Saito Offshore Pty Limited v Wing Hung Printing Company Limited
[2013] NZHC 1204
•24 May 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2008-404-4621 [2013] NZHC 1204
BETWEEN SAITO OFFSHORE PTY LIMITED Plaintiff
ANDWING HUNG PRINTING COMPANY LIMITED
First Defendant
ANDADAPT IDENTIFICATION, LLC Second Defendant
ANDSHORE TO SHORE BV Third Defendant
Hearing: 23 May 2013
Counsel: S J Mills QC and R J Hollyman for Plaintiff
J Hodder QC for Defendants
Judgment: 23 May 2013
Reasons: 24 May 2013
REASONS FOR JUDGMENT OF KATZ J
Solicitors:
Davenports West, Henderson, Auckland
Chapman Tripp, Auckland
Counsel:
S J Mills QC, Auckland
J Hodder QC, Wellington
R J Hollyman, Auckland
SAITO OFFSHORE PTY LIMITED V WING HUNG PRINTING COMPANY LIMITED HC AK CIV-2008-
404-4621 [23 May 2013]
Introduction
[1] These proceedings have been set down for a nine day hearing commencing next Monday, 27 May 2013.
[2] The plaintiff, Saito Offshore Pty Limited (“Saito”) was formed to offer “source marked” labels and tags for use by its customers based in New Zealand, Australia and the Pacific Islands. Saito alleges that the defendants engaged in a deliberate and ultimately successful plan to acquire its New Zealand and Australian based customers. Saito says that in doing this the defendants have breached both contractual and other legal obligations owed to it.
[3] The pleadings have closed and accordingly leave is required to amend under r 7.7 of the High Court Rules, unless the amended pleading “merely brings up to date the information before the court.”
[4] Saito recently filed a “revised” third amended statement of claim (“revised claim”). Saito submitted that leave was not required to file the revised claim as it is not an “amended pleading” that requires leave under r 7.7(1). The defendants disagree, but did not press the point as they do not oppose leave being granted to Saito to amend its pleading. Accordingly, to the extent that leave is necessary to file the revised claim, it is granted.
[5] The defendants also wish to amend their pleading. They seek leave pursuant to r 7.7(1) to file an amended statement of defence (“draft amended defence”) to the revised claim. Some of the amendments are of a “tidy up” nature. Others are intended to “align the pleading with the evidence and case that the defendants will advance at trial.” These matters of alignment were said to follow an intensive consideration of various aspects of the dispute during the process of preparing witness statements. This included a review by the defendants’ witnesses of Saito’s witness statements, as well as a comprehensive review of discovered and other documents.
[6] Most of the proposed amendments are uncontroversial. However, one of the “aligned” paragraphs in the draft amended defence involves a significant amendment that was strenuously opposed by Saito. The issue before me was whether that amendment should be allowed and, if so, on what terms.
Judgment
[7] At the conclusion of argument I granted the defendants’ application for leave to amend. Saito is entitled to an adjournment if, as it indicated is probable, it wishes to pursue further discovery or other interlocutory issues arising out of the amendment. Saito is also entitled to an award of costs in respect of any adjournment, on a “wasted costs” basis.
[8] Counsel for the defendants suggested that leave might be conditional on the defendants not opposing the joinder of Adapt China as a defendant and not taking any limitation defence point against extending the current causes of action to Adapt China. Those are in my view appropriate conditions, albeit of potentially limited utility given that Adapt China has apparently been wound up.
[9] My reasons for those decisions are set out below.
The proposed amendment
[10] In paragraph 30 of the revised claim Saito pleads that on 18 November 2006 it entered into a formal Memorandum of Understanding (“MOU”) with the first defendant, Wing Hung Printing Company Limited (“Wing Hung”) and the second defendant, Adapt Identification LLC (“Adapt LLC”) on various specified terms.
[11] It is not apparent on the face of the MOU precisely who the contracting parties are. The document is headed “Memorandum of Understanding between Wing Hung and Saito Group.” It is signed on behalf of “(Saito Group) Saito Off Shore P/l” by Gavin Hodder. That is presumably a reference to Saito, as it is admitted that Saito is one of the parties to the MOU. As to the counterparty, it was signed on behalf of “ADAPT” by John Lau. Mr Lau is (or was) apparently a director
and shareholder of all three defendant companies. The defendants’ original pleading
admitted that it was the second defendant, Adapt LLC, who had signed the MOU.
