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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2008-404-843
BETWEEN FUJI XEROX FINANCE LIMITED
Plaintiff
AND ELIZABETH TAYLOR GRAPHICS
LIMITED
First Defendant
AND
TIMOTHY GERARD BEERE
Second Defendant
AND WAYNE RONALD MATHER
Third Party
Hearing:
11 December 2008
Counsel: No appearance for plaintiff (appearance excused)
T Stapleton for first and second defendants
R Gordon for Third Party
Judgment: 19 February
2009 at 12.00 pm
RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by Associate Judge
Sargisson on 19 February 2009 at 12.00 pm
pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date ..........................
Solicitors:
George Bogiatto, PO Box
106120, Auckland 1143
Breaden McCardle Chubb, PO Box 140, Paraparaumu 5254
Buddle Findlay, PO Box 2694, Wellington 6011
FUJI XEROX
FINANCE LTD V ELIZABETH TAYLOR GRAPHICS LTD AND ANOR HC AK CIV-2008-
404-843 19 February 2009
Introduction
[1] In February
2008, Fuji Xerox Finance Limited commenced this proceeding
against the defendants. It sues the first defendant for alleged breach,
by premature
termination, of a contract relating to the lease of a photocopy machine and the
second defendant under his guarantee
of the first defendant's obligations under the
lease.
[2] In August 2008 the defendants issued a third party notice against
Wayne
Ronald Mather, who had been a professional adviser to the first defendant. The
defendants' application to issue the notice
was granted on 8 August 2008 by consent
of the plaintiff. When granting the application, I reserved leave to Mr Mather to file
a
strike out application within the time for filing a statement of defence to the third
party notice. Mr Mather has now made such an
application. It is before me for
determination.
[3] The contest in relation to the application is confined to Mr Mather and
the
defendants. Fuji Xerox did not participate in the hearing. It elected to abide the
Court's decision and its appearance was accordingly
excused.
[4] It is Mr Mather's position that the none of the defendants' causes of action
disclose a proper basis under r
75 for issuing a third party claim against him and
therefore that the notice cannot be maintained and should be struck out. The
defendants
oppose the making of an order striking out the third party notice. At the
hearing their counsel relied on grounds set out in their
notice of opposition dated 25
September 2008, which amount essentially to three grounds:
a) The subject matter of
the proceeding and the questions and issues to
be determined in it arise out of events from August 2007 onwards;
b) Two of the defendants' causes of action, the second and fourth, seek
contribution or indemnity
and therefore come within the provisions of
r 75 of the High Court Rules that allows for the possibility of third
party claims;
c) The remaining four causes of action are properly joined to avoid the
inconvenience, cost and delay of separate proceedings and the need to
make application for an order of consolidation.
[5] In respect of the first ground, the defendants' notice of opposition does not
identify what questions and issues in their six causes of action they rely on for the
purpose
of showing any stand-alone ground for joinder under r 75. However, it was
made clear at the hearing that it is the claim for contribution
or indemnity in the
second and fourth causes of action that lies at the heart of the defendants' case for
joinder. Unless that claim
justifies joinder, there can be no argument that the entire
third party claim should be separated from the plaintiff's claim. If
however the
claim does warrant joinder, a residual question remains about the appropriateness of
retaining the remaining third party
causes of action as part of this proceeding, on the
grounds of convenience and the desirability of dispensing with the need for an
application for an order for consolidation.
[6] The key question for determination as between the defendant and Mr Mather
is
therefore whether the second and fourth causes of action raise an issue of
contribution or indemnity that warrants joinder and justifies
maintaining Mr
Mather's inclusion as a party to the proceeding. Before I come to that question it is
appropriate to summarise the
circumstances in r 75 that allow for joinder and the
relevant pleadings.
[7] For completeness however, I should briefly mention
the grounds for joinder
that the defendants raised in the first instance as set out in their joinder application.
