Waterhouse v Contractors Bonding Limited
[2013] NZHC 2100
•19 August 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
COMMERCIAL LIST
CIV-2010-404-3074 [2013] NZHC 2100
BETWEEN GODFREY WATERHOUSE Plaintiff
ANDCONTRACTORS BONDING LIMITED Defendant
Hearing: 26 July 2013
Counsel: S Grant for plaintiff
R E Harrison QC for defendant
Judgment: 26 July 2013
Reasons: 19 August 2013
JUDGMENT OF WINKELMANN J
This reasons for judgment was delivered by me on 19 August 2013 at 2.00 pm pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors
Harmos Horton Lusk, Auckland
Fortune Manning, Auckland
Counsel:
R E Harrison QC, Auckland
WATERHOUSE v CONTRACTORS BONDING LIMITED [2013] NZHC 2100 [26 July 2013]
[1] The defendant, Contractors Bonding Ltd (Contractors Bonding), applied for leave to appeal a judgment of Potter J delivered on 3 August 2012, dismissing applications by Contractors Bonding for summary judgment or to strike out Mr Godfrey Waterhouse’s claim.
[2] In her decision, Potter J granted summary judgment in favour of Contractors Bonding in respect of claims brought by the then second plaintiff, Mr Robert Waterhouse, but dismissed an application to strike out the claims. Mr Robert Waterhouse has appealed the making of summary judgment against him. Contractors Bonding also wishes to cross-appeal the refusal of its application to strike out Mr Robert Waterhouse’s claim, and in any case wishes to support the summary judgment against Mr Robert Waterhouse on other grounds.
[3] This is a proceeding entered on the Commercial List. Contractors Bonding required leave for both its appeal in respect of Mr Godfrey Waterhouse and its cross- appeal in respect of Mr Robert Waterhouse. Section 24G of the Judicature Act 1908 provides:
24G Restriction of right of appeal from interlocutory decisions
(1) No appeal shall lie from an interlocutory decision of the High Court in respect of any proceeding entered on a commercial list unless leave to appeal to the Court of Appeal is given by the High Court on application made within 7 days of the decision being given or within such further time as the High Court may allow.
[4] The Court of Appeal has already held that Mr Robert Waterhouse does not require leave to appeal because the judgment disposing of his claim was not an interlocutory decision.
[5] Both Mr Godfrey and Mr Robert Waterhouse, opposed the grant of leave to Contractors Bonding. I heard argument on 26 July 2013 and, at the conclusion of the hearing, I granted Contractors Bonding leave to appeal. I now give my reasons for that grant of leave.
Principles
[6] The relevant principles for the grant of leave are well established, and are as set out by the Court of Appeal in Meates v Taylor:[1]
A party seeking this Court's leave to appeal under s 24G, leave having been refused by the High Court, has a high threshold to cross. The Commercial List is designed to secure the expeditious completion of the interlocutory stages of a case, and so minimise delays in its ultimate disposition. The ready availability of a right of appeal can frustrate that objective, hence appeal is not of right but by leave. And leave will not be granted as a matter of course, but only where the particular circumstances clearly warrant incurring the further delay that will be involved. These cannot be categorised. But as a generalisation it can be said that error of fact or law is not enough; the case must be such as to create if not injustice at least real detriment (the expression used by Barker J in Jagwar Holdings Ltd v Fullers Corp Ltd (1989) 3 PRNZ 282, 284) if not corrected; or it may be as to an important question of law; or it may touch upon a matter of general or public importance.
[1] Meates v Taylor (1992) 5 PRNZ 524 (CA) at 526; approved in Ernst & Young v Benchmark Jewellery Co NZ Ltd (in liq) (1993) 7 PRNZ 13 (CA); Clear Communications Ltd v Attorney- General (1998) 12 PRNZ 287 (CA).
[7] Although that case concerned an application for leave to appeal under s 24G(2), these principles apply also to applications under s 24G(1).[2]
Relevant background
[2] See, for example, McCulloch v Quinn [2012] NZHC 2469; Greymouth Holdings Ltd v Jet
Trustees Ltd [2012] NZHC 471.
