Hunter Grain Limited v J Swap Contractors Limited HC Tauranga CIV-2008-470-837 [2011] NZHC 612 (18 February 2011)

Last Updated: 5 July 2011

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

_{CIV-2008-470-837}

BETWEEN HUNTER GRAIN LIMITED First Plaintiff

AND HUNTER GRAIN (NZ) LIMITED Second Plaintiff

AND J SWAP CONTRACTORS LIMITED Defendant

Hearing: 9 February 2011 (Heard at Hamilton)

Appearances: L J Taylor, I W Thorpe and S B Kellett for Plaintiffs

M J Fisher, P M Hardie and K S Muston for Defendant

Judgment: 18 February 2011

JUDGMENT OF COOPER J

ON APPLICATION TO FILE AMENDED

_{STATEMENT OF DEFENCE}

This judgment was delivered by Justice Cooper on

18 February 2011 at 11.45 a.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

Izard Weston, DX SP 27002, Wellington

Jones Howden, DX GA 27017, Matamata 3440

Copy to:

L J Taylor, PO Box 5537, Lambton Quay, Wellington 6145

_{M J Fisher, PO Box 3236, Shortland Street, Auckland 1140}

GRAHAM V FOWLER HC AK CIV-2009-404-6470 2 March 2011

I WThorpe, PO Box 10048, Wellington

[1] The trial in this matter commenced on Monday 7 February 2011. By calculation under r 7.13(5)(a), the proceeding had a setting down date of 29 October

2010. An amended statement of claim (the first amended statement of claim) dated and served on 23 August 2010 was filed on 26 August 2010. The defendant, however, did not file a statement of defence to the amended statement of claim until after the setting down date. The amended statement of defence was filed on 1

February 2011, and no leave was formally sought to file it.

[2] Mr Taylor took the initiative and outlined, in the course of his opening, reasons why the Court should not grant leave for an amended pleading to be filed. I then heard Mr Fisher on that issue. Effectively he has sought leave to file the amended statement of defence orally. There is no affidavit explaining the delay.

The issue

[3] The plaintiffs do not object to most of the proposed amended pleading. However, they raise particular concerns about two of the paragraphs, namely paragraphs 20.8 and 31.6. Before addressing those paragraphs, I set out the relevant paragraphs from the second amended statement of claim.1 Paragraph 20.8 forms part of the pleadings in respect of the first plaintiff’s causes of action alleging repudiation of a trading partnership, accessory liability to breach of fiduciary duty, breach of fiduciary duty and conspiracy to interfere with the first plaintiff ’s businesses. Paragraph 31.6 relates to all of those causes of action except the first.

[4] Paragraph 20.8 of the second amended statement of claim reads:

On 30 January 2008 Stephen Swap and Arlene Patricia Swap each signed agreements jointly to hold 500 Shares in Price Commodities Ltd: a company incorporated on 30 January 2008 to conduct Price’s agency business on behalf of Toepfer. The trustees of Price’s family trust (including Stephen Swap) agreed to hold the other 500 shares in that company. Stephen Swap,

1 The trial commencement date of 7 February 2011 was established by Harrison J’s Minute of 28

April 2010. I granted leave for the second amended statement of claim to be filed on 8 February

2011. The relevant paragraphs in that pleading are the same as those which were contained in the first amended statement of claim.

by notice dated 30 January 2008, consented to be and was appointed as a director.

[5] Paragraph 31.6 of the second amended statement of claim is one of the particulars given of a broad allegation, set out in the beginning of paragraph 31, that the defendant dishonestly assisted Price to breach his duties of loyalty and fidelity to the first plaintiff. The sub-paragraphs that follow then set out the basis upon which the first plaintiff claims that the defendant dishonestly assisted Mr Price. At relevant times, Mr Price was employed by the first plaintiff as chief executive, subsequently acquired a 20 per cent shareholding and became a director, assuming the role of Managing Director. The pleading at paragraph 31.6 alleges that the defendant dishonestly assisted Mr Price to breach his duties of loyalty and fidelity to the first plaintiff by:

Stephen and Arlene Swap becoming shareholders of Price Commodities Ltd and Stephen Swap becoming a director of that company.

