Waikoro Ltd v Beach Arena Ltd
[2021] NZHC 1673
•6 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-002778
[2021] NZHC 1673
BETWEEN WAIKORO LIMITED
Plaintiff
AND
BEACH ARENA LIMITED
First Defendant
AND
SAREN LOO
Second Defendant
AND
CON YUEN LU
Third Defendant
AND
WEI YUEN LOO
Fourth Defendant
AND
GEN YUEN LOO
Fifth Defendant
Hearing: 6 May 2021 (by AVL) Appearances:
D J Chisholm QC and M J W Lenihan for Plaintiff A M Glenie for First Defendant
Judgment:
6 July 2021
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 6 July 2021 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
WAIKORO LTD v BEACH ARENA LTD [2021] NZHC 1673 [6 July 2021]
[1] The plaintiff, Waikoro Ltd (Waikoro) is seeking to recover sums it says are owed to it by the first defendant, Beach Arena Ltd (BAL), under a deed of lease of premises at Auckland (the lease). Waikoro also seeks to recover from the second to fifth defendants (collectively “the guarantors”) under a limited guarantee of the obligations of BAL.
[2] Waikoro and BAL allege the other is abusing the court’s processes; that is, BAL argues Waikoro’s claim and Waikoro argues BAL’s defences and counterclaims are abuses of the court’s processes.
[3]This judgment concerns applications:
(a)by BAL for an order striking out or staying Waikoro’s claim as an abuse of process;
(b)by Waikoro for an order striking out 20 paragraphs of BAL’s amended statement of defence and counterclaim as an abuse of process or, alternatively, because the matters raised by way of defence and counterclaim are time barred; and
(c)by Waikoro for an order BAL pay security for costs in respect of its counterclaims.
[4]The guarantors have taken no part in these matters.
Background
[5] The applications fall to be considered against the backdrop of other litigation Waimauri Ltd v Mahon.1 The relevant factual background is as stated below but can be found in greater detail in the judgment of Muir J in that proceeding.
[6] The leading protagonists in this proceeding and Waimauri Ltd v Mahon are Neville Christopher Mahon and Timothy Laird Edney. Mr Mahon is the sole director
1 Waimauri Ltd v Mahon [2020] NZHC 1170.
of BAL. Mr Edney is the sole director of Waikoro and of Waimauri Ltd (Waimauri). Mr Mahon and Mr Edney have known each other for over thirty years. Although once on good terms, they have fallen out bitterly resulting in litigation between them and their related entities.
[7] Waikoro owned properties at 131 Beach Road and 128 Anzac Avenue, Auckland (the property). On or about 20 December 2012, Waikoro and BAL entered into the lease of the property. The guarantors provided limited guarantees of BAL’s obligations under the lease.
[8] Under the lease, BAL took on maintenance obligations and the property was in need of repairs. In addition, shortly after the commencement of the lease, BAL was presented with a large and unexpected insurance bill. On 20 September 2013, Waimauri provided BAL with funding by way of an interest bearing loan which captured BAL’s various shortfalls under the lease. Mr Mahon guaranteed BAL’s obligations under the loan agreement.
[9] BAL did not meet its obligations under the lease. Arrears of rent and other sums accrued. In 2015, Mr Edney authorised the transfer of arrears considered owing by BAL under the lease to the Waimauri loan account. Two transfers occurred: on 31 March 2015 the sum of $832,624 was transferred, and on 31 July 2015 the sum of
$86,175 was transferred (the Converted Sums).
[10] On 11 August 2016, Waimauri’s lawyers sent a letter to BAL making a formal demand for repayment of the loan. A demand was also made upon Mr Mahon, as guarantor. No payment was made by BAL or Mr Mahon.
[11] On 15 September 2016, Waikoro terminated the lease and took possession of the property. It then sold the property.
[12] On 14 March 2018, Waimauri commenced proceedings against Mr Mahon (but not BAL) under his guarantee of the loan agreement (the Waimauri proceeding). The amount claimed was in excess of $2,400,000 and included the Converted Sums.
[13] On around 15 February 2019, Mr Mahon joined BAL as a party to the Waimauri proceeding. Mr Mahon and BAL alleged that in April 2013 Mr Mahon, BAL, Waimauri and Waikoro had entered into an oral agreement (the variation agreement) pursuant to which Mr Mahon and BAL would manage both the remediation of defects (at Waikoro’s cost) and the sale of the property and:
Upon the receipt of a reasonable offer for and/or sale of [the property] then BAL and Mr Mahon on the one hand; and [Waimauri] and Waikoro on the other, all accepted that neither side had any liability to the other and that no sums would be due under or in respect of the BAL Loan Agreement.
[14] In addition, BAL counterclaimed for $861,361 in respect of remediation costs it alleged it had incurred in respect of the property for which, it said, Waikoro was liable to reimburse it under the variation agreement.
[15]The Waimauri proceeding was set down for trial commencing 3 March 2020.
[16] Waimauri applied for security for costs and a hearing of that application was scheduled for 18 December 2019 but was vacated on 17 December 2019 when Associate Judge Bell made an order by consent that Mr Mahon and BAL were to pay
$60,000 into court as security for costs failing which their “counterclaim will be struck out without requiring further order of the court.” 2
[17] On 19 December 2019, Waikoro filed this proceeding against BAL and the guarantors. In its statement of claim, Waikoro pleaded that in the Waimauri proceeding Mr Mahon asserted the transfers of the Converted Sums to the Waimauri loan account were invalid and if it was held the transfers were invalid Waikoro claimed the Converted Sums from BAL. Waikoro sought judgment for more than $2,250,000 if the Converted Sums were not claimable from Mr Mahon in the Waimauri proceeding but a lesser sum of $741,441and interest if the Converted Sums were claimable from Mr Mahon.
[18] BAL and Mr Mahon failed to make payment of the security for costs as ordered by consent on 17 December 2019.
2 Waimauri Ltd v Mahon HC Auckland CIV-2018-404-454, 17 December 2019 at [2] (Minute).
[19]On 13 February 2020, Mr Mahon and BAL made urgent applications to:
(a)adjourn the trial of the Waimauri proceeding,
(b)consolidate the Waimauri proceeding and the Waikoro proceeding; and
(c)to amend Mr Mahon’s and BAL’s counterclaim in the Waimauri proceeding (although it had been struck out).
[20] The applications were heard by Downs J who issued his ruling in a minute of 13 February 2020.3 He:
(a)dismissed the application to adjourn the Waimauri proceeding;
(b)dismissed the application to consolidate the Waimauri proceeding and the Waikoro proceeding; and
(c)granted Mr Mahon and BAL leave to file an amended counterclaim.
[21] It is necessary to refer to the arguments advanced in support of the applications and Downs J’s reasons.
[22] In relation to the consolidation application, Mr Mahon and BAL argued the Waimauri proceeding and the Waikoro proceeding ought to have been brought as one proceeding for reasons of efficiency and fairness. Separate claims, they contended, risked inconsistent conclusions on fact, law or both. They emphasised the “common thread” to the claims, being the lease between Waikoro and BAL.
[23] Downs J did not accept these arguments and held the interests of justice did not warrant consolidating the proceedings. He said:
[11] First, the issues in each claim are not coterminous. The Waimauri claim rests on the loan agreement between Waimauri and BAL. This Mr Mahon guaranteed. The Waikoro claim rests on a different, antecedent agreement: the lease agreement between Waikoro and BAL. Mr Mahon did not guarantee it. Second, each claim has different legal elements. Risk of inconsistency must
3 Waimauri Ltd v Mahon HC Auckland CIV-2018-404-454, 13 February 2020 (Minute).
be assessed in this light. And, Waikoro is prepared to be bound by this Court’s factual and legal conclusions in the Waimauri claim, should any affect it. Third, the only common party is BAL, and this because of its counterclaim. More about this aspect shortly. Fourth, Mr Mahon’s efficiency submission overlooks the obvious disruption caused by an adjournment. It imagines a hypothetical in which neither claim has yet been filed. Waimauri filed its claim in 2018. It has already been adjourned once. Fifth, I do not accept there is a real risk of oppression or unfairness to Mr Mahon or BAL if the claims remain separate. Mr Mahon and BAL are not synonymous. Sixth, I do not accept the allied submission there is something sinister in the claims being filed separately, years apart. Waimauri and Waikoro are not synonymous either. And as observed, each’s claim involves different legal elements. Seventh, the timing of the adjournment application is a little odd. Mr Mahon asserts on oath he did not know of the Waikoro claim until late January 2020. However, Mr Mahon’s lawyer was given the Waikoro claim on 19 December 2020. He later said he was not authorised to accept service.
