Webster Farm Management Ltd v Dargaville Farms Ltd (in liq)
[2020] NZHC 1477
•29 June 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-001548
[2020] NZHC 1477
BETWEEN WEBSTER FARM MANAGEMENT LIMITED
First PlaintiffDAVID BASIL WEBSTER and FRANCES KIM WEBSTER
Second PlaintiffsAND
DARGAVILLE FARMS LIMITED (IN LIQUIDATON)
First Defendant
JIANGHUA HAN, KEVIN JOHN MARSH and RICHARD CLIVE PEARSON as
trustees of the LI LIANG REN FAMILY TRUSTSecond Defendants
Hearing: 15 June 2020 Appearances:
E L Smith for Plaintiffs
S Robertson QC and S Lu for Second Defendants
Judgment:
29 June 2020
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 29 June 2020 at 3.30 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar Date………………………
WEBSTER FARM MANAGEMENT LTD v DARGAVILLE FARMS LTD (IN LIQ) [2020] NZHC 1477 [29
June 2020]
Introduction
[1] This is a further set of High Court proceedings arising out of disputes between the second plaintiffs, Mr and Mrs Webster, and the previous sole trustee of the Li Liang Ren Family Trust, Mr Li.
[2] In December 2015, Mr Li, as trustee, purchased three dairy farms in Dargaville from entities related to Mr and Mrs Webster. Mr Li and the Websters formed a company to lease the farms and to operate a farming business, namely the first defendant, Dargaville Farms Ltd (DFL), with Mr and Mrs Webster managing the day- to-day operation of the farms. DFL is now in liquidation.
[3] In these proceedings, the plaintiffs claim against the second defendants, the present trustees of the Li Liang Ren Family Trust, for management fees and the supply of maize to DFL. They sue in contract.
[4] The second defendant trustees seek defendant summary judgment and/or strike out of both causes of action in the statement of claim. The trustees say the claims against them are ill-conceived and an abuse of process. They say that they have no liability for the amounts claimed, because they were not parties to the contracts at issue. The trustees further say that the pursuit of these proceedings is an abuse of process because the issues ought to have been raised in the previous proceedings.
Factual background
[5] Webster Farm Management Ltd (WFML), the first plaintiff, is the owner/operator of farms near Dargaville. The second plaintiffs, Mr David Webster and Mrs Frances Webster, are the directors and shareholders of Webster Farm Management Ltd. In 2015, and indirectly through various companies, Mr and Mrs Webster owned three dairy farms in the Dargaville area (“the Dargaville farms”):
(a)At Bush Road, Arapahoe, owned by Beejay Stud Ltd;
(b)At Mititai Road, Waiotira, owned by Clear Ridge Station Ltd; and
(c)At Arapahoe Road, Arapahoe, owned by Ridge View Farms Ltd.
[6] Mr Li, now deceased, was originally the sole trustee of the Liang Ren Family Trust. He was Chinese but had lived in New Zealand since 1995. He was an Auckland businessman with forest and farm investments.
[7] During 2015, the Websters and Mr Li negotiated for the sale and purchase of the Dargaville farms. The Websters were keen to maintain a connection and to have some ongoing management of the farms. Mr Li was apparently not to be involved in their day-to-day management.1
[8] In December 2015, a letter of offer and “confidential terms of offer” were signed by the Websters as directors of Beejay Ltd, Ridge View Farms Ltd, Clear Ridge Station Ltd and by Mr Liang Ren Li or nominee, as follows:
(a)Mr Li or nominee were to purchase the three dairy farms and associated Fonterra Co-operative Group shares from the Webster Family Trust;
(b)A lessee company was to be formed to lease the dairy farms for five years and to run the dairy farming business;
(c)Mr and Mrs Webster would manage the day-to-day activity and running of the farms.
[9] Contemporaneous with the negotiation and settlement of the sale agreement, the parties entered into negotiations regarding the management of the farm. No written management agreement was signed. The plaintiffs allege that the principal terms of the management agreement reached were as follows:
(a)The term of the agreement was to be a fixed term of five years;
(b)The management fee was to be an annual management fee of $170,000 plus GST;
(c)The management fee would be paid in 12 equal monthly instalments.
[10] In December 2015, Dargaville Farms Ltd, the first defendant, was incorporated. On incorporation Mr Li was the sole owner of the 1,000 shares.
1 See Webster v Ren & Dargaville Farms Ltd [2017] NZHC 479 at [8].
[11] In late December 2015, the solicitors for the Websters forwarded to the solicitors for Mr Li, a draft management agreement to which the named parties were DFL, Mr Li as sole trustee of the Li Liang Ren Family Trust and WMFL.