[6] Mr Stephen Swap is one of four directors of the defendant, which is a family owned business. The other directors are David Swap, who is Stephen Swap’s father, Lewis Swap who is Stephen Swap’s uncle and Andrew Swap, who is the son of Lewis Swap.

[7] Price Commodities Ltd was a company formed by Mr Price. The plaintiff says that that company was part of a scheme developed by Mr Price, the defendant and another company Toepfer International Asia – PTE Ltd by which the first plaintiff was essentially to be shut out of the business that it had established importing palm kernel expeller (“PKE”) used as a supplementary feed for dairy cows.

[8] In the amended statement of defence, the defendant says at para 20.8:

It denies paragraph 20.8 and says that on or about 30 January 2008 Stephen Swap and Arlene Patricia Swap (in their own right and without the knowledge of the defendant itself) agreed to hold 500 shares in Price Commodities Ltd, the Price family trust agreed to hold the other 500 shares in the company and that Stephen Swap was appointed a director of Price Commodities Ltd but that after Stephen Swap disclosed the shareholding and directorship to David Swap, the managing director of the defendant, Stephen Swap resigned as a director of Price Commodities Ltd and transferred the shares back to the Price interests;

[9] In relation to paragraph 31 the defendant responded to the general words at the outset of the paragraph as follows:

It denies paragraph 31 and in particular it denies knowing that Price was acting in breach of his duties of loyalty and fidelity to the first plaintiff and it denies providing any assistance to Price to breach any duties he owed to the first plaintiff.

Then, in relation to the particular allegation in paragraph 31.6 the pleading is:

It denies paragraph 31.6 and says that the decision by Stephen and Arlene Swap to hold shares in Price Commodities Ltd and the holding of such shares and the decision by Stephen Swap to be a director of the company and his appointment as a director were nothing to do with the conduct of the business of the defendant and were decisions and actions taken by them personally and in their own right without the knowledge of the defendant.

[10] The plaintiffs oppose the amended pleadings at paragraph 20.8 and 31.6 on the basis that the pleading, would for the first time, distinguish between actions taken by Mr Stephen Swap and those of the defendant. In all other respects, the defendant accepts that actions carried out by Mr Stephen Swap are attributable to the defendant and that the defendant will be responsible for them.

Background

[11] The extent to which actions of Stephen Swap would be accepted by the defendant as actions attributable to the company itself was the subject of correspondence between the parties which took place in December 2009 and January

2010. Mr Taylor relies on the correspondence as entitling the plaintiffs to rely on the defendant’s acceptance that it would be potentially liable in respect of any relevant actions by Stephen Swap.

[12] The relevant correspondence commences with a letter written by the plaintiffs’ solicitors to the defendant’s solicitors on 14 December 2009. That letter was in the following terms:

1. As you know, in this proceeding, the only defendant is the company, J Swap Contractors Limited (“JSCL”); on the basis that Stephen Swap had been acting for JSCL at all material times.

2. As a result of discussions between the parties on 4 December 2009 the plaintiffs have become concerned that JSCL may not accept that their director Stephen Swap was acting on their behalf during the events leading to the claims in these proceedings. We note that your client’s defence, without saying so expressly, leaves open the possibility that JSCL will deny that it is liable for Stephen Swap’s conduct.

3. Obviously if JSCL does take that position, it will be necessary to join Stephen Swap to the proceedings personally. If JSCL disclaims liability for any conduct of Stephen Swap that the Court finds was wrongful, then he must be personally liable.

4. Please advise whether and to what extent JSCL does accept responsibility for Stephen Swap’s conduct. If we have not heard from you before 5pm Monday 21 December 2009 that JSCL accepts responsibility for Stephen Swap’s conduct (without any admission by JSCL or Stephen Swap that the conduct is wrongful), then the plaintiff intends to join him to the proceedings.

