CABLETALK LTD V TECHNOLOGY JUNCTION LTD AND ORS HC AK CIV-2005-404-000789 [2009] NZHC 688 (10 June 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                            CIV-2005-404-000789



              BETWEEN                   CABLETALK LIMITED
                                        Plaintiff

              AND
                      TECHNOLOGY JUNCTION LIMITED
                                        First Defendant

                     
                  MICHAEL CURRIE
                                        Second Defendant

                                     
  DEMETRIOS BAROUTSOS
                                        Third Defendant



                                               
            CIV-2005-404-001475



              BETWEEN                   INTELLIGENT OFFICE NETWORKS
                         
              LIMITED
                                        First Plaintiff

                                        TECHNOLOGY
JUNCTION LIMITED
                                        Second Plaintiff

                                        MICHAEL KENNETH
CURRIE
                                        Third Plaintiff

              AND                       CABLETALK GROUP LIMITED

                                       First Defendant

                                        CABLETALK LIMITED
              
                         Second Defendant

                                        PETER GREGORY WILSON
                        
               Third Defendant



Hearing:      15 May 2009


CABLETALK LTD V TECHNOLOGY JUNCTION LTD AND ORS HC AK CIV-2005-404-000789
10 June
2009
Appearances: K M Quinn for the First and Second Defendants in
               CIV-2005-404-000789; and for the First,
Second and
               Third Plaintiffs in CIV-2005-404-001475
             T M Braun and J Stewart for the Third Defendant in
               CIV-2005-404-000789

Judgment:       10 June 2009


                              JUDGMENT OF DUFFY J



        
                This judgment was delivered by Justice Duffy
                           on 10 June 2009 at 2.30 pm, pursuant to

                                r 11.5 of the High Court Rules

                         Registrar/Deputy Registrar
            
            Date:




Counsel:      K M Quinn Bankside Chambers Level 22 Lumley Centre 88 Shortland Street
              Auckland
Central Auckland 1010

Solicitors:   Harkness Henry Private Bag 3077 Waikato Mail Centre Hamilton 3240
[1]    The issue for determination
has come before the Court using the interpleader
procedure. The parties acknowledge it does not fit the form of a conventional
interpleader
application, but accept that this procedure is the most appropriate way of
bringing the issue before the Court. I agree with their
view.


[2]    The parties in this application are Michael Currie and Demetrios Baroutsos.
They, together with a company in which
they held an interest (Technology Junction
Limited), were defendants in proceedings brought by Cabletalk Limited (Cabletalk).
The
defendants had provided sales management services to Cabletalk. It brought
proceedings against them for wrongful acts that were alleged
to have occurred during
the provision of those services. Cabletalk sought damages of $1m. The defendants
defended this claim and
counterclaimed, alleging that Cabletalk had wrongfully
repudiated the contract for their services. They enjoyed a measure of success
in the
High Court. After a three week hearing, Andrews J dismissed Cabletalk's claim and
on the counterclaim awarded the defendants
$180,000 damages, plus GST and
interest against Cabletalk. In another proceeding, which was heard at the same time,
a separate company
in which Mr Currie and Mr Baroutsos held an interest,
Intelligence Office Networks Limited, sued Cabletalk alleging unlawful interference
with contractual relations. It succeeded on liability, but no damages were awarded.


[3]    Cabletalk filed a notice of appeal to
the Court of Appeal in respect of both
proceedings. The defendants cross-appealed. Prior to the hearing in the Court of
Appeal, Cabletalk paid approximately $360,000 into the trust account
of
Wadsworth Ray, solicitors. This represented the $180,000 damages awarded to the
defendants, plus GST, interest and costs. The
appeals and cross-appeals went to a
hearing. After the hearing, but before judgment was delivered, Cabletalk settled
with the defendants.


[4]    Under the settlement agreement, everyone who was a party to these
proceedings abandoned their respective appeals and, with
the exception of the sum
of $17,500, Cabletalk relinquished its interest in the funds held in the trust account.
The $17,500 was
paid to Cabletalk. Some of the balance of the funds has since been
paid to third parties.    There remains the sum of $110,000; how
that is to be
distributed is the subject of the interpleader application.
[5]     Mr Currie and Mr Baroutsos both agree that a written
document they
executed on 27 July 2007 provided for how the remaining funds are to be treated.
The parties differ over the interpretation
of this document. In addition, Mr Baroutsos
now offers an alternative form of distribution, which would see Mr Currie receive
less
than he claims under his interpretation, but more than he would receive under
the interpretation for which Mr Baroutsos earlier contended.


[6]     The document is described as a deed; however, it was not executed in the
form required by s 9 of the Property Law Act 2007.
That is not fatal to its legal
effect, as there is consideration to support it operating as a written contract between
them.


[7]
    At the time the written contract was entered into, the litigation brought by
Cabletalk had been running since February 2005.
The High Court had delivered its
judgment, and the various appeals had been filed. The contract records in its recital
that the defendants
in both sets of litigation (which were expressly identified) had
incurred the sum of $276,000 in costs. Mr Currie had paid all of
those costs.
Mr Baroutsos had paid nothing towards the litigation costs the defendants had
incurred.


