Television New Zealand Limited v Gloss Cosmetic Supplies Limited (in liquidation) HC Auckland CIV 2003-404-3928
[2005] NZHC 1687
•3 May 2005
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2003-404-003928
BETWEEN TELEVISION NEW ZEALAND
LIMITED
Plaintiff AND
GLOSS COSMETIC SUPPLIES LIMITED (IN LIQUIDATION)
Defendant
Hearing: 16 December 2004
Appearances: C Elliott and J Thomson for Plaintiff GM Illingworth QC for Defendant
Judgment: 3 May 2005
JUDGMENT OF COOPER J
This judgment was delivered by Justice Cooper on 3 May 2005 at 10.50 a.m., pursuant to
r 540(4) of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors:
PJ McDonald, PO Box 1495, AucklandJ Thomson, TVNZ, PO Box 3819, Auckland (Attention J Thomson) Copies:
TELEVISION NEW ZEALAND LIMITED V GLOSS COSMETIC SUPPLIES LIMITED (IN LIQUIDATION) HC AK CIV 2003-404-003928 [3 May 2005]
C Elliott, PO Box 4338, Auckland
GM Illingworth QC, PO Box 7205, Auckland
[1] This judgment concerns interlocutory applications made by the parties as to the applicability of r 426A of the High Court Rules, issues about discovery and security for costs. The applications arise in the context of a proceeding that was commenced on 17 April 1989, now over 16 years ago.
[2] Notwithstanding its antiquity it is possible to describe the milestones of its “progress” quite shortly. On 8 May 1989 Robertson J granted an interim injunction “pending trial of the action”, against the defendant restraining it from manufacturing, distributing, advertising, offering to sell or selling any cosmetic or personal care products or providing any related services under the name or mark “Gloss”. The plaintiff had commenced the proceeding as presenter of the television programme “Gloss”, later described by Morris J as a “soap opera”. An appeal from Robertson J’s decision was filed in the Court of Appeal, but it was dismissed on 5 July 1989.
[3] On 25-27 September 1989 Robertson J heard an application for a writ of sequestration by the plaintiff arising out of alleged breaches of the injunction by the defendant. At the conclusion of the hearing he held that a clear breach of the injunction had been established. In the written reasons for judgment, which he delivered on 4 October 1989, Robertson J described what had occurred as a “blatant and deliberate breach by the defendant of the Court’s clear injunction”. However, following a further hearing on 6 October 1989 Robertson J found that he was prepared to accept that there had been a change of attitude and dealt with the breach by ordering the defendant to pay the sum of $2,200 towards the plaintiff’s costs.
[4] The plaintiff did not take steps to bring the substantive proceeding on to trial. On 10 March 1997 the defendant applied for orders that the plaintiff’s claim be struck out for want of prosecution, that the interlocutory injunction granted on 8 May 1989 be discharged and for an inquiry into the damage and loss suffered by it as a result of the granting of the interlocutory injunction.
[5] On 3 July 1997, Morris J made the orders that the defendant had sought. His judgment referred to affidavits establishing that since the Court of Appeal had dismissed the appeal, a principal of the defendant company, Mr Mayes, had been gravely ill. He also referred to evidence that the defendant had suffered considerable financial loss as a result of the interim injunction and that Mr Mayes himself had been put in a difficult financial position. The amount of the loss was suggested at the time to be in the vicinity of $800,000. The judgment recorded the plaintiff’s position challenging whether any loss such as was suffered or claimed, was as a result of the granting of the interim injunction. His Honour continued:
I am unable to make a firm finding either way on the material before me. In other words, I am unable, on the material before me to say there is no merit whatsoever in the defendant’s claim.
[6] Having referred to negotiations that had taken place between the parties in a “desultory fashion” since the last programme of Gloss had been shown on television in 1990, Morris J said that the sole contested issue that he was required to decide was whether he should make an order under r 384 of the High Court Rules for an inquiry into damages. Having referred to the various authorities which had been the subject of the argument before him he continued:
The interim injunction having been in effect set aside at the plaintiff’s request, I can if I see fit, make the order sought.