[13] There was a reply from Jones Howden on 21 December 2009. In that letter, Mr Hardie of that firm wrote:

We confirm that for the purposes of the matters in question in the above proceedings, J Swap Contractors Ltd accepts that Stephen Swap’s knowledge is the knowledge of J Swap Contractors Ltd.

[14] The plaintiffs’ solicitors did not regard that letter as satisfactory. In a further letter dated 23 December 2009, they pointed out that their letter of 14 December

2009 had asked a different question, namely whether the defendant accepted responsibility for Mr Stephen Swap’s conduct. The letter continued:

3. It appears now that, J Swap Contractors Ltd says its knowledge was the same as Stephen’s knowledge but continues to deny liability even if any conduct of Stephen’s is found to be wrongful; although this is not expressly stated.

4. It would be unfortunate to join Stephen to the proceedings if that meaning was not intended. Please state plainly whether we have understood your client’s position correctly or not.

5. As this is a simple matter of clarification please respond before the

Christmas break.

[15] Mr Hardie replied on the same day. He wrote:

We are not sure what the plaintiffs are concerned about.

For the avoidance of doubt we confirm that for the purposes of this proceeding the knowledge of Mr S Swap is the knowledge of J Swap Contractors Ltd and that at all material times, in relation to the matters in question in this proceeding, Mr S Swap was the duly appointed agent of Swap Contractors Ltd.

[16] Once again, the plaintiffs’ lawyers did not regard that response as entirely

satisfactory. They wrote again on 21 January 2010 in the following terms:

1. Thank you for your letter received at 4.35pm on 23 December 2009.

2. We had asked whether J Swap Contractors Ltd accepted liability for any conduct of Stephen Swap found to be wrongful. Once again you have not answered that question directly although the effect of the answers given appears to be that the simple answer to our question is “yes”.

3. We are proceeding on that basis. However, if we are wrong to do so please advise us immediately.

4. If you do not do so and J Swap Contractors Ltd later seeks to disclaim liability for Stephen Swap’s conduct then we reserve the right to join him immediately to the proceedings without further prior notice to you or to him.

5. Given his close involvement with these proceedings and the fact that you also act for him personally we cannot see that there could be any material prejudice to Stephen from later joining him to the proceedings if necessary.

[17] That letter produced a further response from the defendant’s solicitors. In

that letter, also dated 21 January 2010, it was said:

It is our understanding that the plaintiffs’ concern has been to ascertain, in relation to the matters in question in this proceeding in terms of the allegations in the statement of claim, whether J Swap intends to run a defence that:

1. Stephen Swap’s knowledge is not to be imputed to J Swap; or

2. Stephen Swap acted outside the scope of his authority as a director and employee of J Swap.

In our letter of 23 December 2009, we confirmed that J Swap accepts for the purposes of the pleadings that:

(a) Stephen Swap’s knowledge is J Swap’s knowledge;

(b) Stephen Swap as a director and employee of J Swap acted at all material times within the scope of his actual and implied authority such that his actions are the actions of J Swap.

In our view, the above response meets any legitimate concerns of the plaintiff because it confirms for purposes of the pleaded allegations and the defence to those allegations that J Swap and Stephen Swap are to be regarded as one and the same.

Would you please ensure that our correspondence is annexed to any application the plaintiff might make to join Stephen Swap to the proceeding.

[18] Mr Taylor also referred to correspondence that had taken place before the proceeding was commenced, on 2 October 2008. He referred in particular to a letter written by the plaintiffs’ solicitors to the defendant on 2 September 2008. That letter outlined the plaintiff ’s allegations under headings which included “Breach of Collaborative or Joint Venture Arrangement” and “Knowing Assistance in Relation to Breach of Richard Price’s Fiduciary Duty”. Under the latter heading there was reference to further information that had been received since delivery of a judgment by Allan J in a separate proceeding that had been commenced against Mr Price and Price Commodities Ltd. It was said that further information relevant to the “Knowing Assistance” cause of action had emerged from searches carried out as authorised by the judgment. There was reference to a letter dated 7 August 2008 which had been sent to counsel acting for Mr Price and a copy of that letter was attached. In the attached letter there was reference to a document headed “Price Commodities Ltd” which the plaintiffs referred to as an “Action Plan”. The plaintiffs rely on evidence that Mr Price sent a copy of the “Action Plan” to Mr Stephen Swap on 7 January 2008. Included in that document under the heading “Post January 10 2008 Action Required” was:

Jan 11 –

RP will establish a limited liability company issuing 1,000 ordinary shares as follows –

500 ordinary shares – RP,

500 ordinary shares – SS.

[19] The plaintiffs’ letter to Mr Price’s lawyers (attached to their letter of

2 September 2008 to the defendant’s managing director) observed:

Companies Office records show that when Price Commodities Ltd was incorporated that proposed shareholding structure was in fact implemented. Subsequently, Stephen Swap’s shares were transferred to the trustees of the Richard Price Family Trust.

The evidence of both Michael Dossor and James Wynn-Williams is that Stephen Swap told each of them (on separate occasions) that a mistake had been made and that it was always intended that the Trust would hold the 500 shares.

The Action Plan shows that to be yet a further lie.

It is now revealed that Price Commodities was intended to be, to use Richard Price’s own words, “a JV” between himself and Stephen Swap with the intended later equity involvement of “SJ” who we presume is Mr S J Jeong of TPC Shipping, Singapore (see Action Plan, Jan 15-18).

The rival arguments

[20] Taking this correspondence together with that which occurred in December

2009 and January 2010, Mr Taylor submits that it is too late now for the defendant to endeavour to plead that Mr Stephen Swap’s involvement as an initial shareholder in Price Commodities Ltd was simply an action which he took on his own account and that in doing so he was not acting for the defendant. He submits that there would be real prejudice if the defence were allowed to raise that issue now. He held out the probability that, if the amended pleadings were permitted, the plaintiffs would need to join Mr Stephen Swap to the claim and that an adjournment would inevitably follow since Mr Swap would need to secure separate representation. In addition, further interlocutory procedures would be necessary, including potentially those in relation to discovery. Having regard to the difficulty of obtaining a further five week fixture, it would not be inconceivable that up to two years might elapse before the matter could be brought back to Court.

[21] The alternative of suing Mr Stephen Swap in separate proceedings was, in Mr Taylor’s submission, “equally unpalatable” because it would mean the repetition of evidence, and effectively the doubling of expense as well as being attended by

further delays before matters could be finally resolved. In the circumstances, he submitted there would be overwhelming prejudice to the plaintiff if the amended pleading were allowed. If as a consequence, the defendant had to assume responsibility for Stephen Swap’s conduct when it was not in fact responsible for the actions alleged, then they would have a cause of action against him in respect of any loss sustained as a result.

[22] In response, Mr Fisher pointed out that the allegations made by the plaintiffs arising from Stephen Swap’s involvement as a shareholder in Price Commodities Ltd were made for the first time in the first amended statement of claim filed, on

26 August 2010. While the correspondence of 2 September 2008 had referred to the issue of Stephen Swap’s shareholding in Price Commodities Ltd, it had not been pleaded in the first statement of claim filed on 2 August 2008. The correspondence which occurred in December 2009 and January 2010 had been in the context of the pleadings as they then stood, which did not contain the allegations in question. Mr Fisher pointed out that Mr Hardie’s letter of 21 January 2010 had made it plain that the defendant accepted for the purposes of the pleadings that Mr Stephen Swap’s knowledge was the company’s knowledge, and that he had acted “at all material times” within the scope of his actual and implied authority. That should not be applied to allegations that had not been pleaded at the time. He submitted that, since the allegations were new, the plaintiffs should have specifically raised the issue with the defendant and submitted that it would be unjust to prevent the defendant to raise what was a legitimate issue in its defence.