[12] The draft amended defence resiles from that admission. It pleads that the MOU was signed by Mr Lau on behalf of Adapt Identification China Limited (“Adapt China”). Adapt China is apparently a subsidiary of Adapt LLC. Adapt China is not a party to the proceedings. Further, it appears to have been wound up.
Relevant legal principles
[13] Rule 7.7 does not specify particular criteria the court must take into account in exercising its discretion to allow an amendment to a pleading after the pleadings have closed.
[14] The authorities provide general principles, but the circumstances and justice of the particular case are inevitably decisive. Counsel were unable to identify any authorities which were materially comparable. Most of the cases which have involved any real discussion of the relevant principles have involved amendments to a statement of claim, rather than to a statement of defence.
[15] At the level of principle, there is some longstanding Court of Appeal guidance from Elders Pastoral Ltd v Marr,1 Thornton Hall Manufacturing Ltd v Shanton Apparel Ltd,2 and Chilcott v Goss.3 These appellate authorities indicate that:
(a) the underlying test is the interests of justice;4
1 Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA).
2 Thornton Hall Manufacturing Ltd v Shanton Apparel Ltd [1989] 3 NZLR 304 (CA).
3 Chilcott v Goss [1995] 1 NZLR 263 (CA).
4 Elders Pastoral at 385; Chilcott at 272.
(b) a primary objective is to ensure that the determination of the real controversy goes to trial to ensure the just determination of the proceeding;5
(c) lateness of itself (even during trial, or on appeal) is not decisive;6
(d) the addition of a new claim, as distinct from a clarification, faces a higher hurdle;7
(e) significant prejudice to the other party is a “powerful consideration”;8
(f) a significant delay in the proceeding is also an important factor;9
(g) “disciplinary” considerations for example (aimed at penalising dilatoriness) are unlikely to be helpful.10
[16] It has also been recognised that an “absence of merit” of a proposed amended pleading will be a factor weighing against a grant of leave: Fordham v Xcentrix Communications Ltd11; Body Corporate 177519 v Auckland City Council & Ors.12
Discussion
[17] The most relevant considerations in this case are the importance of ensuring the real controversy goes to trial, the prejudice to the plaintiff of late amendment, and the extent to which the proposed amendment has merit. I will consider each of those issues in turn. I will then consider where the overall justice lies, which
requires a balancing of these factors.
5 Elders Pastoral at 384; Thornton Hall at 309.
6 See Elders Pastoral (63rd day of trial); Chilcott (during appeal).
7 Elders Pastoral at 384.
8 Elders Pastoral at 385; Chilcott at 272.
9 Elders Pastoral at 385.
10 Ibid.
11 Fordham v Xcentrix Communications Ltd (1996) 9 PRNZ 682 (HC) at 683;
12 Body Corporate 177519 v Auckland City Council & Ors HC Auckland CIV-2005-404-005563,
24 May 2011.
Ensuring the real controversy goes to trial
[18] Mr Lau’s evidence will apparently be that he signed the MOU on the basis that Adapt China would be the company that would engage with Saito. The witness briefs which have been filed and served reflect this. The amendment to the pleading is therefore intended to bring the case into line with the defendants’ actual evidence.
[19] Given that the issue is a factual one, the evidence to be given must be correct to the best of the relevant witnesses’ knowledge and belief. They cannot give evidence in accordance with the current pleading if, in their view, such evidence would be untrue.
[20] The defendants submitted that the amendment is therefore critical to ensuring that the real issues go to trial and that they should not be “forced” to proceed to trial on a pleading which they believe to be factually incorrect. To require this would be contrary to the interests of justice.
Prejudice to plaintiff
[21] Against this I must weigh the prejudice to Saito of allowing the amendment. [22] The amendment could have been made “as of right” two months ago. No real
prejudice could have been asserted by Saito at that time. However, leave is now required because of the imminence of the trial date. The leave application was heard two working days before trial. The consequence of allowing the amendment will likely be an adjournment of the trial date. That inevitably gives rise to both delay and significant wasted costs.
[23] Accordingly clear prejudice to Saito arises. That is a significant factor weighing against the granting of leave. Such prejudice can to some extent be mitigated by an award of wasted costs. However, as counsel for Saito observed, such an award can never fully address the true prejudice (and costs) which inevitably arises when a trial is adjourned at the eleventh hour.
