I-Health Limited v Isoft NZ Limited HC Auckland CIV-2006-404-007881 [2011] NZHC 674 (16 June 2011)

Last Updated: 20 July 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2006-404-007881}

BETWEEN I-HEALTH LIMITED Plaintiff

AND ISOFT NZ LIMITED First Defendant

AND ISOFT AUSTRALIA PTY LIMITED Second Defendant

Hearing: 16 June 2011

Counsel: M Harris for Plaintiff

N Penman-Chambers for Defendants

Judgment: 16 June 2011

_{JUDGMENT OF ASHER J}

Solicitors:

Gilbert Walker, DX CP20524, Auckland 1140. Email: [e-mail]

_{Hesketh Henry, DX CP24017, Auckland 1140. Email:} [e-mail]

I-HEALTH LTD V ISOFT NZ LTD HC AK CIV-2006-404-007881 16 June 2011

[1] This is an application by the defendants for further particulars of the plaintiff’s third amended statement of claim.

[2] The proceeding arises from the sale by the plaintiff i-Health Ltd of its business and assets to the first defendant iSoft NZ Ltd by agreement of 17 December

2003. The second defendant iSoft Australia Pty Ltd guaranteed iSoft NZ’s obligations under the agreement. The key asset transferred in the sale was a range of health IT products that carry the name HealthViews which were intended for sale to entities in both the public and private health sectors.

[3] The minimum purchase price was $1,475,000 but critically for the purposes of this claim there was a provision that if iSoft NZ achieved sales of i-Health products in excess of certain agreed limits over a five-year period, the purchase price could be increased to a maximum of $24,900,000. Equally critical was a provision requiring iSoft NZ to use all reasonable endeavours to promote, market, distribute and sell i-Health products during the five-year earn-out period.

[4] The essential claim by i-Health is that iSoft NZ breached that reasonable endeavours obligation. I-Health alleges that iSoft NZ if it had met the obligation would have achieved licenced sales of i-Health products totalling $113,900,000, which would have increased the purchase price by at least $14,250,000

[5] The trial is due to commence on 21 May 2012. The plaintiff’s briefs of evidence are due by 21 August 2011 and the defendants by 29 February 2012.

Background legal context

[6] Rule 5.21 of the High Court Rules enables a party by notice to require further particulars or a more explicit pleading. Rule 5.26 provides in part:

5.26 Statement of claim to show nature of claim

The statement of claim—

(a) must show the general nature of the plaintiff's claim to the relief sought;

and

(b) must give sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the court and the party or parties against whom relief is sought of the plaintiff's cause of action; and

...

[7] Rule 5.32 provides:

5.32 Amount of money claim

A statement of claim seeking the recovery of a sum of money must state the amount as precisely as possible.

[8] Rule 5.33 provides:

5.33 Special damages

A plaintiff seeking to recover special damages must state their nature, particulars, and amount in the statement of claim.

[9] There have been detailed and helpful submissions presented on the correct approach to a particulars claim. It is not necessary to review the authorities in detail as the principles are well understood. Some of these need to be referred to as they are relevant to this application.

[10] Particulars are necessary to ensure that the other party fully understands the claim it must meet and is able to make the necessary responsive pleadings.[1] It is not necessary to state the principles of law relied on, or the detailed evidence that will be adduced.[2] What is necessary is for either side to provide a sufficient outline for the case to be advanced.[3] Any request must be assessed against the nature of the proceeding, the actual causes of action and the realities of the actual interlocutory processes that are taking place and what will happen at trial. A request for particulars cannot be used for any purpose other than obtaining a statement of claim

_{that complies with r 5.26. It should not be used for any extraneous purpose.}

First request – paragraph 8 of the third amended statement of claim

[12] Paragraph 8(c)–(e) and (g) of the third amended statement of claim allege that by December 2003 i-Health had sold or licensed its products to various entities. iSoft NZ seeks particulars of which specific i-Health products were sold to which entity, on what date the sales were made, and the terms (including price) in respect of each sale.