[12] On 20 December 2015, Mr Li nominated the Li Liang Ren Family Trust as the purchaser of the dairy farms, as the purchaser of the Fonterra shares and as the shareholder for Mr Li’s interests in DFL.
[13] In January 2016, the settlement of the sale of the farms took place. This included agreements for the sale and purchase of livestock, entered into by DFL and Clear Ridge Station Ltd, Ridge View Farms Ltd and Beejay Stud Ltd. There was also an agreement for sale and purchase of the shares in DFL signed by Mr Li and Mr and Mrs Webster. It was agreed that the Li Family Trust would have a 70 per cent shareholding and the Websters would have a 30 per cent shareholding. However, because the Websters were unable to provide sufficient funds, the shareholding (as recorded in Company Office records), was as follows: 800 (80 per cent) by Mr Li and 200 (20 per cent) by WFML.2
[14] WFML was not only the entity which held the Webster shares in DFL but was also the vehicle through which the Websters provided management services to DFL.
[15] In February 2016, the Websters and WFML commenced management of the dairy farms. Monthly invoices were rendered by WFML to DFL and payment of the invoices was made by DFL. Later, in 2016, Mr Li and the Websters fell out.
[16] On 22 June 2016, DFL terminated the management service contract with WFML.
[17] In September 2016, the Websters wrote to DFL raising personal grievances in relation to the termination of their management services with DFL. Those personal grievances were ultimately not pursued, apparently because of the recognition by the Websters that they were not directly employed by DFL but, rather, their management company, WFML was engaged by DFL as an independent contractor.
2 Webster v Ren & Dargaville Farms Ltd, above n 1, at [10].
[18] The Websters then brought summary judgment proceedings against Mr Li and Dargaville Farms Ltd in relation to shareholder advances made to DFL (High Court Whangarei CIV-2016-404-2496). The Websters sued pursuant to the deed of January 2016 called “Deed of Agreement for sale and purchase of shares in Dargaville Farms Ltd”.
[19] On 15 March 2017, Bell AJ granted summary judgment in favour of the Websters against DFL in the sum of $699,800 plus interest.3
[20] On 4 May 2017, the Websters served DFL with a statutory demanding claiming that DFL owed them the sum of $726,229 pursuant to the judgment of Bell AJ plus interest.
[21] On 16 May 2017, DFL applied to the High Court in Whangarei to set aside the statutory demand (CIV-2017-488-55).
[22] In May 2017, DFL and Mr Li filed High Court proceedings (Whangarei registry CIV-2017-488-53) against the Websters, alleging they had breached the December 2015 agreement by failing to ensure the transfer of livestock to DFL and that they were in breach of the management agreement in that they failed to exercise reasonable skill and care in managing the dairy farms as required.
[23] In a decision dated 1 August 2017, Bell AJ set aside the statutory demand (except for the amount of $726,229).4 His Honour held that the statutory demand was substantially upheld except for an arguable cross-demand which might be up to
$77,000.5
[24] On 21 August 2017, DFL lodged a notice of appeal against the decision of Bell AJ of 1 August 2017.
[25]In August 2018, Mr Li passed away.
[26] In April 2019, the May 2017 High Court proceedings were settled by negotiation between the parties. The terms of the settlement are set out in a letter from
3 Webster v Ren & Dargaville Farms Ltd, above n 1.
4 Dargaville Farms Ltd v Webster [2017] NZHC 1790.
5 Dargaville Farms Ltd v Webster, above n 4, at [61].
Ms Robinson QC dated 11 April 2019. Pursuant to the settlement, the sum of
$490,000 plus interest was paid to the Websters and the DFL shares held by WFML were transferred to the executor for the estate of Mr Li. The executor of Mr Li’s estate and the trustees of the Li Trust indemnified the Websters in respect of any claims that might be made against them to claw back the settlement’s funds by a liquidator or receiver of DFL.
[27] The current proceedings were filed on 1 August 2019 but not served on the defendants until October 2019.
[28] In the current proceedings there are two causes of action, both for breach of contract. The plaintiffs allege that the defendants wrongly repudiated the the management agreement recorded at [9] above and that they are entitled to the full five- year term of that agreement.6 They also allege (second cause of action) that the defendants were in breach of a contract to supply maize. In relation to the first cause of action the plaintiffs seek damages in the sum of $293,333.34 plus GST, and in relation to the maize contract, they seek damages in the sum of $123,500 plus GST.
[29] In November 2019, the trust’s solicitor filed and served a statement of defence and advised the plaintiffs of an intention to make an application to strike out.
[30] By a “reply notice” dated 9 April 2020, the plaintiffs provided an 18-page schedule of particulars in response to a request for particulars made by the second defendant trustees.
Relevant legal principles
Summary judgment
[31] Rule 12.2(2) of the High Court Rules 2016 (HCR) allows the Court to enter summary judgment against a plaintiff where a defendant shows that none of the causes of action against it can succeed.
