GB & JZ Chambers Limited v Keeling HC Hamilton CIV 2010-419-484 [2011] NZHC 1218 (17 October 2011)

Last Updated: 23 October 2011

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

_{CIV 2010-419-484}

BETWEEN GB & JZ CHAMBERS LIMITED Plaintiff

AND PETER KEELING First Defendant

AND STANTIALL KEELING AND PARTNERS Second Defendant

Hearing: 13 October 2011

Counsel: JA MacGillivray and KE Cornege for plaintiff

PN White for defendants

Judgment: 17 October 2011 at 3:30 PM

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application to strike out]

Solicitors: Tompkins Wake, PO Box 358, Hamilton 3240

Alexander Dorrington, PO Box 7246, Auckland 1141

GB & JZ CHAMBERS LIMITED V KEELING HC HAM CIV 2010-419-484 17 October 2011

[1] The defendants apply to strike out the plaintiff‘s amended statement of claim

dated 25 February 2011.

[2] The application is made in reliance on r 15.1 and s 4 of the Limitation Act

1950.

[3] The plaintiff pleads three causes of action, namely: (a) Breach of fiduciary duty;

(b) Negligence; and

(c) Breach of contract.

[4] The plaintiff accepts that it has brought this proceeding more than six years after the causes of action accrued.

[5] The defendants seek orders striking out the negligence and breach of contract causes of action on the basis that they are barred by s 4 of the Limitation Act 1950. The defendants seek an order striking out the breach of fiduciary duty claim on the basis that it is coincident with the claims in contract and tort and should be struck out by analogy with the other claims.

[6] The plaintiff relies on s 28(b) of the Limitation Act 1950 which provides:

28. Postponement of limitation period in case of fraud or mistake

Where, in the case of any action for which a period of limitation is prescribed by this Act, either—

(a) ... or

(b) The right of action is concealed by the fraud of any such person as aforesaid; ...

the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it:

[7] The plaintiff claims that the accrual of the causes of action are postponed because the defendants concealed the breaches from it.

The court’s approach to strike out application involving limitation defences

[8] Rule 15.1 of the High Court Rules provides that:

15.1 Dismissing or staying all or part of proceeding

(1) The court may strike out all or part of a pleading if it—

(a) discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or

(b) is likely to cause prejudice or delay; or

(c) is frivolous or vexatious; or

(d) is otherwise an abuse of the process of the court.

[9] In Matai Industries Ltd v Jensen[1] Tipping J referred to the decision of the

Court of Appeal in England in Ronex Properties Ltd v John Laing Construction Ltd.[2]

In summary he observed that:

a) A defendant could never apply to strike out a claim against him as disclosing no reasonable cause of action merely because he might have a good limitation defence;

b) A defendant who believes he has a good limitation defence may, however, either plead the defence and seek trial of the defence as a preliminary issue, or, in a clear case, apply to strike out the plaintiff‘s claim on the grounds that it is frivolous, vexatious and an abuse of

_process;

c) The onus is on the defendant to show that the plaintiff‘s claim is

statute-barred;

d) Evidence can be tendered by affidavit; and

e) The Court should be slow to strike out a claim or cause of action altogether in limine, but, if the position is quite clear, the defendant should not be vexed by having to go to full trial when the answer is obvious and inevitable.

[10] This approach was approved by Tipping J in the Supreme Court in Murray v

Morel & Co Ltd where he said:[3]

[33] I consider the proper approach, based essentially on Matai, is that in order to succeed in striking out a cause of action as statute-barred, the defendant must satisfy the Court that the plaintiff‘s cause of action is so clearly statute-barred that the plaintiff‘s claim can properly be regarded as frivolous, vexatious or an abuse of process. If the defendant demonstrates that the plaintiff‘s proceeding was commenced after the period allowed for the particular cause of action by the Limitation Act, the defendant will be entitled to an order striking out that cause of action unless the plaintiff shows that there is an arguable case for an extension or postponement which would bring the claim back within time.

