Xelocity Limited v Bay Audiology Limited HC Auckland CIV 2009-404-1744
[2010] NZHC 1167
•16 June 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2009-404-001744
BETWEEN XELOCITY LIMITED Plaintiff/Counterclaim Defendant/Applicant
AND BAY AUDIOLOGY LIMITED Defendant/Counterclaim Plaintiff/Respondent
Hearing: 16 June 2010
Counsel:CT Paterson for plaintiff/counterclaim defendant/applicant SS Cook and SR van der Wel for defendant/counterclaim plaintiff/respondent
Judgment: 16 June 2010
Reasons: 18 June 2010
REASONS FOR JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application to file and serve third party notice]
Solicitors: Graeme Skeates Law, PO Box 56 179, Auckland for plaintiff
Buddle Findlay, PO Box 1433, Auckland for defendant
XELOCITY LTD V BAY AUDIOLOGY LTD HC AK CIV 2009-404-001744 16 June 2010
The orders
[1] At the hearing of this application I announced to counsel that I had reached a conclusion which I would provide immediately.
[2] I adopted that position because delay is a factor, as are the amended trial date arrangements and directions that can be put in place.
[3] I advised counsel that my reasons would follow. These are my reasons for the orders that I made.
The application
[4] The plaintiff, as counterclaim defendant, applies for leave to file and serve a third party notice against Intergen Ltd.
The opposition
[5] The defendant, as counterclaim plaintiff, opposes the application on the following grounds:
a) The delay in bringing the application;
b) Prejudice caused by:
i)Further delay caused by anticipated interlocutories brought by the proposed third party;
ii) The possible need to vacate a trial scheduled for 4 October
2010;
iii)Additional costs caused by the need to traverse additional matters at trial; and
iv)That the issues between the counterclaim defendant and proposed third party were, by-and-large, different from the principal issues between the defendant, as counterclaim plaintiff, and plaintiff, as counterclaim defendant.
The applicable rules
[6] The relevant parts of r 4.4 of the High Court Rules provide:
4.4 Third parties
(1)A defendant may issue a third party notice if the defendant claims any or all of the following:
(a) that the defendant is entitled to a contribution or an indemnity from a person who is not a party to the proceeding (a third party):
(b)that the defendant is entitled to relief or a remedy relating to, or connected with, the subject matter of the proceeding from a third party and the relief or remedy is substantially the same as that claimed by the plaintiff against the defendant:
(c)that a question or issue in the proceeding ought to be determined not only between the plaintiff and the defendant but also between—
(i)the plaintiff, the defendant, and the third party; or
(ii) the defendant and the third party; or
(iii) the plaintiff and the third party:
(d)that there is a question or an issue between the defendant and the third party relating to, or connected with, the subject matter of the proceeding that is substantially the same as a question or an issue arising between the plaintiff and the defendant.
(2) A third party notice must be issued within—
(a) 10 working days after the expiry of the time for filing the defendant's statement of defence; or
(b) a longer time given by leave of the court.
[7] In addition r 4.8 sets out the court’s power and discretion in dealing with an application for leave to issue a third party notice. Rule 4.8 provides:
4.8 Court's power and discretion
(1)On an application seeking leave to issue a third, fourth, or subsequent party notice, the court must have regard to all relevant circumstances, including delay to the plaintiff.
(2)On the making of an application of that kind, the court may grant or refuse leave or grant leave on just terms.
The authorities
[8] Counsel’s submissions referred to a number of authorities and were very helpful.
[9] For the purpose of this application the following principles I extract from the authorities. They give guidance on the exercise of the court’s discretion under the rules. They are:
a) The defendant’s claim against the third party must be one which is covered by one of the four grounds set out in r 4.4(1);
b)The court must have regard to any delay that joinder of a third party will cause a plaintiff;
c) The interest of justice between all parties, however, is paramount;
d)An overriding consideration is the attainment of justice by the most efficient means;
e) A consideration of whether the third party procedure is appropriate is often whether it will prevent the same question being tried with possible different results;
f) There is, however, a need to strike a balance between all the parties’ interests. The extent to which the plaintiff is necessarily involved in the issues between the defendant and the third party is a consideration: KPMG Peat Marwick v Cory-Wright & Salmon Ltd (in receivership
and in liquidation)[1], Meroti v National Australia Finance Ltd[2], and
[1] KPMG Peat Marwick v Cory-Wright & Salmon Ltd (in receivership and in liquidation) CA 77/94 6 December 1990.
[2] Meroti v National Australia Finance Ltd CA 128/90 6 December 1990.
Turpin v Direct Transport Ltd.[3]
Background
[3] Turpin v Direct Transport Ltd [1975] 2 NZLR 172 at 175.
[10] The defendant provides audiology products and services from a number of outlets.
[11] In early 2007 Bay Audiology Ltd decided to source a new information technology system. It selected Xelocity Ltd to assist in selecting and implementing the appropriate system. The plaintiff’s role was essentially twofold, namely to first design a methodology whereby the defendant would identify its business requirements for a new IT system, solicit proposals from IT firms for IT solutions to meet those requirements and then select one of those IT firms to implement the IT system. In the second place the plaintiff’s role was to project-manage the implementation of the IT system.