[13] This is a background pleading. It sets out what i-Health did before the sale, and the allegations are part of the platform on which the claim is built. It does not set out an essential element of the causes of action, which relate to iSoft NZ failures after the sale.

[14] In my view, the pleaded background in paragraph 8 discloses sufficient detail. It specifies by name the entities that i-Health had dealt with. The details sought by the plaintiff would create a great deal of work by i-Health and produce many paragraphs. But they will not disclose details of the claims of wrongdoing, and will not have any particular relevance to the issues at trial. The particulars given are sufficient.

[15] A further matter must be noted. It is clear that iSoft NZ wants this information to assist it in preparing a counterclaim against i-Health, in which it is asserted that i-Health’s forecasts were inflated and its warranties incorrect. It is not the purpose of a statement of claim to provide material which might assist a defendant to plead a counterclaim. Its purpose is to outline the nature of the plaintiff’s claim only. In this respect the application is for a purpose extraneous to that for which r 5.26 is directed. It is therefore not a legitimate use of the r 5.26 procedure, and for that reason also it fails.

[16] Paragraph 35(a) alleges that iSoft NZ failed to procure the other companies in the iSoft group to ―make any meaningful attempt to promote, market, distribute and sell the i-Health products in any of the territories other than New Zealand and Australia‖. iSoft NZ seeks particulars as to which health sector entities it is alleged that iSoft failed, and failed to procure other companies in the iSoft Group, to promote, market, distribute and/or sell the software products. It also seeks particulars of where those customers resided, and what opportunity was not pursued.

[17] To evaluate this request it is necessary to consider the overall nature of the claim. I accept Mr Harris’ submission that the pleading in the third amended statement of claim on an overview is of a general failure of iSoft to market the i- Health product; something close to an abandonment of its contractual obligation. Following paragraph 35 of the third amended statement of claim there are 35 paragraphs setting out specific allegations of this policy and the failure to market. For instance, at paragraph 38 it is alleged that the commercial director of iSoft Group relayed certain negative information to a customer. The information is set out in some detail including a claim that he said that i-Health products were ―dead on arrival‖.

[18] I am informed from the bar that iSoft has 13,000 actual customers. While it is not going to be suggested that all these were potential customers of i-Health products, it is clear that i-Health will assert that there were very many sales possibilities. When the pleading at paragraph 35(a) is seen in this context, it is clear that i-Health is unlikely to try and prove every single attempt that could have been made in respect of every single customer, and every single potential loss arising from the failure to contact that customer.

[19] In this context, to require particulars at the level of detail sought would not be reasonable. It would involve, I have no doubt, pages of references to potential customers and the promotional and marketing attempts that could have been pursued but were not. I-Health is going to have to prove that there were persons who should have been contacted and were not. Presumably it will ask the Court to infer a

general failure to meet contractual obligations from the details it is able to provide. To require this further level of detail in the pleading is to go beyond the purpose of particulars. Insofar as particulars can be given if particular customer opportunities that were not pursued, what is sought is more of the nature of evidence than pleadings.

[20] I accept entirely Ms Penman-Chambers’ submission that the fact that briefs are to be filed does not obviate the pleading obligations in r 5.26. However, the observation of the Court of Appeal in Price Waterhouse v Fortex Group Ltd is apposite:[4]

What is required is an assessment based on the principle that a pleading must, in the individual circumstances of the case, state the issue and inform the opposite party of the case to be met. As so often is the case in procedural matters, in the end a common-sense and balanced judgment based on experience as to how cases are prepared and trials work is required. It is not an area for mechanical approaches or pedantry.

[21] The application must be assessed against the reality of the procedural steps that are going to be taken prior to the trial and the way in which the trial will unfold. Paragraph 35(a) of the third amended statement of claim and the paragraphs that follow enable any reader to understand the general case to be met. The line between what must be said to inform the other party of the claim and evidence is drawn with those background realities in mind. It is not necessarily a bright line. Here I am satisfied that the details sought can be seen as in the nature of evidence.