[34] In the end the Judge must assess whether, in such a case, the plaintiff has presented enough by way of pleadings and particulars (and evidence, if the plaintiff elects to produce evidence), to persuade the Court that what might have looked like a claim which was clearly subject to a statute bar is not, after all, to be viewed in that way, because of a fairly arguable claim for extension or postponement. If the plaintiff demonstrates that to be so, the Court cannot say that the plaintiff‘s claim is frivolous, vexatious or an abuse of process. The plaintiff must, however, produce something by way of pleadings, particulars and, if so advised, evidence, in order to give an air of reality to the contention that the plaintiff is entitled to an extension or postponement which will bring the claim back within time. A plaintiff cannot, as in this case, simply make an unsupported assertion in submissions that s 28 applies. A pleading of fraud should, of course, be made only if it is responsible to do so.

[11] This is a case where the plaintiff acknowledges that it has commenced the proceeding after the period allowed for the particular cause of action by the Limitation Act 1950.

[12] The issue was subject of further comment by the Court of Appeal in

Wrightson Ltd v Blackmount Forests Ltd where the court said:[4]

[18] The ultimate burden, therefore, remains on the defendant: it is the defendant who must satisfy the Court that the plaintiff‘s cause of action is so clearly statute-barred that the plaintiff‘s claim can properly be regarded as frivolous, vexatious or an abuse of process. But there is a shifting evidential burden. Once a defendant has demonstrated that the plaintiff‘s proceeding was commenced after the period allowed for the particular cause of action by the Limitation Act, the persuasive burden shifts to the plaintiff to show that he or she has an arguable case for an extension or postponement which would bring the claim back within time.

[19] One other consideration needs to be borne in mind, although it did not arise on the pleadings or facts in Murray. That is the Court‘s traditional reluctance to strike out a claim which might, by suitable repleading, be saved. That principle might be applicable here if the crucial particular could legitimately be answered differently.

[13] Because the analysis involves consideration of s 28(b) it is appropriate that I

record that s 28(b) covers both fraud and equitable fraud.[5]

Background

[14] The plaintiff is the lessee of a cattle, sheep and deer farm in Te Kuiti. The farm is owned by JZ Chambers Family Trust. The plaintiff‘s directors are Mr and Mrs Chambers. They are frequently absent from the farm. From May 1991 to 2004 the day to day running of the farm was carried out by the plaintiff‘s farm manager, Mr Steve Hesp. He is not a party to this proceeding but is directly involved in the factual events that give rise to the claims.

[15] Affidavit evidence has been filed by the plaintiff‘s director, Mr GB Chambers, and the first defendant, Mr Keeling.

[16] This proceeding arises out of farm consultancy services provided by Mr Keeling to the plaintiff during the period August 1999 to June 2004. At trial the court will need to establish the precise terms of the contract entered into by the parties.

[17] Mr Chambers, in his evidence, says it was never his desire to be a farmer. Accordingly, the farm was run by a professional farm manager since shortly after it was purchased by the Chambers family. From 1991 to 2004 that manager was Mr Hesp.

[18] In July 1999 Mr Chambers learned that Mr Hesp had falsified stock numbers to cover up problems with the farm‘s performance. Mr Chambers says that this falsification was the key motivating factor in his decision to appoint Mr Keeling. He wanted a farm management consultant to supervise Mr Hesp and to prevent further falsification. He claims he made that clear to Mr Keeling.

[19] Mr Keeling denies that he was engaged as a supervisor or for the particular purpose of preventing stock falsification but acknowledges that he was aware of Mr Chambers‘ concerns.

[20] The plaintiff alleges that Mr Keeling‘s services were substandard and, in summary, resulted in:

(a) The performance and condition of the farm deteriorating; (b) Livestock births being lower than reasonably expected;

(c) Livestock deaths being higher than reasonably expected; and

(d) The condition of livestock, pastures, farm structures, improvements, infrastructure, and plant and machinery deteriorated.