[8]     The recital also records
that, in consideration of Mr Currie's payment of the
legal costs, as well as payment of any future legal and other costs associated
with
both sets of proceedings, Mr Baroutsos' company, Melange Holdings Limited,
would transfer its shares in Technology Junction
Limited (the first defendant in one
of the proceedings) to such person or entity as Mr Currie may direct. Mr Baroutsos
also agreed
to "assign all his right, title and interest in any damages and costs which
he may be awarded in either of the proceedings" to whomever
Mr Currie directed.


[9]     Clause 1 of the contract stated that:

        1.     In consideration of [Mr Currie] having paid all
costs to date and
               agreeing to pay all further costs in the above proceedings:-

               (a)     [Mr Baroutsos]
shall procure Melange Holdings Limited to
                       transfer all its shares and entitlements in Technology
        
              [Junction Limited] and Networks [Intelligent Office
                       Networks Limited] to Sanctuary Finance Limited;
               (b)     [Mr Baroutsos] hereby assigns to [Mr Currie] or such person
                       as [Mr Currie] nominates
all his rights, title and interest in
                       any damages or costs that he may become entitled to in
            
          either of the above proceedings.

[10]   The present dispute is over the meaning of clause 1(b).


[11]   Mr Currie contends
that clause 1(b) transfers to him all entitlements to any
damages or costs arising from the proceedings that Mr Baroutsos may ultimately
become entitled to. Quantification of those damages and costs takes place at the
final stage of the proceedings, which, as it turned
out, was the settlement with
Cabletalk. On this view, Mr Currie would be entitled to the balance of the funds in
the solicitor's
trust account.


[12]   Mr Baroutsos takes a different view. He points to the use of the phrase "he
may become entitled to" and says this
can only be understood to refer to entitlements
that arise after the contract. On his view of clause 1(b), the damages and costs
awarded in the High Court were awarded before the contract and so they fall outside
its scope. The only damages and costs that could
yet be awarded were at the
appellate level of the proceeding, which, as at 27 July 2007, was still to be
determined. On this view,
Mr Baroutsos would be entitled to half of the remainder,
less costs incurred to the point of the High Court judgment. Quantified,
the amount
comes to $84,167.59. The new alternative distribution which Mr Baroutsos proposes
takes account of the legal costs Mr
Currie incurred in the next stage of the
proceeding, including the hearing in the Court of Appeal and the settlement, and
would provide
for Mr Currie to be reimbursed for these costs. On this approach,
Mr Currie would be reimbursed the litigation costs he has incurred
up to 15 May
2009, which amount to $68,023.08. After these are deducted from the remainder of
the trust account funds, the balance
($42,000) that is left would be divided equally
between Mr Currie and Mr Baroutsos. This approach would see each of them
receiving
$21,000.


Discussion


[13]   The starting point is the terms of the contract: Nielsen v Dysart Timbers
Limited  [2009] NZSC 43 at  [34]. The use of the phrase "may become entitled to"
represents a recognition of the conditional nature of any award of damages and costs
in the context of circumstances where a proceeding has been determined by a court
at first instance and is then the subject of an
appeal.


[14]   Mr Baroutsos has argued that no stay of execution was granted and so the
award of damages and costs in the High
Court can be recovered.            From this
argument, he seeks to draw support for the view that the award in the High Court
was
a present liability which, therefore, would fall outside the bounds of a future
entitlement. It is correct that without a stay of
execution the High Court, judgment
was enforceable, but while the judgment was under appeal, the liability to pay the
amounts awarded
under it was subject to the contingency of being reversed in the
Court of Appeal. In this circumstance, interpreting a conditional
verbal phrase as
expressing contingent entitlement both as to the High Court award and any result
which might eventuate in the Court
of Appeal is both grammatical and logical. I do
not, therefore, consider that the natural meaning of the words in clause 1(b) would
exclude the interpretation for which Mr Currie argues.


[15]   I now turn to consider the factual context as it was known to both
parties at
the time they entered into the contract. By July 2007 the proceedings had been on
foot for just under two and a half years.
Cabletalk was the driver of the litigation.
As defendants, all that Mr Currie and Mr Baroutsos could do was to oppose or to
yield
to Cabletalk's claims. Mr Baroutsos acknowledges in his evidence that he
could not afford to defend himself, nor could he contribute
to the defendant
companies' litigation costs. Given the amount of Cabletalk's claim ($1m) and his
lack of funds, Mr Baroutsos was
in no position to resolve matters with Cabletalk on
his own.


