Waterco (NZ) Limited v Simpson [2012] NZHC 2361 (13 September 2012)

Last Updated: 18 September 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-2863 [2012 NZHC 2361

UNDER Part 12 of the High Court Rules

IN THE MATTER OF an application for summary judgment

BETWEEN WATERCO (NZ) LIMITED Plaintiff

AND DAVID ALAN SIMPSON First Defendant

AND COURTNEY JAMES RYAN Second Defendant

Hearing: 10 September 2012

Counsel: TK Cunningham-Adams for plaintiff

RA Dellow for defendants

Judgment: 13 September 2012

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for summary judgment]

Solicitors: Simpson Grierson, Private Bag, 92 518, Auckland

Wynyard Wood, PO Box 2217, Auckland 1140

WATERCO (NZ) LIMITED V SIMPSON HC AK CIV-2012-404-2863 [13 September 2012]

Table of Contents

The application ................................................................................................... 2

Procedural history of the proceeding......................................................... 3

The Court’s jurisdiction in respect of this fixture .................................. 6

Background .......................................................................................................... 8

The preliminary issue....................................................................................... 9

The Court’s approach to a summary judgment application............ 12

The plaintiff’s submissions ........................................................................... 13

The defendants’ submissions ...................................................................... 13

The timeline under clause 13 ..................................................................... 14

The authorities that considered a stay in reliance on a dispute resolution clause .............................................................................................. 16

Does clause 13 apply in the circumstances of this case?................ 18

Has a sufficient case been made out to justify the grant of a stay

in this case? ....................................................................................................... 18

Conclusions ........................................................................................................ 19

Costs..................................................................................................................... 20

The application

[1] The plaintiff applies for summary judgment against the first and second defendants in respect of four causes of action pleaded in its statement of claim.

[2] In its first cause of action the plaintiff pleads that the defendants guaranteed the obligations of Daco Investments Glenfield Ltd under franchise deeds dated

3 June 2008 and 3 April 2009. The plaintiff pleads that as at 31 March 2012 the defendants owe $448,939.25 plus interest at the contract rate and costs.

[3] In its second cause of action the plaintiff pleads that the defendants guaranteed the obligations of Daco Investments Parnell Ltd under a franchise deed dated 3 June 2008. The plaintiff pleads that as at 31 March 2012 the defendants owe

$50,500.47 plus interest at the contract rate and costs.

[4] In its third cause of action the plaintiff pleads that the defendants guaranteed the obligations of Daco Investments Glenfield Ltd under a deed of licence. The plaintiff pleads that as at 31 March 2012 the defendants owe $36,763.59 plus interest at the contract rate and costs.

[5] In its fourth cause of action the plaintiff pleads that the defendants guaranteed the obligations of Daco Investments Parnell Ltd under a deed of licence. The plaintiff pleads that as at 31 March 2012 the defendants owe $35,357.02 plus interest at the contract rate and costs.

Procedural history of the proceeding

[6] The plaintiff’s application for summary judgment, statement of claim, affidavit in support and notice of proceeding were filed on 24 May 2012. The application was given a first date of hearing for 10 July 2012.

[7] On 5 July 2012 the first and second defendants filed a notice of appearance by their solicitor and counsel. It does not follow precisely Form G 7 of Schedule 1 of the High Court Rules. Its intention appears to have been to protest that the Court should not exercise its jurisdiction to hear the summary judgment application pursuant to r 5.49 because the plaintiff had failed to comply with a dispute resolution clause in the franchise deeds referred to in the first and second causes of action. The appearance requested the Court to stay the proceeding until such time as the plaintiff had complied with its obligations under the dispute resolution provisions of the two franchise deeds. It sought the right to file a notice of opposition and affidavits in opposition if the Court was not minded to stay the plaintiff’s summary judgment application.

[8] On 10 July 2012 the plaintiff’s counsel filed a memorandum which contained the submission that the summary judgment application should not be stayed and, in particular, asserted that there was no abuse of process and no outstanding dispute requiring a mediation.