[23] Mr Fisher also raised issues concerning delays by the plaintiffs in complying with orders made by Harrison J for the provision of particulars and the provision of an amended statement of claim. He referred to a substantial number of documents that had been received and issues that had to be dealt with in terms of expert evidence in the final preparation for trial. He said that in all the circumstances the need to file an amended pleading had been overlooked.

Approach

[24] Rule 7.18(2) of the High Court Rules provides that no statement of defence or amended pleading may be filed after the setting down date without the leave of a Judge. While r 7.77(1) provides that a party may file an amended pleading prior to trial and serve a copy of it on the other party, r 7.77(10) expressly provides that r 7.77 is subject to r 7.18. It should be noted that the right given by r 7.77(1), is a right to file an amended pleading “before trial”. Here, the defendant in fact filed the amended statement of defence, but in doing so it acted contrary to r 7.18(2): the amended pleading should not have been filed without leave. Although the wording of r 7.18(2) implies that a pleading filed without the required leave should not be treated as having been properly filed, under r 1.5 the failure to seek leave is to be treated as “an irregularity” (r 1.5(1)(a)) and it does not “nullify” the filing of the amended statement of defence (r 1.5(1)(b)).

[25] The real question is whether leave should now be granted, and in resolving that question the Court must have regard to the overall interests of justice, bearing in mind that the objective of the rules, stated in r 1.2, is to secure the “just, speedy, and inexpensive determination” of the proceeding.

Evaluation

[26] Since the defendant needs leave to file the amended statement of defence, it must show a reason why leave should be granted. Although Mr Fisher made some reference to delays by the plaintiffs in compliance with time-tabling orders, his observations were not directly relevant to the present issue in the sense of explaining why the amended statement of defence could not have been filed prior to the matter being set down. The facts are that having had the plaintiffs’ first amended statement of claim since 23 August 2010, the defendant has delayed filing any response until

1 February 2011. With a five week fixture due to commence on 7 February, the trial date had been known since 28 April 2010, that was a serious omission.

[27] The seriousness was compounded by the background of the correspondence to which I have referred above. While it is correct that, on a literal approach, one view of that correspondence was that the defendant’s solicitors were carefully limiting the defendant’s concession in relation to the actions of Mr Stephen Swap,

that is not the only view that can be taken. For example, the reference in the letter of

21 January 2010 to what was accepted “for the purposes of the pleadings” must obviously embrace the broad allegation at the outset of paragraph 34 of the original statement of claim which asserted that the defendant assisted Mr Price to breach his duties of loyalty and fidelity to the first plaintiff in various respects and also alleged that further particulars of knowing assistance and wrongful conduct would be given after discovery.

[28] At the very least, the correspondence made it necessary, in my view, for the defendants to alert the plaintiffs if there was any allegation in the first amended statement of claim, based on the actions of Mr Stephen Swap, that the defendant would defend on the basis that his actions were not attributable to the defendants. It must have been obvious, given the correspondence that had passed between the parties, that to adopt such a stance in relation to one only of the nine particulars of the claim of dishonest assistance would have very significant implications for the manner in which the plaintiffs had been intending to run their case at trial. This meant that it was particularly important that the issue be drawn to the attention of the plaintiffs as soon as possible, if necessary by letter, if time constraints truly prevented filing an amended statement of defence before the setting down date. That did not occur and the result is a kind of ambush.

[29] Having said all that, I do not accept that the plaintiffs would be prejudiced to the extent that Mr Taylor asserted if the amended pleading were permitted. The factual basis upon which the defence now seeks to assert that Stephen Swap’s actions in relation to the shareholding and directorship of Price Commodities Ltd were actions that he took on his own behalf and are not attributable to the defendant company is set out in briefs that have been circulated. Obviously, it is not for material in the briefs to take the place of pleadings. The point I make is simply that the factual assertions on this issue have been set out in the briefs served on behalf of the defendant. Mr Taylor did not refer to any particular difficulty that the plaintiffs might face in dealing with those allegations.

