The Phone Company Limited v M2 NZ Limited

[2020] NZHC 577

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2015-404-002903

[2020] NZHC 577

BETWEEN

THE PHONE COMPANY LIMITED

Plaintiff

AND

M2 NZ LIMITED

First Defendant

M2 TELECOMMUNICATIONS PTY LIMITED

Second Defendant

Hearing:

9 March 2020

Counsel:

D W Grove for the Plaintiff

L L Fraser and Z Wall-Manning for the Defendants

Judgment:

20 March 2020

JUDGMENT OF EDWARDS J

This judgment was delivered by me on 20 March 2020 at 11.30 am pursuant to r 11.5 of the High Court Rules.

Deputy Registrar

Counsel:     D W Grove, Auckland

Solicitors:    Chapman Tripp, Auckland

THE PHONE COMPANY LTD v M2 NZ LTD [2020] NZHC 577 [20 March 2020]

[1]                 In 2016, the plaintiff (TPC) posted the sum of $45,000 as security for costs pursuant to an order made by consent. The defendants (collectively referred to as “M2”) now apply for an order requiring further security to be posted.

[2]                 M2 says that the claim has altered in scope since the original security order, and additional costs will be incurred in briefing expert evidence, undertaking discovery, and at trial. It estimates schedule 2B costs to be $137,474 based on a 10- day trial and including expert witness fees for three experts of $50,000.

[3]                 TPC disputes that there has been a material change in the scope of the claim. It also says that any additional order of costs is likely to result in it being unable to progress its claim.

[4]                 The parties are agreed that the threshold for an order for security for costs is met in this case. The key question to be determined is whether it is in the interests of justice to make such an order.

Background

[5]                 M2 is a telecommunication company operating out of Australia. In 2005, it formed a marketing alliance with TPC which was documented in a heads of agreement.

[6]                 In 2006, the parties entered into a termination agreement which brought the heads of agreement to an end and provided for an ongoing commission to be payable to TPC. Clause (f) of the termination agreement provides:

TPC is entitled to receive an additional commission in perpetuity equal to one percent (1%) of Net Receipts arising from mobile phone services customers (‘end users’) of M2 (or its related subsidiary companies), including customers of M2 procured by any M2 contractor, dealer or agent in New Zealand when the Vodafone NZ mobile network is used to deliver the mobile services. …

[7]                 Approximately six years later, in 2012, the parties entered into a deed of variation of the termination agreement (the variation agreement). This gave an option to either party to bring the perpetual payment of commissions to an end, upon which a lump sum would be paid to TPC. That option was exercised by TPC in July 2012,

and M2 paid a lump sum calculated in accordance with an agreed formula under the agreement.

[8]                 TPC issued this proceeding in 2015. It seeks orders setting aside the variation agreement, and requiring M2 to comply with the terms of the termination agreement. TPC claims that it was induced to enter into the variation agreement as a result of representations made by M2.

[9]                 On 30 May 2016, the parties reached agreement on the payment of security for costs. TPC agreed to pay a total of $45,000 on a staggered basis. The final sum of

$15,000 was payable on 20 November 2016. Leave was reserved to apply for a variation if necessary.

[10]            In 2018, the parties sought, by consent, to have a preliminary question determined. The preliminary question concerned the correct interpretation of cl (f) of the termination agreement. TPC’s interpretation of cl (f)  was  successful  in  the High Court.1 That decision was overturned on appeal.2 In essence, the Court of Appeal interpreted the clause in a way that neither party had put forward. Costs were awarded against TPC in the sum of approximately $19,000. Following the Court of Appeal’s decision, the High Court determined that costs in the High Court proceeding should lie where they fell.3

[11]            TPC did not pay the Court of Appeal costs immediately, and M2 issued a statutory demand in relation to those costs. After an exchange of correspondence between the parties, TPC paid the Court of Appeal costs on 29 August 2019.

[12]            Following the Court of Appeal’s decision, TPC filed a third amended statement of claim. TPC now claims that M2 must pay it a commission on revenues in both New Zealand and Australia. The claim has been expanded to include 77 related and subsidiary companies of M2.

1      The Phone Company Ltd v M2 NZ Ltd [2018] NZHC 2167.

2      M2 NZ Ltd v Phone Company Ltd [2019] NZCA 230.

3      Phone Company Ltd v M2 NZ Ltd [2019] NZHC 3501.

[13]            The proceeding is currently at the discovery stage and a trial date has yet to be allocated.