[9] The application was called before Associate Judge Christiansen on 10 July

2012. His Honour recorded the following minute on the file:

Defendant appears to protest the application for summary judgment; says the proceeding is an abuse of process because of failure to comply with a Dispute Resolution clause. Matter not suitable for argument today, and needs a fixture to determine it. Adjourned to 16 August at 2:15pm to confirm allocation of a fixture. The defendant is to file a notice of opposition if any and affidavits in support by 25 July. Any response affidavits to be filed and served by 3 August.

Fixture 11 September 10am.

Before then plaintiff’s synopsis of submissions, paginated casebook of

relevant pleadings and bundle of authorities is to be filed and served by

31 August, and defendants’ synopsis and submissions and bundle of

authorities to be filed and served by 6 September.

[10] Counsel were not able to tell me if there was any particular reason why no directions were made pursuant to r 5.49 either in terms of r 5.49(3) for the defendants to file and serve an application to dismiss the proceeding, or pursuant to r 5.49(5) for the plaintiff to file and serve an application to set aside the appearance.

[11] The defendants faced a predicament. Rather than file an application as perhaps they might pursuant to r 5.49(3) to dismiss the proceeding, they filed a notice of opposition and affidavits in opposition on 9 August 2012. The principal ground advanced in the notice of opposition is pleaded as:

The Plaintiff is barred from bringing any Court proceedings action against the First and Second Defendants because it has not complied with the Dispute Resolution Clause (clause 13) of the Franchise Agreements upon which the Plaintiff’s action is based[.]

[12] It then sought a stay of the proceedings. It then referred to the fact that the first and second defendants have defences to the plaintiff’s claims and a counterclaim the reasons for which it pleaded were set out in an affidavit filed by the first defendant.

[13] On 16 August 2012, counsel for the parties filed a consent memorandum. That document sets out the position that existed up until that time, which has been broadly referred to in the preceding paragraphs in this judgment. It then proceeded as follows:

7. Counsel have conferred and agree that the Mediation Issue is a preliminary issue which should be determined before the substantive issues can be considered by the Court.

8. If the Court holds that defendants’ position on the Mediation Issue is correct, then the parties must exhaust the dispute resolution process set out at Clause 13 before the Court is seized of any remaining disputes. Conversely, if the Court holds that the plaintiff is correct, a fixture may be allocated to consider the plaintiff’s substantive summary judgment application and the defendants’ opposition. This preliminary issue should be determined one way or the other before all other matters are considered.

9. Counsel agree that the preliminary issue can be argued on the evidence currently before the Court. The plaintiff does not propose filing a reply to the substantive matters raised in the defendants’ affidavits unless the Court finds that the matter can proceed to a summary judgment hearing.

[14] The memorandum then recommended to the Court a timetable for the filing of submissions and bundles of authorities with the plaintiff proceeding first, followed by the defendants, and for the allocation of a fixture to address the mediation issue.

[15] As a result of counsel’s memorandum, Associate Judge Christiansen then issued a minute on 16 August 2012. He recorded the background and at paragraph 3 added as follows:

In advance of today’s call counsel have filed a joint memorandum. They agree that the fixture on 11 September should be confined to determining whether the plaintiff’s claim ought to be stayed until the parties had exhausted the dispute resolution process set out in clause 13 of the Swimart Franchise Deeds at issue. The parties agree that if the Court holds that the defendants’ position on the mediation issue is correct then the parties must exhaust the dispute resolution process as set out in clause 13 before the Court is seized of any remaining disputes. Conversely, if clause 13 does not apply to its current action against the defendants, then a fixture is to be allocated to consider the plaintiff’s substantive summary judgment application and the defendants’ opposition. Either way the preliminary issue ought to be determined before other matters are considered.

He then adopted counsel’s suggestions for the filing of submissions.