Those grounds do
not specifically raise contribution or indemnity. Rather they raise
grounds directed to other reasons for joinder that r 75 provides
for. The grounds
raised were:
a) If the defendants are liable to the plaintiff (which is denied), they are
entitled to relief or remedy from Mr Mather connected with the
subject-matter of this proceeding and substantially
the same as that
claimed by the plaintiff against them;
b) The questions and issues in the proceeding
ought properly be
determined not only as between Fuji Xerox and the defendants, but
also as between
Fuji Xerox, the defendants, and Mr Mather or
between any or either of them;
c) The questions and issues
connected with the subject matter of this
proceeding are substantially the same as questions or issues arising as
between Fuji Xerox and the defendants, and should properly be
determined not only as between them,
but also as between any or
either of them.
[8] For reasons I will come to, these grounds could not succeed. They
were the
subject of brief discussion at the hearing, but quite properly, were not advanced with
any real conviction.
Rule 75
[9] Under r 75 a defendant may claim against a person who is not already a party
in a proceeding (a third party) and may issue
a notice to that effect, in four
circumstances. The circumstances arise when a defendant claims against a third
party who is not
already a party that:
a) The defendant is entitled to:
i) Contribution or indemnity (r 75(1)(a));
or
ii) Any other relief or remedy related to or connected with the
subject-matter of
the proceeding and substantially the same as
some relief or remedy the plaintiff claims against it (r
75(1)(b)); or
b) There is any question or issue:
i) In the proceeding that
should properly be determined not only
as between the plaintiff and defendant, but also as between the
plaintiff, the defendant and the third party or between any or
either of them (r 75(1)(c));
or
ii) Related to or connected with the subject-matter of the
proceeding that is substantially
the same as some question or
issue arising between the plaintiff and the defendant and
should properly be determined in the same
way (r 75(1)(d)).
[10] As the Court of Appeal stated in Daly v Ranchhod [1968] NZLR 609, the
kinds of questions or issues that can properly be made the subject of a third party
notice are fundamental ultimate issues
those going to the root of causes of action.
The Court said:
It is, for instance, proper to issue a third party notice so
as to bind the third
party as to the quantum of damage as assessed between the plaintiff and
defendant. It is proper
to seek to bind him as to the broad issue of liability as
between the plaintiff and defendant. These are trite everyday instances
of
the kind of question covered by the Rule. But it is difficult to recall an
instance of a third party notice being
authorised the object of which was to
seek to secure some sort of official narrative of events by which a third party
would be bound in detail as to small allegations of fact.
Fuji Xerox's claim
[11] Fuji Xerox's claim against the first defendant
is a straightforward claim of
narrow ambit about a photocopy machine. It raises a single cause of action for
breach of contract that
alleges:
a) The parties entered into a finance lease agreement on 28 June 2006
for the lease of a photocopier,
for a term of 51 months with lease
payments due on a monthly basis;
b) The first defendant defaulted
on its contractual obligations under the
agreement by failing to make the monthly lease payments;
c)
The first defendant has since purported to cancel the agreement by
letter dated 17 December 2007 in reliance on the
Contractual
Remedies Act 1979;
d) The terms of the agreement provide that upon such a premature
termination there are liquidated sums that the first defendant is
contractually bound to pay to Fuji Xerox.
The key sums sought are
$48,298 and $351,414.40 for outstanding rent at the time of
termination and the
future instalments for the balance of the term of
the contract.
[12] As against the second defendant, Fuji Xerox's
claim is also straightforward.
It also raises a single cause of action based on his personal guarantee of the first
defendant's obligations
to Fuji Xerox under the lease agreement.
The defendants' defence to Fuji's claim
[13] The defence to Fuji Xerox's claim is
likewise straightforward. At its heart is
the question whether the first defendant was legally entitled to cancel the lease
agreement.