[8] The claim as it existed prior to the decision of Potter J was summarised by
Allan J in his decision of 13 December 2010 as follows:[3]
[3] Waterhouse v Contractors Bonding Ltd HC Auckland CIV-2010-404-3074, 13 December 2010 at
[2] – [10].
[2] The plaintiffs, who are father [Godfrey] and son [Robert], were formerly associated with insurance businesses in Georgia, USA. The first plaintiff was a director and sole shareholder of Phoenix Brokers Inc (Phoenix). The second plaintiff owned a business known as Main Street Brokers. These entities specialised in shuttle limousine and taxi cab insurance.
[3] In late 2000, Phoenix entered into an agreement with the defendant, whereby the defendant was to underwrite insurance policies for Phoenix in Georgia. The appropriate licences having been obtained, Phoenix commenced placing business with the defendant in December 2000. Between that date and March 2005, Phoenix issued the policies, collected the premiums and/or claims, issued endorsements and carried out other incidental activities. It accounted to the defendant in New Zealand for an
agreed portion of the premiums. An agreed sum was paid into a trust account by Phoenix in order to meet claims. All claims were met out of that account.
[4] In 2002, Georgia changed its laws relating to the eligibility of insurers. The defendant became ineligible to underwrite further business unless and until it qualified under the new regime. Shortly thereafter, the defendant advised the plaintiffs it was in a position to continue to underwrite business placed by the defendants, in that it had established a sufficient financial base and had acquired an insurer in American Samoa, which qualified as an underwriter under the amended Georgia law.
[5] The defendant thereafter continued to carry on business in association with the plaintiffs until 2005, when the authorities in Georgia took steps against both the plaintiffs and the defendant. It was contended that the parties were carrying on business unlawfully, because the defendant was not qualified to operate as an underwriter in Georgia. The second plaintiff was arrested. A warrant was issued for the arrest of the first plaintiff. The assets of Phoenix and Main Street Brokers were seized and the business closed down.
[6] Criminal charges were laid against the plaintiffs. It seems that they did not proceed to trial.
[7] In 2007 a class action was commenced against the defendant and Phoenix. It was alleged in that proceeding that the defendant had sold non- existent commercial automobile insurance policies.
[8] Ultimately it appears that both civil and criminal proceedings were compromised, although the precise detail of those arrangements is not before the Court. Phoenix has been struck off the register in Georgia. The plaintiffs say they have suffered significant losses, both personal and financial. At the heart of the present proceeding is the claim that the defendant misled the plaintiffs as to the defendant’s acquisition of a qualifying insurance entity in American Samoa. The plaintiffs allege that no such acquisition occurred, with the result that the parties were not, as the plaintiffs had thought, qualified to conduct insurance business in Georgia.
[9] The defendant for its part denies the plaintiffs’ allegations. It says that the problems encountered by the parties were the result of a mistake on the part of the Georgian authorities. It is however not possible to determine the precise ambit of the proposed defence because no statement of defence has yet been filed.
[10] The plaintiffs allege deceit, breach of fiduciary duty and negligence. They are unable to rely directly on the contractual arrangements with the defendant because the contracting party was Phoenix, which no longer exists. The plaintiffs claim special damages of $4.3 million, together with general damages of $50,000 each and exemplary damages of $50,000 each. There is also a claim for interest.
[9] In 2011, Contractors Bonding applied for summary judgment against both plaintiffs, and in the alternative to strike out of the pleaded causes of action. The
principal basis for the summary judgment and strike out applications was a pleaded limitation defence based on the four year limitation period under the law of Georgia. It was argued this was applicable to all pleaded claims. Although expert evidence as to Georgia law on that topic was provided in support of the summary judgment application, ultimately the relevant Georgia limitation law was conceded.