[16] As I prepared for this fixture I was in some doubt as to whether I was exercising the Court’s summary judgment jurisdiction pursuant to Part 12 of the High Court Rules or whether I was, in effect, determining an interlocutory application pursuant to either rr 5.49 or 15.1 to dismiss or stay the proceeding. The matter would only arise if I treated the reference to the orders sought by the defendants as being a partly written/partly oral application for an order for a stay.

[17] I alerted counsel to the problem and to the desirability of resolving what jurisdiction the Court was asked to exercise. In particular, I alerted counsel to the different rights that apply in relation to appeal from the Court’s exercise of its jurisdiction under Part 12 of the High Court Rules and in relation to review if this was, in effect, a chambers application dealing with the disposal of an interlocutory matter. The difficulties that arise where an Associate Judge is asked to rule on these

matters were recently the subject of comment.[1]

[18] The current position arose from the Court’s order of 10 July 2012. Counsel were unclear themselves and sought time to review the position. I stood the matter down for a short period. No clear position emerged.

[19] I announced to the parties that I considered that the only proper course for me

to follow was to treat this as the exercise of the Court’s jurisdiction pursuant to Part

12. My reasons for that determination are as follows:

(a) A notice of opposition has in fact been filed and does raise matters going to the merits of the argument;

(b) Rule 12.2 of the High Court Rules permits the Court to consider an application in relation to a cause of action or to a particular part of a cause of action. In short, the determination of a preliminary point, such as was contemplated by the Court and the parties in this case,

_{would seem to be permissible under r 12.2;}

(c) Ms Cunningham-Adams, quite properly in my view, acknowledged that as I was being asked to resolve this issue in reliance on the Court’s inherent jurisdiction, then it was permissible to analyse the defendants’ position on the merits. It should not be dismissed on the basis that the defendants had waived the rights provided by the contract to have the matter mediated.

[20] The circumstances that I am confronted with in this case are quite different from those that were considered in Stockco Ltd v Denize where the Court had endorsed a passage from McGechan on Procedure as follows:[2]

If a defendant takes a step that is necessary or useful only if jurisdiction is conceded, then by that step a defendant submits to New Zealand jurisdiction: Equiticorp Industries Group Ltd (in stat man) v Hawkins (No 2) [1991] 3

NZLR 700 (HC), at 715-717. This includes taking a step in response to a summary judgment application: Advanced Cardiovascular Systems Inc v Universal Specialties Ltd [1997] 1 NZLR 186; (1996) 9 PRNZ 632 (CA). yet appointed an arbitrator in accordance with clause 12.1 of the agreement.

[21] Rather, the circumstances are similar to those considered by the Court in Braid Motors Ltd v Scott where, in a summary judgment application, the Court considered the position where the parties completed a mediation agreement after the summary judgment application was filed but before determination.[3] The summary judgment application was adjourned to allow the settlement to be implemented. The Court determined in that case that it was appropriate to enforce the agreement to go to mediation and to stay the proceeding.

[22] The effect of my determining the jurisdiction which I am exercising is that the steps agreed to by counsel for the order of submissions can be maintained because throughout the hearing, the submissions simply remain part of the plaintiff’s application for summary judgment. It also has the effect that I can move straight to determine what seemed to be the main issue according to the parties’ and the Court’s original intention, namely whether this proceeding should be stayed pending the

_{exercise of the mediation provisions of the deeds of franchise.}

[23] The plaintiff company is the franchisor of Swimart, a network of pool and spa retail outlets in New Zealand and Australia.

[24] Daco Investments Glenfield Ltd purchased Swimart franchises from the plaintiff pursuant to deeds dated 3 June 2008 and 3 April 2009. In addition, a general security agreement was executed. The obligations of Daco Investments Glenfield Ltd were guaranteed by its two directors, who are the first and second defendants.

[25] Daco Investments Parnell Ltd purchased a Swimart franchise from the plaintiff pursuant to a deed dated 3 June 2008. In addition, a general security agreement was executed. The obligations of Daco Investments Parnell Ltd were guaranteed by the first and second defendants. The first defendant is not a director of Daco Investments Parnell Ltd.