[24] In relation to the application to amend the counterclaim, Mr Mahon and BAL wished to argue for a different variation agreement which, they now said, was entered into in November 2013 – not April 2013 – and, under which BAL would share in the profit made on the sale of the property. They wanted judgment for any amount Waikoro received upon the sale of the property over $13,042,683. In allowing Mr Mahon and BAL to file the proposed counterclaim, Downs J noted two important factors namely, that Waimauri and Waikoro did not oppose the application and that the counterclaim could be heard without prejudice to Waimauri and Waikoro. He said:
[15] Despite all this, Waimauri and Waikoro acknowledge they “could live with” the amended counterclaim in the 2 March trial, providing they receive discovery of financial records of BAL and others. I thank Mr Chisholm QC for this helpful concession. The interests of justice favour Mr Mahon having leave to advance an amended counterclaim, as this will permit full ventilation of his case – however seemingly improbable – without material prejudice to Waimauri or Waikoro.
[25] On 17 February 2020, BAL and Mr Mahon filed their second amended statement of defence and counterclaim in the Waimauri proceeding. Mr Edney and Waikoro were joined to the Waimauri proceeding as second and third counterclaim defendants. BAL and Mr Mahon pleaded the new variation agreement in defence of any liability to Waimauri under the loan agreement and advanced two counterclaims against Waimauri, Mr Edney and Waikoro. This iteration of the variation agreement differed in several respects from the previous pleading.4 As far as the counterclaims were concerned, the first counterclaim sought judgment for $3,457,317, as
4 Waimauri Ltd v Mahon, above n 1, at [40].
representing the surplus realised on the sale of the property. The second counterclaim sought judgment for $910,026 as reimbursement of remediation expenses incurred by BAL in respect of the property and other expenses, such as costs of obtaining a resource consent and readying the property for sale.
[26] The Waimauri proceeding was heard over 10 days in March 2020. At the commencement of the trial, Muir J granted BAL and Mr Mahon leave to amend their pleadings yet again; this time to introduce a new defence of estoppel.5 This defence, which was a back-up to the principal argument there was a contractual variation of the loan agreement, was understood to be that Waimauri, Waikoro and Mr Edney were estopped from relying on the strict terms of the loan agreement insofar as they conflicted with the terms of the variation agreement. However, the case advanced by BAL and Mr Mahon developed during the hearing. In his judgment, Muir J noted there had been no suggestion when BAL was granted leave to rely on estoppel of the basis it was subsequently advanced at trial and, had that been known, “I doubt Mr Chisholm’s response would have been so accommodating, and leave may very well have been declined.”6
[27] Muir J issued judgment on 29 May 2020. He identified the five “real issues” in the case as follows:7
(a)Was there an agreement in or about November 2013 whereby BAL would be given relief from its financial obligations under the lease and, in the event of a proximate sale, would be entitled to have its debt wiped clean and receive any additional “upside”?
(b)If not, should Waimauri nevertheless be estopped from asserting its strict contractual rights?
(c)If (a) and (b) are answered in the negative, can Waimauri claim sums owed by BAL to Waikoro which Mr Edney unilaterally chose to “fold” into the loan agreement?
(d)If not and Waimauri is limited to the initial advance under the agreement, how does the Court now deal with the fact that, according to Waimauri’s own internal records, such amount was overstated by
$71,960.29?
5 At [63].
6 At [66].
7 At [31].
(e)Can, if all else fails, BAL bring a quantum meruit claim for the moneys expended by it on the properties?
[28] The Judge noted, “in the background” lay allegations by BAL of non- disclosure and misrepresentation and while there were no claims pleaded in respect of those matters, “...BAL and Mr Mahon say that these issues are nevertheless important because they explain why Mr Edney would have considered it appropriate to make the concessions alleged.”8
[29] In the result, Muir J held Waimauri could not recover the Converted Sums from Mr Mahon but gave judgment for Waimauri against Mr Mahon for the balance owing under the loan agreement excluding the Converted Sums of $825,664.9 He rejected Mr Mahon’s and BAL’s defences there was a variation agreement entered into which exonerated BAL and Mr Mahon from any liability to Waimauri and that Waimauri was estopped from asserting its strict contractual rights under the loan agreement. He also rejected Mr Mahon’s and BAL’s counterclaims for a share of the profits on the sale of the property and to recover remediation and other costs.
[30] Mr Mahon and BAL have filed an appeal against that decision. The appeal is yet to be heard.
The pleadings
[31] Against that background, it is necessary to consider the latest pleadings in this proceeding which relevantly are:
(a)Waikoro’s first amended statement of claim dated 20 October 2020;
(b)BAL’s first amended statement of defence and counterclaims dated 13 November 2020 (ASODCC); and
(c)Waikoro’s reply and statement of defence to counterclaims dated 26 November 2020.
8 At [32].
9 At [216].
Waikoro’s first amended statement of claim
[32] Waikoro’s claim is founded on the lease and the guarantors’ guarantee of BAL’s obligations under it. It pleads the terms of the lease and the guarantee and that the lease was cancelled by re-entry on 15 September 2016. It pleads the transfers of the Converted Sums were held to be invalid by Muir J in the Waimauri proceeding and that on 19 December 2019, without prejudice to its position in the Waimauri proceeding, it had demanded payment by BAL of unpaid rental, outgoings, payments to third parties and interest. It pleads, from 1 October 2013 BAL failed to pay
$2,577,628 under the lease for which it seeks judgment along with interest and costs.
[33] As a cause of action against the guarantors, Waikoro seeks judgment under their limited guarantees in the sum of $500,000 or the proceeds of sale of the properties provided by them as security and costs.
BAL’s statement of defence and counterclaim
[34] BAL’s pleading is deficient in several respects. Much of the pleading is a “cut and paste” from its pleading in the Waimauri proceeding. More than that, many of the allegations are elliptical, vague and do not contain the detail required by the High Court Rules 2016.
[35] BAL admits the lease and its terms but, at [7], alleges it was induced to enter into the lease by misrepresentations, nondisclosures and misleading or deceptive conduct as follows:
Lease between Waikoro and BAL (December 2012)
7.BAL admits paragraph 7 concerning a lease of premises at 131 Beach Road and 128 Anzac Avenue (Properties) between Waikoro and BAL dated 20 December 2012 (Lease), and further says that it was induced to enter into that Lease by misrepresentations or non-disclosures or conduct that was misleading or deceptive or likely to mislead or deceive by or on behalf of Waikoro in relation to the Properties including to the effect that:
(a)no engineering report had assessed any part of the Properties as falling below 38% of the New Building Standard, or requiring remediation work;
(b)the insurance premium(s) for the Properties for 2013 would not substantially exceed the insurance premium(s) for 2012;
(c)the Properties were safe for use and occupation by BAL and its employees and members of the public, and that there were no significant hazards in the Properties (such as asbestos, sewerage, seismic or falling masonry hazards), of which Waikoro was obliged to warn other persons under section 16 of the Health and Safety Employment Act 1992.
[36]BAL denies defaults under the lease. The relevant pleadings are at [12] and
[14] and read as follows:
Waikoro’s allegations of defaults under the lease (commencing October 2013)
12.BAL denies paragraph 12, and further says:
Indemnification against costs under clause 25 of Lease
(a)In June/July 2013, the Properties were damaged by flood, storm and/or other risks against which Waikoro was (or had convenanted with BAL to be) insured.
(b)BAL paid the cost of making good that damage (in a sum to be confirmed before trial).
(c)Waikoro indemnified BAL against the cost of making good that damage.
(d)Waikoro has not made any payment or given any credit to BAL in respect of the cost of making good that damage.
Rent and outgoings not payable under clause 27 of the Lease
(e)In June/July 2013, the Properties were damaged by flood, storm and/or other factors but not so as to render them untenantable.
(f)Waikoro was obliged to, with all reasonable speed, expend all insurance moneys it received in respect of such damage towards repairing or reinstating the Properties.
(g)Waikoro did not expend any such insurance moneys towards repairing or reinstating the Properties.
(h)BAL incurred the cost of repairing or reinstating the Properties (in a sum to be confirmed before trial).
(i)A fair proportion of the rent and outgoings ceased to be payable from the date of the damage until completion of the repairs or reinstatement.
…
14.BAL denies paragraph 14, repeats paragraph 12 above, and further says:
Variation Agreement
(a)Following commencement of the Lease, BAL discovered a number of significant defects (Defects) with the Properties which had not been disclosed at the time the Lease was executed.
(b)In or about November 2013, Mr Edney informed Mr Mahon he was planning to sell the Properties. He proposed that any profit from that sale be shared on the following basis:
(i)BAL would remain in possession of the Properties;
(ii)BAL would no longer pay rent or have the options conferred under the Lease (Option);
(iii)BAL and Mr Mahon would manage the remediation of the Defects, ready the Properties for sale, undertake the work necessary to obtain a resource consent for the development lots which formed part of the Properties (Development Lots), continue to develop the hotel business, remit all net funds received from the Properties to Waikoro, and assist in facilitating a sale process;
(iv)Waikoro would accept a reasonable offer to purchase the Properties;
(v)BAL would vacate the Properties before expiry of the Lease in the event of a sale;
(vi)Upon the receipt of a reasonable offer for and/or sale of the Properties then BAL and Mr Mahon on the one hand; and Waikoro and Mr Edney on the other; all accepted that neither side had any liability to the other and that no sums would be due under or in respect of the Lease;
(vii)Any surplus realised on the sale of the Properties by Waikoro which was in excess of $13,042,682.92 (being the $12.6m Option price set out in the Lease plus a sum of $442,692.92 purportedly loaned by Waikoro to BAL under a loan agreement dated 20 September 2013 (Loan Agreement)) would be due to BAL.
