The Malthouse Limited v Rangatira Limited
[2017] NZHC 3063
•11 December 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE
CIV-2017-485-191 [2017] NZHC 3063
BETWEEN THE MALTHOUSE LIMITED
Plaintiff
AND
RANGATIRA LIMITED Defendant
Hearing: 1 December 2017 (by telephone conference) Appearances:
H M McIntosh for the plaintiff
J E Standage for the defendantJudgment:
11 December 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] In my judgment given on 31 August 2017 (the judgment), I refused the plaintiff’s (Malthouse’s) application for summary judgment against the defendant (Rangatira) for certain sums (“the Contingent Payments”) said to be payable by Rangatira under an Investment Agreement entered into between the parties on 17 June
2013. The sole issue on the summary judgment application was over the correct interpretation of the Investment Agreement, and in particular over the interpretation of a clause in the Investment Agreement (cl 9.8) under which the Contingent Payments would become payable in certain circumstances. In my judgment, I found that it was reasonably arguable for Rangatira that no “Exit event” had occurred (within the meaning of cl 9.8), and that for that reason it was arguable that Rangatira’s obligation
to make the Contingent Payments had not been triggered.
THE MALTHOUSE LIMITED v RANGATIRA LIMITED [2017] NZHC 3063 [11 December 2017]
[2] Malthouse now seeks leave under s 56(3) of the Senior Courts Act 2016 (the Act) to appeal that decision. The application is opposed by Rangatira.
The law on applications for leave to appeal
[3] Prior to the Act coming into force, Malthouse could have appealed my judgment of 31 August 2017 as of right. Under the Act there remains an absolute right to appeal to the Court of Appeal against a decision granting summary judgment, but (unlike the previous position) leave is now required to appeal where the application has been refused.
[4] Section 56 of the Act materially provides:
56 Jurisdiction
…
(3) No appeal, except an appeal under subsection (4), lies from any order or decision of the High Court made on an interlocutory application in respect of any civil proceeding unless leave to appeal to the Court of Appeal is given by the High Court on application made within 20 working days after the date of that order or decision or within any further time that the High Court may allow.
(4) Any party to any proceedings may appeal without leave to the Court of Appeal against any order or decision of the High Court—
(a) striking out or dismissing the whole or part of a proceeding, claim, or defence; or
(b) granting summary judgment.
(5) If the High Court refuses leave to appeal under subsection (3), the Court of Appeal may grant that leave on application made to the Court of Appeal within 20 working days after the date of the refusal of leave by the High Court.
(6) If leave to appeal under subsection (3) or (5) is refused in respect of an order or a decision of the High Court made on an interlocutory application, nothing in this section prevents any point raised in the application for leave to appeal from being raised in an appeal against the substantive High Court decision.
[5] There is as yet little authority on s 56(3). However, both counsel referred to the judgment of Fitzgerald J in Finewood Upholstery Ltd v Vaughan, where the learned
judge addressed the circumstances in which leave to appeal may be granted. Her
Honour said:1
[8] Counsel informed me that this case appears to be the first consideration of an application for leave to appeal pursuant to s 56 of the Act. Mr Kennedy did, however, refer me to Dobson J’s decision in A v Minister of Internal Affairs [[2017] NZHC 887], in which Dobson J considered such an application, though found that leave was not in fact required.
[9] Dobson J nevertheless went on to consider whether he would have granted leave to appeal, had it been required. In that context , and as Mr Kennedy submitted on the present application, Dobson J observed that the following considerations would be relevant to any such application:
(a) A high threshold exists for the granting of leave. An allegation of error of law or fact is generally insufficient. An applicant should raise an arguable error.
(b) Leave should only be granted where the circumstances warrant incurring further delay.
(c) The alleged error should be of general or public importance that requires determination, or otherwise be of sufficient importance to the applicant to outweigh the lack of any general or precedential importance.
…
[13] The requirement for leave to appeal should serve as a “filtering mechanism”, to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either the parties or more generally, do not unnecessarily delay the proceedings in which the orders were made.
[14] Ultimately, and taking into account those considerations set out at [9] above, the court hearing an application for leave to appeal from an interlocutory order will need to stand back and assess, in a pragmatic and realistic way, whether the interests of justice are served by granting leave to appeal.
The parties’ submissions
Malthouse
[6] Mr McIntosh identifies the following proposed arguments on appeal:
(a) the judgment determined that the question of interpretation could be determined on the admissible evidence before the Court; and
1 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679.
(b)while summary judgment was declined on the basis that Rangatira’s interpretation was “reasonably arguable”, my substantive view of the interpretation question was nevertheless clear from the judgment; and
(c) that substantive view was incorrect.