[26] In addition, deeds of licence were executed in respect of shops from which the franchises were operated.

[27] The plaintiff alleges that in September 2010, Daco Investments Glenfield Ltd was in default of its obligations under the franchise deeds in that it had failed to pay sums due under the trading accounts. The first defendant proposed that the parties meet on 22 September 2010. He suggested that an independent facilitator or mediator might help to reach an agreed plan of action moving forward. A formal demand was made by the plaintiff. On 24 September 2010 the plaintiff offered to meet with the defendants and their lawyers. On 5 October 2010 the parties met to discuss matters. There is a dispute as to what was discussed and the intended outcome of the meeting. Of some importance is the fact that the parties did not arrange for any independent facilitator or mediator to attend the meeting or, in fact, for any mediation to be arranged thereafter.

[28] On 8 October 2010 the plaintiff appointed RJ Chapman and AJ Atkins, chartered accountants of Auckland, as joint receivers and managers of Daco

Investments Glenfield Ltd. The defendants say they were surprised at this appointment because their understanding was that the plaintiff’s representatives were to consider proposals advanced by the defendants and their companies. The defendants point to numerous items of correspondence which they say identify areas of dispute between the defendants, the Daco companies and the plaintiff. This has some importance in relation to the issue of an agreement to mediate which I will shortly refer to.

[29] On 29 June 2011 the plaintiff alleges that it made demand on the defendants as guarantors of the Daco companies. The defendants say they did not receive the demand. On 29 July 2011 the receivers retired from their appointment as receivers and managers of Daco Investments Parnell Ltd and on 12 August 2011 the receivers retired from their appointment as receivers and managers of Daco Investments Glenfield Ltd. The receiverships of the Daco companies, according to the plaintiff, failed to satisfy the debt owed by the Daco companies to the plaintiff.

The preliminary issue

[30] The preliminary issue that I am required to determine as part of the summary judgment application is, to adopt the formulation of Associate Judge Christiansen in his minute of 16 August 2012, whether the plaintiff’s claims ought to be stayed until the parties have exhausted the dispute resolution process set out in clause 13 of the Swimart franchise deeds.

[31] Clause 13 is in identical form in both deeds and is as follows:

_{13. DISPUTE RESOLUTION}

Subject to subclause (9), unless a party has complied with the following subclauses (1) to (8) that party may not commence court proceedings or arbitration relating to any dispute with any other party to this Deed.

1. Where a dispute arises between the Franchisor and the Franchisee (“the parties”), the complainant will set out in writing the nature of the dispute.

2. Both parties will make every effort to resolve the dispute by mutual negotiation.

3. In the event that the parties are unable to reach a resolution of the dispute within twenty one (21) days of the dispute first being raised by one party with the other, either party may by notice in writing (“the Mediation Notice”) notify the other party that it seeks to have the dispute resolved by mediation.

4. If the parties have not agreed within ten (10) days of the issue of the Mediation Notice on the choice of a mediator then either of them may at any time apply to either the Chairperson or other proper office of the New Zealand Law Society to nominate a Mediator for the purpose of the dispute. Such Mediator may be (but is not required to be) chosen from any panel of mediators from time to time nominated for the purpose by FANZ.

5. The proceedings of the Mediator will be as informal as is consistent with the proper conduct of the matter and shall allow the Mediator to communicate privately with the respective parties and their lawyers and the parties shall be entitled but not obliged to be legally represented. The Mediator may co-opt other expert assistance.