(c)If accepted, that proposal would have meant that the Properties would have been improved but without Mr Edney or Waikoro becoming liable for income tax in relation to them on sale.
(d)Mr Mahon accepted that proposal. Waikoro and BAL entered into an oral agreement on the terms set out at paragraph (b) above (Variation Agreement).
(e)BAL complied with the Variation Agreement and:
(i)continued in possession of the Properties;
(ii)continued to manage the Properties and remit funds received from them to Waikoro;
(iii)continued to develop the hotel business;
(iv)took numerous steps and incurred expenditure of not less than $910,026.06 of BAL’s funds on the Properties;
(v)planned and obtained resource consent for a high rise building on the Development Lots;
(vi)managed a sale process; and
(vii)assisted in obtaining a number of reasonable offers for the Properties at or above $15m.
(f)BAL therefore has no liability to Waikoro under the Lease as varied.
Estoppel
(g)By words or conduct Waikoro created or encouraged a belief or expectation on the part of BAL to the effect set out in sub- paragraph (b).
(h)BAL reasonably relied on that belief or expectation, by:
(i)acting in accordance with sub-paragraph (b) (including by not cancelling the Lease and vacating the Properties, remitting net funds instead of paying the rent stated in the Lease, not asserting the Option, expending resources on remediating and improving the Properties, assisting with potential sales of the Properties, signing conditional agreements to surrender the Lease and vacate the Properties on sale);
(ii)not insisting that the parties formally document a variation to the Lease.
(i)BAL will suffer detriment if that belief or expectation is departed from.
(j)It would be unconscionable to allow Waikoro to depart from that belief or expectation.
(k)Waikoro is therefore estopped from denying the Variation Agreement, or relying on the strict terms of the Lease insofar as they conflict with the Variation Agreement.
Estoppel (words or conduct 2013-2016)
(l)By words or conduct during the period 2013 to 2016 Waikoro created or encouraged a belief or expectation on the part of BAL to the effect that if it facilitated Waikoro selling the Properties for a price in excess of $13,042,682.92, then it would have no liability to Waikoro under the Lease.
(m)BAL reasonably relied on that belief or expectation by facilitating Waikoro selling the Properties.
(n)BAL will suffer detriment if that belief or expectation is departed from.
(o)It would be unconscionable to allow Waikoro to depart from that belief or expectation.
(p)Waikoro is therefore estopped from relying on the strict terms of the Lease insofar as they conflict with that belief or expectation.
Car parks
(q)Annexure 1 to Waikoro’s first amended statement of claim alleges that BAL was liable to Waikoro for “Car parks”, even though item 8 of the First Schedule to the Lease states that there was “Nil” annual rent payable in respect of “Car parks”.
[37] BAL pleads three counterclaims against Waikoro. The first counterclaim relies upon the alleged misrepresentations in [7] of the ASODCC which, it is said, induced BAL to enter into the lease. BAL claims damages in the same manner and to the same extent as if the misrepresentations were terms of the lease.
[38] The second counterclaim alleges misleading or deceptive conduct in trade in breach of s 9 of the Fair Trading Act 1986. It too is founded on [7] of the ASODCC. BAL seeks orders under the Fair Trading Act declaring all or part of the lease void, directing Waikoro to refund payments made under the lease and compensation for losses or damage suffered in connection with the lease.
[39] The third counterclaim alleges Waikoro has converted BAL’s chattels in the property. It seeks damages in an unquantified sum representing the value of the chattels.
Waikoro’s reply
[40] Waikoro’s reply largely mirrors this application. It pleads BAL cannot raise the matters in [7], [12] and [14] of the ASODCC because both BAL and Waikoro were parties to the Waimauri proceeding and cause of action estoppel and/or issue estoppel applies or it is an abuse of process to plead those matters. Waikoro also pleads BAL cannot pursue a set-off under [12] or the first and second counterclaims founded on
[7] as they are time barred.
BAL’s application to strike out or stay
BAL’s position
[41] BAL asks the court to strike out or stay Waikoro’s claim in its entirety or, alternatively, to strike out or stay Waikoro’s claim in so far as it seeks to recover the Converted Sums, default interest and indemnity costs under the lease. As a further alternative, it seeks a stay of the proceeding until its appeal from the decision of Muir J in the Waimauri proceeding is determined by the Court of Appeal.
[42] BAL argues Waikoro’s claim is an abuse of process under the principles in Henderson v Henderson10 and Johnson v Gore Woods & Co.11 It submits Waikoro’s claim and Waimauri’s claim ought to have been brought together in the one proceeding because they concern the same subject-matter, the same contracts, the same events and the same parties. In respect to Waikoro’s claim for the Converted Sums, BAL reiterates this objection but further submits, as Waimauri’s claim in relation to these sums was dismissed by Muir J12 Mr Edney and his companies are having a “second bite at the cherry” to recover them.
Waikoro’s position
[43] Waikoro’s position is its claim is not an abuse of process. It says the Waikoro and Waimauri proceedings involve different plaintiffs claiming against different
10 Henderson v Henderson [1843] 67 ER 313 (Ch).
11 Johnson v Gore Wood & Co [2002] UKHL J1214-3, [2002] 2 AC 1.
12 Waimauri v Mahon, above n 1, at [159] – [177].
defendants, involving different subject matter, different contracts and different causes of action. It submits the fact there was no decision in the Waimauri proceeding when this proceeding was commenced serves to reinforce there can be no abuse of process.
Principles
[44] Rule 15.1(1) of the High Court Rules permits the Court to strike out all or part of a pleading in specified circumstances. The rule provides:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
(4)This rule does not affect the court’s inherent jurisdiction.
[45] Affidavit evidence has been filed. I accept as a correct statement of the general approach to the use of affidavit evidence in striking out applications what the Court of Appeal said in Attorney-General v McVeagh, as follows:13
The Court is entitled to receive affidavit evidence on a striking-out application, and will do so in a proper case. It will not attempt to resolve genuinely disputed issues of fact and therefore will generally limit evidence to that which is undisputed. Normally it will not consider evidence inconsistent with the pleading, for a striking-out application is dealt with on the footing that the pleaded facts can be proved; see Electricity Corporation Ltd v Geotherm Energy Ltd [1992] 2 NZLR 641, 645-646, Southern Ocean Trawlers Ltd v Director-General of Agriculture and Fisheries [1993] 2 NZLR 53 at pp 62-63, per Cooke P. But there may be a case where an essential factual
13 Attorney-General v McVeagh [1995] 1 NZLR 558 (CA) at 566.
allegation is so demonstrably contrary to indisputable fact that the matter ought not to be allowed to proceed further.
[46] The starting point in a consideration of this application is the right of citizens to have access to the courts for the determination of their disputes. In Johnson v Gore Wood & Co, Lord Bingham said, “litigants are not without scrupulous examination of all the circumstances to be denied the right to bring a genuine subject of litigation before the court.”14 However, as was noted by the Court of Appeal in Craig v Stringer, access may be properly denied where a litigant seeks to misuse the court’s processes for an improper purpose such as to vex, harass or embarrass another party or to reopen disputes that have already been determined which is precluded by the doctrine of res judicata.15
[47] In Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd, Lord Sumption noted res judicata is a portmanteau term used to describe different legal principles with different juridical origins.16 He identified six such principles of which the first, fourth and fifth are relevant in this case. The first principle, known as cause of action estoppel, is that once a cause of action has been held to exist or not to exist, that outcome may not be challenged by either party in subsequent proceedings. The fourth principle, known as issue estoppel, is that even where the cause of action is not the same in a later action as it was in an earlier one, some issue which is necessarily common to both was decided on the earlier occasion and is binding on the parties. The fifth principle, first formulated by Wigram V-C in Henderson v Henderson,17 precludes a party from raising in subsequent proceedings matters which were not, but could and should have been raised in the earlier ones.
[48] Lord Sumption referred to Johnson v Gore Wood & Co18 as the most important decision directed against the abuse of process involved in seeking to raise in subsequent litigation points which could and should have been raised before. He quoted from the judgment of Lord Bingham of Cornhill as follows:19
14 Johnson v Gore Wood & Co, above n 11, at 24 cited in Craig v Stringer [2020] NZCA 260 at [14].
15 Craig v Stringer, above n 14, at [15] and [16].
16 Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46, [2014] AC 160 at [17].
17 Henderson v Henderson, above n 10.
18 Johnson v Gore Wood & Co, above n 11.
19 At [47].
But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because the matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits–based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.
