Savvy Vineyards 4334 Limited v Weta Estate Limited
[2017] NZHC 1111
•26 May 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-2735 [2017] NZHC 1111
BETWEEN SAVVY VINEYARDS 4334 LIMITED
First Plaintiff
AND
SAVVY VINEYARDS 3552 LIMITED Second Plaintiff
AND
WETA ESTATE LIMITED First Defendant
AND
TIROSH ESTATE LIMITED Second Defendant
Hearing: 15 May 2017 Appearances:
D P H Jones QC and C L Bryant for Plaintiffs
R E Harrison QC and W D Woodd for DefendantsJudgment:
26 May 2017
JUDGMENT OF ASSOCIATE JUDGE OSBORNE [on interlocutory applications]
This judgment was delivered by me at pm on 2017 pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
SAVVY VINEYARDS 4334 LIMITED v WETA ESTATE LIMITED [2017] NZHC 1111 [26 May 2017]
Introduction
[1] Litigation between the plaintiffs and the defendants over vineyard management agreements (VMAs) and grape supply agreements (GSAs) has now entered its eighth year, the first five years having been taken up in proceedings in the three senior courts (“the earlier litigation”).1
[2] The earlier litigation established that the defendants’ notices of termination of the VMAs and GSAs were invalid and of no effect, with the defendants required to perform their obligations pursuant to those agreements.
[3] The plaintiffs’ claims here fall into two categories. Under the GSAs, they pursue inquiries into damages (on three causes of action) for variously the 2014 and subsequent harvest (first cause of action); the 2016 and subsequent harvest (second cause of action); and the same 2016 and subsequent harvest (third cause of action).
[4] Under the VMAs, they sue for management fees and operation charges of
$177,451.95 (first plaintiff) and $99,864.20 (second plaintiff), upon the basis of breach of agreement (fourth cause of action) and quantum meruit (fifth cause of action).
The interlocutory applications
[5] The defendants’ notice of interlocutory applications comprised five distinct applications. The three which remain for consideration in this judgment relate to:
(a) Stay of the fourth and fifth pleaded causes of actions; (b) Security for costs;
(c) Striking out of some pleadings.
1 Savvy Vineyards 3552 Ltd v Kakara Estate Ltd [2012] NZHC 416 at [62].
Kakara Estate Ltd v Savvy Vineyards 3552 Ltd [2013] NZCA 101, [2013] 3 NZLR 297.
Savvy Vineyards 3552 Ltd v Kakara Estate Ltd [2014] NZSC 121 [2015] 1 NZLR 281.
Interlocutory matters not pursued or dealt with
[6] Through the agreement of counsel at the hearing, I do not have to deal with
two aspects of the defendants’ notice of application.
[7] First, I dismiss the defendants’ third application, by which they sought certain directions in relation to the earlier proceedings. Those matters have since been dealt with through the agreement of counsel by a Minute issued in that proceeding.
[8] Secondly, Mr Harrison QC informed the Court before the hearing that, in light of the plaintiffs’ agreement to provide further particulars after discovery and inspection, the defendants would not press their fifth application (for further and better particulars).
[9] I adjourn that application to be brought on for hearing on one week’s notice.
Stay of the fourth and fifth causes of action
The defendants’ application
[10] The defendants seek an order staying the fourth and fifth causes of action (for payments under the VMAs) and referring those claims to arbitration. The plaintiffs rely on the provisions of clause 25 in each VMA as being an arbitration agreement within the meaning of the Arbitration Act 1996. In particular, the defendants rely on clause 8(1) of Schedule 1 of that Act.
[11] An alternative ground, advanced in the defendants’ notice of application but not developed in argument, was that claims and counterclaims relating to VMA are more suitable for determination by arbitration than through this proceeding.
The fate of the VMAs
[12] Through the earlier litigation, it was established that the VMAs had remained in force.
[13] It is common ground between the parties that on 14 March 2011, the plaintiffs cancelled the VMAs.
The arbitration provisions of the VMAs
[14] The VMAs each contained a dispute resolution clause in the following terms:
25. DISPUTES
25.1Any disputes or differences that may arise between the parties relating to any matter under or relating to this agreement will be actively and in good faith negotiated by the parties with a view to a speedy resolution of such differences or disputes.
25.2If notwithstanding the foregoing the parties are unable to resolve such dispute or difference within 14 days, then the same shall be referred forthwith by the parties to a professional mediator and the parties shall co-operate to resolve the same by mediation, except where otherwise indicated in this agreement. Each party must pay a half share of the mediator’s reasonable fee and costs.
25.3The terms of any settlement agreed at mediation bind the parties and override the contract if there is any conflict.
25.4The parties agree that written statements given to the mediator or to one another, and any discussions between them or between them and the mediator during the mediation are not admissible by the recipient in any legal or arbitration proceedings.
