Godfrey Waterhouse v Contractors Bonding Limited HC Auckland CIV 2010-404-3074 [2011] NZHC 212 (15 March 2011)

Last Updated: 3 June 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV 2010-404-3074}

BETWEEN GODFREY WATERHOUSE First Plaintiff

AND ROBERT JOHN WATERHOUSE Second Plaintiff

AND CONTRACTORS BONDING LIMITED Defendant

Hearing: 11 March 2011

Appearances: S A Grant and E A James for plaintiffs

R E Harrison QC for defendant

Judgment: 15 March 2011

_{JUDGMENT NO.2 OF ALLAN J}

In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 3.30 pm on Tuesday 15 March 2011.

Solicitors/counsel

S A Grant Auckland [e-mail]

_{Dr R E Harrison QC Auckland} [e-mail]

GODFREY WATERHOUSE V CONTRACTORS BONDING LIMITED HC AK CIV 2010-404-3074 15 March

2011

[1] The plaintiffs in this proceeding are in receipt of assistance from a professional litigation funder. The defendant considers the litigation funding arrangement to be presumptively unlawful unless fully disclosed in advance to the Court and the defendant, and approved by the Court subject to such protective conditions as might be appropriate. The protective conditions for which the defendant contends are:

(a) Disclosure to the defendant of the identity of the litigation funder;

(b) A ruling of the Court directing that the plaintiffs and the litigation funder be jointly and severally liable for the defendant’s costs in the event of the failure of the proceeding (supported by an undertaking and evidence as to solvency in respect of the funder); and

(c) The fixing, upon the application for leave to proceed, of security for costs.

[2] The defendant also maintains that the proceeding is not suitable for inclusion in the Commercial List.

[3] In a judgment delivered on 13 December 2010, I directed that the plaintiffs provide a copy of the funding agreement to the Court in order that the Court be satisfied that the provisions of the agreement did not amount to an abuse of process, and in particular, that the plaintiffs themselves retained a satisfactory level of control over the conduct of the proceeding. I ruled that, at least in the first instance, the defendant was not entitled to see the agreement.

[4] The agreement was duly produced and in a subsequent minute I advised the parties that in my view it raised no issues which required the further attention of the Court, and that there was no basis upon which it would be proper for the defendant to have a copy of the agreement. I also ruled in my judgment of 13 December 2010, that the proceeding ought to stay in the Commercial List.

[5] The defendant now seeks leave to appeal to the Court of Appeal against each of my rulings. In the event that leave is granted, it also seeks a stay of the proceeding in this Court pending the judgment of the Court of Appeal.

Legal principles

[6] There is no appeal as of right from an interlocutory decision of this Court in respect of any proceeding entered on a Commercial List. A party wishing to appeal must apply to this Court within seven days of the date of the decision, or within such further time as this Court may allow. If this Court refuses leave, the Court of Appeal may grant leave on an application to that Court within 21 days of the refusal of leave by this Court.[1]

[7] On several occasions the Court of Appeal has emphasised the need to subject applications for leave to appeal to careful scrutiny. In Meates v Taylor (leave),[2] the Court of Appeal said:[3]

A party seeking this Court's leave to appeal under s 24G, leave having been refused by the High Court, has a high threshold to cross. The Commercial List is designed to secure the expeditious completion of the interlocutory stages of a case, and so minimise delays in its ultimate disposition. The ready availability of a right of appeal can frustrate that objective, hence appeal is not of right but by leave. And leave will not be granted as a matter of course, but only where the particular circumstances clearly warrant incurring the further delay that will be involved. These cannot be categorised. But as a generalisation it can be said that error of fact or law is not enough; the case must be such as to create if not injustice at least real detriment (the expression used by Barker J in Jagwar Holdings Ltd v Fullers Corp Ltd (1989) 3 PRNZ 282, 284) if not corrected; or it may be as to an important question of law; or it may touch upon a matter of general or public importance.

[8] The Court of Appeal was dealing there with a second application, leave having earlier been refused in this Court. The general approach on a first application for leave will not in my view differ greatly from the orthodox approach in the Court

_{of Appeal. In this Court, the judgment of Fisher J in Opotiki Packing & Coolstore}

Ltd v Opotiki Fruitgrowers Co-operative Ltd (in rec)[4] is routinely cited. There, it was said that:[5]

Although there is an overriding discretion which ought not to be unduly fettered, it will normally be appropriate to grant leave if the appeal would raise an important question of law, touch upon a matter of general or public importance, or if there might otherwise be a real detriment to the proposed appellant.