[49] These principles are well established in New Zealand law.20 In Lai v Chamberlains, Elias CJ referred to Johnson v Gore Wood & Co, stating:21
Lord Bingham considered that what constitutes abuse as a “broad, merits – based judgment”, incapable of capture in hard and fast rules of determination and not limited to further litigation between the same parties or their privies. Lord Millett in the same case thought it “primarily an ancillary and salutary principle” which prevents res judicata and issue estoppel being “deliberately or inadvertently subverted”.
[50] The Court of Appeal in Craig v Stringer noted the underlying policy upon which the principle is based:22
… is to promote finality in litigation and ensure a defendant is not oppressed by successive suits. The objection is not that the law will not contemplate or tolerate apparently inconsistent decisions.
20 See, for example, Craig v Stringer, above n 14, at [17] and Broadspectrum (New Zealand) Ltd v Nathan [2017] NZCA 434 at [49].
21 Lai v Chamberlains [2006] NZSC 70, [2007] 2 NZLR 7 at [62] (footnotes omitted), cited in
McGougan v De Puy International Ltd [2016] NZHC 3170 at [93].
22 Craig v Stringer, above n 14, at [18] (footnotes omitted).
Discussion
[51] By a wide margin, BAL has not satisfied me Waikoro’s claim is an abuse of process. There is no basis for a suggestion Waikoro is misusing the court’s process to vex, harass or embarrass BAL or the guarantors or that it is reopening disputes that have already been determined or raising matters that could or should have been raised in the Waimauri proceeding. My reasons are as follows.
[52] First, as noted by Downs J in his minute of 13 February 2020, the Waimauri proceeding and the Waikoro proceeding are not conterminous. The claims are brought by different plaintiffs, against different defendants, based on different agreements and different causes of action. The Waimauri proceeding, based on Mr Mahon’s guarantee of the loan agreement, was brought against Mr Mahon alone. The Waikoro proceeding is against BAL and the guarantors. It is based on the lease and the guarantees. Mr Mahon is not a party to the Waikoro proceeding.
[53] BAL submits it is artificial to distinguish between Mr Edney, Waimauri and Waikoro. It says Mr Edney is the directing mind and will of each company and could have readily caused them to bring their claims in a single proceeding from the outset. BAL relies upon Commissioner of Inland Revenue v Bhanabhai where, referring to the rule in Henderson v Henderson, William Young P stated, “there is no requirement of absolute identity of parties”.23 However, more relevantly, in that same case his Honour went on to observe that in Johnson v Gore Wood & Co Lord Millet opined, “The rule in Henderson v Henderson cannot sensibly be extended to the case where the defendants are different. There is then no question of double vexation…”.24
[54] BAL’s submission is also contrary to the view Lord Millett appears to have taken in Johnson v Gore Wood & Co doubting the correctness of a concession of counsel that Mr Johnson and his company were to be regarded as privies. While
23 Commissioner of Inland Revenue v Bhanabhai [2007] 2 NZLR 478 (CA) at [61] citing Johnson v Gore Wood & Co, above n 11, at 526.
24 At [61].
Mr Glenie was critical of Lord Millet’s judgment, Lord Sumption agreed with Lord Millet on this point in Virgin Atlantic.25
[55] Mr Glenie submits Mr Edney apparently saw no relevant distinction between Waikoro and Waimauri when he purported to transfer the Converted Sums from one to the other. To the contrary, the fact of the transfers shows that Mr Edney saw a very real distinction between Waikoro and Waimauri. If he did not consider there to be a distinction why involve Waimauri at all? One obvious distinction between Waikoro and Waimauri was only Waimauri held Mr Mahon’s personal guarantee. This serves to highlight the reality that Waikoro and Waimauri had distinct involvements and relationships with BAL and Mr Mahon. There is no basis to treat Waikoro, Waimauri and Mr Edney as the same entity.
[56] While I accept the two proceedings share a common factual connection to the lease, that is where the commonality ends. BAL argues there are significant factual and legal overlaps relating to the variation agreement and estoppel but, for reasons I shall come to, having lost before Muir J on these issues BAL cannot advance its arguments again.
[57] I do not accept the submission that Mr Edney is having a “second bite at the cherry” by relitigating the claims for the Converted Sums. Muir J determined Waimauri was not entitled to claim the Converted Sums. He did not, as Mr Chisholm QC correctly submits, extinguish the debt. There is nothing stopping Waikoro from recovering the Converted Sums and no risk of double recovery if Waikoro is successful.
[58] Mr Glenie argues there is unfairness as inclusion of the Converted Sums in the Waimauri claim dispelled any prospect of settlement. I do not accept that submission. The case BAL and Mr Mahon ran before Muir J and continue to run on appeal is that there was to be a clean slate and they have no liability to Waimauri. There is nothing to suggest they would have taken any other approach had the Converted Sums not been part of the claim.
25 Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd, above n 16, at [25]. See also KR Handley
Spencer Bower and Handley: Res Judicata (5th ed LexisNexis, London, 2019) at [9.47]
[59] BAL submits there was no reason why Waikoro could not or should not have brought its claims in the Waimauri proceeding. I do not agree. Waikoro was not a party to the Waimauri proceeding until two weeks before the trial as a result of a very late application by Mr Mahon and BAL, and then as a counterclaim defendant. To have introduced Waikoro’s claims against BAL and the guarantors at that late stage would have been entirely unrealistic. The trial dates would have been lost. Days would have been added to the duration of the trial. Waimauri would have been prejudiced in wasted costs and in having to wait many months for alternative trial dates. The guarantors would have been prejudiced by having to sit through a lengthy trial which largely did not concern them.
[60] But there is a more compelling reason the Waimauri and Waikoro proceedings could not be brought as one; Downs J refused to consolidate them. He did so for the compelling reasons set out in his minute. Downs J held the interests of justice did not require consolidation of the proceedings and said, contrary to the arguments BAL now advances, there was no real risk of oppression or unfairness to Mr Mahon or BAL if the claims remain separate. BAL is seeking to re-argue the submissions it made in the application for consolidation. Waikoro says this is, in substance, an impermissible collateral attack on the decision of Downs J. I agree.
[61] I consider this application to be opportunistic. Prior to trial, BAL and Mr Mahon’s counterclaims had been struck out because of their failure to provide security for costs.26 In addition, BAL and Mr Mahon wished to raise a new counterclaim asserting an entitlement to a share of the profit upon sale of the property. It is inconceivable that Waimauri and Waikoro would have consented, or Downs J would have granted leave, to the filing of an amended counterclaim if Waikoro would thereby be prevented from pursuing this claim. It is plain Downs J did not contemplate that would be the effect of his order, as he said:27
The interests of justice favour Mr Mahon having leave to advance an amended counterclaim, as this will permit full ventilation of his case–however seemingly improbable–without material prejudice to Waimauri or Waikoro.
26 Waimauri Ltd v Mahon, above n 3, at [14].
27 At [15].
Should a stay be granted pending hearing of the appeal?
[62] In their notice of appeal from the Waimauri decision, Mr Mahon and BAL plead Muir J was incorrect to find its clean slate estoppel defence must fail.28 Before me, BAL submits if the clean slate argument is upheld on appeal Waikoro will have no claim in this proceeding. Consequently, it says, any steps taken in this proceeding would be wasted. BAL also argues that because the stay has been necessitated by Mr Edney’s decision to split the proceedings, he should not enjoy default interest in the interim.
[63] Relevant in this context, BAL unsuccessfully applied for an extension of time to file a statement of defence. On 16 July 2020, Walker J declined the application concluding the defendants were really seeking, “a de facto stay dressed up as an application for leave to file a defence”.29 BAL re-ran arguments that were presented to Downs J in the application to consolidate the proceedings.30 Her Honour found:31
An extant appeal directed largely at factual findings at first instance cannot justify holding off the filing of a statement of defence. This is particularly so when the plaintiff is seeking recovery against the guarantors who were not party to the Waimauri proceeding.
[64] BAL is seeking to achieve by a different route what it failed to achieve before Walker J. It has not appealed that decision. There is presently no reason to stay the progress of this proceeding. If, ultimately, BAL is successful on its appeal it will be compensated in costs.
Waikoro’s application to strike out
[65] Waikoro applies to strike out 20 paragraphs of BAL’s ASODCC on the basis of cause of action estoppel, issue estoppel, abuse of process and limitation grounds.32
28 See Waimauri Ltd v Mahon, above n 1, at [45] and [79]-[125].
29 Waikoro Ltd v Beach Arena Ltd [2020] NZHC 1712 at [17].
30 At [20] and [24].
31 At [25].
32 An allegation that is shown to be statute barred may be struck out as frivolous or vexatious or an abuse of process under r 15(1)(c) and (d) of the High Court Rules. See Trustees Executors Ltd v Murray [2007] NZSC 27 at [33]; [2007] 3 NZLR 721.
The principal paragraphs objected to are at [7],33 [12] and [14] of BAL’s ASODCC. Waikoro also seeks to strike out other paragraphs to the extent they repeat [14]. Further, there are three separate limitation allegations in Waikoro’s application relating to claims by BAL to a right of set-off at [7] of the ASODCC and counterclaims for misrepresentation and under the Fair Trading Act 1986 at [53]-[56] and [57]-[59] of the ASODCC respectively.