25.5If the parties are unable to resolve the dispute as outlined above within a further 28 days and either party considers the dispute to be fundamental to their ongoing relationship under this agreement, then either party shall be entitled to give the other notice of termination that if the matter is (sic)2 agreed within the period of 30 days this agreement shall be terminated.
25.6Termination of this agreement shall be without prejudice to or shall not be deemed a waiver of any claim that either party may have against the other in respect of any breach or other failure to comply with any term or condition of this agreement prior to the date of termination.
25.7If a dispute or difference has not been resolved by mediation, and the agreement has not been cancelled pursuant to this clause the dispute will be referred to arbitration. The arbitration will be conducted by one arbitrator appointed by the parties. If the parties cannot agree on an arbitrator within 7 days the appointment will be made by the
2 The wording of clause 25.5 appears to contain an omission of the word “not”. The intended wording would seem to be “… if the matter is not agreed …. As the correction of the wording does not affect this judgment, I do not make a determination on the point.
President of the New Zealand Law Society or the President’s
nominee.
25.8 The arbitration will be conducted in accordance with the Rules in
Schedules 1 and 2 of the Arbitration Act 1996.
25.9This clause will not apply if either party seeks urgent interlocutory relief from any court.
25.10Neither party will unreasonably delay the dispute resolution procedures in this clause.
25.11 Pending resolution of any dispute the parties will perform this agreement in all respects including performance of the matter which is the subject of dispute.
Defendants’ submissions
[15] The defendants invoke clause 8(1) of the First Schedule of the Arbitration
Act, which provides:3
8 Arbitration agreement and substantive claim before court
(1) A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.
[16] Mr Harrison submits, by reference to Zurich Australian Insurance Ltd v Cognition Education Ltd and other authorities, that (in contrast to the provisions of the former Arbitration Act 1908), clause 8(1) makes a stay of Court proceedings and referral to arbitration mandatory (other than in stipulated circumstances which do not
apply).4
[17] The defendants here rely on clause 25.7 (above at [14]) as an arbitration agreement. They submit that, both pursuant to common law and under Article 16(1)
3 Arbitration Act 1996, s 2(1) defines “arbitration agreement” to mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
4 Zurich Australian Insurance Ltd v Cognition Education Ltd [2013] NZCA 180, [2013] 3 NZLR
219 at [3] – [5]. See also Pathak v Tourism Transport Ltd [2002] 3 NZLR 681 (HC) at [17] – [19] and D A R Williams QC and A Kawharu (ed) Williams & Kawharu on Arbitration (LexisNexis, Wellington, 2011) at 4.13.1.
of Schedule 1(1) of the Arbitration Act, the arbitration agreement survived the termination of the TMAs. Article 16(1) provides:
16 Competence of arbitral tribunal to rule on its jurisdiction
(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure (necessarily) the invalidity of the arbitration clause.
(emphasis added)
[18] Mr Harrison referred to the judgment of Harrison J in Heli-Flight New Zealand Ltd v Massey University as correctly identifying the survival of an arbitration provision within a principal contract which is cancelled:5
I agree that [the] principle is settled beyond dispute at common law (Heyman v Darwins,6… followed in Mills v SIMU Mutual Insurance Association7… and now enjoys statutory codification. The Arbitration Act 1996 provides that “…an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract” (Article
16(1), First Schedule).
[19] The issue then becomes whether this (surviving) arbitration clause applies to the present disputes (pursued under the fourth and fifth causes of action). Mr Harrison submits that it does because:
(a) There are disputes or differences between the parties relating to matters under or relating to the TMAs;
(b) The disputes or differences have not been resolved by mediation;
(c) The agreement is not inoperative (in terms of Article 8(1)) in that it was not cancelled pursuant to clause 25.7 of the VMAs.
5 Heli-Flight New Zealand Ltd v Massey University HC Auckland CIV-2005-404-4855, 30
November 2005 at [12]. See also, Aladdin’s Motor Inn Ltd v Bowcorp Holdings Ltd [2012] NZCA 532 at [30] – [31].
6 Heyman v Darwins [1942] AC 356, per Lord MacMillan at 373-374.
7 Mills v SIMU Mutual Insurance Association [1970] NZLR 602 per North P at 605.
[20] Mr Harrison’s first two points are clear. The third requires elaboration. The “cancellation” identified in clause 25.7 of the VMAs is a reference to a termination which occurs under clause 25.5. The steps which may lead to such termination are:
(a) The parties are unable to resolve a dispute in accordance with clauses
25.1 to 25.4 within 28 days after reference to a professional mediator;
(b)One party considers the dispute to be fundamental to their ongoing relationship under the TMA;
(c) One party gives notice of termination that if the matter in dispute is not agreed within 30 days the TMA will be terminated; and
(d) The 30 day period expires without agreement.