Should I do so? I appreciate TVNZ’s concern this may enable the defendant to avoid having to demonstrate the injunction should not have been granted, but TVNZ has brought the situation on itself to a large part by failing to pursue the proceedings which it saw fit to commence and in respect of which its undertaking was given. Nor do I consider it necessarily follows delay or inactivity of the defendant disentitles it to the order sought. Where there is inexcusable delay it may well be the position relief should be refused, but here the delay has been explained by ill health, lack of money to undertake further prosecution of the case and initially to some degree, the negotiations between the parties.
I asked myself what course will be best to ensure justice is done to both the parties in the circumstances. The answer is, taking into account the material I have referred to in the affidavits and the lack of prejudice to TVNZ who really have had the answer in their own hands all along, is to grant the application.
For completion I record neither counsel addressed me on the provisions of r 426A. I simply mention, had I had to consider the matter, I would have considered there was a sufficient justification of issue in law for the matter to proceed under that Rule.
There will be an order accordingly. There will be costs to the defendant in the sum of $1,750 together with disbursements ….
[7] No further action was then taken by either party until 2 July 2003. On that day the defendant (which in the meantime had been placed in liquidation) made application to the Court for an order “giving such directions as may be appropriate to enable the Court to dispose of the inquiry into damages ordered in this proceeding on 3 July 1997”.
[8] The defendant’s application prompted an application by the plaintiff for orders:
(a)that the defendant provide particular discovery by way of a verified list of documents. That order related first to documents concerning the business affairs of and dealings between past or present officers or agents of the defendant and the liquidator of Gloss Cosmetic Supplies Ltd, Gloss Australasia Ltd and Cade Beauty Care Ltd or any entities with which Mr Mayes had had a commercial or financial interest between 1989 and 2003. The second class of documents in respect of which discovery was sought concerned documents relating to the operation of the defendant company before and after its liquidation including (without limitation) documents relating to the alleged reasons for its liquidation, its borrowings, profits, indebtedness, expenditure and marketing costs, whether contained in correspondence, financial statements, company accounts or otherwise and whether in New Zealand or elsewhere;
(b)that Mr Mayes provide discovery by way of a verified list of documents relating to all dealings between him and the companies earlier referred to, suppliers, customers, financiers or other entities associated with Mr Mayes and those companies between 1989 and 2003; any entities with which Mr Mayes had had a commercial or financial interest between 1989 and 2003, and documents concerning his health, medical condition, ACC claims “and life style” between those years;
(c)making directions and a time-table for hearing of the plaintiff’s application for discovery and other orders;
(d)striking out and dismissing the defendant’s claim for damages;
(e)staying the defendant’s application for directions and its claim for damages until all outstanding Court costs and disbursements have been paid to the plaintiff; and
(f)that the defendant pay security for costs in the amount of $20,000 or such other amount as the Court might consider sufficient to the plaintiff.
[9] Before the plaintiff’s application was set down for hearing, the defendant applied for an order declaring that the provisions of r 426A of the High Court Rules did not apply in the present circumstances of the proceeding or in the alternative, granting leave under that rule for the taking of further steps. Affidavits were filed in support of both applications, and both applications were opposed. After various mentions in the Duty Judge’s List it was directed that the plaintiff’s application for security for costs, together with its application for discovery and the defendant’s application under R426A should be dealt with as preliminary issues. A fixture was allocated for those matters to be determined on 8 July 2004 before Keane J.
[10] On that day, Keane J referred the parties to an issue which was apparent to him on the papers, but not amongst those matters raised by the applications before him. He described the position as follows, in a minute that he issued on 9 July:
[4] An issue not canvassed in Morris J’s decision or amongst those presently to be argued, was and remains more fundamental; and that is whether Gloss is pursuing this inquiry into damages in compliance with the Companies Act 1993.
[5] Gloss is a company in liquidation. That has been its status since 11 February 1993. The liquidator is Mr Jeffrey Meltzer, who was appointed shortly afterwards. But this inquiry is, on the face of it, being pursued solely on the initiative of Mr Mayes, an original shareholder and director. Much of the affidavit evidence goes to the question whether, in the last several years, he has been fit to pursue these proceedings. There is no suggestion that the liquidator has played any active part.