Cause of action estoppel and issue estoppel
[66] I have already referred to Henderson v Henderson abuse of process above. Waikoro relies on those principles. Waikoro also relies upon cause of action estoppel and issue estoppel which prevent, “a party to a final judgment challenging the decision in other proceedings between the parties or their privies.”34
[67]In New Zealand Social Credit Political League Inc v O'Brien, Somers J said:35
Estoppel per rem judicatam, issue estoppel, and abuse of process in at least one of its manifestations, may be seen as exemplifying similar concepts - that a matter once determined may not be again litigated, that a matter which could and should have been raised in proceedings which have been determined should not be allowed to be raised subsequently, and that a collateral attack upon a final decision in other proceedings will not be permitted. The dual objects are finality of litigation and fair use of curial procedures.
Cause of action estoppel
[68]Both parties have referred to the often cited passage in Shiels v Blakeley:36
The rule is… where a final judicial decision has been pronounced by a New Zealand judicial tribunal of competent jurisdiction over the parties to, and the subject-matter of, the litigation, any party or privy to such litigation, as against any other party or privy thereto, is estopped in any subsequent litigation from disputing or questioning the decision on the merits …
[69] In Joseph Lynch Land Co Ltd v Lynch, Tipping J stated, “the cause of action sought to be estopped must be precisely the same as that upon which there has been
33 While Waikoro has not applied to strike out [7], it has applied to strike out counterclaims in later paragraphs of BAL’s ASODCC which repeat the allegations in [7].
34 Lai v Chamberlains, above n 21, at [58].
35 New Zealand Social Credit Political League Inc v O'Brien [1984] 1 NZLR 84 (CA) at 95 cited in
Dotcom v District Court at North Shore [2018] NZCA 442 at [31].
36 Shiels v Blakeley [1986] 2 NZLR 262 (CA) at 266.
an earlier adjudication.”37 More recently, in Craig v Stringer, the Court of Appeal confirmed the doctrine applies:38
where a cause of action has been determined in earlier proceedings between the same parties or their privies… [it] prevents re-litigation of the same cause of action in any subsequent proceedings.
[70]Accordingly, the elements of cause of action estoppel are:
(a)a final decision of a court of competent jurisdiction;
(b)the parties to the present proceeding must have been either parties or privies to the earlier proceeding; and
(c)the cause of action is the same as the previous proceeding.
[71] Waikoro submits the identity of causes of action is determined as a matter of substance. I agree. On that subject, the authors of Spencer Bower and Handley: Res Judicata say:39
Two actions may be brought in respect of the same facts, [if they] give rise to distinct causes of action.40 But if the causes of action are substantially the same, the plea of former recovery prevails, despite formal differences, or different remedies.41
Issue estoppel
[72]The Court of Appeal in Craig v Stringer said:42
Res judicata can also apply where there has been a determination in earlier proceedings between the same parties or their privies of an issue that was essential to the determination of the claim such that the judgment could not stand without it — issue estoppel. Issue estoppel is narrower, and less absolute in its application than cause of action estoppel.
[73]The elements of issue estoppel are:
37 Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA) at 41.
38 Craig v Stringer, above n 14, at [16].
39 KR Handley Spencer Bower and Handley: Res Judicata, above n 25, at [21.03].
40 Brunsden v Humphrey (1884) 14 QBD 141, 146 CA.
41 Green v Weatherill [1929] 2 Ch 213, 221.
42 Craig v Stringer, above n 14, at [16]. (footnotes omitted).
(a)a court of competent jurisdiction has made a final decision in an earlier proceeding;
(b)the parties to the present proceeding were either parties or privies to the earlier proceeding; and
(c)the earlier proceeding decided an issue that was fundamental to the determination of the claim in the earlier proceeding and is the same as the relevant issue in the present proceeding.43
The contested paragraphs
Para [12] - abuse of process
[74] In [12] of the ASODCC, BAL pleads that following a storm and flood in June/July 2013 Waikoro was obliged to indemnify BAL in respect of remediation costs (cl 25 of the lease) and that a fair proportion of the rent and outgoings ceased to be payable during repairs (cl 27 of the lease). The pleading is notable for the lack of adequate particulars.
[75] Waikoro argues these allegations are an abuse of process as they could and should have been pleaded in BAL’s counterclaim in the Waimauri proceeding. This is, Waikoro asserts, because the allegations concern expenditure that would have been incurred at the same time as the expenditure that was claimed in BAL’s second counterclaim in the Waimauri proceeding.
[76] The difficulty with this is, as Waikoro acknowledges, it is as yet unclear what damage BAL says occurred and what expenditure BAL is claiming. Despite that, Waikoro submits the subject matter is closely related to the alleged variation agreement. It argues, as BAL saw fit to counterclaim in the Waimauri proceeding for expenditure it says it incurred to undertake repairs to the property, which included work to repair damage due to floods,44 it should also have claimed (if it did not do so)
43 Shiels v Blakeley, above n 36, at 266; Craig v Stringer, above n 14, at [16].
44 See Waimauri v Mahon, above n 1, at [199].
for both expenditure it now alleges it made to carry out repairs in 2013 and the claimed rent reduction.
[77] In its counterclaim in the Waimauri proceeding, BAL pleaded the variation agreement meant neither BAL nor Mr Mahon had any liability under the Waimauri loan. At [2](e) of the second amended statement of defence and counterclaim in the Waimauri proceeding, BAL pleaded:
Following commencement of the Lease, Mr Mahon and BAL discovered a number of significant defects (Defects) with the Beach Road Property which had not been disclosed to them by Mr Edney or his interests at the time the Lease was executed;
[78]Further, at [2](f)(iv) it was pleaded that the variation agreement included that:
Waikoro would be responsible for the funding of the remediation of the Defects and would reimburse BAL and Mr Mahon for any such remediation costs incurred and paid for by them;
[79] In [12] of the ASODCC, however, BAL is relying on cls 25 and 27 of the lease which were not raised or relied upon in the Waimauri proceeding. Given the fact it is not clear that BAL is seeking to recover the same sums claimed by it in the Waimauri proceeding (combined with the different subject matter), I am not presently satisfied it would be unjust to allow it to rely on these alleged breaches of the lease on Henderson v Henderson principles. However, it may well be that a request for particulars will reveal that BAL is seeking to recover the same sums claimed in the Waimauri proceeding on another basis. In that case, this issue could be revisited.
Para [12] - Limitation Act 2010
[80]Section 11 of the Limitation Act 2010 provides:
(1)It is a defence to a money claim if the defendant proves that the date on which the claim is filed is at least 6 years after the date of the act or omission on which the claim is based (the claim’s primary period).
(2)However, subsection (3) applies to a money claim instead of subsection (1) (whether or not a defence to the claim has been raised or established under subsection (1)) if—
(a)the claimant has late knowledge of the claim, and so the claim has a late knowledge date (see section 14); and
(b)the claim is made after its primary period.
(3)It is a defence to a money claim to which this subsection applies if the defendant proves that the date on which the claim is filed is at least—
(a)3 years after the late knowledge date (the claim’s late knowledge period); or
(b)15 years after the date of the act or omission on which the claim is based (the claim’s longstop period).
[81] Waikoro says the pleading at [12] relates to damage that is alleged to have occurred by flood, storm and/or other risks in June/July 2013 and was first raised in BAL’s statement of defence and counterclaim dated 11 August 2020. BAL is, Waikoro submits, raising a money claim which is time-barred under s 11(1).
[82] In support of that submission, Waikoro notes the definition of “money claim” as, “a claim for monetary relief at common law, in equity, or under an enactment”.45 It notes, also, the definitions of “claim” and “ancillary claim” in s 4 of the Act. A claim includes an ancillary claim. An ancillary claim includes, “a claim that relates to, or is connected with, the act or omission on which another claim (the original claim) is based”46 and includes a counterclaim or set-off. Waikoro submits that in substance BAL advances a set-off which is a money claim.
[83] BAL raises three points in response. First, in so far as Waikoro claims rental said to have been due on 1 October 2013 it has itself pleaded a limitation defence. Second, it argues that [12] does not raise claims for monetary relief. The claims are raised as defences and, “[a] defence cannot be time barred”. Third, BAL relies on s 50 of the Limitation Act which allows a court to grant relief in respect of an ancillary claim as if it were not time-barred.
[84] I cannot see the relevance of the first matter raised by BAL. The second matter is plainly incorrect. There is no doubt the matters raised in [12] are money claims.
45 Limitation Act 2010, s 12(1).
46 Section 4.
[85]As to the third matter, s 50 provides:
50 Discretion to allow relief for ancillary claim when allowed for original claim
(1)This section applies to an ancillary claim made in a civil proceeding commenced in a specified court or tribunal if, and only if,—
(a)relief may be granted in respect of the original claim, because no defence under Part 2 or 3 has been or could be established against it, or because of an order under section 17, 35(5), or 36(4); but
(b)relief cannot be granted in respect of the ancillary claim because a defence under Part 2 or 3 has been or could be established against it, and because no order under section 17, 35(5), or 36(4) allows a court or tribunal to grant monetary relief in respect of it.