[21] Mr Harrison notes that neither party adopted the procedure under clause 25.5 whereby the TMAs may be terminated. Mr Harrison rejected any suggestion that the plaintiffs’ cancellation of the TMAs had occurred under the provisions of clause 25. He addressed this matter because the letter of cancellation sent by the plaintiffs’ solicitors on 14 March 2011 contained a reference to clause 25. The relevant part of the letter reads:
This letter is notice to Weta and Kakara that Savvy 3552 and Savvy 4334 are terminating the Vineyard Management Agreements for breaches by your clients of the fundamental terms of the VMAs, your clients’ obligations and our clients’ obligations and our clients’ rights…
Our clients rely on clauses 25 and 26 of the Vineyard Management
Agreements and also the provisions of the Contractual Remedies Act 1979
…
[22] Mr Harrison repeats that any reliance upon clause 25 was misplaced because the prerequisites of termination under clause 25.5 had not occurred. He submitted, in short, that on the established facts, the plaintiffs must have been relying on the concept of substantial breach under the Contractual Remedies Act. As much was recognised in Mr Jones’s synopsis where he recorded:
The vineyard management agreements were cancelled pursuant to s 7 of the
Contractual Remedies Act 1979.
[23] Mr Harrison submitted that in these circumstances the arbitration agreement remained, in terms of Article 8(1), operative.
[24] Mr Harrison referred to the judgment of the England and Wales Court of Appeal in Downing v Al Tameer Establishment, in which it was held that the burden of proving that any of the grounds for a stay under the United Kingdom equivalent of Article 8(1) (such as the arbitration agreement being inoperative) lies upon the claimant – if the defendant can raise an arguable case in favour of validity, a stay
should be granted.8 Mr Harrison submitted that, in the event that it is arguable that
an agreement to arbitrate subsists, a stay should be granted and the determination of whether the agreement remained operative left to the arbitral tribunal, pursuant to its power to rule on its jurisdiction under Article 16(1).
Plaintiffs’ submissions
[25] The plaintiffs accept (in light of Article 16(1)) that an arbitration clause in a contract is to be treated as a separate contract
[26] For the plaintiffs, Mr Jones QC submits, however, that here the arbitration agreement does not encompass disputes being dealt with after the principal contract has come to an end. He submits that the arbitration agreement in clause 25 is no longer operative because under clause 25 (when read as a whole), matters are referred to arbitration only while the parties remain in a contractual relationship under the principal contract. Mr Jones stated:
Sub-clause 25.7 expressly states that the referral to arbitration does not apply if the agreement has been cancelled.
[27] Mr Jones submitted that the provisions of clause 25.11 reinforce an interpretation whereby any obligation to arbitrate subsists only while the principal contract is on foot. Mr Jones invited the Court to find an analogy in the facts of Ministry of Education v PXA Ltd.9 In that case, Associate Judge Matthews dismissed
an application for stay upon the basis that the arbitration agreement applied only
8 Downing v Al Tameer Establishment [2002] EWCA Civ 721; [2002] 2 All ER (Comm) 545 at
[20]; citing Hume v AA Mutual International Insurance [1996] LRLR 19.
9 Ministry of Education v PXA Ltd [2015] NZHC 1330.
while the principal contract subsisted. Mr Jones noted in particular the Associate
Judge’s observation as to the term “inoperative”:10
The word “inoperative” is apt, in my view, to describe an arbitration agreement which, whilst once applicable, is no longer applicable due to the passing of time, a change of circumstances, or both.
Mr Jones noted that Associate Judge Matthews’ conclusion that the arbitration agreement had become inoperative flowed from three circumstances, in particular:
(a) There was a stepped dispute resolution process with limited time frames for compliance which indicated a level of urgency consistent with an ongoing contract;
(b)The contractor was required to perform the contract while the dispute process was underway;
(c) The parties had a limited right to bring proceedings in Court to recover undisputed payments or to seek urgent interlocutory relief.
[28] Mr Jones concluded this, which he described as his main submission, by submitting that the nature of the disputes resolution provisions of clause 25 here are comparable to those in Ministry of Education v PXA Ltd and lead to the conclusion that the arbitration agreement here became inoperative.
[29] As “additional notes” Mr Jones made two further submissions.
[30] First, Mr Jones submitted that the defendants had repudiated the VMAs as a whole (subsequently seeking declarations from the Court that they were entitled to do so). Mr Jones submitted that, because the party who repudiates an arbitration agreement cannot rely on its terms, the defendants here are not entitled to refer any matter under the VMAs to arbitration. Mr Jones referred to a passage in Williams & Kawharu as containing recognition that a repudiation of a contract will render
inoperative the arbitration agreement which it contains. The authors state:11
10 At [28].
11 Williams & Kawharu on Arbitration, above n 4, at 4.13.4.
The word “inoperative” refers to an agreement that has ceased to exist (for example, because it has expired or has been ended by agreement, repudiation, or waiver).