6. In any mediation the following shall apply:

a. Everything that occurs before the Mediator will be in confidence and in closed session;

b. All discussions will be on a “without prejudice” basis;

c. No documents brought into existence specifically for the purpose of the mediation process shall be called into evidence in any subsequent litigation by either party;

d. Each party to the mediation shall be given proper opportunity to present its case;

e. The Mediator shall be required to act fairly, in good faith and without bias for the purpose of seeking a resolution of the dispute and to treat all matters in confidence and to have regard to the fairness and reasonableness of all matters relating to the dispute including the need for the Franchisor to maintain the integrity of its name, image and the System and the reasonable interests of other franchisees and members of the System;

f. The parties to the mediation and the Mediator shall co- operate with a view to the mediation being determined as speedily as possible and within fourteen (14) days after referral to the Mediator;

g. The costs of the mediation will be borne by the parties equally unless otherwise agreed or determined by the Mediator and the parties shall grant immunity from liability to the Mediator;

h. The parties to the mediation shall each report back to the

Mediator within fourteen (14) days of the end of the

mediation hearings on actions taken, based on the outcome of the mediation; and

i. Subject to the other provisions of this clause, the Mediator shall have the right to determine procedures relating to the conduct of the mediation.

7. If the dispute is not resolved within forty five (45) days of referral to mediation any party which has complied with the provisions of this clause may by written notice terminate the dispute resolution process and may then commence Court proceedings and/or take any other action it sees fit relating to the dispute.

8. The parties may by agreement in writing between them agree to extend any of the time periods referred to in the previous provisions of this clause and, if they do, the extended time periods shall apply and be binding on the parties in substitution for the relevant time period contained in this clause.

9. Nothing contained in these provisions shall prevent a party from seeking injunctive relief from an appropriate Court, where failure to obtain such relief would cause irreparable damage to the party concerned or the franchise system. Further, these dispute resolution procedures will not apply to events given rise to rights to the immediate termination of this Deed where such events are clearly specified in this Deed.

[32] For the purposes of the issue raised it is necessary also to consider clause

8B(b). This gives to the plaintiff a right of immediate termination of the franchise deed. The clause provides as follows:

(b) Immediate Termination

The Franchisor shall be entitled to terminate this Deed immediately upon delivery of written notice of termination to the Franchisee if the Franchisee or Guarantor commits or permits any one or more or all of the following acts:

(1) a resolution is passed or an application is made to a court or an order is made by a court to wind-up the Franchisee (except pursuant to internal amalgamation or reconstruction);

(2) the appointment of a receiver, or receiver and manager or other custodian (either temporary or permanent) of the Business or any part of the Franchisee’s assets;

(3) an Administrator is appointed to the Franchisee;

(4) any assignment of the Franchise without first complying with the provisions of this Deed;

(5) the Franchisee or any Guarantor becomes bankrupt;

(6) the Franchisee or any Guarantor is convicted of a Serious Offence;

(7) the Franchisee abandons or surrenders or transfers control of the Business (other than in accordance with Clause 9.B) or fails to actively carry on the Business and such condition continues for two (2) days after notice of such default is given;

(8) the Franchisee operates the Business in a manner that presents a safety hazard to its customers, employees or the public and fails to take reasonable steps to correct such manner of operation after notice from the Franchisor or any authorised government or other authority within the time limit specified in such notices;

and any other circumstances where the Code of Practice permits immediate termination.

The Court’s approach to a summary judgment application

[33] Part 12 of the High Court Rules deals with applications for summary judgment.

[34] Rule 12.2 of the High Court Rules requires that a plaintiff satisfy the Court that a defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action. The obligations imposed by the rule have been examined by a number of authorities.

[35] The correct approach to an application for summary judgment by a plaintiff was recently summarised in Krukziener v Hanover Finance Ltd where the Court said:[4]

The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11

PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a

robust and realistic approach where the facts warrant it: Bilbie Dymock Corp

Ltd v Patel (1987) 1 PRNZ 84 (CA).

The plaintiff ’s submissions

[36] Ms Cunningham-Adams, in summary, submitted:

(a) Clause 13 does not apply in the circumstances of this case;

(b) In the alternative, if the mediation clause applies a stay should not be granted because:

(i) There is no abuse of process in this case;

(ii) There is a real risk that the issues may become fractured;

(iii) The defendants have submitted to the jurisdiction of the High Court and should not be entitled to invoke the mediation clause; and

(iv) Summary judgment is the most efficient method of disposing of the matter in the circumstances.