[30] Further, the defence sought to be raised relates to only one of the particulars set forth in paragraph 31 in which the first plaintiff asserts that the defendant

dishonestly assisted Mr Price to breach his duties of loyalty and fidelity to the first plaintiff. The first plaintiff has already, in terms of a pleading which is quite properly before the Court, to face the defendant’s denial of knowledge that Mr Price was acting in breach of his duties of loyalty and fidelity to the first plaintiff, and the denial of providing any assistance to Mr Price to breach any duties he owed to the first plaintiff. This pleading would have obliged it, in the discovery process, to disclose any material that was relevant to its denial. If there is additional material in Mr Swap’s possession relevant to the issue, not disclosed by the defendant, that can be remedied, albeit late in the day, by requiring Mr Stephen Swap to give third party discovery in relation to the issue. The defendant can also be required to file an updated list, verified by affidavit, referring to any relevant material that may be in its possession relevant to the issue, which has not already been disclosed. If the further discovery process that I contemplate means that the plaintiffs need time to make further inquiries that can be raised with me at the relevant time.

[31] Since there is a wealth of evidential material already before the Court in relation to the plaintiffs’ allegations, I consider it would be unlikely that there would be much further material needing to be disclosed. However, this is to be a long trial and there is time for the further discovery process to be undertaken and if necessary for Mr Swap to be further questioned if it is not completed by the time his primary evidence is completed.

[32] The result of that approach would ensure that the plaintiffs’ allegations against the defendant are able to be fully dealt with, while also allowing the defendant to raise in its defence the allegation it now makes that Mr Stephen Swap was not acting to advance the defendant’s interests in respect of his dealings with Price Commodities Ltd. I consider that will serve the interests of justice by allowing the defence to raise an issue which it would be artificial and potentially unjust to foreclose. It is preferable to declining leave for that reason.

[33] At this stage, I am not persuaded that the interests of justice will require Mr Swap to be joined as a defendant, principally because the defendant accepts that it will be responsible for all of Mr Swap’s other relevant actions. Having heard the case to this point I doubt that a claim could be advanced against him that relied

solely on his involvement in Price Commodities Ltd. Further, it would I think be wrong to decline the application on the basis that a separate proceeding might become necessary in respect of Mr Swap. I am not satisfied that would be so, and the judgment on the present dispute would no doubt be very influential in what further steps might or might not be appropriate. Overall, I am not satisfied that the issues raised by Mr Taylor should result in the defendants’ application being declined.

[34] It perhaps does not need to be emphasised that allowing that argument to be raised simply means that there will be a factual issue to be determined; it does not signify that, seen in the context of all the actions of Mr Swap which the defendant accepts are attributable to it, the Court will accept the defence. That will remain to be seen.

Result

[35] For the reasons discussed above I grant leave to the defendant to file the amended statement of defence.

[36] I order that:

(a) The defendant by an appropriate officer other than Mr Stephen Swap, is to file an affidavit either confirming that there are no documents in its possession which are relevant to the amended statement of defence and not previously discovered or listing any such documents that are in its possession.

(b) Mr Stephen Swap is to provide an affidavit either confirming that there are no documents in his possession or that of his wife or any trust with which they may be associated which are relevant to the allegations made by the defendant in the amended statement of defence and not previously discovered by the defendant or listing any such documents that are in their possession.

(c) The affidavits are to be provided by 10.00 a.m. on Monday

21 February 2011.

(d) In both cases if there were documents in the possession of either the defendant or Mr and Mrs Swap which were previously in their possession but are no longer, they are to list those documents and indicate when they went out of their possession and in whose possession they now are.

(e) Relevant documents listed as being in the possession of either the defendant or Mr and Mrs Swap in the affidavits referred to above are to be photocopied and made available to the plaintiffs’ counsel with the affidavits.

(f) Leave is reserved to the plaintiffs to seek such further or ancillary orders in relation to discovery as may be appropriate.

[37] The defendant is to pay the plaintiffs’ costs of and in relation to the leave

application. I will hear counsel if quantum cannot be agreed.