(2)The specified court or tribunal may, if it thinks it just to do so on an application made to it for the purpose, order that relief may be granted in respect of the ancillary claim as if no defence under Part 2 or 3 applies to it.
(3)The application for the order must be made before the specified court or tribunal has decided whether the defendant has established a defence under Part 2 or 3 against the ancillary claim.
[86] Had I been satisfied BAL’s set-off was time barred it would follow BAL could not rely upon s 50 because any application under s 50(3) “must be made” before the court “has decided whether the defendant has established [a limitation defence] … against the ancillary claim.” BAL has made no such application. In his text on the Limitation Act, JC Corry writes, in relation to s 50(3):47
It is too late to apply for the exercise of the discretion after the court or tribunal has decided that a limitation defence applies to the ancillary claim. A defendant who files an ancillary claim… should at the same time file an application for the exercise of the discretion under the section.
[87] Where I have difficulty with Waikoro’s position is in the assumption that BAL’s set-off is based on the occurrence of damage in June/July 2013. Waikoro is said to have breached cls 25 and 27 of the lease by failing to indemnify BAL for making good damage and failing to expend insurance monies received by it towards repair and reinstatement of the property. Common sense would suggest that time began to run for the making of these claims very shortly after the damage occurred,
47 JC Corry Limitation Act Handbook (LexisNexis, Wellington, 2011) at [50.1.2(f)].
but the damage and the sums claimed are not particularised nor is the allegation that Waikoro received insurance monies in respect of the damage and failed to expend it towards repairing the property. It is not therefore clear when the act or omission upon which the set-off is based occurred. This circumstance arises due to the inadequacy in BAL’s pleadings. Again, I expect an application for particulars will establish the set-off is time barred. Be that as it may, I cannot be presently be satisfied the set-off in [12] is time barred.
Paragraph [14](a)-(k)
[88] In these paragraphs, BAL pleads it has no liability to Waikoro because of the variation agreement or by reason of estoppel. Waikoro says the existence of the same alleged variation agreement and/or estoppel were asserted by BAL in the Waimauri proceeding and rejected by Muir J,48 that Muir J’s judgment is a final judgment, that both it and BAL were parties to the Waimauri proceeding and bound by the findings of Muir J and, that either cause of action estoppel and/or issue estoppel applies and BAL’s pleading should be struck out.
[89] BAL accepts its pleading is almost identical to its pleading in the Waimauri proceeding. It accepts also that its variation agreement and estoppel arguments were rejected by Muir J. However, it says no cause of action or issue estoppel arises for three reasons, all of which I reject.
[90] First, BAL says, Muir J’s judgment is subject to appeal and is not final. To the contrary, Muir J’s judgment is final. It is a complete determination on the merits of the issues before him. The filing of an appeal, without more, does not alter the finality of the judgment.49 A judgment can be final when set up as a res judicata notwithstanding that it may be varied or reversed on appeal.50
48 Waimauri Ltd v Mahon, above n 1, at [33] – [127].
49 High Court Rules 2016, r 11.2 and Court of Appeal (Civil) Rules 2005, r 12.
50 KR Handley Spencer Bower and Handley: Res Judicata, above n 25 at [5.19] citing Scott v Pilkington (1862) 2 B & S 11, 41 and Marchioness of Huntley v Gaskell [1905] 2 Ch 656, 667 CA.
[91] Second, BAL argues Waikoro was a counterclaim defendant not a plaintiff in the Waimauri proceeding so, “Mr Mahon’s defence there did not directly bear on it”. Waikoro was a counterclaim defendant in the Waimauri proceeding and is again in this proceeding. BAL’s counterclaim against it in the Waimauri proceeding was based on the very same alleged variation agreement and estoppel that it seeks to raise again here. The submission that the issue of the defences did not directly bear upon it is obtuse.
[92] Third, BAL submits it is not advancing any relevant cause of action but a defence. Whether or not cause of action estoppel applies there is no doubt that issue estoppel does so.
[93]For these reasons, [14](a) to (k) of the ASODCC will be struck out.
Paragraph 14(l)-(p)
[94] BAL pleads, by words and conduct between 2013 and 2016 Waikoro represented that if BAL facilitated Waikoro selling the property in excess of
$13,042,682 it would have no liability to Waikoro under the lease.
[95] Waikoro relies upon the principle in Henderson v Henderson51 and issue estoppel. It submits these paragraphs are so closely related to the subject matter of the Waimauri proceeding they properly belonged to it. It also argues, given Muir J’s finding that Mr Mahon had no expectation that Waikoro was not going to rely on the terms of the lease, issue estoppel also applies
[96] In response, BAL says this pleading concerns conduct that took place after the variation agreement was entered into. It argues there was no pleading in the same terms before Muir J in the Waimauri proceeding. Further, BAL says the estoppel argument is pleaded as a defence to Waikoro’s claim under the lease, which formed no part of the Waimauri proceeding.
51 Henderson v Henderson, above n 10.
[97] BAL’s pleading is an abuse of process. In the Waimauri proceeding both BAL and Mr Mahon pleaded Waimauri and Waikoro were estopped from denying the variation agreement or relying on the strict terms of the lease if they conflicted with the variation agreement. Muir J’s understanding in granting leave to raise estoppel was that what was being relied upon were representations said to have been made by Mr Edney at the time of the alleged variation agreement; that is November 2013.52 However, the evidence led and arguments advanced at trial went beyond this. BAL’s evidence concerning the exchanges and conduct of the parties during the period 2013- 2016, and the consequences of such exchanges, were fully aired before and considered by Muir J in rejecting the estoppel defence.
[98] I agree with Mr Chisholm’s submission that the period pleaded of 2013-2016 is a “catch all”. He is correct that on the pleading in [14](l)-(p) the alleged estoppel could have arisen at the same time as the estoppel actually pleaded by BAL in the Waimauri proceeding. Another way of looking at it is that the estoppel defence is a sub-part of the alleged variation agreement that was pleaded by BAL in the Waimauri proceeding and rejected by Muir J.53 It follows [14](l)-(p) are so closely related to the subject matter of the issues decided upon by Muir J that it would be an abuse to allow them to be raised in this proceeding.
[99] I also accept Waikoro’s alternative argument based on issue estoppel. At [14](l) and (m), BAL pleads that Waikoro created or encouraged a reasonably held belief or expectation on the part of BAL that if BAL facilitated the selling of the property on certain terms it would have no liability to Waikoro under the lease. That is contrary to findings of Muir J that it had no such expectation.54 An issue estoppel arises against BAL and it is fatal to its estoppel defence.
[100] It follows [14] of the ASODCC is struck out in its entirety. Also struck out are [15], [16], [18], [19], [20], [21], [22], [25](b), [26], [33], [34], and [36] of the ASODCC to the extent they repeat [14].
52 Waimauri Ltd v Mahon HC Auckland CIV-2018-404-454, 28 February 2020 (Minute) at [4] and
Waimauri Ltd v Mahon, above n 1, at [66].
Waimauri Ltd v Mahon, above n 1, at [60].
54 At [71], [89], [108](d), [109],[112], [116]-[124] and [126].
Paras [54]-[56] - First counterclaim - Contract and Commercial Law Act 2017
[101] Waikoro argues this counterclaim is time barred because BAL failed to file the counterclaim within six years of the act or omission giving rise to it.55 An exception to this requirement is where the claimant has late knowledge of the claim.56
[102]Section 14 of the Limitation Act defines the late knowledge date as follows:
14 Late knowledge date (when claimant has late knowledge) defined
(1)A claim’s [late knowledge date] is the date (after the close of the start date of the claim’s primary period) on which the claimant gained knowledge (or, if earlier, the date on which the claimant ought reasonably to have gained knowledge) of all of the following facts:
(a)the fact that the act or omission on which the claim is based had occurred:
(b)the fact that the act or omission on which the claim is based was attributable (wholly or in part) to, or involved, the defendant:
(c)if the defendant’s liability or alleged liability is dependent on the claimant suffering damage or loss, the fact that the claimant had suffered damage or loss:
(d)if the defendant’s liability or alleged liability is dependent on the claimant not having consented to the act or omission on which the claim is based, the fact that the claimant did not consent to that act or omission:
(e)if the defendant’s liability or alleged liability is dependent on the act or omission on which the claim is based having been induced by fraud or, as the case may be, by a mistaken belief, the fact that the act or omission on which the claim is based is one that was induced by fraud or, as the case may be, by a mistaken belief.
(2)A claimant does not have late knowledge of a claim unless the claimant proves that, at the close of the start date of the claim’s primary period, the claimant neither knew, nor ought reasonably to have known, all of the facts specified in subsection (1)(a) to (e).
(3)The fact that a claimant did not know (or had not gained knowledge), nor ought reasonably to have known (or to have gained knowledge), of a particular fact may be attributable to causes that are or include fraud or a mistake of fact or law (other than a mistake of law as to the effect of this Act).