(c) A stay can only apply to the first and second causes of action. There are no dispute resolution provisions in the two licences which are the foundation for the third and fourth causes.

The defendants’ submissions

[37] Mr Dellow changed position in the course of submissions and, in fairness to him, as a result of questions I put to him. Initially he submitted that the appointment of receivers was an event of immediate termination of the franchise deeds. He modified that position and submitted that there had, in fact, been no immediate termination of the franchise deeds because no notice had been served in accordance

with clause 8B(b) of the franchise deeds. It was common ground that no notice had been served.

[38] Mr Dellow submitted that:

(a) Both defendants, orally and in writing, had set out their disputes and attended meetings with the plaintiff to discuss their disputes and had requested that their disputes be mediated. As a result, he submitted, the plaintiff is obliged to exhaust the dispute resolution process set out in clause 13 of the franchise deeds;

(b) The grounds relied upon by the plaintiff for the appointment of a receiver were themselves disputed and, accordingly, the plaintiff could not rely on the appointment of a receiver as a justification for avoiding the mediation dispute resolution process set out in clause 13;

(c) The circumstances of this case, where it was the Judge who directed a notice of opposition to be filed, were such that the defendants could not be taken as abandoning reliance on the mediation clause and submitting unreservedly to the jurisdiction of the Court in respect of the summary judgment. That position was reinforced by the fact that the parties agreed that the question of whether the mediation dispute resolution provision applied was to be determined as a preliminary issue and the parties had reserved the right to file and serve further documents in the event that the Court refused a stay; and

(d) Clause 13 of the franchise deeds is wide enough to encompass disputes arising out of the licence deeds and therefore a stay should apply in respect of the third and fourth causes of action.

The timeline under clause 13

[39] I invited counsel to give me an appropriate timeline of events that would apply if a stay was granted, and that also coincided with the parties’ terms as fixed in

clause 13. There was a measure of agreement between counsel on this. I emphasise, however, that Ms Cunningham-Adams’ position in no way implies an abandonment of her principal submissions that clause 13 does not apply in the circumstances of the case and, that even if it does apply, a stay in this case was not justified.

[40] An acceptable timeline, calculated based on calendar days, not working days, so that it is consistent with the language of clause 13 of the franchise deeds, is as follows:

(a) Within 14 calendar days, each party shall serve on the other a list of the matters in dispute;

(b) Within a further 7 calendar days, each party is to reply to the other party’s list of issues by either conceding the matter in dispute or clarifying the matter put in dispute by the other party;

(c) The parties will meet and will endeavour to resolve the list of matters in dispute by negotiation;

(d) No later than 21 calendar days after the service of the parties’ list of matters in dispute, if there is no resolution, a party who wishes to rely on clause 13 must serve a mediation notice in accordance with clause 13(3) which notifies the other party that it seeks to have the matters put in dispute resolved by mediation;

(e) Within 10 calendar days of the service of the mediation notice, and in the event that the parties are unable to agree on the choice of a mediator, a party seeking to rely on clause 13 must immediately apply to the chairperson, or other proper officer of FANZ, or to the chairperson for the time being or other proper officer of the New Zealand Law Society, to nominate a mediator for the purpose of the dispute; and

(f) In terms of clause 13.7 of the franchise deeds, if the dispute is not resolved within 45 calendar days of the service of the mediation notice in accordance with clause 13(3), a party may terminate the dispute resolution process and may continue with this Court proceeding.

[41] A consequence of the timeline analysis is that if the parties comply with it, a party may terminate the dispute resolution process on the expiry of around

80 calendar days from the service of the list of matters in dispute.

[42] The above summary puts into perspective the length of any necessary stay required and the safeguards that are present in the clause to prevent unacceptable delay by a party who may not, in all the circumstances of the case, be adopting a genuine position.