[22] Indeed, I would imagine it would be part of i-Health’s case that it cannot detail every possible attempt that should have been made that was not made. Rather, it will be asking the Court to make assumptions based on the evidence that it can give of iSoft NZ making no attempt to promote the i-Health products as a general position.

[23] The position might be different if this was an application being heard prior to the case management reforms of the 1990s when there were no written briefs. It is understandable that iSoft NZ want a detailed forewarning of the alleged lost

_{opportunities. The detail available to i-Health will be given to iSoft NZ when}

i-Health files its briefs at the end of August. ISoft NZ will then have six months in which to consider those briefs and to respond with its own briefs. That is a practical reality against which this application must be measured, and it weighs in the balance against granting the application.

Third request – paragraph 75 of the third amended statement of claim

[24] Paragraph 75 initially pleaded a bare amount being the value of a lost opportunity. In a Minute of 16 December 2009, Harrison J had stated that a precise quantification of i-Health’s loss linked back or connected to a particular breach or breaches was required. The general estimate of loss that was given was described as most inappropriate.

[25] The new paragraph 75 in the third amended statement of claim claims an amount for lost opportunity broken down into lost estimated licence fee revenues for each of its electronic health records and electronic patient records in each of five broad geographical markets. Ms Penman-Chambers submits that this is a claim for special damages and she refers to rr 5.32 and 5.33. These provide that a claim for a sum of money must state the amount as precisely as possible and that a plaintiff seeking special damages must state their nature, particulars and amount.

[26] Mr Harris submits that paragraph 75 complies with these requirements and does set out the nature, particulars and amount as well as possible, given the nature of i-Health’s claim.

[27] In a case such as the present, a bare claim for a sum of money for the loss suffered is insufficient.[5] This pleading goes further than that. It breaks up the claim into various categories and amounts. The question is whether the level of particularity is sufficient. In the end the reality of the nature of the claim and the

_{resources available to the plaintiff must be taken into account.}

[28] Here, the claim for loss must by definition be imprecise. As already outlined, it is unlikely that i-Health will be able to specify every possible customer and every lost opportunity and state when and how that opportunity was lost. It will presumably need to call expert evidence to prove loss on the basis of assumptions that i-Health’s pleading of iSoft NZ’s failings is correct and expert evidence will be given of what, if the contractual obligations had been met, the likely income would have been. These can only be estimates.

[29] ISoft NZ’s wish for further detail is understandable, but that wish will be met when it gets the briefs in two months time. To make the directions sought would be to require i-Health to produce again a very long document where it will have to put forward, as a pleading, matters that are really more for assessment and evaluation by experts, based on such detailed evidence as will be given by witnesses of fact.

[30] I conclude that r 5.33 has been complied with by the provision of the admittedly general statements of the nature of the losses and amount under the heads of claim.

Result

[31] I do not accept that further particulars are required in relation to any of the three paragraphs. The application for further particulars therefore does not succeed and I decline to make any of the orders sought.

Costs

[32] Mr Harris seeks costs and points out that at an earlier conference there had been some indication given that the particulars sought were very detailed and briefs were pending. He has raised the issue of an increased order above the 2B level, but has not pressed it.

[33] Ms Penman-Chambers submits costs should lie where they fall given that it was understandable for the particulars to be sought and that the information sought is undoubtedly relevant.

[34] Costs should follow the event. I do not consider that the circumstances warrant an increased cost award. The plaintiff is to have costs, calculated on a 2B basis plus disbursements.

...................................

Asher J

---

[1] _{Farrell v Secretary of State [1980] 1 All ER 166 (HL) at 173.}
[2] _{Re Vandervell’s Trusts (No. 2) [1974] 3 All ER 205 (CA) at 213.}
[3] Price Waterhouse v Fortex Group Ltd CA179/98, 30 November 1998 at 19.

[4] Price Waterhouse v Fortex Group Ltd CA179/98, 30 November 1998 at p 19.

[5] See for example Lynds v Fitzherbert Rowe HC Palmerston North CIV-2007-454-413, 3 February

2011 and the authorities cited therein.