55 Limitation Act, s 11(1).
56 Section 11(3).
[103] This counterclaim is founded on [7] of the ASODCC where BAL pleads it was induced to enter into the lease by misrepresentations by or on behalf of Waikoro that:
(a)no engineering report had assessed any part of the property as falling below 38 per cent of the New Building Standard (NBS), or requiring remediation work;
(b)insurance premiums for 2013 would not substantially exceed those in 2012; and
(c)the property was safe for use and occupation by BAL, its employees and the public.
[104] The counterclaim was made for the first time on 11 August 2020 upon BAL filing its statement of defence. The misrepresentations are the acts or omissions on which the counterclaim is based.57 As the misrepresentations are said to have induced BAL to enter into the lease they must have been made on or before 20 December 2012; the date the lease was entered into. It follows the counterclaim was first made more than 6 years after the acts or omissions giving rise to it.
[105] BAL raises three matters in opposition to the application to strike out the first counterclaim. These are:
(a)the counterclaims are not money claims;
(b)BAL gained late knowledge of the relevant facts; and
(c)BAL can apply for relief under s 50(3) of the Limitation Act.
[106] As to the first matter, BAL seeks damages in the same manner and extent as if the representations were terms of the lease and have been breached, pursuant to s 35 of the Contract and Commercial Law Act 2017. This is a claim for monetary relief under an enactment, and is therefore a money claim.58
57 Limitation Act, s 11(1).
58 Section 12.
[107] BAL asserts late knowledge of the counterclaim. It argues it became aware of the misrepresentations pleaded in [7] of the ASODCC since 12 August 2017. Specifically, BAL says:
(a)Mr Mahon only became aware during the Waimauri trial that Mr Edney had known of the insurance premium increase prior to the lease being signed and not said anything about it.
(b)It was not until March 2020 that Mr Mahon saw an engineering report that had not been disclosed by Mr Edney that part of the property was at 24 per cent NBS.
(c)Even now it does not know everything that was known to Mr Edney and his companies about the state of the property but not disclosed prior to the signing of the lease.
[108] The evidence concerning these matters is in an affidavit of Mr Mahon dated 6 November 2020. In it:
(a)Mr Mahon refers to insurance documents discovered during the trial before Muir J relating to a “massive increase” in the insurance premium for the property. Mr Mahon says that Waikoro did not tell him of this before the lease was signed. However, Mr Mahon then says BAL had to borrow money from Waimauri to pay for this and this eventually formed part of the Waimauri loan in September 2013.
(b)Mr Mahon says Waikoro and Waimauri failed to make discovery of an Initial Evaluation Procedure report (IEP) dated 29 October 2012 showing that one of the buildings on the property was only 24 per cent of NBS. He says he had not seen that report until March 2020 and there was no reason to go looking for it as it was expected that such an important document would be disclosed by Waikoro.
(c)Mr Mahon says it is not known what else Mr Edney and Waikoro had not disclosed prior to BAL entering into the lease.
[109] In submissions, Mr Glenie acknowledged Mr Mahon did know of the increased insurance premium soon after the increase. This must be so. BAL had to borrow from Waimauri to pay the premium. It entered into the loan agreement in September 2013. It follows, Mr Mahon and BAL had knowledge of all the facts required to bring its claim whether or not Mr Edney knew of the increase prior to the lease being entered into.59 This part of the counterclaim is time barred under s 11(1) of the Limitation Act.
[110] In respect to the IEP report, Mr Chisholm submits there were Council engineering reports which were publicly available for inspection and which Mr Mahon and his solicitors had access to by December 2016 at the latest. Waikoro also relies on the contents of a letter from BAL’s then solicitors, Anderson Creagh Lai, to Waikoro’s solicitors, Brown Partners, dated 22 December 2016 referring to serious structural issues affecting the property known to Mr Mahon shortly after the lease was signed. Waikoro submits it is inconceivable the IEP report would not have come to light at that time or during the period BAL was readying the property for sale as BAL engaged with experts to investigate the seismic condition of the property.
[111] There is obvious force in Waikoro’s position. However, Mr Mahon says he did not see the IEP report until March 2020 and I cannot be satisfied his evidence is incorrect. There does not appear, for instance, to be a reference to the IEP report in Anderson Creagh Lai’s letter that would resolve that matter. I am not prepared to strike out this part of the counterclaim.
[112] In respect to the safety aspects of the property, they were apparent to BAL and Mr Mahon from, at least, shortly after the lease was signed. The evidence is simply overwhelming. In [14](a) of the ASODCC, BAL pleads, “Following commencement of the Lease, BAL discovered a number of significant defects (Defects) with the Properties which had not been disclosed at the time the Lease was executed”. BAL had knowledge of such defects prior to November 2013 as BAL goes on to plead, at [14](b), that in or about November 2013 the parties entered into the variation
59 Contractual Remedies Act 1979, s 6; Contract and Commercial Law Act 2017, s 37.
agreement which included a term that BAL and Mr Mahon would manage the remediation of defects.
[113] There is also a great deal about the state of the property in Anderson Creagh Lai’s 22 December 2016 letter. This letter is a comprehensive document showing the asserted position of BAL and Mr Mahon at that time. Relevantly:
(a)At [6], the letter states:
Very soon after BAL took possession of the Beach Road properties in December 2012, it became aware of serious building defects that had not been disclosed (and in some cases had been actively concealed).
(b)At [9], there was a further reference to BAL seeking compensation for damages suffered as a result of non-disclosure of serious building defects.
(c)The letter contained a Schedule 2. At [10], the letter states that “[v]ery soon” after the commencement of the lease, Mr Mahon became aware that the properties were in an extremely dilapidated state. Fifteen separate defects with the building were listed including fire compliance issues, asbestos, structural cladding issues and various instances of water leakage and ingress.
(d)At [11], the letter states:
More concerningly, Mr Mahon also discovered that Mr Edney had been aware of many of the Defects prior to the execution of the Lease and the associated documents in December 2012. For instance, Mr Mahon became aware that Mr Edney had exchanged correspondence with Auckland Council in connection with the serious structural issues affecting the Beach Property. That information was obtained through direct correspondence with the Auckland Council and will be contained in the Council’s files.
(e)At [13], the letter states:
Mr Mahon met Mr Edney to discuss his concerns. He told Mr Edney that BAL was prepared to “hand the keys back”. He considered that BAL would be justified in bringing the arrangements to an immediate
end and surrendering possession of the properties or pursuing claims for compensation or misrepresentation.
(f)At [15](c)(vi), the letter states that as part of an agreement with Mr Edney to ready the buildings for sale, Mr Mahon engaged and liaised with structural and geotechnical consultants and engineers to investigate the seismic condition of the building and carry out a detailed seismic assessment and potential design solution.
[114] For those reasons, this aspect of the counterclaim is also statute barred under s 11(1) of the Limitation Act and it will be struck out.
[115] For completeness, BAL sought to call in aid s 50 of the Limitation Act. As there was no application before the court for relief under s 50(3), the section does not apply.
Paras [56]-[59] - Second counterclaim - Fair Trading Act 1986
[116] BAL alleges Waikoro engaged in conduct in trade that was misleading or deceptive or likely to mislead or deceive in relation to the property and the lease, including as pleaded in [7] of the ASODCC. It asserts this conduct constituted a breach s 9 of the Fair Trading Act.
[117] A claimant must apply for an order under s 43 of the Fair Trading Act within three years of the date on which the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered.60 Time starts running when the applicant discovers or ought to have discovered that loss or damage has already occurred, or is likely to occur in the future.61
[118]In Commerce Commission v Carter Holt Harvey Ltd, the Supreme Court said:62
If an intending applicant knows that some more than minimal loss or damage is likely to have resulted from a probable contravention, it is by no means
60 Fair Trading Act 1986, s 43A.
61 Commerce Commission v Carter Holt Harvey Ltd [2009] NZSC 120, [2010] 1 NZLR 379 at [27].
62 At [34].
unreasonable to require them to make all necessary further enquiries and file their application within three years of acquiring that knowledge.
[119] For the reasons given in relation to the first counterclaim, as far as the insurance premium increase and the state of the property are concerned, BAL both knew of these matters and that they would result in loss prior to November 2013. Accordingly, this counterclaim in respect of those matters is also time-barred.
[120] In respect to the IEP report, I must accept Mr Mahon’s evidence that he only became aware of that during the trial of the Waimauri proceeding. I do not strike out that aspect of the counterclaim.
Security for Costs
[121] Waikoro applies under r 5.45 High Court Rules that BAL give security for costs in respect of BAL’s counterclaims. Rule 5.45 relevantly provides:
5.45 Order for security of costs
(1)Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—
(a)that a plaintiff—
(i)is resident out of New Zealand; or
(ii)is a corporation incorporated outside New Zealand; or
(iii)is a subsidiary (within the meaning of section 5 of the Companies Act 1993) of a corporation incorporated outside New Zealand; or
(b)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 the plaintiff’s proceeding.