(footnotes omitted).
The authors reference, in relation to the identification of repudiation, the decision in
Downing v Al Tameer Establishment to which I have referred.12
[31] Secondly, Mr Jones noted (as Mr Harrison had highlighted in his submissions) that the VMAs were cancelled pursuant to s 7 Contractual Remedies Act. As s 8 of that Act releases the parties from future performance of obligations under a contract cancelled under the Act, Mr Jones submitted that obligations to arbitrate also cease to operate. Mr Jones referred to a further passage in Williams & Kawharu on Arbitration.13 The authors of the text identified two decisions (in 1990 and 1991) which questioned whether the Contractual Remedies Act had altered the prior law (under Heyman v Darwins Ltd) as to the survivorship of arbitration provisions upon cancellation of the principal contract.14
Defendants’ reply submissions
[32] Mr Harrison first replied to the plaintiffs’ primary submission as to the arbitration agreement having become inoperative as a matter of contractual interpretation. Mr Harrison referred particularly to Mr Jones’ submission (based on clause 25.7) that “referral to arbitration does not apply if the agreement has been cancelled”. Mr Harrison noted that clause 25.7 removes the obligation to arbitrate only when the cancellation has been “pursuant to this clause”, meaning clause 25. Mr Harrison noted that the invitation to the Court to view the cancellation as having occurred pursuant to the provisions of clause 25 was inconsistent with Mr Jones’s express recognition later in the submissions that the contract had been cancelled
pursuant to rights under the Contractual Remedies Act.15
12 Downing v Al Tameer Establishment, above n 8.
13 Williams & Kawharu on Arbitration, above n 4, at 4.10.3.
14 The New Zealand Insurance Life Ltd v Partington Consultants Ltd HC Auckland M1842/90, 13
December 1990; Williams v Chase HC Auckland CP465/91, 3 May 1991.
15 Above at [31].
[33] Turning to the decision in Minister of Education v PXA Ltd, Mr Harrison submitted that the settings and dispute regimes in that case and this are markedly different. Mr Harrison noted that Minister of Education v PXA Ltd was concerned with a construction contract in which the architect was to have the primary adjudicative role in relation to any dispute. As Associate Judge Matthews found:16
If this [arbitration] clause applied after the contract works had been completed, there would not be any reason for the project architect to have a primary adjudicative role, for urgency in conducting a mediation or an arbitration, or a requirement that the contractor return to work.
These circumstances were central to the Associate Judge’s conclusions that the clause containing the arbitration agreement had become inoperative after the contract was concluded.
[34] Mr Harrison also replied to Mr Jones’ submission as to repudiation rendering the arbitration agreement inoperative or otherwise unable to be relied upon. Mr Harrison took the Court to the full discussion of Potter LJ in the decision relied upon in Williams & Kawharu (namely, Downing v Al Tameer Establishment). The discussion of principle in Williams & Kawharu included this:17
The Bremer Vulkan case and subsequent decisions concerning the effects of delay on the prosecution of arbitration proceedings such as André & Cie SA v Marine Transocean Ltd, The Splendid Sun [1981] 2 All ER 993, [1981] QB
694, Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal, The
Hannah Blumenthal [1983] 1 All ER 34, [1983] 1 AC 854 and Allied Marine
Transport Ltd v Vale do Rio Doce Navegacao SA, The Leonidas D [1985] 2
All ER 796, [1985] 1 WLR 925 demonstrate that the court approaches the question of whether or not a party has lost the right to arbitrate under the
secondary contract by applying the traditional principles of the law of
contract and, in particular, the doctrine of repudiation whereby if one party, by words or conduct, demonstrates an intention no longer to be bound by the contract, it is open to the other party to accept such demonstration as a repudiation and thereby to bring the contract to an end.
[35] In the next paragraph of the Downing judgment, Potter LJ analyses the factual scenario. The case involved a repudiatory breach of the very agreement to arbitrate (as against the principal contract) by the defendants. The claimant’s
solicitors had responded by “formally accepting repudiation”.18
16 At [32].
17 At [25].
18 At [26] – [27].
[36] Accordingly, the reference to “repudiation” in the Williams & Kawharu text is misleading. While it appears to suggest that repudiation of itself is sufficient to cancel an agreement, Downing v Al Tameer Establishment establishes (in accordance with settled contractual principles), that it is an accepted repudiation which effects cancellation.