[10] Because the defendant had not protested the New Zealand courts’ jurisdiction to hear the plaintiffs’ claims, it was common ground that New Zealand law was the lex fori of the case and accordingly that:[4]
The procedural laws of New Zealand govern the procedural or administrative aspects of this proceeding (that is, the litigation machinery).
[4] Waterhouse v Contractors Bonding Ltd [2012] NZHV 566 at [35].
[11] If the Georgia limitation law applies, this is fatal to the Waterhouses’ claims.
[12] An alternative basis for the application was that under either the law of Georgia or New Zealand, any duties owed by Contractors Bonding were owed to Phoenix, and not to its shareholders and directors. The Waterhouses therefore had no standing to sue.
[13] Both applications were opposed. The plaintiffs said they had good causes of action against Contractors Bonding in deceit, negligent misstatement, and breach of fiduciary duty, and had standing under New Zealand law to sue for their personal losses. Any defects in the pleadings, they said, could be remedied by filing an amended statement of claim.
[14] There were two critical issues that Contractors Bonding had to establish for the first ground of its application, the limitation defence, to succeed. First, it had to persuade the court that under conflict of law principles, the proper law of the legal dispute was Georgia law rather than New Zealand law. Secondly, that the applicable limitation period was a matter to be determined by reference to the proper law of the
dispute rather than the lex fori.
[15] The Judge resolved the first issue in favour of Contractors Bonding. The second issue turned upon whether issues of limitation were properly characterised as matters of procedural law (characterised by the Judge as the traditional approach) or as matters of substantive law (characterised by the Judge as the modern approach). If characterised as procedural, then because the procedural laws of New Zealand applied so did the relevant New Zealand limitation law. If characterised as substantive law, then Georgia law applied.
[16] The Judge acknowledged that the modern approach is supported by decisions of the High Court of Australia, the Supreme Court of Canada, and also is the current law under the Limitation Act 2010. However, the Judge’s ultimate conclusion was that “the traditional approach … should govern the plaintiffs’ claims in this case”,[5] with the consequence that “the limitation period for all the plaintiffs’ causes of action is governed by New Zealand law”.[6]
[5] At [76].
[6] At [77].
[17] Contractors Bonding say that Potter J erred in the approach she took to determining this legal issue. She applied only strike out principles to this aspect of the application, addressing as the ultimate issue, whether Contractors Bonding had “failed to establish the plaintiffs’ causes of action in tort are so clearly statute-barred
that they can properly be regarded as frivolous, vexatious or an abuse of process”.[7]
That was the issue on strike out. However, the application was brought, on an alternative basis, as a summary judgment application and the purely legal question at issue on that application could and should have been decided on its merits, rather than on a strike out basis.
[7] At [76].
[18] Contractors Bonding will also argue that the Judge erred in relying on the Limitation Act 2010 in dismissing the application. The Judge attached significance to the fact that s 55(2) of that Act was not expressed to have retrospective effect. Contractors Bonding will argue that although it is true s 55(2) is not expressed to be retrospective, at best that left the issue of what the common law in New Zealand was
in respect of those proceedings not governed by that provision, Potter J failed to
determine that issue, although it was, Contractors Bonding says, the critical issue on the application.
[19] The second ground for Contractors Bonding’s application was that any claims which should survive strike out should have been brought by Mr Godfrey Waterhouse’s company, Phoenix Brokers Inc (Phoenix), and that neither of the Waterhouses had standing to bring the claims.
[20] Potter J rejected this argument in relation to Mr Godfrey Waterhouse. She held that it could not be excluded on the pleadings and the evidence that Mr Geoffrey Waterhouse could establish independent duties owed to him by Contractors Bonding, that the alleged misrepresentation was made to him and relied upon by him in his personal capacity, as distinct from his position as an alter ego of Phoenix. However, the Judge identified aspects of Mr Robert Waterhouse’s situation which she said distinguished him from his father, granting summary judgment in favour of Contractors Bonding on this basis.
