cancellation (22 March 2004) to date of issue of the demand.
General principles governing the application
[11] The application is brought under s 290 of the Companies Act 1993 under which the Court has a discretion to set aside a statutory demand. The relevant parts of s 290 for the present application are:
(4) The Court may grant an application to set aside a statutory demand if it is satisfied that—
(a) There is a substantial dispute whether or not the debt is owing or is due; or
(b) The company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c) The demand ought to be set aside on other grounds.
(5) A demand must not be set aside by reason only of a defect or irregularity unless the Court considers that substantial injustice would be caused if it were not set aside.
(6) In subsection (5) of this section, “defect” includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
(7) An order under this section may be made subject to conditions.
[12] The principles which the Court applies in exercising its discretion under s 290(4) can be found in Brookers Companies & Securities Law at CA290.02(1). The following principles are relevant for the present application:
a) The applicant must show a fairly arguable basis for saying that it is not liable, or for any set off, counter claim or cross demand which it relies upon: Eastgate Real Estate Ltd v Walker (2001) 15 PRNZ 308.
b)An applicant must do more than assert a dispute, set off, counter claim or cross demand. It must show a real basis for dispute, set off, or counter claim, with evidence which although short of proof
nevertheless backs up the claim: Paramoor Eleven Ltd v Pramb
Wong Enterprises Ltd High Court Auckland M1434/94, 10 April
1995, Master Gambrill; Trenchless Utility Services Ltd v Nixon High Court Auckland, M322/98, 28 October 1998, Master Faire; Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA). This requirement has been referred to as the need to establish a proper foundation: Freemont Design & Construction Ltd v Nature’s View Joinery Ltd High Court Hamilton CIV 2006-419-269, 26 July 2006, Associate Judge Faire.
[13] There is no issue in the present application over these principles, but rather as to their application to the facts of the case.
Issues
[14] Saba brought its application on three grounds:
a) There is a substantial dispute over the costs and interest claimed in the demand;
b)Saba is entitled to set off against costs payable to Mr Anae costs to which it is now entitled as a consequence of the setting aside of the judgment formerly in favour of Fish Pacific;
c) Saba has a counterclaim against Mr Anae (currently filed in the
District Court at Manukau) for more than the sum demanded.
[15] At the hearing of the application, counsel for Saba accepted that there is, in any event, an unchallengeable amount due under the judgment in excess of
$100,000. The real issue on this application, therefore, is whether Saba can satisfy the Court that the demand ought to be set aside on the ground that Saba has a reasonably arguable counterclaim or cross-demand against Mr Anae. Before addressing that issue, I will deal with aspects of the other grounds originally
advanced (whether there is a genuine dispute or a set-off relating to costs) as they have some relevance to overall exercise of discretion.
Is there a genuine dispute?
[16] Counsel for Saba, quite appropriately, conceded that Saba could not dispute its liability for the judgment sum of $97,154.75. That in itself is sufficient to dispose of the first of Saba’s grounds. However, prior to that concession Saba had taken the position that the demand in respect of costs was inappropriate having regard to issues Saba had raised over various items of costs claimed. There may be a basis for re- visiting the costs claimable by Mr Anae on the grounds that he was joined late to the proceeding and could not be said personally to have incurred costs prior to his joinder. The point was made briefly in an email exchange between counsel shortly after the appeal judgment was released, but was not pursued by Saba prior to issue of the statutory demand. At the point of issue of the demand the costs being sought were the subject of a sealed order that had not been appealed.
[17] Counsel for Saba also argued that the claim for interest from date of cancellation of the (unenforceable) contract to date of judgment may not now be sustainable in light of the finding that the contract is unenforceable. The District Court judgment does not set out the basis on which interest was awarded. This is not something that I can determine on this application, but I am not persuaded that Mr Anae does not have a claim for interest. Saba has had the benefit of the money since the date of cancellation, when the request for return of the deposit was made. I see no reason to criticise the issue of the statutory demand on this basis.
Is there a valid basis for a set-off on costs?
[18] The second ground for the application was that as a consequence of the appeal Saba has a claim for costs against Fish Pacific. Saba says that it should be entitled to set those off against Mr Anae (as the “alter ego” of Fish Pacific). Although Saba has not put forward any evidence on this point, counsel submitted that the costs being sought against Fish Pacific would be in the order of $11,500.