[7] Mr McIntosh specifically identifies the following aspects of the judgment which are said to have been in error:
(a) I mistakenly referred to the wrong party in referring to the benefit of not having to pay interest ([85] of the judgment);
(b)I placed too much weight on the commerciality or otherwise of the alleged indefinite obligation on Rangatira to pay the Contingent Payments ( [92] of the judgment); and
(c) I wrongly gave weight (or too much weight) to cl 10 of the Investment
Agreement ( [93] to [95] of the judgment).
[8] Mr McIntosh submits that the “high threshold” test referred to in Finewood is easily met. Further, this will not be a case where the Court of Appeal will be troubled by some non-essential, or procedural, issue of the type that s 56(3) of the Act was designed to screen out. The judgment is clearly of great significance to the parties, and the Court of Appeal’s decision will determine the dispute finally for them.
[9] Mr McIntosh submits that no unnecessary delay would be caused by granting leave to appeal. He then submits that the interests of justice will be served by granting leave to appeal.
[10] Expanding on those submissions, Mr McIntosh submits that Rangatira’s statement of defence, dated 14 September 2017, discloses no new defence or issue (for example, there is no counterclaim for rectification). There remains only one question for determination, and that is a question of law (or of mixed law and undisputed fact).
[11] Mr McIntosh referred to my judgment in All Metals Trading Ltd v Wright, in which I declined to enter summary judgment on the major parts of the plaintiff’s claim because it appeared that there was, or might be, relevant evidence not before the court that would affect the determination of the interpretation issue in that case.2 Whereas in All Metals there was identifiable further evidence that would be both relevant and necessary to the determination, that is not the position in the present case, which can be determined without any further evidence. There is no reasonable prospect of further evidence being available in this case that could affect the interpretation question. If there were further relevant records, Rangatira would have produced them, or at least have referred to them. It has not done so. Nor does Rangatira’s notice of opposition to Malthouse’s leave application identify any such records. Malthouse has already deposed that it does not possess any further such evidence.
[12] There is a theoretical possibility that discovery might assist on the interpretation issue, but it is difficult to think of what further admissible evidence, particularly about “business common sense”, could actually assist the courts.
Rangatira
[13] Ms Standage submits that the judgment contained no arguable error, and that the present application fails to meet the high threshold required of such applications. She submits that I applied the correct test in finding that Malthouse had not shown that Rangatira had no arguable defence to the claim.
[14] Ms Standage next submits that there are material facts in dispute, and full details of the factual matrix are not yet before the court. She identifies the following specific areas where further evidence may assist the court on the interpretation issue:
(a) evidence of whether there was a link between the EBITDA Hurdle3 and the price payable on a (clause 9.8) Exit event;
2 All Metals Trading Company Ltd v Wright [2014] NZHC 2136, affirmed on appeal in Commercial
Metals v Wright [2015] NZCA 450.
3 An alternative basis on which the Contingent Payments might have become payable under the Investment Agreement, which depended on whether or not the company to which the Investment Agreement related (Tuatara Brewing Company Ltd) achieved an EBITDA figure of $2,000,000 before a particular date (referred to in the Investment Agreement as “the Contingent Sunset Date”). It is common ground that the EBITDA Hurdle was not met by the Contingent Sunset Date.
(b)evidence of the parties’ mutual intentions communicated to one another regarding the purpose of cl 9.8. Ms Standage submits this will require oral evidence to resolve the issues of credibility between the parties;
(c) Although Malthouse contends that it has no other relevant records, Rangatira is entitled to at least test that proposition by obtaining a discovery order. There may be notes of meetings held by the shareholders regarding the relationship between the EBITDA Hurdle and the price payable on an Exit event, or other aspects of the factual matrix. There is therefore a real possibility of further evidence that will assist the court on the interpretation of cl 9.8.
[15] Ms Standage submits that the circumstances do not warrant further delay, and that the interests of justice will not be served by granting the application for leave to appeal. If leave is not granted, any costs and delay would be a natural and ordinary consequence of progressing the matter to trial. If there is a limited amount of further evidence, the additional cost and delay of proceeding to trial in this Court will be minimal.
Some additional factors affecting the exercise of my discretion
[16] In view of Malthouse’s position that there is no realistic prospect of further evidence being called at trial that would affect the interpretation issue, I made enquiry of the Registrar before the hearing on 1 December to ascertain when a two day fixture could be obtained to hear the substantive proceeding in this Court. As it turned out, another matter had settled, and two days would available to hear the proceeding on 19 and 20 March 2017. (In fact, both counsel confirmed at the conference on 1 December
2017 that only one day would be required).