6 Paragraphs [32]–[34] of the statement of claim of 9 July 2019.
[32] A defendant should apply for summary judgment only “where there is a complete and incontrovertible answer on the facts (in which case summary judgment can be entered for the defendant)”.7
[33] The nature of the evidence that a defendant puts up in support of an application for summary judgment must be incontestable. Where the Court must make a determination on what are disputed issues of fact, of the kind which can only properly be arrived at after a full hearing and evidence, summary judgment will be inappropriate.8
[34] It is not sufficient for a plaintiff in opposition to put up an evidential dispute of a hypothetical nature,9 or adduce evidence that is demonstrably contrary to a defendant’s own indisputable evidence, for the purpose of frustrating summary judgment.10
[35] In determining whether there is a genuine and relevant conflict of facts, the Court is entitled to examine and reject spurious claims or plainly contrived factual conflict. In Krukziener v Hanover Finance Ltd,11 the Court of Appeal held that the Court is not required to accept uncritically every statement put before it, however equivocal, imprecise, inconsistent with undisputed contemporary documents or other statements, or inherently improbable. The assessment of evidence is a matter of judgment which can engage a robust and realistic approach where the evidence justifies it.
Strike-out principles
[36] Rule 15.1 of the HCR makes provision for orders striking out all or part of a pleading. In this case, the defendants invoke r 15.1(1)(a), that the pleading discloses no reasonably arguable cause of action. They also rely on r 15.1(1)(d), namely that the proceedings are an abuse of process.
7 Body Corporate 207624 v North Shore City Council [2012] NZSC 83 per Elias CJ at [4].
8 Wespac Banking Corporation Ltd v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 at [59]– [64].
9 Ferrymead Tavern Ltd v Christchurch Press Co Ltd (1999) 13 PRNZ 616 at [66] and [67].
10 Attorney-General v McVeagh [1995] 1 NZLR 558 at 566.
11 Krukziener v Hanover Finance Ltd [2010] NZAR 307 at [26].
[37]I apply the following principles in considering this application:12
(a)The Court is to assume that the facts pleaded are true (unless they are entirely speculative and without foundation);
(b)The cause of action must be clearly untenable in the sense that the Court can be certain that it cannot succeed;
(c)The jurisdiction is to be exercised sparingly and only in clear cases;
(d)The jurisdiction is not excluded by the need to decide difficult questions of law, even if requiring extensive argument; and
(e)The Court should be slow to rule on novel categories of duty of care at the strike-out stage.13
[38] Where a defect in a pleading (challenged as disclosing no reasonably arguable cause of action for defence) can be cured by amendment, which the party is willing to make, the Court will almost always permit amendment rather than striking out the pleading completely.14
Analysis and decision
[39]In their Notice of Opposition, the plaintiffs contend:
(a)The negotiations between the parties included at all times the Li Liang Ren Family Trust and there was an express understanding between the parties of the backing and underwriting of performance of all contractual responsibilities of DFL. That was supported by the trust’s agreement to invest $1.8m in support of the infrastructural development and management of the farms;
(b)All written agreements between the parties in respect of the management responsibilities, whilst having been negotiated
12 Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.
13 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].
14 Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 (HC).
extensively, were not finalised because of disputes between the parties. The contractual arrangements were therefore conducted on the grounds of verbal agreements reached. The terms of those agreements are evidenced by the draft agreements to which the trust was, at all material times a party;
(c)The pleaded allegations contain clear and arguable causes of action against each of the defendants, including the trust. In relation to both causes of action there are matters of fact and law that require investigation and for which summary judgment is inappropriate.
[40] DFL is now in liquidation. It played no role in the proceedings before me. It is not in dispute that DFL was a party to the management contract and the maize contract; what is at issue is whether there is a tenable claim that the trustees have a contractual liability to the plaintiffs – were the trustees a party to the contracts at issue and/or is there a tenable claim that Mr Li, as trustee, agreed to underwrite the performance of all contractual responsibilities of DFL (including those relating to management and the supply of maize).
[41] In my view, the critical issues, ultimately whether the two causes of action are capable of success, should be addressed as an issue of summary judgment. I accept that there is a clear overlap with the strike out application and that whether, as a matter of summary judgment or strike out, the test in this case is essentially the same; are the claims incapable of success? However, because the determination of that issue requires in this case a close examination and assessment of the evidence, and a determination , in applying the principles articulated by the Court of Appeal in Krukziener v Hanover Finance Ltd,15 whether the defendant trustees have met the onus, the more appropriate application in my view is one of summary judgment.16 The primary argument for the defendant trustees is that they have no contractual liability and it is that issue, in my view, which should be assessed in terms of summary judgment principles.