[37] Mr Harrison then turned to Mr Jones’ alternative submission based on an “ongoing debate” as to whether cancellation under the Contractual Remedies Act releases parties from further performance of all obligations under the principal contact (including any arbitration agreement). The authors of Williams & Kawharu had referred to The New Zealand Insurance Life Ltd v Partington Consultants Ltd. In that case, Wylie J, having been referred to the House of Lord’s decision in Heyman v Darwins Ltd, had not been “entirely convinced” that arbitration agreements remained operative when the principal contract was cancelled under the
Contractual Remedies Act.19 Mr Harrison, without accepting that there was a valid
argument to that effect, submitted that Partington must be viewed as a case decided under the former Arbitration Act (of 1908) – the doubt expressed cannot be sustained given the express provisions of Article 16(1) of the current Act (of 1996).
Discussion
[38] Clause 25.7 of each VMA contains an arbitration agreement.
[39] Unless the plaintiffs establish that the arbitration agreement became “inoperative”, the defendants are entitled to a stay of the plaintiffs’ claims in this court and to have the disputes referred to arbitration.20 The arbitral tribunal has the power to rule on its own jurisdiction, including as to the existence or validity of the arbitration agreement.21 The defendants have established prima facie that the arbitration agreement remains operative in this case as the evidence indicates that the event which would have rendered the arbitration agreement inoperative under clause
25.7 of the VMAs – cancellation pursuant to clause 25 – did not occur.
19 The New Zealand Insurance Life Ltd v Partington Consultants Ltd, above n 14, at 5.
20 Arbitration Act 1996, Schedule 1, Article 8(1).
21 Arbitration Act 1996, Schedule 1, Article 16(1).
[40] In these circumstances, the Court should grant the requested stay and allow the arbitral tribunal to determine whether it indeed has jurisdiction in relation to the disputes. I adopt the approach identified and applied in three recent cases, beginning with the analysis of Associate Judge Abbott in Ursem v Chung.22 Simon France J summarised the position in Tamihere v Media Works Radio Ltd:23
The authorities were recently reviewed in Ursem v Chung. It seems there is support for three approaches, being immediate referral, a prima facie assessment of whether the arbitration agreement is valid or applies, or a full consideration of the issue. Associate Judge Abbott adopted the prima facie test, an approach I am content to follow for the reasons he gives. It seems to best reflect the right of the arbitration tribunal to determine its own jurisdiction.
(footnotes omitted). Security for costs Defendants’ application
[41] The defendants apply for security for costs from each plaintiff “in such sum and by such means as may be fixed”. The defendants also seek a stay of this proceeding until such security is provided.
[42] In his oral submissions, Mr Harrison indicated that the Court may treat the application as being for a first tranche of security, relating to the period up to the close of pleadings and in the sum of $16,000 (a figure recognised by both counsel as approximating a calculation of costs on a 2B basis).24 In further discussion with the bench, Mr Harrison recognised that, if the usual approach is adopted in fixing security, an appropriate award might be something less than 100 per cent of the 2B
calculation.
[43] The defendants invoke the Court’s jurisdiction to order security for costs under r 5.45 High Court Rules. In particular, the defendants assert (under r
5.45(1)(b)) that there is reason to believe that both plaintiffs will be unable to pay the
22 Ursem v Chung [2014] NZHC 436, [2014] NZAR 1123, especially at [47]. See also, Tamihere v Media Works Radio Ltd [2014] NZHC 2082, [2014] NZAR 1113 at [20]; Donaldson v Donaldson [2015] NZHC 3093, [2016] NZAR 199 at [19].
23 Tamihere v Media Works Radio Ltd, above n 22, at [20].
24 High Court Rules, Category 2 under r 14.3(1) and band B under r 14.5(2).
defendants’ costs if the plaintiffs are unsuccessful in this proceeding (“the threshold test”).
[44] The defendants’ deponent, Murray Forlong, has provided brief evidence as to the financial history of the plaintiffs, including the liquidation of the company (Goldridge Estate Ltd) which was (before novations involving the plaintiffs) the manager under the VMAs and the buyer under the GSAs. Documents exhibited by Mr Forlong evidence the previous insolvency of the plaintiffs’ shareholders, Peter and Helen Vegar. An insolvency proposal which Mr and Mrs Vegar put (successfully) to their creditors in 2013 identified their substantial insolvency flowing from personal guarantees of the debts of their companies (including Goldridge), with 13 listed companies (including the two plaintiffs) all having “no realisable assets”. Mr Forlong infers that the plaintiffs in this litigation are being funded either by Mr and Mrs Vegar personally or from some other funding source.
The plaintiffs’ opposition
[45] The plaintiffs accept that the threshold test is established.
[46] The plaintiffs invoke the Court’s discretion under r 5.45(2) High Court Rules. The plaintiffs assert that it would be unjust if security were to be ordered.