Litigation funding

[9] In Saunders v Houghton[6] the Court of Appeal considered a challenge to a representative action (on behalf of shareholders suing the Feltex directors), and to an associated litigation funding agreement. Whilst acknowledging that the case was “not the occasion ... to detail the legitimate scope of litigation funding” in New Zealand[7] the Court nevertheless carefully set out certain applicable principles. It concluded that, although the torts of maintenance and champerty had been formally abolished elsewhere, they remain part of our law, so that funding arrangements would need to be scrutinised with circumspection. However, the Court said that it will not in general be appropriate to bar litigation simply by reason of the existence of third party funding:

[77] The common law torts of maintenance and champerty were created in an era before the courts had the capacity to deal with unruly nobles. By the time of Trendtex there had not emerged the fact, or perhaps the appreciation, now so evident, that access to justice may not be available without the assistance of funders prepared to fund the litigation in exchange for a cut of the proceeds. The modern Australian approach, seen also in Canada, is to face these realities directly and make a judgment according to the merits of each case. In New Zealand also, funding arrangements have been approved by Anderson, Glazebrook and Heath JJ in Re Nautilus Developments Ltd (in liq) [2000] 2 NZLR 505 (HC); Re Gellert Developments Ltd (in liq) (2001) 9

NZCLC 262,714 (HC); and Auckland City Council as Assignee of Body

Corporate 16113 v Auckland City Council [2008] 1 NZLR 838 (HC)

respectively, albeit with control of the proceedings remaining with the litigants. There remains cause for anxious care in assessing them. But like the majority in Jeffery & Katauskas[8] we are not deterred by Heydon J’s dissenting comment at [111]:

[111] The court’s procedure exists primarily to serve the function of

enabling rights to be vindicated rather than profits to be made.

Such a binary test overlooks the fact that its application is likely to ensure that rights are not vindicated. A more nuanced approach is required. We should add that the appellants did not argue otherwise.

[78] We have concluded that the common law in other jurisdictions has moved on and access to justice and comity with other states mean we should follow. We already have decisions at High Court level (see cases at [77]) approving funding arrangements and Parliament must be assumed to have passed the Lawyers and Conveyancers Act in knowledge of that trend. Moreover, the context of that legislation was very different from non-lawyer cases: lawyers are officers of the court and when arguing a case they owe what may be conflicting duties to clients as well as to the court. Parliament could well have thought that the sort of objectivity needed to fulfil their role could be compromised by a financial stake in the outcome.

[79] We have concluded that, like the common law of Australia and that of Canada, the common law of New Zealand should refrain from condemning as tortious or otherwise unlawful maintenance and champerty where:

(a) the court is satisfied there is an arguable case for rights that warrant vindicating;

(b) there is no abuse of process; and

(c) the proposal is approved by the court.

We have discussed the need for proper controls, appropriate to the nature of the case and the particular funder and funding terms proposed.

[10] There is perhaps an element of uncertainty as to the extent to which the Court of Appeal in Saunders v Houghton intended to lay down principles of universal application, having regard to the fact that the plaintiffs had been obliged in any event to apply to the High Court for leave to continue the proceeding on a representative basis. In other words, the principal focus was upon the character of the proceeding and the conditions upon which leave ought to be granted. Issues surrounding the funding agreement were to a degree ancillary, in that they simply formed part of the overall analysis.

[11] Mr Harrison now wishes to argue in the Court of Appeal that the effect of [79] of its judgment in Saunders v Houghton is to require any plaintiff wishing to proceed on a third party funding basis to apply for leave at the outset of the proceeding, and to satisfy the Court that the plaintiff has met the preconditions listed, namely that:

(a) there is an arguable case for rights that warrant vindicating; (b) there is no abuse of process; and

(c) the overall proposal ought to be approved by the Court.

[12] He complains that my earlier judgment omits discussion of at least the first of those requirements.

[13] Ms Grant submits that the proposed points on appeal do not satisfy the high threshold for leave, that my judgment contained no errors of law, and that in any event, a mere error of fact or law is generally insufficient as a ground for appeal. However, as she acknowledges, it may well be appropriate to grant leave where the identified error relates to an important question of law, or touches upon a matter of general public importance.