The authorities that considered a stay in reliance on a dispute resolution clause

[43] Counsel have assembled a list of cases where the Court has had to consider this issue. I do not intend to review each case. Instead I extract the following matters which have provided a basis for the Court’s determination of what might justify a stay based on an abuse of process. Those matters include the following:

(a) The ground of an abuse of process is said to extend beyond the other grounds set out in r 15.1(1) to catch all other instances of misuse of the Court’s processes, including where a proceeding has been brought with an improper motive or to seek a collateral advantage beyond that legitimately gained from a court proceeding: Air National Corporate

Ltd v Aiveo Holdings Ltd, Re Marjory, Williams v Spautz;[5]

(b) An agreement to go to mediation will be enforced by the Court by directing a stay either in reliance on its powers under r 15.1 or in the

_{exercise of its inherent jurisdiction and where the agreement is certain}

and it is appropriate so to do: Braid Motors Ltd v Scott, Hooper Bailie

Associates Ltd v Natcon Group Pty Ltd;[6]

(c) Factors that might tell against the exercise of the discretion include one or more of a combination of the following, namely:

(i) There has been a prolonged and extensive set of negotiations over a period of years;

(ii) Not all parties to the litigation are parties to the agreement contained in the mediation clause;

(iii) Neither party has sought to hold a mediation prior to proceedings issuing;

(iv) There are matters that are likely to hinder the mediation, such as a lack of proper discovery;

(v) Not all of the disputes are covered by the clause with the possibility that the dispute resolution process might become fractured: Elizabeth Chong Pty Ltd v Brown;[7]

(vi) In a general sense, and where the case involves simply an application for stay, the Court proceeds on the basis that the onus is on the party alleging the abuse of process. It has been described as “heavy onus”: Williams v Spautz;[8]

(vii) The filing of a notice of opposition in a summary judgment

proceeding will amount to a submission to the Court’s

_{jurisdiction: Stockco Ltd v Denize.}[9]

Does clause 13 apply in the circumstances of this case?

[44] The issue raised here is whether the final sentence of clause 13(9) makes the dispute resolution procedure non-applicable. In considering this, one must return to clause 8B(b), earlier referred to in this judgment. Clause 8B(b) entitles the plaintiff to terminate the franchise deed immediately upon delivery of a written notice to the franchisee or guarantor if the franchisee or guarantor commits or permits one of the acts specified in that subclause. The appointment of a receiver occurred under the security documents and not under the franchise deed, and was at the initiation of the franchisor. I have also referred to the fact that no notice was given. This persuades me that having regard to the wording of clause 8B(b), there was no immediate termination because the condition precedent to the same occurring, namely the service of a notice, was not effected. Without immediate termination, the mediation clause survives.

[45] The next issue is whether that fact means that the last sentence in clause

13(9) does not avail the plaintiff’s case, namely that clause 13 does not apply where the right to immediate termination is triggered. I have already discussed that the right to immediate termination is dependent upon the service of a notice, which did not occur. As the right was not triggered, the result is that clause 13(9) does not apply, and the contractual right to follow the dispute resolution process applies.

Has a sufficient case been made out to justify the grant of a stay in this case?

[46] I have concluded that the contract provided a bar to the commencement of proceedings unless there is compliance with clause 13. The facts disclose that there has, indeed, been no compliance with clause 13. There does not seem to have been any reason why the plaintiff could not have itself served a notice to appoint a mediator in reliance on clause 13(3) and (4). From my examination of the timeline and discussion with counsel, it is apparent that there is no great delay by staying the proceeding and giving the parties an opportunity of complying with clause 13. The parties have 80 days to make the process work and if it does not work within that timeframe, then there would appear to be no bar to the plaintiff continuing with the current proceeding, if the plaintiff elected to do so.