15 Krukziener v Hanover Finance Ltd, above n 11.
16 See Body Corporate No 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297, at [4].
[42] On the other hand, the trustees’ contention that the pursuit of these proceedings is an abuse of process (their secondary argument) is best addressed as a question of strike out. Rule 15.1 (strike out) expressly provides at (d) for the striking out on the grounds of an abuse of the process of the Court.
[43] I thus first address the summary judgment application and as it relates to the management contract.
Management contract
[44] It is extraordinary that significant agreements relating to the sale of three dairy farms for approximately $17m were never finalised. This includes the Deed of Lease between DFL and the trust, as the landowner, and critically, the management agreement upon which the plaintiffs sue. I acknowledge that the parties were in dispute relatively early on in their relationship but the various agreements, including the management agreement, were clearly being performed after January 2016 and the parties operating on the clear, mutual understanding that there were binding contractual commitments between them. However, despite the absence of finalised written agreements it is abundantly clear from the draft documentation, including the management agreement drafted by the Webster’s own solicitors, that there was a clear mutual understanding between the parties as to the arrangements they had reached, including the contractual responsibilities of the different parties. The basic scheme was as follows:
(a)The trustees were to own the farms;
(b)DFL was to lease the farms from the trustees and to manage and operate them;
(c)The trustees were to provide farm infrastructure investment in the sum of $1.8m; and
(d)The Websters were to provide day-to-day management services to DFL.
[45] The defendant trustees accept, for the purposes of the present applications, that the plaintiffs performed services under the formal management contract exchanged between them, and as pleaded. However, as Ms Robertson submitted, every one of
the draft management agreements provided makes it clear that DFL (the farm lessee and responsible for the management of the farms) was to pay the management fee to the manager. In my view, the only tenable interpretation on the face of those documents is that the trustees were a party to the management agreement only for the purpose of conferring a bonus on the manager (i.e. the transfer of shares) whenever the bonus criteria were met. There is no issue here in relation to the bonus; the plaintiffs sue for their management fees only.
[46] There is scant documentary evidence the plaintiffs can point to to demonstrate that the trustees were contractually obliged to guarantee or make payment of the management fees to the plaintiffs under the management contract. While Mr Li as sole trustee is listed as a party, the operative provisions of the agreement are abundantly clear as to DFL’s sole responsibility to make payment of the management fees.
[47] In that draft management agreement (annexed to Ms Webster’s affidavit, and prepared by the Websters’ solicitors), DFL (the farm lessee) appoints the manager (the Websters) to manager the farms in accordance with the terms of the agreement (cl 2). Pursuant to cl 3 the managers’ fees are to be paid by DFL. At cl 3.2 the trust is to confer any bonus on the Websters (by transferring the shares to them or nominee approved by the trustees and whenever the bonus criteria are met). There is an indemnity provision at cl 8 but that does not involve the defendant trustees at all. Clause 8.1 provides that DFL indemnifies the Websters against all claims, damages and penalties and losses incurred by them in carrying out their duties in accordance with the agreement. In return (cl 8.2) the Websters indemnify DFL against claims, damages and penalties arising as a result of any breach by the Websters of their obligations or any negligence by them. Nowhere in the draft agreement is there any provision for any underwriting by the trustees of DFL’s contractual obligations.
[48] The question of whether the trustees had a contractual obligation to make payment of the management fees at issue, or to guarantee or underwrite the performance of DFL, is ultimately a question to be objectively ascertained – that is, the Court is concerned with outward and apparent manifestations of an intention to
create, or not to create, contractual relations.17 In adopting a robust and realistic approach to the evidence here, it is difficult to see how the Websters could demonstrate, as a matter to be objectively ascertained, that the parties intended that the trustees would have some contractual responsibilities under the management agreement (apart from the distinct and separate matter of a bonus). The Websters essentially rely upon the assertions of Ms Webster and all the documentation before the Court, including invoices issued by WFML in the name of DFL, the DFL bank statements recording payment of management fees from DFL’s bank account to WFML, all point in the other direction – namely that the trustees were to have no liability to the Websters in relation to management services (except for the bonus which as noted is not relevant here).
[49] That the management agreement was never ratified by DFL is, in my view, not relevant. It is clear that DFL considered itself bound by the management agreement and paid the fees accordingly. It was DFL which terminated the services of the Websters in June 2016 and in initially raising personal grievances in relation to the termination of their services, the Websters addressed their claims to DFL and not to the trustees.