[6] I inquired at the outset of the hearing, therefore, whether there was any document on file, which confirmed that the liquidator was pursuing these proceedings himself. I was assured by Mr Illingworth that a document, confirming that he was, does exist. He invited me to hear argument on the issues, and to allow him to file a memorandum. I said that I was not willing to do so. The issue seemed to me to be fundamental.
[11] Keane J directed the liquidator to confirm by memorandum that as liquidator he was pursuing the inquiry into damages, relying on the decision of Morris J in 1997, and that he would assume responsibility for the conduct of the proceedings. The applications were adjourned accordingly. It was not until 22 September 2004 that an affidavit by Mr Meltzer, sworn on 20 September 2004, was filed. That affidavit occupied no more than a page. In it, Mr Meltzer recorded that he was an experienced liquidator, that he had read Keane J’s minute and having done so confirmed that he wished to proceed with the application for damages by the defendant on the basis that he had the usual responsibility for the conduct of the litigation, including obligations as to costs. The last two paragraphs of his affidavit read as follows:
I appreciate that the defendant’s application has been delayed for a long period, however the company has had no funds with which to secure representation and I have been dependant upon the major shareholder Mr Mayes for funding.
As Mr Mayes was seriously ill for a long period, I was not able to proceed until Mr Mayes secured the necessary funding to enable the damages claim to be reactivated.
[12] The parties’ applications were then again set down for hearing on 16 December 2004. At that hearing also, it was only the three so-called preliminary issues which were to be argued although Mr Elliott, for the plaintiff, also addressed me on what he described as “a preliminary and more fundamental question – that is, the role of the liquidator”.
Rule 426A
[13] In my view, it is logical to turn first to the potential application of r 426A of the High Court Rules, which was, of course, revoked by s 7 of the High Court Amendment Rules 2003. If it applies notwithstanding its revocation, then the
question arises as to whether leave should be granted to the defendant to take further steps in the proceeding.
[14] Rule 426A was inserted into the High Court Rules by the High Court Amendment Rules (No.2) 1992. It was in effect from 1 January 1993 and had been referred to by Morris J in his judgment of 3 July. In the passage that I have quoted in paragraph [6] it can be seen that the Judge recorded that its possible application to the matter before him had not been addressed by counsel. However, he went on to say that if he had had to consider such submissions, it would have been his view that there was a sufficient justification for the matter to proceed under r 426A, by which he must have meant that it would have been a suitable case for leave to have been granted for the proceeding to continue in terms of the Rule.
[15] In the form in which it then was, and in which it remained down to its revocation, the Rule provided as follows:
426A. (1) Where a proceeding has not been set down for trial and at least 12 months have elapsed since the last step was taken in that proceeding, no further step shall be taken in that proceeding without the leave of the Court.
(2) Leave shall not be given under subclause (1) unless the Court is satisfied that there is a proper issue to be tried in the proceeding.
[16] Mr Illingworth’s first submission was that r 426A no longer applied to this proceeding, because it had been revoked by the High Court Amendment Rules 2003. Rule 7 of the latter revoked rr 425 to 438 and substituted a comprehensive set of new rules designed to enhance active case management. It seems that, in the rules as amended, there is no equivalent to r 426A, presumably on the basis that with the comprehensive case management powers now conferred, it was not thought necessary to provide for situations in which a proceeding had not been set down for trial, and twelve months had elapsed since the last step was taken in that proceeding.
[17] Mr Elliott argued, however, that the effect of r 19(3) of the High Court Amendment Rules 2003 was that r 426A would continue to apply to the present proceeding. Rule 19(3) provides:
Rules 425 to 438 and rules 441A and 441B of the High Court Rules (as in force immediately before the commencement of these rules) continue to
apply, so far as they are applicable, to the proceeding as if these rules had not been made.