[19] Counsel for Saba relied on two points in arguing for “lifting of the corporate veil”. He referred to a reference in the initial summary judgment application to Mr Anae being the alter ego of Fish Pacific, and secondly to the fact that Mr Anae had demanded all of the costs.
[20] The statement of the District Court Judge on the summary judgment application was made in the context of a finding of uncertainty as to the party with whom the contract was made. It was not a finding on evidence tested at trial. It was not part of the finding of the District Court Judge at trial. I accept the submission of counsel for Mr Anae that the fact that his client was sole director and shareholder of Fish Pacific is insufficient to treat them as the same legal person, and that there is no evidence of sharp practice or abuse of the concept of separate legal personality which has led the Court in some cases to refuse to permit the fiction of separate personality: Morisons Company Law at [3.4] and [3.5].
[21] I do not consider the demand for the full amount of the costs award as sufficient reason to lift the corporate veil. The costs order which was in favour of both Mr Anae and Fish Pacific was not appealed. Mr Anae may yet be able to sustain it in his own right. That is not for me to determine on this application.
Is there an arguable counterclaim or cross demand?
[22] The biggest difficulty for Saba is that the judgment sum of $97,154.75 remains unassailable. This is so even if I were to accept all of the matters as to costs and interest raise a substantial dispute, including the argument for lifting the corporate veil and allowing a set-off of costs claimable by Saba against Fish Pacific. Mr Anae would also be entitled to interest subsequent to judgment at Judicature Act rates. By my calculations that gives an undisputed entitlement to approximately
$108,000.
[23] Saba says that it should not have to meet a demand for that sum because it has a counterclaim or cross demand which exceeds it. In support of this proposition, counsel for Saba relies on a proceeding brought this year by Saba against Mr Anae in the District Court at Manukau. Saba’s director, Mr Wayne Shaw, has exhibited a
copy of the statement of claim in that proceeding to his second affidavit in support of the application to set aside the demand.
[24] The statement of claim contains 12 narrative paragraphs followed by pleading of relief sought in respect of three causes of action said to arise out of the narrative paragraphs. Although not pleaded separately, the causes of action appear to be:
a) Breach of an agency agreement between Saba and Mr Anae in relation to the promotion and sale of Saba’s products in the Pacific area;
b)Breach of a contract between Saba and Mr Anae for production of a “demonstration vessel” which Mr Anae was to use to secure agreements for Saba with the Cook Islands government (for the purchase of similar fishing vessels); and
c) Breach of fiduciary duty (presumably in relation to Mr Anae’s role as agent for Saba) and of a common law duty of care (in relation to the carrying out of the agency agreement).
[25] Counsel for Mr Anae was justifiably critical of the form and content of the statement of claim. As well as not pleading the causes of action separately, it does not plead the respective elements of each clearly. The claim lacks detail as to the obligations that Mr Anae is said to have breached, how they have been breached, and as to how the alleged losses have arisen. However, that criticism was only an ingredient in Mr Anae’s principal grounds for opposition. The first of these is that the matters raised were either dealt with as part of the earlier proceeding or could have been, and could not succeed in the face of a plea of res judicata. Alternatively he says the claim is an abuse of process. The second ground is that Saba has failed to show the requisite factual foundation for the alleged counterclaim or cross-demand.
[26] It is trite law that a right of action is extinguished by final judgment given on that right of action by a court of competent jurisdiction. Under the principle of res judicata a plaintiff who has failed in a legal proceeding is prevented from asserting
the same right in another proceeding against the defendant. Under the rule in Henderson v Henderson [1843] 67 ER 312 the plea of res judicata applies (except in special cases) not just to pleaded causes of action and matters on which the court is required to pass judgment to determine a cause of action, but also to all issues relating to the subject of the litigation which a party exercising reasonable diligence could have brought forward at the time. The object of this rule is to confine all claims arising out of a particular subject matter to a single proceeding: A Beck “What is the rule in Henderson v Henderson” [2000] NZLJ 205. It has been interpreted as a giving rise to a distinct action for abuse of process:
Here the general principle applies that the Court should not allow issues to be raised which are so clearly part of the subject-matter of earlier litigation that it would be an abuse of process to allow a new proceeding to be started in respect of them: see the judgments in this Court in New Zealand Social Credit Political League Inc v O’Brien [1984] 1 NZLR 84, 90, 95, 99, applying such authorities as Henderson v Henderson (1843) 3 Hare 100, Greenhalgh v Mallard [1947] 2 All ER 255, and Hunter v Chief Constable of the West Midlands Police [1982] AC 529.