[50] Ms Webster’s assertion18 that Mr Li, in his capacity as trustee of the trust, was “at all times of the negotiations an intended party to the management arrangements” may be correct insofar as it extends to the issue of the bonus, but it is wholly unsupported by the extensive documents in relation to any obligation to make payment or to guarantee payment of the management fees. The “confidential terms of offer” of December 2015 and prepared by the Websters’ own solicitor make it very clear that the payment of management fees (described as “annual salaries”) was to be the responsibility of DFL as the “lessee company”. Earlier evidence given by Ms Webster, including her affidavit in opposition to the application by DFL to set aside the statutory demand (sworn 16 June 2017), also makes it clear that the management contract was between WFML and DFL and no-one else. At paragraph 15 of her affidavit of 16 June 2017, Ms Webster stated:
17 Burrows, Finn & Todd on the Law of Contract in New Zealand 6th ed at para 5.2 with reference to
Fleming v Beevers [1994] 1 NZLR 385 at 390.
18 Paragraph 6 of her affidavit of 26 February 2020 (but mistakenly dated 2019).
We incorporated Webster Farm Management Ltd on 25 January 2016 to contract to Dargarville Farms Ltd to manage the farms. Mr Li agreed to this and Webster Farm Management Ltd sent invoices for its services monthly. Attached and marked “A” is a copy of an invoice for the management services.19
[51] The trustees accept that they made specific loans to DFL in addition to the infrastructure investment of $1.8m that they were contractually obliged to provide under the agreements of January 2016. However, as Ms Robinson submitted, such loans are inconsistent with any underwriting obligation of the trustees and the loans from the trustees to DFL do not give rise to a contractual obligation by the trustees to the company’s creditors, namely the Websters.
[52] I also accept Ms Robertson’s submission that the nomination by Mr Li that the trustees were to become the purchaser of the farms and the Fonterra shares cannot give rise to any contractual obligation on the trustees for the management fees. The general rule is that a purchaser has the right to nominate a third person whose name is to be put into the memorandum of transfer, but that notwithstanding the nomination the purchaser remains the only party to the contract.20 In any event, the nomination related only to the purchase of the farms, the purchase of the Fonterra shares and the shareholding in DFL. However, none of these matters are ultimately decisive of the issue before me where, as I see it, the claims the plaintiffs make do not depend on any issue of nomination, novation or assignment.
[53] The current statement of claim was of course drafted and filed prior to DFL going into liquidation. I accept the submission of Ms Smith that it is not fatal to the plaintiffs’ claim that the pleading (which appears to contain some typographical errors) fails in some places to make it clear that both DFL and the trustees are alleged to be liable under both the management contract and the contract for the supply of maize. In relation to the latter, the emphasis of the pleading is upon the liability of DFL.21 However, it is sufficiently clear from the pleading as a whole that the plaintiffs allege
19 That invoices, and other invoices before the Court are rendered to DFL. There is no reference to the trust.
20 Cowan v Martin [2014] NZCA 593 at [28] with reference to Lambly v Silk Pemberton Ltd [1976] 2 NZLR 427 (CA) and D W McMorland Sale of Land (3rd ed Cathcart Trust, Auckland, (2011) at [3.03]).
21 So, for example, see the heading Background – provision of maize by the first plaintiff to the first defendant and the allegations at paragraphs 19 and 20 that maize was grown for supply to the first defendant and for the benefit of the livestock then owned by the first defendant.
that the trustee defendants are liable for the breaches of contract pleaded. I also accept that it is relevant to address the question of whether it is possible for the plaintiffs to amend their claim so as to remedy the defects relied upon by the defendants.22
[54] In her submissions, Ms Smith gave particular emphasis to the “interchangeable role” of Mr Li, between his personal capacity, his capacity as a director and his capacity as a trustee. She contended that at the time of sale the farms were in a financially distressed situation and there was a clear and compelling need for significant infrastructure investment. There were outstanding resource consent compliance issues and the farms were in a poor condition. Neither party could reasonably have contemplated that there would be a quick beneficial return in a short timeframe. The arrangements the parties entered into clearly contemplated and depended for their success upon the financial infrastructure and other investment provided by Mr Li as trustee. The plaintiffs say that a significant reason for the failure of the farms’ operations in 2016 and the break-down in their relationship with Mr Li was his failure adequately to invest (as he promised) in DFL and the farms. They say that it was principally the actions of Mr Li, as trustee, that led to the failure of DFL.
[55] The plaintiffs say it was not just that Mr Li lacked any experience of dairy farms. It was obvious that significant investment would need to be made into the farms from the outset and that at that time, namely in the summer season, it was unlikely that there would be any continuous stream of revenue from the supply of milk.
[56] Ms Smith emphasised that there was a significant degree of “murkiness” as to exactly what the arrangements were that the parties agreed. The absence of finalised agreements and the interchangeable roles of Mr Li actively committing the trust to financing the running of the farm operations, are all important factual matters that ought to be inquired into at trial. Ms Smith contended these are entirely unsuitable for summary judgment determination.