[14] The defendants do not dispute the existence of the finance lease agreement
and acknowledge that the first defendant ceased
to make the monthly lease
payments. They also acknowledge the second defendant's guarantee. However they
do not accept that the first
defendant is liable for default and or that the second
defendant is liable under his guarantee. They maintain by way of defence that:
a) It was an implied term of the lease agreement that at all times the
photocopier would be in a good
working order and fit for use in the
first defendant's business;
b) By August 2007, and onwards, there
was a total failure of
consideration for the monthly lease payments because the machine
was not in good
working order or fit for use in the first defendant's
business;
c) As a consequence of that total failure
of consideration, the first
defendant was entitled to and did validly cancel the agreement by
written
notice. They plead in this respect that:
3.3 On 12 November 2007, as the machine was still not in good
working order and fit for use in its business, the First
Defendant (through the Second Defendant
as its manager)
notified the Plaintiff as follows:
The investment in the new machine
means that we are not in
a position to sign up for yet more debt and an even longer
term to pay it back. Because the
machine is not performing
we wish to end the lease and have you remove the equipment
forthwith.
I have instructed the bank to terminate the AP as from this
month. You will
recall that I asked for the machine to be
picked up in September but for one reason or another you
took a lot of time getting back to me. I consider that to be
sufficient notice.
3.4 On 17 December 2007, the first Defendant (through it
solicitors) recorded that it had cancelled the
agreement in
reliance on the provisions of the Contractual Remedies Act
1979 and (among
other things) denied that it had any
liability to Fuji Xerox New Zealand Limited or the Plaintiff
in respect of the machine;
3.5 On 23 January 2008, as requested in the earlier
correspondence, the Plaintiff removed the machine from the
First Defendant's premises;
4.1
In all circumstances, the cancellation of the agreement and
the removal of the machine by the Plaintiff
from the First
defendant's premises on 23 January 2008 were not
"premature termination"
of the agreement;
4.2 The First Defendant is not indebted to the Plaintiff in the
sum of
$363,977.39 or any other sum.
[15] The underlying or fundamental issue with respect to liability is therefore a
confined one and
is essentially whether the machine was defective and unfit for its
intended use as the defendants claim. If it was, the defendants
were legally entitled
to cancel the agreement. If it was not, the converse will apply. They will be liable
for alleged breach and
the damages claimed.
The third party claim
[16] The defendants' third party claim differs significantly from Fuji Xerox's
claim
against them. Of the six causes of action in the third party claim, four have no
connection with the plaintiff's claim. The first
is based on misuse of the first
defendant's bank account, the third and fifth raise injurious falsehoods allegedly
made to the first
defendant's bankers; and the sixth involves the setting up of a
competitor to the first defendant in breach of fiduciary duties owed
to the first
defendant. The defendants acknowledge the lack of connection with the plaintiff in
the four causes of action but contend
that it is sufficient that they show that their
second and fourth causes of action have a sufficient connection for the purpose of
r
75.
[17] In the second and fourth causes of action, the defendants aver that Mr Mather
is liable for injurious falsehood in
breach of the fiduciary duty that he owed the first
defendant as its employee. They seek by way of relief, indemnity for, or contribution
to, any relief the plaintiff may obtain against them. The defendants also claim
entitlement to exemplary and distress damages in
the sums of $20,000.00 and
$5,000.00 respectively, for breach of fiduciary duty.
[18] The defendants say they are entitled to
the relief they seek in the second and
fourth causes of action because:
a) The third party's false statements were
made to the plaintiff with
contumelious disregard for the defendants' rights and with an intent to
injure or cause damage to the defendants and without just cause or
excuse;
b) The third party's falsehoods
caused them loss by causing the plaintiff
to conclude the dispute about the performance of the photocopy
machine was not genuine, and the defendants made the statements to
try and get out of their obligations under the lease agreement;
c) If they are liable to Fuji
Xerox in any way, Mr Mather ought to
indemnify them to the extent of that liability.
[19] The alleged falsehoods
that the defendants raise in support of their claim for
contribution or indemnity in the second and fourth causes of action, are
set out in
paragraphs 8 and 10 of their third party claim. Paragraph 8 is part of the second
cause of action in the claim and it
alleges:
8. On or about 21 September 2007, the third party made the
following false statements
to ... the plaintiff:
8.1 Konica Minolta had given the first defendant capital
injection
of $465,000 to settle the finance lease agreement;
8.2 The second defendant was using the Konica Minolta funds
to satisfy creditors and had no intention of settling the
finance lease agreement.