[47] The plaintiffs identify four particular matters:
(a) The plaintiffs have assets in the form of the debt and damages claims against the defendants;
(b)The defendants have repeatedly repudiated the contracts between the parties (the Supreme Court in its 2014 judgment having held the defendants’ conduct to have been repudiatory and such conduct having continued);
(c) The current financial difficulties of the plaintiffs are caused by the
defendants’ conduct, including their repudiation of the contracts;
(d)The plaintiffs have previously paid the costs orders (of the Court of Appeal) and met security orders (on the Supreme Court appeal) as required.
Discussion
[48] As explained by the Court of Appeal in AS McLachlan Ltd v MEL Network Ltd, the decision as to whether to award security and, if so, in what amount are matters for the Judge in light of what the Judge thinks fit in all the circumstances.25
It is a discretion:26
… not to be fettered by constructing “principles” from the facts of previous cases.
[49] There are, accordingly, no overarching principles. But it is traditional that the Court consider both commonly-occurring circumstances and circumstances peculiar to the particular case, before balancing the interests of the parties.
[50] As counsel sought to identify relevant factors by reference to the analysis of Kós J in Highgate on Broadway Ltd v Devine, it is convenient to consider those circumstances.27
Inquiries which tend in favour of a security order
A Is the plaintiff a nominal one?
[51] Here, it appears that Mr and Mrs Vegar have chosen to establish their interests in vineyard management and grape purchase by establishing a separate company in relation to each established vineyard. There will have been sound structuring and financial reasons for that, but a consequence is that there is no single company which builds up and sustains financial viability when particular parts of the
business may be financially struggling. With a corporate structure based on separate
25 AS McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13].
26 At [13].
27 Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [22] – [24].
companies, the shareholders who benefit from a particular company’s litigation are
immune to its liability for costs.28
B Is there evidence of the plaintiffs’ disposing of assets to avoid meeting
adverse costs orders?
[52] Such disposal is not suggested in this case.
C Are the plaintiffs’ substantive claims prima facie unmeritorious?
[53] I here focus on the first three causes of action which relate to alleged repudiations of the GSAs and refusal to supply grapes (as the fourth and fifth cause of action relating to the VMAs are stayed by this judgment).
[54] The plaintiffs’ claims on the GSAs have prima facie merit. The objective of the plaintiffs’ earlier litigation (vindicated in the Supreme Court judgment) was to establish the plaintiffs’ (continuing) rights to purchase grapes from the defendants under the GSAs. The plaintiffs here assert a continuing right to exercise options under the GSAs. The defendants, relying upon Fercomental Sarl v Mediterranean Shipping Co SA, assert that the plaintiffs could and should have proceeded to
exercise their options earlier in the face of the defendants’ repudiations.29 The issues
are not straightforward and the outcome of legal argument is not certain. Mr Jones signals (by reference to the pleadings) the manner in which the plaintiffs’ arguments are based both on the conduct of the parties during the earlier litigation and on Supreme Court authority as to the futility of any purported exercise of rights.30
There are significant arguments in response to the defendants’ suggestions that the
plaintiffs’ rights have gone.
[55] The plaintiffs’ claims have prima facie merit in fact and law.
28 At [22](a).
29 Fercomental Sarl v Mediterranean Shipping Co SA [1989] AC 788.
30 Ingram v Patcroft Properties Ltd [2011] NZSC 49, [2011] 3 NZLR 433 at [39].
D Do the plaintiffs have access to third party funding?
[56] The plaintiffs’ own first ground of opposition (that their assets comprise the agreements and the debt and damages claims made in this proceeding) implies a need for outside funding.
[57] The plaintiffs successfully pursued the earlier litigation to the Supreme Court when in similar financial circumstances. The plaintiffs have since commenced this proceeding.
[58] I infer that it is likely that the plaintiffs’ claim here will not be thwarted by
the ordering of security, particularly if it is at the level sought.
EWould the denial of security for costs in the circumstances of this case be oppressive to the reasonable interests of the defendants and parties other than the plaintiff?
[59] This is not a case in which a defendant who has previously conducted its commercial dealings in an impeccable manner seeks security in relation to stand- alone proceedings. But, should an order for security for costs be denied, the defendants will face real difficulty in recovering costs and disbursements subsequently awarded.31
Inquiries which tend against a security order
AIs it reasonably probable that the plaintiffs’ impecuniosity was caused by the defendants?
[60] The plaintiffs’ opposition evidence was provided by Peter Vegar, one of the plaintiffs’ directors and shareholders. He referred to the financial difficulties which the companies associated with the Vegars’ wine-making business in Matakana experienced in 2010 and 2011, leading to the Vegars’ 2013 insolvency proposal. Mr Vegar confirmed that the value of the Vegars’ shareholdings in the Savvy Group in
2013 was nil. He refers also to other assets since acquired by other members of the
Savvy Group. He then refers to the steps taken by the defendants since February
31 In the likely event that the (unsuccessful) plaintiffs had no assets from which to meet a costs award, the defendants might apply for costs awards against one or more non-parties, but such an application involves further costs and uncertainty.