[12] The plaintiff did not undertake the actual design and programming and implementation of the IT system. Instead, a separate contract was entered into by the defendant with Intergen Ltd which completed the actual design of the IT system and undertook the programming and implementation of that IT system. Intergen Ltd was not ultimately able to complete its contract.
[13] Bay Audiology Ltd asserts that Xelocity Ltd did not adequately define its requirements and it selected an untested and problematic solution. It claims that the system that was provided was not provided on time, nor according to the budget and, more particularly, that it failed to meet Bay Audiology Ltd’s requirements.
[14] Xelocity Ltd issued proceedings against Bay Audiology Ltd for payment of its services. Bay Audiology Ltd responded by denying liability for the claims made
and bringing a substantial counterclaim against the plaintiff alleging breach of contract and negligence.
[15] The underlying factual matters involved in this case concern a failed IT project. Bay Audiology Ltd engaged both Xelocity Ltd and Intergen Ltd under separate contracts.
[16] Bay Audiology Ltd’s claim is that the present proceeding is focussed on Xelocity Ltd’s conduct prior to the formal engaging of Intergen Ltd in January 2008. The claim is that Xelocity Ltd’s failure in scoping and defining the project was the reason why it was doomed to fail. However, one must not lose sight of the fact that the most substantial part of the claim involves a claim for $3,865,800 plus GST, which is said to be business interruption losses and loss of profits caused by the system not having been implemented by the end of May 2008. I take this essentially to be a loss of opportunity claim because it arises from the fact that had the contract been performed the opportunity to make certain profits would have occurred. I will return to this matter later in this judgment.
[17] There is a history of interaction between counsel for the parties starting, particularly, at 27 October 2009. Interlocutory disputes led to orders being made by Wylie J in an oral judgment on 11 February 2010. I do not intend to list the steps that were taken on both sides in relation to this matter other than to say that it is unfortunate that there was not better cooperation between the parties in resolving these issues. What is of sum significance, however, is that on 14 May 2010 the defendant’s solicitors disclosed correspondence between the proposed third party and the defendant which comprised a settlement between those parties in relation to the IT project. What the correspondence reveals is that there was some analysis undertaken by the defendant and the proposed third party as to where it was considered the fault lay in respect of the failed IT project. It is not, however, precisely explained in the settlement material that was produced to me how that conclusion was reached.
Trial arrangements
[18] I acknowledge the assistance of counsel in the preparation of their submissions in this case. Their submissions and the casebook gave me an opportunity before the hearing to gain an appreciation of the issues involved in this litigation. My initial conclusion, when reading the file and later confirmed by comments made by both counsel, was that a five-day trial of this proceeding was, to say the least, an optimistic estimate. As a result I made my own inquiries of the Scheduling Office and determined that there was the possibility of this trial running for a longer period in the week commencing 8 November 2010. I was advised by the Scheduling Office that it was most unlikely that if the trial commenced on 4 October
2010 that it could run into the following week because of the volume of work scheduled for that period.
[19] Having discovered that position I relayed to counsel at the beginning of the hearing my own thoughts on the estimate and the possible alterations to trial starting time that could be accommodated by the court. Both confirmed availability on the alternative date, commencing 8 November 2010. I also discussed with counsel a programme for advancing this case if an order were made joining the third party, which would substantially alleviate prejudice caused by a long delay before trial, which was seen as a possibility by the defendant’s counsel if the application were granted. These matters are essentially the reasons why the orders which I made in the course of hearing were made consequent upon the order granting leave to issue the third party notice.
Analysis of the grounds in support and opposition to the application
[20] I observe, firstly, that it is not contested that this case is one that falls within r 4.4(1) of the High Court Rules.
[21] Accordingly, I move to consider the question of delay. Clearly, there has been delay in this case. The statement of claim of the plaintiff was filed on
27 March 2009. The statement of defence and counterclaim was filed on 5 May
2009. The application to join the third party was not formally filed until 16 March this year. Counsel for the plaintiff submitted that the reasons for the delay were the need to complete discovery and obtain answers to requests for particulars.
[22] Mr Cook, in his carefully prepared submissions, submitted that the requests that were made of the defendant do not relate to the substantive factual basis for the defendant’s claim and really provide no excuse for not advancing the claim against the third party, if that was in real contemplation. Without going into great detail, my initial conclusion was that the plaintiff had not acted as promptly as one would have expected in dealing with the third party issue.
[23] The question of delay, however, is not the critical issue, in my view. There is a substantial claim here relating to the implementation of the IT system. It is by far the largest portion of the claim. There is evidence of a contractual relationship to produce an IT system between the defendant and the proposed third party. Precisely why that broke down will have to be determined at trial. The fact that the contractual expectation was not delivered is the pleaded foundation for the substantial damages that arise from the failure to implement. When I assess this position on an overall basis it seems clear to me that whether or not the third party is joined, a substantial portion of the trial inquiry will relate to the failure to implement the IT project and who is responsible for it. Two parties were in contract with the defendant in relation to that matter, namely the plaintiff and the proposed third party. It simply defies reason to suggest that this case could be resolved without considering the steps and actions taken by Intergen Ltd in relation to the implementation of the IT project. That being the case, the overwhelming conclusion I reached is that the only way that justice could be done in this case is to have the three parties before the court so that there could be a proper investigation of the position and final determination of responsibility for any losses which are said to arise.