[17] The second matter is that I enquired of Mr McIntosh at the hearing on
1 December 2017 whether, in view of his submission that there could be no further relevant evidence, Malthouse would be prepared to undertake that, if leave were granted to appeal, the appeal would be accepted by Malthouse as a final determination of the proceeding (if the appeal failed, Malthouse would accept that the Contingent
Payments referred to in the Investment Agreement are not and would never be payable). Mr McIntosh undertook to take instruction on that point.
[18] Mr McIntosh has since filed a memorandum advising that Malthouse undertakes to discontinue this proceeding and not thereafter seek to pursue any adjudication of the dispute further in the event that leave is granted and the Court of Appeal either:
(a) expressly or substantively rules on the correct interpretation of cl 9.8 against Malthouse; or
(b)expressly or substantively does so provisionally, subject to the outcome of discovery of documents in this proceeding.
[19] By way of clarification, Mr McIntosh noted in his memorandum that this undertaking would not apply in the event that the Court of Appeal declined to opine substantively on the correct interpretation of cl 9.8 pending a fuller investigation of the factual matrix in this Court (eg by discovery or oral evidence).
Discussion and conclusions
[20] I do not consider this is a case where leave to appeal should be granted.
[21] There is nothing in Mr McIntosh’s submission about the error as to parties at [85] of the judgment (there can be no sensible suggestion that I was under some misapprehension as to which party would not have to pay the relevant interest). But I do not consider that the issue of the weight to be given to the commerciality or otherwise of the interpretation advanced by Malthouse is beyond reasonable argument for Malthouse. I accept that it might be arguable for Malthouse that the wording of the Investment Agreement required a strict reading, under which there was no time limit on the occurrence of an Exit event.
[22] However it is not necessary for me to decide exactly where the “high threshold” for granting leave sits in this case. That is because I do not consider that the particular circumstances of this case warrant incurring further delay while the
judgment is referred to the Court of Appeal. Only one day will be required for the trial of the substantive proceeding, and hearing time is available as early as 19 March 2018. Neither counsel suggested that there would be any difficulty having the case ready for hearing by that date.
[23] Mr MacIntosh submits that there is no realistic prospect of further evidence being available which would assist on the interpretation question. I am not satisfied that that is necessarily so. It may be that further evidence will emerge on how the EBITDA figure of $2,000,000 was arrived at, and I do not think I can discount the possibility of further evidence on the existence or otherwise of a “linkage” between the EBITDA figure of $2,000,000 and the Exit event price of $12,000,000. In my view the prospect of at least some further relevant evidence emerging cannot be dismissed as merely “theoretical”, as Mr McIntosh submits. Whether that further evidence might come from Malthouse’s discovery (including documents held by all of the vendors) or whether it might come from admissible oral evidence of communications between the parties, it is not necessary to say.
[24] Standing back and weighing up the overall justice of the case, I conclude that the early availability of a fixture for the hearing of the substantive proceeding, and the fact that the trial will be relatively short and will not require too much by way of additional resources from the parties in preparation, are in combination decisive against the leave application. A third factor pointing to the same result is that this is not a case where the alleged error in the judgment is of general or public importance. The question of error or no error is of some importance to the parties, although from what counsel told me at the hearing of the leave application it seems clear that the case is likely to be finally resolved in the Court of Appeal anyway. If that is so, I think it is best that the interpretation issue goes before the Court of Appeal with the benefit of all of the available evidence.
[25] Finally, I do not think the undertaking provided by Malthouse is sufficiently clear to change my view as set out above. If leave were granted and an appeal were heard now, there must be a prospect that the Court of Appeal would not rule finally and substantively on the correct interpretation of the Investment Agreement. And I think it unlikely that the Court of Appeal would make some sort of provisional ruling
of the kind alluded to by Mr McIntosh in his memorandum. In those circumstances, the best course is to decline leave, and allow the case to go forward to trial in this court.
Result
[26] The application for leave to appeal is refused. Rangatira is entitled to costs, which are fixed on a 2B basis.
[27] A one day fixture is allocated for the trial of the proceeding, on
19 March 2018.
[28] Counsel are asked to confer on an appropriate timetable for discovery of documents, close of pleadings date, and the exchange of briefs of evidence and chronologies, targeted to a 19 March 2018 hearing date. Counsel are asked to provide a joint memorandum (or separate memoranda if they cannot agree) setting out their proposals for those matters by not later than Friday 15 December 2017. I will then give further directions on the papers, or if necessary convene a further telephone conference.
Associate Judge Smith
Solicitors:
Avid Legal, Wellington for the plaintiff
Minter Ellison Rudd Watts, Auckland for the defendant
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