[18] It seems to me that the plain intent of r 19(3) is to provide for the continuing application of the revoked rules to proceedings commenced before the coming into force of the High Court Amendment Rules 2003. But r 19(3) does not apply to every such proceeding. Its ambit is limited by r 19(2), which provides:
(2) Subclauses (3) and (4) each applies to a proceeding (the proceeding) in respect of which,—
(a)before the commencement of these rules, a praecipe has been filed under rule 430 of the High Court Rules (as in force immediately before the commencement of these rules); or
(b)the Court has ordered, under rule 436 of the High Court Rules (as in force immediately before the commencement of these rules), that the proceeding be tried; or
(c)at the commencement of these rules, an application under rule 436 of the High Court Rules (as in force immediately before the commencement of these rules) is pending.
[19] In the present case it appears that no praecipe was ever filed. What came before Morris J was the application made by the defendant that I have already summarised in paragraphs [4] and [5] above. Morris J recorded that, at the commencement of the hearing before him the plaintiff had in fact abandoned its claims for a permanent injunction, damages, and an accounting for profits. So the substantive proceeding was never set down for trial, and the proceeding cannot be brought within the ambit of r 19(2)(a) of the High Court Amendment Rules 2003.
[20] Nor is this a proceeding in respect of which there was either an order under r 436 for the trial of the proceeding, or an application for such an order. Consequently, neither r 19(2)(b) nor r 19(2)(c) of the High Court Amendment Rules applies. In the result, r 19(3) does not apply to the proceeding. I was not referred to any other transitional provision which could have effect to continue the application of r 426A in the present circumstances, and therefore conclude that Mr Illingworth’s submissions that r 426A no longer applied must be upheld. Consequently, the defendant does not require leave to take further steps in respect of the inquiry into damages ordered by Morris J.
[21] In the circumstances it is not necessary to consider a further argument addressed to me by Mr Illingworth that even if r 426A had been saved by r 19 the application of it could have no effect in the present case because the rule would not apply to the period after the determination of the plaintiff’s claim, by which he meant the formal abandonment of the claim at the hearing before Morris J. Because I have determined that r 426A was not within the ambit of r 19 in any event, I do not need to decide that issue.
Discovery
[22] The second issue argued before me concerned discovery, sought against both the defendant, and Mr Mayes personally. Both applications were resisted by Mr Illingworth.
[23] In substance, Mr Illingworth’s argument was based on the fact that the only substantive issue left to be determined by the Court concerns the damages suffered as a result of the interim injunction granted by Robertson J. He said that the only damages sought would be reimbursement in respect of the expenses incurred in the setting up and running of the “Gloss” project down to the date that the company went into receivership, that the defendant would have to prove each item of expenditure incurred, and therefore produce its records for that purpose. He submitted that if a normal timetable order were made for the exchange of evidence, then all relevant evidence would be in the plaintiff’s hands prior to the trial.
[24] Mr Illingworth further submitted that the discovery that the plaintiff sought against both the defendant and Mr Mayes was not necessary to enable the plaintiff to properly argue its application for a strike out. He submitted that that appliation would have to be based on the period of delay that had ensued following the delivery of Morris J’s judgment on 3 July 1997, and that delay had been explained in the affidavit sworn by Mr Mayes on 2 July 2003 in which he deposed:
3.The defendant is a limited liability company. I am the major shareholder. As a result of the interim injunction the company failed and it is now in liquidation. The liquidator (Mr Geoffrey Meltzer) consents to the continuation of this proceeding to enable the recovery of compensation, but as I am the only one who could fund
and direct that exercise, for practical purposes the onus has been on me.
4.Since 3 July 1997 I have been unable to pursue the matter further. This has been caused by a number of contributing factors. The principal reason is that I have been in very poor health since then. I have 3 major health problems, described below. Relevant medical documentation is attached marked “A”.
[25] The position had also been confirmed by Mr Meltzer in the affidavit that he swore following Keane J’s direction, earlier mentioned. On this basis, Mr Ilingworth contended that there was a clear explanation for the delay, namely that there had not been funds available for the purpose of proceeding with the litigation, and no need for an extensive discovery exercise with its attendant cost, to enable the plaintiff’s strike out application to proceed.
[26] Overall, Mr Illingwoth submitted that the plaintiff had not shown that the orders for discovery sought were necessary at this time, as contemplated by r 312.