[14] I consider this case to fall within the last of these categories. The funding of litigation by professional third party funders is no longer rare. As the Court of Appeal observed, there is room for such arrangements where there are cases which ought to be litigated but which would never reach the Court but for financial assistance from third parties. But the metes and bounds of funding arrangements which will be broadly acceptable to the Courts have yet to be clearly identified. Saunders v Houghton was concerned with a representative proceeding. This is a different case; it involves two plaintiffs and a single defendant. Moreover, it is not a case of the type for which a particular approach has already been mandated by the Courts, such as proceedings brought by liquidators.

[15] The scope of the principles articulated in [79] of Saunders v Houghton is, in my view, a matter of general public importance. By way of example, the Court of Appeal is, I am told, to be invited to rule, if leave is granted, that the matters set out in that paragraph ought to be the subject of an application made by a plaintiff at the very outset of a proceeding, and as a precondition for the continuance of that proceeding, albeit that that did not occur here.

[16] I am satisfied that it is appropriate to grant leave. Mr Harrison did not identify the precise points to be taken on appeal, but the thrust of the defendant’s case on appeal has been clearly signalled. It will be argued that I was wrong to limit the Court’s intervention to an inspection of the funding agreement, and a subsequent minute indicating to the parties that I was satisfied with the terms of the agreement from the point of view of preventing an abuse of process. He will ask the Court of Appeal to rule that the requirements set out in [79] of Saunders v Houghton are imperative, and that they should be met at the outset of any litigation where the plaintiff is funded by a third party. He proposes also to ask the Court of Appeal to make appropriate orders governing the future conduct of this proceeding, the proper procedure for which was not followed by the plaintiff, he contends.

[17] I make an order granting the defendant leave to appeal against those aspects of my judgment which concern the funding of the plaintiffs’ case by a third party funder.

Removal from the Commercial List

[18] The plaintiffs entered this proceeding on the Commercial List, on the basis that it relates both to ordinary transactions of persons engaged in commerce or trade, and to insurance or commercial agency usages, so as to qualify for entry under s 24B of the Judicature Act 1908. In my earlier judgment I held that I was satisfied that the case was eligible for entry in the first place. I considered that the case fell within both of the limbs relied upon by the plaintiffs.

[19] Mr Harrison argues, no doubt correctly, that the question of whether I was right to find that the case fitted within either limb is a question of law. As to that he says:

There are arguments of substance why an at best derivative set of claims such as the present, having no more than remote genesis in insurance or commercial relations and transactions, conducted between different parties and indeed transacted overseas, cannot so qualify. Further or alternatively, the defendant wishes to continue to advance its argument that, for a variety of reasons earlier put forward, the case is demonstrably unsuitable for retention in the Commercial List. Notwithstanding the recent amended statement of claim the claims remain mis-pleaded and fail to articulate

special damages claims specifically and separately (as between the two plaintiffs, who allege or ought to be alleging separate losses).

[20] Mr Harrison also argues that if leave is granted in relation to the litigation funding issue then it is in the overall interests of justice that leave be granted in respect of this second issue also so as to avoid the need for a separate application to the Court of Appeal for leave. He argues further that this Court ought not lightly to refuse leave, because a dispute over qualification for entry on the list ought generally

to be susceptible of at least one level of appeal.[9]

[21] A mere error of fact or law is not enough. In order to justify the grant of leave, the applicant must demonstrate real detriment, if not injustice. It is not suggested that a question of general public importance arises. I do not consider the error of law (if there is one) in this case to have met that test. The decision to maintain the proceeding in the Commercial List simply requires the defendant to carry on the defence of the proceeding in the Commercial List rather than in the general civil jurisdiction of the court. A restriction on interlocutory appeals is of course a differentiating factor, but in my view is not sufficient to elevate the defendant’s application for leave to the necessary level.

[22] Neither would it be right to accede to the argument that leave ought to be granted simply because leave has already been granted in respect of the first issue. Nor is it relevant to have regard to the trouble and expense entailed in the making of an application to the Court of Appeal.

[23] To the extent that my decision involved the exercise of a discretion the grant of leave to appeal would not be warranted.[10] Understandably, Mr Harrison concentrated on the defendant’s contention that I was in error in holding as a matter of law, that the case fell within the Commercial List provisions. However, for the reasons given above, I am not satisfied that it is appropriate to grant leave which is

_{accordingly refused.}

Stay

[24] The defendant seeks a stay of the proceeding pending the determination of the appeal by the Court of Appeal. The application rests upon the argument that the defendant ought not to be put to the considerable trouble and cost of attending to interlocutory matters while the appeal is pending, in circumstances where the defendant is not protected for its costs against plaintiffs who are admittedly impecunious. The defendant’s predicament is exacerbated, Mr Harrison argues, by the alleged deficiencies in the plaintiffs’ statement of claim as recently repleaded, and by reference to a forthcoming argument as to jurisdiction. As I understand it, the defendant will argue the law of Georgia USA is applicable and if that be so, that the plaintiffs’ case will founder on the provisions of the Georgia Statue of Limitations.