2010 to avoid contractual obligations. He refers to the $277,316.15 which the plaintiffs here allege (under the fourth and fifth causes of action) is owed by the defendants for services under the VMAs. Mr Vegar concludes that the defendants, from the outset, have invoked a strategy to financially starve the plaintiffs so as to make it as difficult as possible to litigate against the defendants. Mr Vegar describes the application for security for costs as an example of such conduct, with the plaintiffs’ financial weakness “essentially caused by the defendants’ actions”.
[61] In Highgate on Broadway Ltd v Devine, Kós J described the consideration at this point as “a question of linkage, rather than any further examination of the merits”, an approach which I adopt.32
[62] A linkage is not clearly established in this case. The plaintiffs were not independently viable companies in the sense that they had means beyond what they might obtain out of their contracts with the defendants. It is not possible on the evidence adduced in this interlocutory proceeding to determine whether and to what extent fulfilled contracts with the defendants would have produced profit. I cannot be satisfied that the defendants’ conduct has caused the plaintiffs’ impecuniosity. The evidence suggests that they were already insolvent.
BWould ordering security deprive the plaintiffs of the capacity to advance prima facie meritorious claims?
[63] The importance of access to the courts for genuine plaintiffs was emphasised by the Court of Appeal in AS McLachlan Ltd v MEL Network Ltd, in which the Court observed that it is not lightly to be denied.33
[64] While I have recognised the prima facie merit of the plaintiffs’ claims on the GSAs,34 I have also recognised that their capacity to engage in the earlier litigation and to commence this proceeding indicates that their claim here will not be thwarted
by the ordering of security.35
32 Highgate on Broadway Ltd v Devine, above n 27, at [23](a).
33 AS McLachlan Ltd v MEL Network Ltd, above n 25, at [15].
34 Above at [54].
35 Above at [57] – [59].
C Have the applicants delayed unduly in seeking security?
[65] There has been no delay in this case.
Considerations of a general nature
A Is the conduct of either party relevant?
[66] Beyond a consideration of the merit of the plaintiffs’ claims, the Court may take into account conduct on the part of either party which is contemptuous or oppressive.36
[67] While it took the plaintiffs four years (2010 to 2014) to ultimately overcome the defendants’ arguments as to termination of the contracts, the changing fortunes of the parties through the appeal process precludes this Court, in an interlocutory context, from concluding that there has previously been contemptuous or oppressive behaviour on the part of the defendants. Different courts reached different conclusions on the same facts.
B Are there any other relevant considerations?
[68] The plaintiffs, through the notice of opposition, identified as a relevant consideration the fact that they previously paid the costs ordered in the Court of Appeal and met security as required in the Supreme Court.
[69] Those steps cannot significantly affect the exercise of the discretion in this case. Each of those payments was necessary if the plaintiffs were to pursue further steps in their own interests. In this security context, the Court is considering whether another party should be protected from the risk that an unsuccessful, insolvent, plaintiff will not satisfy a costs order. That is a distinctly different question.
C How should the respective interests of the parties best be balanced?
[70] As recognised by Kós J in Highgate on Broadway Ltd v Devine, this is the overriding and most important consideration of all.37
[71] Here I am satisfied that a requirement to provide security will not bring the plaintiffs’ claims to an end. There are no considerations which strongly weigh against requiring the plaintiff to provide security.
[72] Having regard to the high degree of likelihood that the plaintiffs will be without funds at the end of this litigation it if proves to be unsuccessful, it is appropriate that the award of security be at the higher end of a 2B calculation. In this case, I view $12,800 (representing 80 per cent of a 2B award) as an appropriate sum for the first tranche.
[73] The order I make will (by adjourning this application) defer the defendants’
entitlement to obtain security for steps following the close of pleadings.
Stay pending provision of security
[74] Under r 5.45(3)(b) the Court, upon ordering provision of security, may stay the proceeding until the security is given.
[75] It is appropriate that there be such a stay in this case.
Strike out of pleadings
The defendants’ application
[76] The defendants’ strike out application relates to an allegation of consensus ad idem in two paragraphs of the statement of claim. The particular pleadings are:
44.The course of conduct outlined at paragraphs 39 to 43 above demonstrates consensus ad idem between the plaintiffs and defendants and the option should extend until after the Supreme Court had determined the issue of whether the Property Agreements had been validly terminated on 20 December 2010.
54. By its letter dated 8 December 2014, Weta and Tirosh repudiated the
Grape Supply Agreements.
Particulars
a. …
b. …
c.The plaintiff applied for leave to appeal to the Supreme Court. The conduct of the parties outlined at paragraphs 39 to 43 above evidences consensus ad idem that the option should extend until after the Supreme Court had determined the issue of whether the Property Agreements had been validly terminated on 20 December 2010.