[57] It is not difficult to understand the Websters’ perspective in making these allegations; they saw the financial commitments made by Mr Li in varying capacities as at all relevant times backed up by his trust. That significant financial backing was important and relied upon by them. In substance, these allegations are a claim that the
22 Westpac Banking Corp v MM Kembla NZ Ltd [2001] 2 NZLR 298, (2000) 14 PRNZ 631 (CA).
trustees are responsible for breaches of the management contract and the maize contract because they agreed to underwrite and guarantee the financial performance of DFL. That is apparent from Ms Smith’s emphasis on what she says was the trustees’ commitment to invest capital development as underpinning the financial performance of DFL – something, she contended they ultimately failed to do.
[58] However, as Ms Robertson submitted, the current pleadings do not allege that the defendant trustees had an underwrite or guarantee obligation and even if the trustees failed to make the necessary investment (that is disputed) that does not necessarily make the trustees liable for breaches of contract by DFL. For reasons discussed above, the documented contractual arrangements are clear as to the extent of the investment commitment by the trustees.
[59] Nevertheless, despite some reservations, I find that I cannot conclude at this interim stage that the claims the plaintiffs now make about a failure to provide the necessary investment and to underwrite/guarantee the financial performance of DFL are wholly without merit. There is a proper basis to find that the evidence should be tested at trial, including the role of Mr Li and the commitments he made in his capacity as trustee. The fact that some significant contracts, including the lease and the management agreement, were never finalised gives me further reason for a cautious approach. That Mr Li did not always involve his solicitor may also be relevant.
[60] It is clear, however, that to advance such claims the pleadings would need to be amended. Ms Smith proposed a cause of action of inducement of breach of contract (i.e. the trustees inducing a breach of the management contract by DFL) and/or the trustees frustrating the contractual arrangements. While I have some significant doubts about amendments of that kind it is difficult, in the summary judgment context, where the threshold is high, to conclude that they could not properly be made and, importantly, were incapable of success – (and despite some clear evidence from the defendants that DFL was not under-capitalised but that substantial investment funds were in fact made in it). On this basis I conclude that the defendant trustees have failed to discharge the onus under r 12.2.2 of the High Court Rules to demonstrate that none of the causes of action against them can succeed.
[61] For similar reasons, I find that the defendants’ application to strike out the two causes of action in the current statement of claim on the grounds that they disclose no reasonable cause of action (r 15.1.1(a)) should also be dismissed. I accept that as pleaded, both claims are incapable of success but, despite some reservations, they might reasonably be capable of being amended to disclose tenable causes of action.
[62] However, having said that, there is a very real question, which I address below in relation to the issue of abuse of process, whether these essentially new claims could and should have been brought on an earlier occasion.
The maize supply contract cause of action
[63] My findings about a lack of a tenable claim (as pleaded) in relation to the management contract, apply equally to the maize supply contract. It is abundantly clear from the evidence, including the contractual arrangements entered into by the parties and the invoice dated 2 August 2016 (and referred to at paragraph 20 of the statement of claim), that the maize supply contract was between WFML and DFL. As is made clear in the statement of claim, maize was grown for supply to DFL for the benefit of the livestock owned by DFL. In none of the documentation before the Court is there any suggestion that the trustees might have any liability for payment of invoices in relation to the supply of maize. The capital infrastructure investment obligation of the trustees ($1.8m) did not extend to either management fees or the purchase of maize for stock – and the contractual obligations of the trustees in relation to the bonus has no relevance to the supply of maize.
[64] Again, however, because the pleadings might reasonably be capable of being amended to include a claim that the trustees had an obligation to underwrite all financial obligations of DFL (including payment for maize), I decline to strike out the second cause of action pursuant to r 15.1(1)(a) (i.e. no reasonable cause of action).
Abuse of process
[65] The defendant trustees contend that the proceedings are an abuse of the process of the Court and ought to be struck out pursuant to r 15.1(1)(d). They say that the allegations in the statement of claim, and any proposed amendments, ought to have been part of previous proceedings between the plaintiffs and the first defendant, DFL,
which proceedings were settled. They further say that a fair trial is now impossible as Mr Li, who was the sole trustee of the second defendant trust at the time of the events at issue, passed away in August 2018.
[66] It is not in dispute that it may become an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings.23 The “locus classicus” of that aspect of res judicata is the judgment of Wigram VC in Henderson v Henderson.24 In Johnson v Gore Wood & Co (a firm),25 Lord Bingham referred to the principle in the following terms:
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, and 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 elements such as 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, to hold that because a 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 of 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.
[67] As the Court of Appeal made clear in Commissioner of Inland Revenue v Bhanabhai,26 the doctrine applies not only where the first case was determined by judgment but also where it was settled. Furthermore, there is no requirement of absolute identity of parties.