Should an order for further security be made?

Has the scope of the claim changed?

[14]            The first question is whether the scope of the claim has changed since the first order for security for costs was made.

[15]            The first order was made at an early stage in the proceeding. Naturally, the claim has been fleshed out since then and the parties are now in a much better position to assess and estimate the costs of bringing the matter to trial. The recent amendments to the third amended statement of claim have also broadened the scope of the claim – at least insofar as the calculation of damages is concerned.

[16]            On that basis I accept that defending the claim as currently pleaded will lead to M2 incurring additional costs that were not anticipated at the time the original order for security was made. The expert fees fall into that category. TPC argues that expert evidence is not necessary, and there is no evidence to support the $50,000 fee estimate. But M2 is entitled to call the evidence it considers necessary to defend the claim and, at this stage of the proceeding, expert fees can only be estimated. On the face of it, an estimate of $50,000 for three experts appears reasonable.

[17]            I accept that the changes made in the third amended statement of claim have broadened the scope of discovery. The net of relevant documents has widened to include those documents relating to revenue streams in Australia and elsewhere. But the quantum of additional cost which will be incurred as a result of this change is more difficult to ascertain. The sums provisioned for discovery and interlocutory applications in the schedule of costs prepared at the time the original order for security was made remain the same as those in M2’s updated schedule. That would seem to indicate that the additional cost for this step may not be that material.

[18]            A significant portion of the estimated increase in costs arises out of the estimated trial duration going from five days to 10 days. While I accept that the trial

may be longer than originally anticipated, I am not persuaded that it will be double the length. The misrepresentations which are at the heart of TPC’s claim have not changed and that will no doubt be the focus of most of the evidence at trial.

[19]            Overall, it seems clear that the scope of the claim is both better understood and has expanded in some respects since the first order of security for costs was made. But I do not accept that these changes will lead to the degree of increase in costs that M2 asserts.

Will an order of security prevent TPC from pursuing its claim?

[20]            The next question is whether an order of security will prevent TPC from pursuing its claim.

[21]            Mr Holmes has sworn an affidavit on behalf of TPC and in opposition to the application for further security. He deposes to the difficulties in securing funds to post the initial security, pay the costs in the Court of Appeal, and provision for costs in the High Court. He says he has had to use his family connections to borrow funds and he does “not consider that the company can obtain further funding”.

[22]            M2 is sceptical of these statements as, despite the delay, TPC has managed to secure the funds necessary to pay the cost orders in the end. In addition, TPC was able to source funds in the sum of $10,000 as provisioning for the anticipated costs award in the High Court. That sum was not utilised as the High Court determined that costs should lie where they fell. The fact that TPC could access these funds suggests there are avenues open to it if required.

[23]            I consider the history of the dispute thus far, and in particular the delay and difficulties in paying the Court of Appeal costs, substantiates the statements made in Mr Holmes’ affidavit. There is a real risk that if TPC is ordered to provide further security, it may prevent TPC from pursuing its claim.

[24]            In AS McLaughlin Ltd v MEL Network Ltd, the Court of Appeal said that an order having the effect of preventing a plaintiff from pursuing a claim should be made only after careful consideration and in a case in which the claim has little chance of

success.4 The Court of Appeal observed that “access to the courts for a genuine plaintiff is not likely to be denied”.5 Similar statements have been made in other cases such as Highgate on Broadway Ltd v Devine,6 and Westpac New Zealand Ltd v Adams.7 In light of those statements, the risk that TPC will be denied access to the courts weighs against a further order of security being made.

Is it just in all the circumstances to order further security?

[25]            In the overall balance, I am not persuaded that it is just in all the circumstances to order further security. Although M2 will incur additional cost in defending the claim, the existing security provides a measure of protection in terms of recovery should TPC be unsuccessful at trial. The prospect of TPC being unable to continue its claim if further security is ordered is a real one, and ultimately tips the balance against granting the application.

Result

[26]The application is denied.

[27]            If costs cannot be agreed, then memoranda of no more than three pages in length shall be filed and served within 10 working days of receipt of this judgment. Costs shall be determined on the papers.

Edwards J

4      AS McLaughlin Ltd v MEL Network Ltd [2002] 16 PRNZ 747 (CA).

5 At [15].

6      Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 107 at [8].

7      Westpac New Zealand Ltd v Adams [2013] NZHC 3112 at [67].