Neylon v Dickens [1987] 1 NZLR 402, 409
[27] In its recent decision in Bradford & Bingley Building Society v Seddon [1999] 4 All ER 217 the English Court of Appeal revisited the rule in Henderson v Henderson and expressed the view that abuse of process is distinct from res judicata of causes of action and issues. It decided that it will not necessarily be an abuse of process to relitigate a matter if there is no specific cause of action or issue estoppel, even if the matter could have been addressed in earlier litigation. The Court said that something more was required for abuse of process, such as a collateral attack on a previous decision, dishonesty, successive actions amounting to unjust harrassment, or an election between actions which are mutually exclusive. It ruled that claims of abuse of process are to be determined on all the circumstances of the case, instead of allowing relitigation only in special circumstances (under the rule in Henderson v Henderson). This decision has been criticised in New Zealand as undermining the case management procedures (A Beck “What is the rule in Henderson v Henderson). Nevertheless, for the purposes of the present application I accept that the view expressed in Bradford is arguable.
[28] These principles apply slightly differently to the three causes of action referred to in the District Court proceeding.
[29] I will start with the clearest of them. Counsel for Saba acknowledged that the second cause of action in the new proceeding (loss of profits on the demonstration vessel agreement) referred to the profits that Saba had expected to receive under the (May 2003) agreement to build a tuna fishing boat. That was of course the subject of the November 2005 judgment. The sum now being sought (US$48,000) is the same as the sum sought by Saba in its second counterclaim in the earlier proceeding. It seems clear to me that the second cause of action in the Manukau District Court is a direct repetition of the second counterclaim in the Auckland District Court, which was dismissed by the District Court Judge. As such, cause of action estoppel would seem to apply.
[30] The first cause of action alleged in the new proceeding is less easy to understand. It is said to be a claim for loss of profits that Saba expected to receive on the sale of fishing vessels to the Cook Islands government. Saba pleads that it had an agreement in principle with the Cook Islands which it lost because Mr Anae failed to provide a demonstration vessel. It says that the failure to provide a demonstration vessel was a breach of both the agency agreement and “the agreement to provide a demonstration vessel”. I understood counsel for Saba to say that the latter referred to the agreement for Saba to build the tuna fishing boat rather than a discrete agreement to use the boat as a demonstration vessel. Counsel for Saba submitted that the evidence to support these claims lay in Mr Anae’s admissions of the existence of an agency contract and in the contract for construction of the tuna boat. He acknowledged that there was no other evidence before the Court from which the Court could assess the merits of the claim.
[31] Counsel for Mr Anae put forward several reasons for saying that Saba did not have an arguable counterclaim or cross-demand on this basis:
a) The agency agreement was part of the common business interests pleaded as part of Saba’s affirmative defences. Saba’s director, Mr
Shaw, confirms that the new proceeding relates to the counterclaim that was dismissed in the earlier proceeding.
b)The District Court Judge (as part of the background to his decision on the contract for construction of the tuna boat) found that the agency agreement was between Mr Anae and International Marine Services Limited, a company related to Saba; hence any counterclaim lay with International Marine Services Limited.
c) Even if the new proceeding was not barred by cause of action or issue estoppel, the plea of rea judicata still applies (under the ruling Henderson v Henderson) as the issues are “so clearly part of the subject matter of [the] earlier litigation that it would be an abuse of process to allow a new proceeding to be started in respect of it”: Neylon v Dickens [1987] 1 NZLR 402, 409.
d) Saba has failed to establish any evidential foundation for the claims.
[32] It is not for me to determine whether Saba should be allowed to pursue this claim in the new proceeding. I can, however, take a view on its prospects of success in exercising my discretion in this case.