[27] Mr Elliott accepted that the plaintiff had to show the orders sought were necessary, and he referred me to the decision in Sterling Pharmaceauticals (NZ) Ltd v The Boots Company (NZ) Ltd (1991) 3 PRNZ 337 where Hillyer J followed the approach of Eichelbaum J in Krone (NZ) Technique Ltd v Connector Systems Ltd (1988) 2 PRNZ 627. The word “necessary” used in r 312 should be applied not as if it imports something which is essential, but rather, something which is reasonably necessary.
[28] On that basis, Mr Elliott submitted that the orders for particular discovery sought were reasonably necessary, his main emphasis being on what he described as less than frank disclosure by Mr Mayes, about the events of the past decade and the manner in which his health had precluded him assisting the liquidator to pursue the proceeding. He pointed out that both Mr Mayes, and the liquidator have relied on the former’s ill-health as the main explanation for the delay that has occurred.
[29] I am not in any doubt that the orders for discovery are reasonably necessary. In particular, it is appropriate that the plaintiff be put in the position of being able to consider such documentary evidence as might exist which supports (or gives rise to
any doubt about) the proffered reasons for the extraordinary period of inactivity that set in after Morris J’s decision. While the orders sought extend to a period prior to July 1997, and cover the period that will be the focus of the inquiry into damages when and if it proceeds, I am also satisfied that it is appropriate that the orders reach back to that time. Had this matter proceeded on a more normal path with a much earlier substantive resolution of the issues it is likely that general discovery would have been sought by the parties and if not given, then ordered by the Court. What the plaintiff now seeks is not general discovery, and although the categories of documents sought are reasonably extensive, an attempt has been made to focus the request.
[30] More importantly, I think the delay that has ensued since July 1997 makes it desirable, in the interests of a fair resolution of this dispute, that the plaintiff receive early notice of the documents upon which the defendant will rely not only in respect of the plaintiff’s strike out application, but also on the substantive issue as to damages. The plaintiff should have a proper opportunity to consider and if necessary investigate the relevant documents and pursue any inquiries that they might suggest. The fact that many of the documents must now be quite old militates against Mr Illingworth’s submission that the parties should proceed straight to the service of briefs of evidence.
[31] Nor do I consider that complying with the orders sought should, in practice, be onerous. The defendant is in liquidation, and has been for many years. It would be reasonable, I think, to consider that documents evidencing its financial position and start up costs will already have been assembled. Further, to the extent that the collection of the relevant documents needs to be done for the purposes of discovery, the subsequent work of preparation of briefs of evidence reliant on those documents will be correspondingly reduced.
[32] Given the pivotal role of Mr Mayes in the relevant events, and the centrality of his illness for justification of the delay, I am also satisfied that it is reasonably necessary in the circumstances for the orders to extend not only to the defendant but also to him.
[33]The orders for discovery are made as sought by the plaintiff.
Security for costs
[34] The final issue argued by the parties at this stage was the plaintiff’s application for security for costs.
[35] Under r 60(1)(b) of the High Court Rules, where the Court is satisfied on the application of a defendant that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in its proceeding, the Court may, if it thinks fit in all the circumstances, order the giving of security for costs. Rule 60(4) provides as follows:
(4) The references in this rule to a plaintiff and a defendant shall be construed as references to the person (however described on the record) who is in the position of plaintiff or defendant, as the case may be, in the proceeding, including a counterclaim.
[36] Mr Illingworth’s first point in opposition to the plaintiff’s application was that notwithstanding r 60(4), there was no power in the present circumstances for the Court to make an order against the defendant. He submitted that r 60(4) had never previously been applied to a situation such as the present where the defendant is simply calling on the plaintiff to comply with its undertaking as to damages.
[37] Mr Elliott did not refer me to any authority establishing or suggesting that there was jurisdiction to make an order under r 60 in the present circumstances. He submitted, however, that the intent of r 60(4) was to enable the Court to make an order for security for costs in favour of any party against whom an order for the payment of money was sought. He pointed to the express provision that had been made in r 60(4) in respect of counterclaims, so that a counterclaim plaintiff could be required to give security, and he argued that the defendant in this case should similarly be seen as being “in the position of a plaintiff” for the purposes of r 60(4) and, therefore, (1).