(2)A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.
(3)An order under subclause (2)—
(a)requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—
(i)by paying that sum into court; or
(ii)by giving, to the satisfaction of the Judge or the Registrar, security for that sum; and
(b)may stay the proceeding until the sum is paid or the security given
[122] Waikoro is entitled to seek security for costs in respect of BAL’s counterclaims because of r 5.45(6) which provides:
References in this rule to a plaintiff and defendant are references to the person (however described on the record) who, because of a document filed in the proceeding (for example, a counterclaim) is in the position of plaintiff or defendant.
[123] This application needs to be considered in the context that BAL’s first and second counterclaims will be substantially struck out. The third counterclaim remains.
[124]The questions to be answered are:
(a)Has Waikoro satisfied the court of a threshold issue under r 5.45(1)?
(b)Is it just in all the circumstances to make an order of security for costs?63
(c)If so, in what form and quantum should the security be ordered?
(d)Should the counterclaim be stayed if the security is not paid?64
Has Waikoro satisfied the court of a threshold issue?
[125] Waikoro argues that it has satisfied the thresholds in r 5.45(1)(a)(iii) and (b). It says:
(a)BAL is a subsidiary of a corporation incorporated outside New Zealand because its sole shareholder is Most Best Holdings Ltd, a British Virgin Islands Company.
63 High Court Rules, r 5.45(2).
64 Rule 5.45(3)(b).
(b)There is reason to believe BAL will be unable to pay costs if unsuccessful on its counterclaims because BAL is not trading, Mr Mahon is its sole director and has large debts (including under the Waimauri judgment) and Mr Mahon has acknowledged that if BAL is required to provide security for costs it may be prevented from pursuing its counterclaims.
[126] I did not understand BAL to contest that the threshold requirements were met. I am satisfied they are.
Is it just in all the circumstances to make an order of security for costs?
[127] The imposition of security is not automatic when a threshold requirement is met. In deciding whether to order security and, if so, the quantum, the court exercises a discretion which is not to be fettered by constructing principles from the facts of previous cases but is to be exercised based on a careful assessment of the circumstances of the particular case.65
[128] Relevant to the present case, factors the court may have regard to in determining whether security ought to be ordered include:
(a)The merits and prospects of the parties’ respective cases bearing in mind that any assessment of the merits will be no more than an impression and not a definite indicator of the ultimate outcome at trial.66
(b)Where an order for substantial security for costs may prevent a plaintiff from pursuing its claim an order will only be made after careful consideration and only in a case in which the claim has little chance of success.67
65 Keemati Ltd v Mr Civil Ltd [2020] NZHC 3496 at [20] citing A S McLachlan v MEL Network Ltd
(2002) 16 PRNZ 747 (CA) at [15].
66 A S McLachlan v MEL Network Ltd, above n 65, at [21].
67 At [15].
(c)The court may consider whether there is any reasonable probability a plaintiff’s impecuniosity has been caused by the very acts of the defendant on which the action has been brought. As with the merits, an assessment of this factor is regularly acknowledged as difficult.68
(d)Where the plaintiff's impecuniosity results from the defendant's actions, it may be unjust to order security for costs.
[129] I was referred to Oceania Furniture Ltd v Debonaire Products Ltd where Clifford J said:69
[9] Particular considerations also apply where security for costs is sought in relation to a counterclaim. Security for costs will not be awarded against a defendant in favour of a plaintiff. Similarly, whereas security for costs may be ordered on what is in substance an independent counterclaim, they will not be ordered where the counterclaim is in effect a defence to the plaintiff’s claim. This general principle is usefully summarised by Lord Esher MR and Lord Lindley in Neck v Taylor [1893] 1 QB 560 (CA):
Where, however, the counterclaim is not in respect of a wholly distinct matter, but arises in respect of the same matter or transaction upon which the claim is founded, the court will not, merely because the party counterclaiming is resident out of the jurisdiction, order security for costs; it will in that case consider whether the counterclaim is not in substance put forward as a defence to the claim, whatever form in point of strict law and of pleading it may take, and, if so, what under all the circumstances will be just and fair as between the parties; and will act accordingly. Therefore, the Court in that case will have a discretion. (per Lord Esher MR at 562).
The matters set out in the counterclaim appear to me to be of such a nature and so closely connected with the cause of action that, whatever according to legal technicalities they may be called, they are, in substance, in the nature of a defence to the action. The plaintiff sues for a debt for which he holds security. The defendant says, ‘I owe you nothing give me back my security.’ Under these circumstances it does not seem to me just or fair that the defendant should have to give security for costs as the price of being allowed to plead such defence. (per Lindley LJ at 563)
[130] Clifford J noted there is no simple rule of thumb as to whether a counterclaim is not in substance put forward as a defence but factors that may be relevant are:70
68 Reece v Halse [2016] NZHC 1438 at [13] citing Andrew Beck and others (eds) McGechan on Procedure (looseleaf ed, Brookers) at [HR 5.45.03(03)].
69 Oceania Furniture Ltd v Debonaire Products Ltd HC Wellington CIV-2008-485-1701, 24 April 2009 at [9] and also referring to Onop Properties Ltd v Fallon Properties Ltd (1988) 1 PRNZ 261 (HC) and McCracken v Burt HC Auckland CIV-2006–404–6027, 24 May 2007. See also Neck v Taylor [1893] QB 560 (CA).
70 At [9].
(a)whether the counterclaim arises out of the same transaction;
(b)whether the amount which is counterclaimed exceeds that which is claimed; and
(c)whether the defendant/counterclaim plaintiff would have issued proceedings had the plaintiff not done so.
[131] Waikoro argues its claim is sufficiently distinct from all of BAL’s counterclaims to have an independent vitality of its own. It submits, BAL’s counterclaims are weak, belated and lacking in particulars. It says, it has a complete answer to the counterclaim alleging conversion under cls 20.3 and 20.4 of the lease. Waikoro argues the lack of merit of the counterclaims is sufficient ground justifying the award of security for costs.
[132] BAL argues its counterclaims are in substance put forward as defences and closely connected and factually linked to the claims of Waikoro. BAL advances a plethora of other matters. These include:
(a)it is likely to be in a better financial position if and when this proceeding finally progresses to judgment;
(b)Mr Edney has not been candid in his dealings with BAL and Mr Mahon71 so that every aspect of the claim needs to be “intensively scrutinised”;
(c)Mr Edney was wrong to split his case and his “abusive litigation strategy” has caused or exacerbated BAL’s impecuniosity; and
(d)security for costs is being sought to give Waikoro a powerful strategic advantage over a weaker defendant.
71 Waimauri Ltd v Mahon, above n 1, at [197].
[133] I do not accept most of BAL’s submissions. I do not consider there is reason to believe its financial circumstances will improve, that it’s impecuniosity is the result of steps taken by Waikoro and/or Mr Edney or that Mr Edney has adopted an abusive litigation strategy. In addition, the counterclaims are weak.
[134] However, it also appears to me the remaining counterclaims are sufficiently connected to Waikoro’s claim and raised in defence of that claim. The counterclaims also have a relatively narrow focus. I cannot imagine they will occupy a significant part of the trial or involve Waikoro in significant costs to defend. The matter is finely balanced. In the end, I consider that the application for security for costs should be declined.
[135] It is not necessary for me to consider the factors relating to the quantum of security or whether a stay should be ordered.
Result
[136]BAL’s application to strike out Waikoro’s claim is dismissed.
[137] Waikoro’s claim to strike out BAL’s ASODCC is successful to the following extent. I strike out all of [14]. Paragraphs [15], [16], [18], [19], [20], [21], [22], [25](b), [26], [33], [34], [36], are struck out to the extent they repeat [14]. I also strike out BAL’s counterclaims in [53] to [59] (inclusive) to the extent they rely on the allegations in [7](b) and [7](c) of the ASODCC.
[138]Waikoro’s application for security for costs is dismissed.
[139] BAL is to file an amended statement of defence and counterclaim/s taking into consideration the findings in this judgment within 21 days. Waikoro is to file any reply and statement of defence to counterclaims 14 days thereafter.
[140] The case is to be set down for a telephone case management conference before an Associate Judge on the first date available after 23 August 2021. Counsel are to confer and file a preferably joint memorandum with proposed directions to take the
case to trial at least 3 workings days prior to the telephone case management conference.
[141] As far as costs are concerned, my preliminary view is that Waikoro is the winning party and entitled to costs on the competing strike out applications and that costs should lie where they fall on the application for security for costs. However, that is not a concluded view. If counsel cannot agree on costs, they may file memoranda within 21 days. Memoranda are not to exceed 5 pages. I will then determine costs on the papers.
O G Paulsen Associate Judge
Solicitors:
Brown Partners, Auckland for Plaintiff.
Counsel – David Chisholm QC, [email protected] Michael Lenihan, [email protected]
Scott Russell, Barrister and Solicitor for Defendants Counsel – Scott Russell, [email protected]
Glenie Legal Ltd, Auckland for First Defendant, [email protected]
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