[25] The funding agreement issues which are to be the subject of the appeal do not impinge upon the substance of the plaintiffs’ claim. Even if the defendant is successful in the Court of Appeal the plaintiffs will be entitled to maintain the present proceeding. So there is no concern in the present case about the prospect of wasted costs, as sometimes arises in respect of interlocutory appeals. Rather, the defendant is troubled by the possibility that it may be unable to recover its costs in respect of interlocutory matters, conducted pending appeal, from impecunious plaintiffs.

[26] To a large extent, as Mr Harrison responsibly accepts, these concerns have dissipated by reason of an unconditional offer of security for costs in the sum of

$50,000, conveyed to the Court by Ms Grant during the hearing of the present application. A smaller offer, with conditions, was made earlier but was not accepted by the defendant.

[27] It is expressly accepted by the plaintiffs that the offer of security is not to be regarded as limiting their future costs obligations or as restricting the defendant’s entitlement to apply for further security. It is simply an offer of security on account of any costs to which the defendant might ultimately be entitled against the plaintiffs.

[28] In my opinion it would not be proper to grant a stay. There is no reason why progress cannot be made with interlocutory matters pending the outcome of the appeal. It seems that there is much to be done, at least from the defendant’s point of view, in that there are outstanding questions as to discovery, the state of the plaintiffs’ pleadings, and the jurisdictional issues touched upon above.

[29] The stay application is accordingly refused, but the plaintiffs are directed to provide security for costs to the satisfaction of the Registrar in the sum of $50,000 within 20 working days of the date of this judgment. Such security is to be given on account of such security as may ultimately be fixed in respect both of interlocutory and trial attendances.

Costs

[30] Ms Grant seeks a direction for the disposal of outstanding questions as to costs. As yet, costs have not been fixed in respect of attendances relevant to my judgment of 13 December 2010, and of course, costs issues will arise on the present judgment.

[31] Mr Harrison would prefer to have the question of costs deferred until a later stage. But the starting point is that costs on opposed interlocutory applications must be fixed when the application is determined.[11] I see no reason here to depart from the ordinary approach.

[32] Accordingly, I direct the plaintiffs to file and serve their memorandum as to costs on or before Friday 1 April 2011. The defendant is to respond on or before Friday 15 April 2011. Thereafter I will deal with questions of costs on the papers

_{unless either counsel seeks an oral hearing.}

Further timetabling

[33] There was a measure of agreement between counsel at the hearing as to an appropriate timetable in the event that a stay was refused. In terms of that agreement, the following timetable directions are given:

(a) The defendant is to file and serve a statement of defence on or before

12 April 2011;

(b) Any interlocutory applications by the defendant (including but not limited to strike out, summary judgment or stay applications), together with any supporting affidavits, are to be filed and served on or before

12 April 2011;

(c) Any notices of opposition and supporting affidavits by the plaintiffs are to be filed and served on or before 29 April 2011;

(d) The proceeding is to be called for further mention in the Commercial

List at 9.30 am on Friday 27 May 2011.

C J Allan J

---

[1] _{Judicature Act 1908, s 24G}
[2] _{Meates v Taylor (leave) (1992) 5 PRNZ 524 (CA).}
[3] At 526; see also Ernst & Young v Benchmark Jewellery Co NZ Ltd (in liq) (1993) 7 PRNZ 13 (CA), and Clear Communications Ltd v Attorney-General (1998) 12 PRNZ 287 (CA).

[4] Opotiki Packing & Coolstore Ltd v Opotiki Fruitgrowers Co-operative Ltd (in rec) (1998) 12 PRNZ _{663 (HC).}
[5] _{At 665.}
[6] _{Saunders v Houghton [2010] 3 NZLR 331 (CA).}
[7] _{At [22].}
[8] Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75 (HCA).
[9] _{Meates v Taylor at 526.}
[10] Ernst & Young (fn 3) at 15.

[11] Rule 14.8(1).