[21] In April or May 2004 Mr Keeling questioned Mr Hesp concerning a lack of invoices for lambs that were reported as sold. That questioning resulted in Mr Hesp admitting to Mr Chambers that he had been falsifying stock records for several

years. Mr Hesp was dismissed from his employment in July 2004 and at about the same time Mr Keeling ceased providing services to the Chambers. Correspondence passed between Mr Chambers and Mr Keeling in July 2004 that contained threats to issue proceedings, although the proceedings were not actually commenced until

30 April 2010.

The defendants’ case

[22] Mr White submitted:

(a) That the amended statement of claim and the affidavits of Mr Chambers do not provide a basis for the application of s 28(b) of the Limitation Act 1950;

(b) Accordingly, there is justification for the striking out of the claim, which he said was frivolous, vexatious and an abuse of the process of the court;

(c) Having regard to the plaintiff‘s concession that its causes of action accrued more than six years before the proceeding was filed, the persuasive burden shifts to the plaintiff to show that it has an arguable case for extension or postponement, which would bring the claim back within time;

(d) In discharging this persuasive burden the plaintiff must produce enough to give ―an air of reality to the contention that the plaintiff is entitled to an extension or postponement, which would bring the claim back within time‖; and

(e) The first defendant has sworn an affidavit in which he swears that he: (i) Did not know that Mr Hesp was falsifying the stock reports;

(ii) Says it was evident throughout that he did not perform a stock count; and

(iii) Denies concealing anything from Mr Chambers;

(f) Accordingly, there is no basis for the plaintiff‘s claim that Mr Keeling must have known about the falsification, which is simply based on:

(i) The plaintiff‘s evidence of what the terms of engagement were;

(ii) The allegation that the farm‘s condition and performance was

poor and worsening;

(iii) An allegation that reports were inaccurate and misleading; and

(iv) The impression created by those reports in Mr Chambers‘

mind;

all of which is no more than an allegation that the defendant performed the services negligently; and

(g) Those allegations are unrealistic when the following matters are taken into account, namely that the Chambers:

(i) Were living on the farm from time to time; (ii) Were able to view the state of the farm; and

(iii) Had records in his possession that would show the accuracy or otherwise of the stock reports that the manager was supplying.

The application analysed

[23] The plaintiff pleads that Mr Chambers and Mr Keeling met on 6 August

1999:

(a) To discuss Mr Keeling being engaged as a farm supervisor;

(b) That Mr Keeling and his company would be engaged by the plaintiff as supervisor of the farm and to oversee and supervise the management of the farm by Mr Hesp; and

(c) Mr Keeling agreed to such engagement.

[24] Paragraphs 11 and 12 of the amended statement of claim plead specific duties which the plaintiff pleads were agreed to.

[25] Paragraphs 13 and 14 of the amended statement of claim plead consequences of the special relationship of trust and confidence which was said to arise and which is the basis for the plaintiff claiming that a fiduciary relationship existed with fiduciary duties.

[26] Paragraph 14 alleges what those fiduciary duties are and, in particular, a duty to disclose.

[27] Mr White submitted that the duty to disclose a breach of what was agreed to is only specifically alleged in the fiduciary duty claim.

[28] The plaintiff ‘s position has altered somewhat in that the plaintiff acknowledges that the three causes of action either all succeed for the purposes of the strike out application or all fail. Mr MacGillivray pointed to the fact that reports given by Mr Keeling gave stock tallies without saying who compiled them. Herein lies the real problem in dealing with this case on a strike out basis. Without testing the factual position and determining precisely what was agreed at the meeting on

6 August 1999, one cannot determine whether there was an obligation on Mr Keeling

to actually count the stock. If there was, on his own admission, that was not done and he clearly knew it was not done. The reason he knew it was not done was because his case is because he never agreed to do it.