[24] That analysis led me to the position that the joinder of the proposed third party was necessary to see that justice can be achieved between the parties. It certainly would not be efficient to have that issue resolved in two separate hearings.
I have already observed that Intergen Ltd has been involved in direct discussions with the defendant on the very issue of responsibility for the failure of the IT project.
[25] With careful case management and cooperation from counsel all round I conclude that this case can still be made ready for trial, even with the joinder of the proposed third party and, further, that I have been provided with nothing to suggest that the trial would not be completed with the proposed third party joined inside eight or nine days. Indeed, bearing in mind that a substantial portion of this claim relates to business interruption and loss of future profit there should be the facility for experts on all sides to be the subject of a r 9.44 conference so that the issues, where there is disagreement between experts, are narrowed and can be dealt with on a more tightly focussed basis.
[26] In the orders I made, I abridged time by five working days for the proposed third party to take steps. In addition, I have ordered full disclosure of all court documents, not simply a list of the documents, so that the proposed third party has a complete set of the pleadings, the applications, the court minutes and the judgments that have been issued on this file from the time of service. I have also made provision for a case management conference on the sixth working day after the third party’s statement of defence is required to be filed. Again, I anticipate with careful case management at that time there should be no impediment to this trial proceeding on 8 November 2010.
[27] I have set the agenda for the conference which will involve all parties after discussion with counsel for the plaintiff and defendant. My purpose was to give advance notice of the precise areas that the court required counsel to be ready to consider at that time, once again, for the purpose of ensuring that substantial progress is made in preparing this case for its hearing.
Costs
[28] On the question costs I had a short discussion with counsel during the hearing. I record that the hearing occupied approximately a ¼ of a day. So far as preparation is concerned, I would have allowed preparation based on a ½-day
hearing because, as I have said, the submissions were helpful and thorough on both sides in their preparation and content. The plaintiff clearly must take some responsibility for the delay in making the application. Because of that it is forced to ask for an indulgence by an extension of time for the step it wishes to take. On the hand, the defendant has failed in its opposition. That, however, has to be measured against the fact that an amendment of the trial time has been able to be obtained which has reduced the effect of the delay. I emphasise, however, that, in my view, is not, in this case, a substantial reason justifying the refusal to grant the application because I have concluded that this case clearly requires the three parties to be before the court to ensure that justice is done. I have recorded these matters because counsel were in agreement that it was appropriate that I reserve costs at this stage. It is important, in case I am not the judge who finally settles costs, that the considerations that I have just mentioned are brought into account when costs in relation to this application are finally determined.
The orders made
[29] For completeness sake, I set out, in these reasons for judgment, the orders that were made on 16 June 2010:
a) Pursuant to hcr 4.4(2)(b) leave is granted to the plaintiff as counterclaim defendant to file and serve a third party notice and statement of claim on Intergen Ltd on condition that the third party notice and statement of claim is filed and served on Intergen Ltd by
5pm on 17 June 2010;
b)The plaintiff shall also arrange for all pleadings, applications, notices of opposition and affidavits on the High Court file in relation to this proceeding, plus copies of court minutes and judgments, to be served on Intergen Ltd at the same time that service of the third party notice and statement of claim is effected;
c) Pursuant to rr 5.47 and 1.19 Intergen Ltd shall file and serve a statement of defence on or before 16 July 2010. The appropriate
notice shall be amended to record this abridgement of time for the filing and service of a statement of defence by Intergen Ltd;
d) The trial of this proceeding shall commence on 8 November 2010.
Up to nine days is allowed. The proceeding shall be set down as at
13 August 2010. This order vacates the previous trial directions;
e) A telephone case management conference with counsel shall be held at 9am on 26 July 2010. The following matters shall be addressed:
i. the issues requiring resolution at trial;
ii.any interlocutory order or direction arising out of the joinder of the third party;
iii.whether orders in relation to experts pursuant to r 9.44 should be made and, if so, what orders are appropriate;
iv.directions relating to the service of briefs of evidence and, if appropriate, the order in which the case is to proceed, for example, should the counterclaim proceed as the principal claim and be effectively the starting position for the proceeding;
v.counsel shall file and serve, by 21 July 2010, memoranda dealing with the above matters;
f) Any reply to the statement of defence to the counterclaim shall be filed and served by 1 July 2010;
g) Leave is reserved to counsel to apply, on three days’ notice, if an urgent matter requires specific attention prior to the case management conference scheduled for 26 July 2010. Application shall be made by memorandum which is both filed and served; and
h) Costs in relation to the application are reserved.
JA Faire
Associate Judge
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