[20] Paragraph 10 comprises part of the fourth cause of action and it alleges:
10. On or about 18 January
2008, the third party made the
following false statement to Ms Wilson:
10.1 The first defendant
has had a capital injection of $20,000
from an investor.
Relationship between the plaintiff's claim and the
defendants' third party claim
[21] The defendants' claim for contribution or indemnity states that it is made in
the event that
they should be liable to Fuji Xerox "in any way". However, in terms
of:
a) The plaintiff's claim and prayer for relief,
the only way that the
defendants could be liable to the plaintiff is if the plaintiff succeeds in
its
one cause of action for breach of contract and the only relief or
damages the defendants could be liable for are the
damages the
plaintiff claims for premature termination under the contract;
b) In terms of the plaintiff's
claim and prayer for relief, the only
damages it seeks is a sum calculated under the various heads of relief
in the premature termination provisions of the lease agreement
amounting in total to $363,977.39, plus
interest on that amount under
the Judicature Act, plus costs;
c) The defendants' third party claim,
the loss for which they seek
contribution or indemnity is the loss they will incur for those
contractual
damages (if indeed they are liable for them);
d) The defendants' claim for exemplary and distress damages can only
be viewed as a stand-alone claim for damages arising from injurious
falsehood and breach of fiduciary
duty. It has no connection with the
plaintiff's claim where the damages it seeks are confined to
contractual
damages.
[22] With these factors in mind, I come to the question whether the second and
fourth causes of action do indeed give
rise to a proper basis for joinder of the claim
against Mr Mather for contribution to or indemnity.
Do the second and fourth causes
of action in the third party claim raise proper
grounds for claiming contribution and indemnity?
[23] As noted in McGechan at
HR 75.02 a right to contribution is not limited to
the familiar situations involving securities, contractors, trustees, directors,
partners,
insurers and the like:
Any obligor who owes with another a duty to a third party and is liable with
that
other to a common demand should be able to claim contribution: The
Law of Restitution (2nd ed), Goff & Jones, 1978, p 211.
[24] McGechan also notes at HR 75.02:
The essence of the right to a contribution lies in the liability to a common
demand: 9 Halisbury's Laws of England (4th ed), para 654.
...Common liability to the plaintiff (of the defendant and third party) can
give rise to a right
of contribution at common law or in equity. The right
exists independent of contract. It "is bottomed and fixed on general
principles of justice, and does not spring from contract; though contract may
qualify it"; Dering v Earl of Winchelsea
(1787) 29 ER 1184.
[25] A brief perusal of the pleadings shows that the respective claims of the
plaintiff and the defendants do not raise any proper
basis to support the possibility
that the defendant and Mr Mather share common liability for the plaintiff's demand
for contractual
damages.
[26] This is because:
a) The single cause of action in the plaintiff's claim raises the question
of liability for contractual damages to the plaintiff for breach of
contract for premature termination.
Liability will turn solely on
whether the photocopy machine was or was not faulty and fit or unfit
for its intended purpose. If the machine was indeed faulty in the way
the defendants claim, damages will be an incident
of breach of the
lease agreement and the defendants alone will be liable for the
damages that arise
under the lease agreement for premature
termination.
b) On the other hand, the defendants' second and
fourth causes of action
raise a different question of liability for breach of fiduciary duty
arising
out of injurious falsehood, and do not raise any question of
common liability of the defendants and third party to
the plaintiff.
The duty is owed to the defendants alone arising out of Mr Mather's
role as employee
or professional adviser. If the breach were proved, it
would not give rise to a common liability of defendants and
third
party for damages to the plaintiff.