23 Yat Tung Investment Co Ltd v Dow Heng Bank Ltd [1975] AC581 at 590.
24 Henderson v Henderson (1843) Hare 100,115.
25 Johnson v Gore Wood & Co (a firm) [2001] 1 AWLR 481, Lord Bingham pp498-499.
26 Commissioner of Inland Revenue v Bhanabhai [2007] 2 NZLR 478 at [61].
[68] In addressing this issue, it is important to focus carefully on the nature of the previous three proceedings and to compare them with the current proceedings. That is apparent from the schedule that follows:
Plaintiff
Defendant
Key Allegations
Remedies Sought
October 2016 Application for Summary Judgment – CIV-2016-404-2496
Webster v Ren & Dargaville Farms Ltd [2017] NZHC 479
David & Kim Webster
Li Liang Ren DFL
Breach of the Agreement for Sale and Purchase of shares in DFL by removing David Webster as director (following termination of the management agreement) and entering ito a GSA in favour of
the Trust to secure advances from the Trust.
Judgment for
$699,800 being the Websters’ advance to DFL under the Agreement, plus
interest and costs.
Application to set aside statutory demand – CIV-2017-488-55
Dargaville Farms Ltd v Webster [2017] NZHC 1790
DFL
David & Kim Webster
DFL had counterclaims against the Websters.
Setting aside
statutory demand
May 2017 High Court proceeding – Whangarei Registry – CIV-2017-488-53 DFL
David & Kim Webster
The Websters disposed of livestock before or after
settlement without accounting to DFL
The Websters failed to properly manage the farms.
Misrepresentation in the 5-year budget provided to Mr Li as it was inaccurate and did not follow logically from the performance of
the dairy farms at the time.
Judgment for missing cows
($356,200) and for missing milk production ($685,295.42) plus
interest and costs.
Present, October 2019 High Court proceedings Webster Farm Management
David & Kim Webster
DFL
Trustees of the Li Liang Ren Family Trust
Breach of the management agreement in failing to pay management fees.
Failing to pay for the supply of maize.
Judgment for
$293,333.34 plus interest and costs.
Judgment for
$123,500 plus
interest and costs.
[69] I accept that the claims now being made by the plaintiffs could not have been advanced in the application to set aside the statutory demand, being the proceedings the subject of the judgment of Bell AJ in Dargaville Farms Ltd v Webster.27 I also accept (this was not disputed by Ms Robertson) that the settlement reached between the parties in April 2019 was not a comprehensive settlement of all outstanding issues
27 Dargaville Farms Ltd v Webster, above n 4.
between the parties, but confined to a settlement “of all issues in both proceedings”. The reference to “both proceedings” includes the application to set aside the statutory demand (CIV-2017-488-55) and the May 2017 proceeding (CIV-2017-488-53). However, it is clear that the Websters’ evidence in the set aside proceedings specifically addressed the payment of invoices to WFML for management services and the allegation of a lack of financial input by Mr Li said to have been the basis for the Websters entering into the arrangements of January 2016. I also note that in her affidavit of 16 June 2017, Ms Webster addresses what she says was a refusal by Mr Li to provide necessary funds to support the financial performance of DFL28 and alleged that Mr Li was taking steps to liquidate DFL and “taking all the money for himself”. It is equally clear that in the May 2017 proceedings that the question of the management contract was squarely at issue (the second cause of action alleged negligence by the Websters), as was the financial performance of DFL.
[70] At the time the Websters made their personal grievance claims in September 2016, they were obviously contemplating losses arising from the termination of the management service contract. The claims now being made in the present proceeding could have been brought by the Websters, as plaintiffs, in the October 2016 summary judgment proceedings even if the two particular causes of action were not suitable for summary determination. I accept that by itself, it is not fatal that the claims now made were not brought at that time, but it is necessary to consider the history of the proceedings and to note that there have been a number of opportunities that the Websters have had to advance the claims now made.
[71] I also acknowledge that in the set-off judgment of Bell AJ of 1 August 2017,29 his Honour held that it was not an abuse of process for DFL to raise its cross-claims before him in the set-off proceeding, even if there might have been grounds for equitable set-off in the earlier summary judgment proceeding. DFL could have run them earlier but it was not required to do so.
[72] I do not challenge those findings and although of some relevance, they are not necessarily an answer to whether the current proceedings, brought at a later stage following resolution of the May 2017 proceedings, are an abuse of process.
28 At paragraphs 31 and 32.
29 Dargaville Farms Ltd v Webster, above n 4, at [21].
[73] The fact that Mr Li is now deceased and is obviously unavailable to give evidence (and was the sole trustee at the relevant times) is a relevant factor. However, it cannot be a decisive point since that is a contingency that could occur in any litigation.