[24] Apart from the “procedural” prejudice arising from delay and wasted costs (which I do not minimise) there does not appear to be any direct “substantive” prejudice or injustice arising from the amendment. As noted above, the amendment could have been made as of right two months ago. There do not appear to have been any developments within the last two months which would suggest that it would be substantively unjust to allow the amendment now. Such prejudice could arise, for example, if Adapt China had only been liquidated within the last two months and Saito had been deprived of an opportunity to oppose, challenge or prove in the liquidation due to the late amendment. However, no such issues appear to arise.
“Absence of merit” in proposed amended pleading
[25] Saito submitted that the proposed amendment lacked merit, a factor which would weigh against the grant of leave. In particular, Saito submitted that the proposed amendment was inconsistent with an admission in both the current defence and draft amended defence that Adapt LLC (not Adapt China) carries on business as a supplier of information technology solutions for the labelling and tag industry via an information technology system known as “ADAPT IT.” The MOU refers to Saito utilising the ADAPT IT platform. Saito submitted that this is clear evidence that the counter party to the MOU must have been intended to be Adapt LLC, which owns the ADAPT IT technology.
[26] The defendants’ response was essentially that there is nothing at all unusual about intellectual property being licensed for use by different companies within a corporate group. It was presumably envisaged that if the MOU was implemented that some intra-group arrangement would be entered into to enable Adapt China to licence Saito to utilise the ADAPT IT technology.
[27] Saito also noted that Mr Kurdin, a key witness for the defendants, has given evidence in an interlocutory affidavit that is inconsistent with the proposed amendment. In particular he stated that:
In late 2006, despite reservations about Saito, Adapt did sign a MOU with Saito which foreshadowed further negotiations. At the time, talks were principally focussed on licensing Saito with a proprietary logistics
application described in the OU as “the ADAPT IT System” to replace
software Saito was using under licence from S2SBV.
“Adapt” is defined in Mr Kurdin’s affidavit as meaning “Adapt Identification LLC.”
[28] The defendants’ response was essentially that it is not unusual for executives to speak about different companies within a group in a “global” way without regard for considerations of separate corporate personality. It was submitted that Mr Kurdin was probably referring to the Adapt group of companies in a general sense, rather than Adapt LLC in particular.
[29] In my view “the merits” of the proposed amendment is a relatively neutral factor in the overall assessment. The examples of “inconsistencies” referred to by Saito indicate that any evidence from witnesses that it was Adapt China rather than Adapt LLC which was a party to the MOU will be open to robust challenge at trial. As with any disputed factual issue, an assessment of the veracity of such evidence will ultimately need to be based on all the evidence before the Court.
Overall justice
[30] Taking all of the factors outlined above into account, it is necessary to determine where the overall interests of justice lie. As I indicated when granting the application for leave to amend, the matter is fairly evenly balanced. In particular, allowing the amendment causes real prejudice to Saito. This is due to the likely need to adjourn the trial date and the wasted costs associated with that. These proceedings have been on foot for some years and Saito is understandably anxious to have them finally resolved.
[31] Against that I must take into account the importance of the “real controversy” going to trial, in the interests of justice. Saito’s proposed evidence is that Adapt China was the party to the MOU, not Adapt LLC. Their current pleading says otherwise.
[32] If the defendants were held to their current pleading then, on one view, any evidence inconsistent with the admission that Adapt LLC was the counterparty to the
MOU would simply be irrelevant. I am concerned however that the issue of which entity signed the MOU is unlikely to be a discrete issue. Whether the MOU was a binding agreement, what obligations it imposed on the parties to it, and whether those obligations were breached will all be issues at trial. Which company in the Adapt group entered into the MOU is unlikely to be a “stand alone” issue, but will probably be closely interrelated to a number of other issues at trial.
[33] The current statement of defence will be contradicted by the evidence of the defendants’ own witnesses. The interests of justice require that the real issues should be traversed at trial. All witnesses are required to give evidence which is consistent with their understanding of the facts. The trial process is ultimately intended to achieve a just determination of the parties’ dispute. Holding the defendants to a pleading which they believe to be false would potentially result in injustice.
[34] For these reasons I ultimately concluded that the importance of the real controversy going to trial outweighs the prejudice caused to Saito by the late amendment. Some, but not all, of the prejudice to Saito will be able to be addressed through an award of wasted costs.
Result
[35] I made the orders and gave the directions outlined at [7] to [9] above.
Katz J
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