Total Air Supply Company Limited v Total Air Supply Company (2007) Limited HC Auckland CIV-2008-404-7627

[2011] NZHC 12

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2008-404-7627

BETWEEN  TOTAL AIR SUPPLY COMPANY LIMITED

Plaintiff

ANDTOTAL AIR SUPPLY COMPANY (2007) LIMITED

First Defendant

ANDJAMES DAVID RITCHIE Second Defendant

ANDPATEL PIKE & ASSOCIATES LIMITED Third Defendant

ANDKANU PATEL Fourth Defendant

ANDAUTO TEMP AIR CONDITIONING LIMITED (IN LIQUIDATION)

Fifth Defendant

Counsel:         G Wadsworth for Applicant for Respondent

Judgment:      10 January 2011

ORAL JUDGMENT OF RODNEY HANSEN J

Solicitors:           George Bogiatto, DX CP19060 for Plaintiff

(Email:  [email protected] )
Lowndes Associates, P O Box 7311, Auckland 1141 for Second and Fifth

Defendants (Email:  [email protected] ) Kennedys, DX CP20542 for Third and Fourth Defendants (Email:  [email protected] )

TOTAL AIR SUPPLY COMPANY LIMITED V TOTAL AIR SUPPLY COMPANY (2007) LIMITED HC AK CIV-2008-404-7627 10 January 2011

Introduction

[1]      In this proceeding the plaintiff seeks to recover damages from five defendants for  losses  alleged  to  have  arisen  from  the  purchase  of  a  motor  vehicle  air conditioning business in 2007.  The first and fifth defendants are in liquidation and the second defendant is bankrupt.  The claim against the remaining defendants has a fixture for seven days commencing on 23 May 2011.  They apply for leave to join Gilligan & Company, a firm of chartered accountants, as a third party.   The application is opposed by the plaintiff.

Background to the claim

[2]      The plaintiff bought the air conditioning business from the first defendant, which went into liquidation in 2009.  The second defendant, Mr Ritchie, was the sole director of the first defendant.  He was adjudicated bankrupt in 2009.  He was also the director of the fifth defendant whose business was closely associated with that of the first defendant.

[3]      The plaintiff alleges that the turnover of the business was inflated as a result of the second defendant diverting revenue from the fifth defendant to the first defendant.    Its  claims  against  those  defendants  are  based  on  misrepresentation, breach of the Fair Trading Act 1986 and deceit.

[4]      The third defendant is a firm of chartered accountants, of which the fourth defendant is a principal.   They were retained by the plaintiff to undertake a due diligence investigation of the business.  The plaintiff claims they acted negligently in failing to detect that the turnover of the business had been overstated.  They are said to be in breach of contractual, tortious and fiduciary duties.

Third party application

[5]      Gilligan  &  Company  was  the  accountants  of  the  first  defendant.    The principal of the firm, Mr Alan Gilligan, was also a shareholder of the first and fifth defendants and other companies of which Mr Ritchie was a shareholder.   For the purpose of his due diligence investigation, Mr Gilligan is alleged to have supplied accounts and other financial information to the third defendant, including statements which  supported  the  turnover  figure.    In  their  draft  statement  of  claim  against Gilligan & Company the third and fourth defendants allege that it owed the plaintiff and them a duty to exercise reasonable care and skill in the preparation of financial information and breached that duty in providing incorrect information on which the recipients  relied.    They  seek  indemnity  against,  or  contribution  towards,  any judgment entered against them in favour of the plaintiff.

Discussion

[6]      It is not in question that the proposed claim against Gilligan & Company comes  within  r  4.4(1)  of  the  High  Court  Rules  and  there  could  have  been  no objection to joinder if a third party notice had been issued within the time stipulated by r 4.4(2)(a).

[7]      Opposition to the grant of leave is based solely on the delay in seeking joinder and the prejudice that may result.  The delay is significant and has not been explained.  The fixture was allocated on 28 September 2009.  The last event in the proceeding  was  a  judicial  settlement  conference  on  16  November  2009.    All necessary trial directions were made at the conference after the parties failed to achieve a settlement.  There is nothing to indicate that the information on which the third and fourth defendants rely for the purpose of joinder was not available to them then, if not much earlier.  Indeed, it has been confirmed that Gilligan & Company’s files were among the documents discovered by the first and second defendants.

[8]      It is common ground that the seven days allocated for the fixture would be sufficient to accommodate the proposed claim by the third and fourth defendants

against Gilligan & Company.   Now that the plaintiff is not proceeding against the remaining three defendants, the contentious issues will be of relatively narrow compass and parts of its claim will effectively proceed by way of formal proof.

[9]      It appears likely that there is sufficient time for the third party to prepare for a hearing in May.  The current timetable does not require the plaintiff ’s evidence to be served until 7 March.   The third party’s witness statements would not be required until  2  May.   There is  unlikely to  be a  requirement  for  any significant  further discovery. As previously mentioned, Gilligan & Company’s documents have already been discovered through the first and second defendants.

[10]     However,  the  risk  that  joinder  may  give  rise  to  an  application  for  an adjournment of the May fixture cannot be altogether excluded.  It is not possible to foresee all eventualities that may follow joinder.  In my view, that would result in an unacceptable degree of prejudice to the plaintiff who is entitled to have its claim heard and would face a lengthy delay if the fixture did not go ahead.  This being the paramount consideration, I would not have been prepared to grant the application unless it could be associated with conditions which would ensure that any consequential risk that the plaintiff’s claim against the third and fourth defendants would not proceed were eliminated.

[11]     After discussions with counsel, both of whom have adopted commendably a realistic  and  constructive  approach,  it  has  been  possible  to  indentify conditions associated with an order for joinder which will remove any risk of prejudice to the plaintiff while leaving open the obviously desirable goal of disposing of all issues at the same time.

[12]     On the basis I am prepared to make an order granting leave to the third and fourth defendants to issue a third party notice against Gilligan & Company in terms of the draft annexed to the affidavit of Bryony Meg Lena Howe filed in support of the application and to join Gilligan & Company as a third party.  I do so, however, on the basis that joinder does not prejudice the hearing in May of the plaintiff’s claim against the third and fourth defendants.  Joinder is ordered on the basis that, should the third party be unable or unwilling to participate in the May hearing, any

adjournment would be only in relation to the third and fourth defendants’ claim against the third party and would not affect the hearing of the plaintiff’s claim against the third and fourth defendants.

[13]     For the sake of clarity, what is contemplated is that, if at all possible, all issues involving the plaintiff, the third and fourth defendants and the third party are disposed of at the May hearing but that if, for any reason, an adjournment is successfully sought in relation to the claim by the third and fourth defendants against the third party, that would not delay the hearing of the plaintiff’s claim against the third and fourth defendants.

Result

[14]     I grant leave to the third and fourth defendants to issue a third party notice against Gilligan & Company and joining Gilligan & Company as a third party to this proceeding on the basis stated earlier in this judgment.

[15]     The  proceeding  is  adjourned  for  mention  in  the  Duty  Judge  List  on

16 February.  By this time the third party will have filed a statement of defence.  It will be possible to make further timetable orders and for the third party to indicate its attitude to the claim against it being heard at the May fixture.

[16]     Although Mr Hamilton was unwilling to acknowledge that his clients should be liable for the costs of this application, I am in no doubt that it is appropriate that they should pay, on a category 2 band B basis, the costs of the application for joinder and of today’s hearing.