[74] It is clear from the jurisprudence, including the seminal passage from Henderson v Henderson, that what is required is a broad, merits-based judgment taking account of all of the facts of the case and focusing on the critical question of abuse.
[75] Here there has been litigation going on for nearly four years between, on the one hand the Websters and entities associated with them, and on the other Mr Li and entities associated with him, (including DFL and the second defendant trust). The Websters have been legally represented in all three previous proceedings which have to varying degrees involved a significant overlap of the issues now in dispute in the present proceedings. I accept that no issue estoppel or reas judicata arises (there is no absolute identity of parties) but in my view, the issues now before the Court could and should have formed part of the May 2017 proceedings (whether by counterclaim or otherwise) and been addressed as part of the settlement negotiations in April 2019. In the present proceedings the Websters, as plaintiffs, are in substance saying that DFL and the Li interests wrongly repudiated the management services contract in June 2016. The logical time for any claim or counterclaim making that allegation, was in the May 2017 proceedings.
[76] The underlying public interest principle is of course that there should be finality in litigation. The issues the plaintiffs now sue on first arose in June 2016 at the time the management contract was terminated. There has surely been ample opportunity since then and certainly in the May 2017 proceedings, for these issues to have been addressed. I also note that in the various proceedings the Websters have been both plaintiffs and defendants. Even if the focus of the settlement negotiations in April 2019 was on the set-off and May 2017, it was surely a further opportunity for the Websters to have raised issues about failure to pay management fees and fees for the supply of maize given their integral link and involvement with the same subject of the litigation (i.e. a failure by the joint venture vehicle DFL in the management and operation of the farms).
[77] Ms Smith relied upon the judgment of Bell AJ in Ace-Kirker v Piper,30 where his Honour held that the law would become unnecessarily complicated if judges were to now start insisting that defendants are required to raise counterclaims at the time they are sued, rather than to leave them to later proceedings. His Honour held that bringing a cross-claim is always open to a party; it allows the party to choose the time to bring it. In short, except in an insolvency context, set-off is optional, not mandatory.
[78] In that same judgment Bell AJ referred to the speech of Lord Millett31 in Johnson v Gore Wood & Co, where his Lordship held that it is one thing to refuse to allow a party to re-litigate a question which has already been decided, but that it is quite another to deny him the opportunity of litigating for the first time a question which has not previously been adjudicated upon. The latter is prima facie a denial of a citizen’s right of access to the Court.
[79] In my view this is a different case from Ace-Kirker. As Bell AJ recognised, just as it is not possible to list all possible forms of abuse of process, it is not possible to formulate any hard and fast rules to determine whether on given facts abuse is to be found or not.32
[80] In terms of public policy principles, there is no issue in finding an abuse of process that the Websters may have been denied access to the Court. I acknowledge the fundamental importance of the right of access to the Court. However, a finding in this case of an abuse of process will not involve a breach of that right. As I have noted above, the Websters, having been both plaintiffs and defendants and legally represented, have had ample opportunity in the previous proceedings and in the settlement negotiations to advance and resolve the claims they now make. I find that the claims should have been made at least in the May 2017 proceedings and/or been addressed as part of the 2019 settlement negotiations. In the interests of finality there is now compelling need to bring all litigation to an end – “enough is enough”.
[81] For all these reasons, I conclude that the pursuit of these proceedings would be an abuse of process and they should accordingly be struck out pursuant to r 15.1(1)(d) of the High Court Rules.
30 Ace-Kirker v Piper [2017] NZHC 226.
31 Ace-Kirker v Piper, above n 30, at [41].
32 Ace-Kirker v Piper, above n 30, at [40].
Result
[82] The application by the second defendant trustees for summary judgment is dismissed.33
[83] The application by the second defendant trustees to strike out both causes of action in the statement of claim pursuant to r 15.1(1)(a) (i.e. no reasonable cause of action) is dismissed.
[84] I grant the second defendant trustees’ application to strike out both causes of action in the statement of claim on the grounds of an abuse of process, pursuant to r 15.1(1)(d) of the High Court Rules.
[85] I note in relation to costs, that the second defendant trustees have sought increased and/or indemnity costs. However, I am of the preliminary view that the plaintiffs should pay costs to the second defendant trustees on a 2B basis and there should be no award for increased or indemnity costs. The plaintiffs’ defence of the proceedings was not wholly without merit for the reasons given above.
[86] If the parties cannot agree on costs, then memoranda (no more than three pages) are to be filed and served within 14 days.
Associate Judge P J Andrew
33 It is not necessary for me to address the second defendant’s application for leave to commence an application for summary judgment pursuant to r 12.4(3). Had a proper basis for summary judgment been made out I would have granted leave on the facts of this case.
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