[29] What is required for s 28(b) of the Limitation Act 1950 to apply in this case is:

(a) Proof that Mr Keeling had knowledge that he did not do what he was required to do;

(b) Proof that Mr Keeling and his company were under a duty, whether it arises by virtue of a special condition in the contract, which is expressed or implied, or in circumstances where there is a duty in negligence, or whether it arises out of a status as a fiduciary, to disclose to the plaintiff what he did not do; and

(c) Proof that the failure to disclose was wilful. In this respect if Mr Keeling decided not to disclose facts that he had an obligation to disclose then, almost certainly, his decision will, as the Court of Appeal said “be worthy of the epithet ‗wilful‘”.

[30] Counsel also raised the question as to whether the plaintiff‘s pleading justified reliance on s 28(b) because, it was submitted, the clear inference that one should draw is that the alleged breach could have been discovered with reasonable diligence.

[31] This last matter, as well as the questions of what Mr Keeling was obliged to do and, in particular, was obliged to report on, cannot be resolved on a strike out basis. They require examination of the facts. From the material before me, I simply cannot conclude that the answer is obvious and inevitable and that there is no foundation for reliance on s 28(b).

[32] I asked counsel why the issue of the application of s 28(b) of the Limitation

Act 1950 could not have been the subject of an order pursuant to r 10.15 of the High

Court Rules. The possibilities were referred to by Tipping J in Matai Industries Ltd v Jensen, to which I have made reference in [9] of this judgment.[6] The Court of Appeal drew attention to the disadvantages of trying to resolve issues on strike out applications when the contested issues of law are inextricably tangled with matters of fact that are yet to be determined.[7]

Conclusions

[33] I conclude that there is an arguable case for the application of s 28(b) of the Limitation Act 1950 and, certainly, there is sufficient to satisfy the persuasive burden which initially falls on the plaintiff. The question of whether s 28(b) of the Limitation Act 1950 should be applied to this case can only be determined when the facts are examined. Accordingly, I dismiss the defendants‘ application to strike out the three causes of action.

Orders

[34] The application by the defendants to dismiss the three causes of action is refused.

Costs

[35] I discussed with counsel the likely outcome if the application was unsuccessful. Counsel were in agreement that the appropriate order was that the plaintiff has an order for costs in its favour based on Category 2 Band B for the hearing of this interlocutory application and appearance by one counsel.

[36] I order accordingly and also order that any disbursements be fixed by the

_{Registrar and paid by the defendant.}

Future conduct of this proceeding

[37] A telephone case management conference with counsel shall be held at

12:20pm on 6 December 2011. The following matters will be addressed at that time:

(a) Whether any additional interlocutory order or direction is required in respect of this proceeding before trial and, if so, what this is and whether it can be disposed of at the conference or whether it requires interlocutory hearing time;

(b) Settlement and whether a mediation or a judicial settlement conference should be ordered and, if so, directions relating to the same;

(c) Trial duration, the fixing of the trial date and the making of any special trial directions that are required. In respect of these matters counsel should have available the number of witnesses to be called and the general scope of the evidence to be covered by them so that an accurate assessment can be made. In addition, counsel should be in a position to indicate if any order should be made in relation to the experts pursuant to r 9.44.

Counsel shall file and serve memoranda dealing with these items two working days before the conference.

JA Faire
Associate Judge

---

[1] Matai Industries Ltd v Jensen [1989] 1 NZLR 525.

[2] Ronex Properties Ltd v John Laing Construction Ltd [1982] 3 All ER 961.

[3] Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33] – [34].
[4] _{Wrightson Ltd v Blackmount Forests Ltd [2010] NZCA 631 at [18] – [19].}
[5] Ibid; Inca Ltd v Autoscript (New Zealand) Ltd [1979] 2 NZLR 700 at 711; Matai Industries Ltd v Jensen, above n 1.
[6] _{Matai Industries Ltd v Jensen, above n 1.}
[7] Wrightson Ltd v Blackmount Forests Ltd, above n 4, at [70].