[33] It is likely, in my view, that a plea of res judicata will also apply to the claim based on the agency contract. There is a strong case for an issue estoppel in respect of the parties to the agency contract (Mr Anae and International Marine Services Ltd). If so, that rules out any prospect of a counter-claim by Saba under the agency contract. It is difficult to assess whether the plea will apply to the cause of action apart from this point as to the parties because of the imprecise pleading of the new proceeding. I note, however, Mr Shaw’s evidence that the new proceeding and the earlier judgment arise out of the same business dealings, that the new proceeding relates to Saba’s counterclaim in the earlier proceeding, and that the new proceeding seeks the same losses, namely Saba’s alleged financial losses due to Mr Anae’s failure to complete the demonstration vessel (paragraphs 3, 4 and 5 of the second affidavit of Wayne Shaw sworn on 27 April 2007).
[34] Counsel for Saba argued that the claim in respect of the agency contract was not squarely in issue in the earlier proceeding. He relied on Bradford & Bingley Building Society v Seddon in drawing a distinction between res judicata and an abuse of process. He referred to dicta in Bradford (at p 1492) that mere relitigation, falling short of cause of action or issue estoppel, does not necessarily give rise to abuse of process, nor does the bringing of a second claim which could have been part of an earlier one or which conflicts with it. He submitted that the question of abuse had to be considered in the circumstances of the case. He argued that Saba had a bona fide arguable claim which it should be permitted to pursue.
[35] The proceeding now before the Manukau District Court is between the same parties as the earlier proceeding and appears to be in respect of the same matters. In some respects (the claim for damages in respect of the contract for construction of the tuna fishing boat and the identity of the parties to the agency contract) it raises matters which the District Court has considered and decided. Its other aspects could have been raised in the earlier proceeding. Whether approached as a matter of res judicata (under the rule in Henderson v Henderson) or on the basis of abuse of process (to be judged on the circumstances of the case) the claim appears weak. I note that there was no reference to it in earlier applications to this Court (for stay of the judgment pending appeal) or to the District Court (for a deferred payment arrangement). The proceeding was not filed until after the statutory demand was issued, and then without the detail that I would have expected in a dispute that has now been running for three years.
[36] This last point (lack of detail of the new proceeding) carries forward to the present application. There is no means by which I can assess whether the deficiencies of the statement of claim are deficiencies of pleading, or indicative of a lack of substance. Saba has failed to provide the requisite evidential foundation for the alleged counterclaim. A skeletal statement of claim does not discharge the onus on it to do so. Saba has not even gone as far as verifying on oath that the matters raised in the statement of claim are true. I add that this applies to all three alleged causes of action.
[37] I turn to the third cause of action. As already mentioned, Saba’s claim refers to breaches of fiduciary duty and of duty of care. There is no explanation as to how these arise. Mr Anae has accepted that he undertook a role as an agent for the sale of boats to the Cook Islands government. The District Court has found that that was with International Marine Services Ltd, not Saba. There is nothing before me to support any claim for breach of fiduciary duty, whether to Saba or International Marine Services. As to the common law duty of care, there is nothing before the court to support a finding of a duty. The only pleading is of a contractual relationship. There is no duty to take reasonable care to perform a contract: Rolls Royce New Zealand v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at para [66].
[38] Counsel for Saba submitted that the appropriate course was to adjourn this application to allow Mr Anae to bring an application to strike-out in the District Court. I do not accept that approach. Saba has not shown that it has an arguable counterclaim. I see no reason to require Mr Anae to take steps to strike out a claim brought after Saba had received the demand for payment of the judgment debt, which lacks a clear evidential foundation, and which has not been shown to exceed the sum of approximately $108,000 undisputedly due to Mr Anae.
[39] Counsel for Saba requested an extension of time for complying with the demand if the application was refused. In an affidavit sworn and filed in support of its application for stay pending appeal, Mr Shaw said that Saba expected to have the funds to pay the whole of the judgment debt by the end of July 2006. Saba has not given any further evidence as to its financial position. If it received the funds it was expecting it has chosen not to apply them towards payment of this undisputed judgment debt. It should do so now. If it did not receive the funds, or has applied them elsewhere so that it cannot now meet this demand, the liquidation process may be entirely apt. In the circumstances I will grant a short extension only.
Decision
[40] Saba’s application to set aside the statutory demand is dismissed. I extend time for compliance with the statutory demand to 5 pm on 6 July 2007.
[41] Mr Anae is entitled to costs on this application on a 2B basis with
disbursements as fixed by the Registrar.
Associate Judge DH Abbott
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