[38] Having not been referred to any authority directly in point by counsel, and not being aware of a case in which this point has been decided, I have considered the matter on the basis of first principles. There are numerous authorities to the effect that in applying r 60, what is necessary is to strike a just balance between the competing interests of a plaintiff and a defendant, between protection of the former’s access to the Courts in respect of genuine claims, and protection of the latter from being drawn into unjustified litigation at the suit of an impecunious plaintiff.
[39] In A.S. McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 the Court of Appeal stressed that whether or not to order security and if so, the quantum to be ordered, are discretionary questions. That discretion is not to be fettered by constructing “principles” from the facts of previous cases and then applying them on a “check list” approach. At paragraph [15] and [16] Gault P writing for the Court said:
[15] The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the Courts for a genuine plaintiff is not lightly to be denied.
[16] Of course, the interests of defendants must also be weighed. They must be protected against being drawn into unjustified litigation, particularly where it is over-complicated and unnecessarily protracted.
[40] A number of points can be made based on the drafting of r 60(4). First, the rule is plainly intended to enable orders requiring security to be given against parties other than the plaintiff (the plaintiff being the only party against whom an order may be made on the wording of r 60(1)). Second, as the bracketed words “however described in the record” used in the rule indicate, the intention is to enable the orders to be made without restriction arising from the “nominal” role of a party as a plaintiff or defendant. Next, it seems to me that the words “including a counterclaim” relate to the words they immediately follow, i.e. “in the proceeding”. Consequently, where there is a counterclaim the party who is in the position of “plaintiff” will in fact be the nominal defendant. In the present case, however, there was no counterclaim. The defendant simply succeeded on its interlocutory application that there be an order for an inquiry into damages in the circumstances
that the plaintiff had secured an interim injunction on the basis of an undertaking as to damages, and had subsequently elected not to proceed to bring the substantive proceedings to trial. The defendant has never, in any respect, changed its role as the defendant “in the proceeding”.
[41] There can be no question as to the desirability of a provision such as r 60(1) and the balancing of interests between the plaintiffs and defendants which it contemplates. However, if the matter that has to be weighed in the balance from the “point of view of defendants” is their protection against being drawn into unjustified litigation, it is much more difficult to see how that can be applied to a party in respect of whom it has been determined that there is an entitlement to an inquiry as to damages. The litigation is not then at the outset, nor is there any question about the cost of a substantive trial to determine liability. In the case of a party such as the present defendant, the issue is simply what damages (if any) did it sustain on the basis that the interim injunction was ordered, there having been a determination that it was entitled to recover such loss as may be attributed to the making of the injunction.
[42] In my view, neither the words of r 60(4), or the competing interests which r 60 as a whole is apparently designed to protect, justify its application to parties in the position of the present defendant. In my view, there is no power in the rule to make an order for security for costs against the defendant and I accordingly dismiss the plaintiff’s application for security for costs.
Result
[43] For the reasons I have set out above, I have determined that the defendant does not require leave to proceed under r 426A of the High Court Rules, that rule having been repealed. Further, I have determined that r 60 does not authorise an order requiring the defendant to give security for costs and the plaintiff’s application under that rule is dismissed.
[44] I have granted the plaintiff’s application that the defendant and Mr Mayes provide discovery of documents in accordance with the plaintiff’s application. I make the further orders that in each case:
(a)Discovery is to be provided by way of a verified list of documents.
(b)The lists of documents are to be filed and served within 28 days of delivery of this judgment.
(c)Inspection is to be provided at a time and location convenient to both parties within 14 days thereafter.
[45] When discovery and inspection has taken place, it will be appropriate for the plaintiff’s strike out application to be listed for hearing. In the meantime, I order that the plaintiff file and serve any further affidavits in respect of which it intends to rely for the purposes of the strike out application within 21 days after completion of the inspection of documents.
[46] I further order that the defendant file any further affidavits on which it intends to rely for the purposes of the strike out application within 14 days of receipt of the plaintiff’s further affidavits.
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