[47] A matter that possibly tells against the grant of the stay, or at least in respect of all causes of action, is that there is no contractual right to dispute resolution in the two licences that form the basis for the third and fourth causes of action. The sums claimed in those causes of action are less than 10 per cent of the main cause of action. I postulated to counsel whether there would be any point in ordering an amended notice of opposition to be filed and the matter to proceed to argument in reliance solely on the third and fourth causes of action, in the event that I determined that a stay should apply in respect of the first and second causes of action. Counsel had no instructions on the point but advanced no cogent reason why, from a practical point of view, the case should proceed on a two-staged basis, that is, in respect of the first and second causes of action separately from the third and fourth causes of action.

[48] Clearly, the dispute resolution process gives the parties an opportunity of resolving all issues that arise in disputes under the franchise deeds within an 80 day period. There are clear advantages in that process at least being attempted in the situation that has arisen in this case. In practical terms, I can see little or no disadvantage to the plaintiff in requiring it to follow the dispute resolution process.

[49] The issue that arises from the filing of the notice of opposition and the potential submission to jurisdiction is at first glance more difficult. Having reflected on this matter my view is that the way the clause is framed is merely a bar to proceeding before certain steps are taken. Seen in that light it is not an absolute bar to the jurisdiction of the court at all, so the question of submitting to the Court’s jurisdiction does not strictly arise. Further, the parties seem to have proceeded on the basis that there had been no waiver, at this stage, of the right to raise the mediation issue as an opposition to the entry of summary judgment by agreeing that this issue be determined as a preliminary point. So I do not think that the filing of the notice of opposition should deprive the parties of their right to mediation.

Conclusions

[50] I conclude that a stay limited to a period of 80 days, or thereabouts, from the issue of this judgment is justified in this case. Whether the parties agree to proceed

with the mediation beyond the 80-day period is a matter for them and, of course, is something that can be advised to the Court at the appropriate time.

[51] Because the way this matter has proceeded requires directions for the continuation of the proceeding, if in fact the dispute resolution process is not successful, it is appropriate that I order that at the expiry of the 80-day period, if there has been no resolution of the dispute, that any amended notice of opposition, affidavit, and draft counterclaim should be filed and served, should the latter be able to be pleaded on the basis that it might amount to an equitable set-off in terms of

Grant v NZMC Ltd.[10]

[52] Having regard to the reasons set out in this judgment, I now make the following orders:

(a) This proceeding is stayed until 4 December 2012;

(b) If the matter has not settled by 4 December 2012 and if a notice is served in accordance with clause 13(7) of the franchise deeds, an amended notice of opposition and affidavits in support and, if appropriate, a counterclaim shall be filed and served by 5 December

2012;

(c) The proceeding is adjourned to the summary judgment list at 2:15pm on 6 December 2012. If no notice has been served pursuant to clause 13(7) of the franchise deeds the Court will, on the application of either party, consider extending the stay.

Costs

[53] This case occupied the best part of one day. This particular application is clearly a Category 2 matter and the steps that were taken in respect of the disposal of

_{it justify a Band B banding. Accordingly, I rule that in terms of the quantification of}

costs, the allowance for preparation and hearing time are to be based on one day and based on Category 2 Band B.

[54] I reserve the question of liability to pay costs pending further order of the

_{Court to be considered, if appropriate, after the expiration of the stay.}

JA Faire
Associate Judge

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[1] Andrew Beck “Litigation : Appeals from Associate Judges” (2012) 7 NZLJ 236.

[2] _{Stockco Ltd v Denize HC Auckland CIV-2010-404-5668, 22 February 2011 at [13].}

[3] Braid Motors Ltd v Scott (2001) 15 PRNZ 508 (HC).

[4] Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].

[5] Air National Corporate Ltd v Aiveo Holdings Ltd [2012] NZHC 602 at [30[; Re Marjory [1955] Ch 600 (CA) at 623-624; Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 at 536.
[6] Above n 3. Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 (NSWSC).
[7] _{Elizabeth Chong Pty Ltd v Brown [2011] FMCA 565.}
[8] _{Above n 5.}
[9] Above n 2.

[10] Grant v NZMC Ltd [1989] 1 NZLR 8 (CA).