[27] A further and fundamental flaw in the defendants' argument about
contribution is highlighted by the circular nature of their pleading as to liability and
contribution. Their primary pleading by
way of defence to the plaintiff's claim is that
the photocopy machine was so faulty as to be unfit for its intended purpose and
therefore
they are not liable for damages for premature termination. However they
go on to raise contribution in the event that this defence
is rejected and the Court
finds that they are indeed liable for premature termination of the lease agreement. In
this respect they
plead if the Court should find them liable to Fuji Xerox under the
lease agreement, Mr Mather should contribute to the contractual
damages that the
defendants would owe to the plaintiff. The pleading is one that by necessary
implication contemplates the
Court's making a finding that the machine was not in
fact faulty. Yet the basis pleaded for contribution is that Mr Mather caused
Fuji
Xerox to conclude erroneously that the photocopier was not faulty and that the first
defendant did not have a genuine dispute
about its performance. The basis is plainly
untenable. There cannot be a claim for contribution based on the act of causing the
plaintiff
to hold an erroneous belief about the state of the photocopier, when at the
same time the basis of the plaintiff's entitlement to
a finding of liability is that the
very same belief was right.
[28] The net result is that the claim for contribution is flawed
and unsustainable.
[29] The same applies to the claim for indemnity. As McGechan states:
As used in this rule "indemnity"
means a legal right of indemnity and has no
wider meaning: Atkins Fibreglass Ltd v Atkins 5/3/86, Savage J, HC Wgtn
312/76."
A right of indemnity can arise:
(a) By contract ...;
(b) By deed;
(c) By statute ...;
(d) By implication from some principle of law...
[30] There is nothing in the defendants'
pleading and nothing was advanced in
submissions to indicate that any of the possible bases for a legal entitlement to an
indemnity
arise. If the defendants are obliged to pay damages to the plaintiff for
breach of contract that is an incident that the law attaches
to their breach, and the
defendants cannot claim an entitlement to be indemnified for that payment on the
particular grounds that they rely on.
[31] Whether Mr Mather is liable
in damages for breach of fiduciary duty for
disclosing confidential information that caused the plaintiff to terminate the lease
agreement without proper cause, giving rise to loss of the defendant's business, or
some other loss, are entirely separate and independent
matters. He may yet attract
liability for damages for such actions if indeed proved. Counsel for Mr Mather made
clear that Mr Mather
firmly rejects any suggestion that the answers to such questions
might point to his having liability, but in any event the defendants'
case does not
plead in this way. What is pleaded is the circular and untenable case already
discussed. There cannot be a genuinely
arguable basis for entitlement to indemnity
for loss caused by the plaintiff's termination for the defendants' breach of contract.
[32] For the above reasons the second and fourth causes of action do not raise a
case for joinder based on entitlement to contribution
or indemnity. The result is that
no case for maintaining joinder has been made out and it is not necessary to consider
the remaining
question as to consolidation.
[33] However, as there was some discussion at the hearing about the grounds
raised in the defendants'
joinder application. The discussion raised the question
whether their second and fourth causes of action might yet give rise to another
possible basis for joinder under other limbs of r 75 should they be afforded an
opportunity to amend their third party claim, I will
briefly touch on those grounds.
[34] On reflection, I think that there would be little point in allowing that
opportunity, even
were it possible still to do so without causing undue delay to the
plaintiff's proceeding. My reasons follow.
Entitlement to common
or substantially similar relief r 75(1)(b)
[35] The first ground in the joinder application raised the question of the
defendants'
entitlement to relief that is substantially the same as that claimed by the
plaintiff against them. The plaintiff seeks damages for
the defendants' alleged
breach of contract. As already discussed, such loss would arise as an incident of the
defendants' own breach,
and they have not pleaded a tenable basis for recovering
that loss from Mr Mather.
[36] The only other entitlement to relief
the defendants assert in their third party
claim is exemplary and distress damages. The plaintiff does not claim that relief.