[21] Contractors Bonding wishes to argue on appeal that Phoenix is the proper plaintiff for most of the claims brought by Mr Godfrey Waterhouse, and where that is not the case (for example, where Godfrey Waterhouse seeks to claim damages representing alleged losses suffered by a New Zealand company which he founded after the events the subject of the claim), the duties of care and heads of damages claimed are plainly not owed, or are not reasonably foreseeable and thus too remote.
[22] Finally, it is relevant to this application that Contractors Bonding will seek to support the judgment against Mr Robert Waterhouse on other grounds. It will argue that judgment could and should have been entered on the basis of the limitation defence. As mentioned, it also wishes to cross-appeal the refusal of its strike out application in respect of Mr Robert Waterhouse.
Counsels’ arguments
[23] Ms Grant submitted that leave to appeal should be declined because the grant of leave will cause further delay in a proceeding which has already been the subject of considerable delay. If Contractors Bonding’s appeals are heard together with
Mr Robert Waterhouse’s, it will likely mean the hearing will take two days rather than one. It is common ground that a hearing date that is available in November will be too soon for the combined appeal. This additional delay is not warranted. There is no matter of general public interest entailed in the proposed appeal, and there will be no real injustice to Contractors Bonding as these issues can still be raised at the substantive hearing.
[24] Mr Harrison, for Contractors Bonding, submitted that the Waterhouses cannot complain of delay since they have been responsible for so much delay and that it would be unjust, if not perverse, to allow Mr Robert Waterhouse to bring his appeal while constraining Contractors Bonding from raising all of the arguments it wishes to make in support of its assertion that he has no tenable claim against Contractors Bonding.
[25] There has undoubtedly been substantial delay in this proceeding to date. There was a delay of five years in bringing the proceeding. Ms Grant says that was due to the impecuniosity of the Waterhouses caused by Contractors Bonding’s conduct. Delays have also been caused by Contractors Bonding’s application to obtain disclosure of litigation funding agreements. That application was initially declined, but successful on appeal. Finally, there had been a stay of proceedings preventing the Waterhouses’ claims from being advanced. A stay was ordered by the
Court of Appeal “pending disclosure of the redacted version of the agreement …”.[8]
The Court of Appeal reserved power to the High Court to vary that stay, which was done on a consent basis to enable the strike out and summary judgment applications to be heard.
[8] Contractors Bonding Ltd v Waterhouse [2012] NZCA 399, [2012] 3 NZLR 826 at [79].
[26] Fortunately, I did not need to resolve the various factual contentions between the parties as to the cause of delay. I saw the relevance of past delay as being marginal at best in respect of an application for leave to appeal. Past delay does not negate in any way the imperative that proceedings in the Commercial List proceed promptly to hearing.
[27] In deciding to grant leave I took into account the following factors:
(a) There is already an appeal by Mr Robert Waterhouse which will cause delay in this proceeding. The Waterhouses do not wish to take any substantive steps in the proceeding until that appeal is disposed of.
(b)Although Mr Robert Waterhouse may wish to keep the issues narrow on that appeal, Contractors Bonding does not need leave to support the judgment on other grounds. It can therefore argue the limitation issues without leave on Mr Robert Waterhouse’s appeal.[9]
[9] If it has not complied with the time limit for filing the Rule 33 memorandum, leave will be required.
(c) In any case, since the issue of whether Mr Robert Waterhouse should continue as a plaintiff in the proceeding will be argued before the Court of Appeal, it would be artificial to constrain Contractors Bonding from raising its other arguments in favour of strike out/summary judgment by way of cross-appeal.
(d)The grant of leave to appeal and cross-appeal will add to the delay, but that additional delay should not be significant, above and beyond the delay occasioned by Mr Robert Waterhouse’s appeal.
(e) Finally, if Contractors Bonding succeeds with the appeal, it will dispose of the proceeding for Contractors Bonding. The issue is then of considerable significance for Contractors Bonding.
[28] In these particular circumstances I was satisfied that there was risk of injustice if leave were not granted, and little risk of significant additional delay if it
were. I therefore granted leave to appeal.
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