[77] Paragraph 44 forms part of the plaintiffs’ general introductory pleading which
applies to all causes of action.
[78] Paragraph 54 forms part of the second cause of action (alleging the defendants’ repudiation of the GSAs) and follows an allegation that the parties had agreed to extend to 1 May 2013 the time for the exercise of the options accruing on the third anniversary of the commencement date under the GSAs.
[79] For the defendants, Mr Harrison identified the defendants’ immediate
objection as lying in the use of “the vague Latin expression ‘consensus ad idem’”.
[80] Mr Harrison then developed a further argument that the concept of “consensus ad idem” does not constitute a cause of action in itself and that its pleading in relation to either a legally binding contract or circumstances giving rise to an estoppel (the subjects of the second and third cause of action) should not be permitted.
The plaintiffs’ opposition
[81] The plaintiffs oppose the strike out application. By reference to the provisions of r 15.1(1) High Court Rules, the defendants assert that none of the threshold tests for the striking out of part of a pleading under r 15.1(1) is established.
[82] The plaintiffs do not assert that the pleading of consensus ad idem amounts to a cause of action in itself. The causes of action are each identified in the statement of claim under conventional headings.
[83] Mr Jones rejected the characterisation of the concept of consensus ad idem as
some “vague Latin expression”. He referred to a line of authority which allows the
date for the exercise of an option to be extended in the circumstances where the conduct of the parties demonstrates a consensus ad idem or meeting of the minds.38
[84] Further, the plaintiffs reject the suggestion that the pleading of consensus ad idem is either frivolous or vexatious.
Discussion
[85] There is not a sound basis for the strike out application.
[86] The plaintiffs’ statement of claim is a responsibly drafted document. It appropriately puts the Court and other parties on notice as to the plaintiffs’ material allegations. The plaintiffs, by their pleadings, identify that they will ask the Court to conclude on the basis of earlier pleaded conduct that there was a consensus ad idem (meeting of the minds).
[87] The plaintiffs’ impugned pleadings are neither vexatious nor frivolous. The pleading of consensus ad idem has been included on counsel’s analysis of relevant principles. It responsibly identifies the plaintiffs’ case in that regard.
[88] The application will be dismissed.
Costs
[89] At the conclusion of submissions, I indicated to counsel that I would reserve my decision in relation to costs and disbursements should there be mixed success in relation to the applications. That is accordingly the order which I will make below. It is nonetheless appropriate that the Court determine the costs and disbursements now should counsel be unable to agree. The following directions will apply in the event of disagreement:
(a) Costs submissions are to be presented by memoranda (three page limit);
38 Bruner v Moore [1904] 1 Ch 305 at 312 – 315; Morrell v Studd & Millington [1913] 2 Ch 648 at
656 – 658; Bowman v Durham Holdings Ltd Pty Ltd (1973) 131 CLR 8 (HCA) at 19 – 20; Savvy
Vineyards 3748 Ltd v Arck Ltd [2015] NZCA 534 at [59] – [63].
(b)Counsel for the defendants is to file and serve the first memorandum within 10 working days from today;
(c) Counsel for the plaintiffs is to file and serve the second memorandum within five working days thereafter;
(d) The Court will then issue a judgment on the papers;
(e) In the event no memorandum as to costs is received by the Court within 10 working days, then the order of the Court will at that date become that there be no order as to costs on the interlocutory applications.
Orders
[90] I order:
Stay
(a) The plaintiffs’ fourth and fifth causes of action are stayed and the plaintiffs’ claims and disputes in relation to the plaintiffs’ claims upon unpaid invoices under the vineyard management agreements between the parties are referred to arbitration;
Security for costs
(b)The plaintiffs shall, within 10 working days, provide as a first tranche of security for the plaintiffs’ joint costs security of $12,800 to the satisfaction of the Registrar;
(c) In the event the plaintiffs do not so provide security, the proceeding will be stayed pending further order of the Court with leave to the defendants to apply to have the proceeding struck out if the default in providing security continues for 30 working days after the due date;
(d)In the event the plaintiffs do so provide security, the defendants shall, within 20 working days from the date on which notice is given of the provision of security, file and serve their statement of defence to the first, second and third causes of action;
(e) The defendants have leave to have their application for security brought on for hearing in relation to a second tranche of security at such time as trial directions are being sought in the proceeding;
Strike out of pleadings
(f) The application to strike out parts of the plaintiffs’ pleadings is
dismissed;
Costs
(g) The costs and disbursements of the applications are reserved.
Associate Judge Osborne
Solicitors:
Hesketh Henry, Auckland
Boyle Mathieson, AucklandCounsel: D P H Jones, QC, Auckland
R E Harrison QC, Auckland
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