[16]   Mr Currie expended $276,000 of his funds and achieved a successful
result in
the High Court. The judgment was delivered on 6 October 2006. By July 2007 the
defendants were facing the prospect of further
litigation in the Court of Appeal.
Mr Currie was prepared to fund those costs.           Almost from the outset of this
litigation,
Mr Currie's source of funds was borrowings he obtained (partly secured
against his family trust assets, which included the family
home) from Westpac Bank
and then from Sovereign Finance.
[17]   There appears to have been a commonality of issues as between the
defendants with regard to the claims Cabletalk was making against them.
Mr Currie's defence of himself and of Technology Junction
Limited would have
overlapped with matters that needed to be raised in Mr Baroutsos' defence.
Nonetheless, by funding Mr Baroutsos'
defence, Mr Currie was protecting
Mr Baroutsos from the consequences of not resisting Cabletalk's claims.              If
Mr Baroutsos
had taken an inactive role in the litigation, his ability to claim a share
of any settlement reached, or a share of any successful
counterclaim, would have
been negligible. The funds now in dispute stem from the success of the counterclaim
against Cabletalk. 
  It follows that had Mr Currie not been willing to fund
Mr Baroutsos' role in the litigation, he could not have participated in
any benefits
from the counterclaim.


[18]   By July 2007 it would not have been surprising if Mr Currie was beginning to
get cold
feet about the litigation. The counterclaim damages had not been as great as
he had anticipated. The other claim has succeeded in
terms of liability, but no relief
was forthcoming. Having borrowed and spent $276,000 to fund the litigation, he
was faced with the
prospect of further litigation cost and the uncertainty of knowing
if he would be able to hold on to the award the High Court had
made. Mr Baroutsos
was unable to contribute financially towards the fight.


[19]   Knowing all of the above, would Mr Currie or
anyone in his position in July
2007 have agreed to an arrangement whereby all money awarded in the High Court
to date would be shared equally with Mr Baroutsos (excluding costs), irrespective
of
the outcome in the Court of Appeal and with Mr Currie's sole entitlement to enjoy
all awards made in the litigation restricted
to future awards? It is hard to see why
anyone would assume the financial risk of this litigation and yet share an equal part
of
the fruits of the litigation with the non-contributing defendant. There is no
commercial sense in such an arrangement.          
  Yet this is the interpretation
Mr Baroutsos promotes.


[20]   On the other hand, the interpretation Mr Currie promotes makes commercial
sense in terms of the factual matrix of this contract. By funding Mr Baroutsos'
defence, Mr Currie could present a united group of
defendants to Cabletalk.
Mr Baroutsos benefited, as without Mr Currie's financial assistance, Mr Baroutsos
could not have resisted
Cabletalk's claim. In return for taking the considerable
financial risk of borrowing what by July 2007 would be an amount known to
exceed
$276,000, Mr Currie received the potential benefit of being able to enjoy all the
fruits of any judgment the defendants obtained
against Cabletalk. If Cabletalk had
been successful in the Court of Appeal, Mr Currie would have had no prospect of
recovering the
legal costs he had paid towards the defendants' resistance to
Cabletalk's claims.


[21]   When the contract is viewed against the
background of its factual context, I
am led to conclude that the only logical and sensible interpretation of clause 1(b) is
that
the phrase "any damages or costs that he may become entitled to in either of the
above proceedings" was intended by the parties at
the time they entered into the
contract to mean those damages and costs that were ultimately awarded to
Mr Baroutsos, as one of the
defendants in the proceedings. Seen in this way, until
the proceedings had worked their way through the appellate levels, or settled,
any
entitlement to damages or costs was contingent and to be determined some time in
the future. Hence, by entering into the contract,
Mr Baroutsos assigned all his
entitlement to Mr Currie. Mr Currie is entitled to the remainder of the funds in the
solicitor's trust
account.


[22]   There is another aspect to this issue. Had the Court of Appeal heard the
appeal and simply upheld the High Court
award to the defendants, the entitlement to
that award would have finally been arrived at through the Court of Appeal's
confirmation
of it and not through the finding in the High Court judgment. Hence, it
could be said that as at July 2007 the prospect of such an
award being made could
only be described as a future entitlement.       Looked at in this way, even on
Mr Baroutsos' interpretation
of clause 1(b), Mr Currie was entitled to the entire
amount of whatever the Court of Appeal awarded to the defendants. Similarly,
the
settlement agreement between Cabletalk and the defendants which succeeded the
contract was a new and future event (it post-dated
July 2007) which saw Cabletalk
agreeing to the trust account funds, minus the agreed deduction to Cabletalk being
paid to the defendants.
The settlement confirmed the defendants' entitlement to the
damages and costs awarded in the High Court. Without that confirmation
they were
not entitled to those funds in the fullest sense. They could not access the funds.
Their entitlement to the funds was
subject to the risk of an adverse appellate
judgment. Until the settlement, the defendants could not be said to be fully entitled
to those funds. It follows that until the settlement, the funds could best be described
as something that the defendants, including
Mr Baroutsos, may become entitled to.
Hence, the funds would be a future entitlement in terms of Mr Baroutsos'
interpretation of
clause 1(b).


Result


[23]     The interpleader application of Mr Currie has succeeded.        Mr Currie is
entitled to the remainder
of the funds in the trust account of Wadsworth Ray,
solicitors.




                                                                  Duffy J