Common
Questions or Issues that should be determined between at least two of
the parties r 75(1)(c) and (d)
[37] The second and third
grounds in the joinder application raised, in broad terms
without identifying them, questions and issues that should properly be
determined as
between the plaintiff, the defendant and the third party or between any or either of
them. Counsel was unable to point
to any common or substantially similar question
or issue of a fundamental kind (as contemplated by Ranchhod) that should properly
be determined in this way.
[38] There are no common or substantial similar factual questions in the relevant
claims that might
cause the Court to err towards a more liberal approach to Mr
Mather's involvement as a third party. To the contrary, there is a marked
disjunct
factually between the two claims:
a) The claim as between Fuji Xerox and the defendants raises a
contractual claim under the terms of (the lease agreement) which will
succeed or fail based solely upon whether
the photocopier was fit for
its intended purpose, i.e. was the machine any good?
b) What was now alleged
by the defendants against their former
employee or professional adviser, Mr Mather are wide ranging
tortious
claims of injurious falsehood breaches of fiduciary duties and
the taking of accounts of a competitor.
[39] This
case is on all fours with the reserved judgment of Master Hansen (as he
then was) in General Finance v McDermid, 4/8/89, HC Christchurch
CP277/87.
There, an application to join a third party was refused when:
a) The main claim as between plaintiff and defendants
was primarily
concerned with the interpretation of the contractual arrangements
between those two parties;
and
b) These differed markedly from a plethora of tortious issues alleged by
the defendant against
the third party and (just as with what is alleged
against Mr Mather here) there were novel allegations that were
unlikely to succeed.
[40] The same result should follow here as did in McDermid.
[41] I asked counsel
for the defendants what fundamental issue the defendants
would raise, if given the opportunity, that was either common to the two
claims or
substantially the same in both claims. He said the issue would be:
a) Whether the alleged statements interfered
with a decision the plaintiff
might otherwise have made not to act on the defendants' breach (if
indeed they were in breach). In other words whether Mr Mather
caused loss to the defendants by interfering with
their right to
negotiate their way out of the consequences sounding in damages for
their own breach
of contract.
b) Whether the alleged falsehoods persuaded the plaintiff to cancel the
lease contract
when in fact it was not entitled to do so.
[42] If these questions reflect the true nature the defendants intended their third
party claim to have, that is not how the claim is pleaded, and the questions do not
arise currently as a basis for consideration
for joinder under r 75. As the Court said
in Ranchhod the party seeking third party joinder must plead the facts to support the
relief
sought. It must of course also plead the essential elements of the cause of
action.
[43] In any event, even if an opportunity
were allowed for the purpose of
amending the claims these questions would not raise as a fundamental issue the key
issue in the plaintiff's
claim; namely, whether the photocopy machine was faulty and
fundamentally unfit for its purpose. Nor would it raise an issue common
to both
claims or that would be substantially similar in both claims. There needs to be a
common question, or a "question... substantially
the same as some question...
arising between the plaintiff and the defendant" that should be determined between
the defendant and
third party or the third party and any one of the others. There is no
such question here.
Result
[44] For the reasons I have
already discussed, I agree with Mr Mather's counsel
that the third party notice does not raise a question of contribution or indemnity
or
other questions or issues that ought properly be asked in a third party notice, or that
justify third party joinder in this proceeding.
No basis has been advanced to
demonstrate that the third party claim as presently pleaded comes within the
circumstances outlined
in r 75.
[45] Accordingly, the application to strike out the third party notice and claim is
granted.
[46] As the third
party is the successful party it is entitled to costs in accordance
with the statutory costs regime on a 2B basis plus disbursements
to be fixed by the
Registrar.
Other Matters
[47] There will need to be a case management conference to discuss what changes
to directions are required as a result of the striking out of the third party claim. The
Registrar is directed to allocate a telephone
conference as soon as possible for that
purpose. No doubt the defendants will wish to file a separate claim, and will want it
to
proceed to trial as quickly as possible. That claim will also require directions but
an initial conference can be allocated for the claim in the normal way when it is
filed.
___________________________
Associate Judge Sargisson
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URL: http://www.nzlii.org/nz/cases/NZHC/2009/167.html