Wheelans v Du Plessis as Trustee of the Hippo Investment Trust [2012] NZHC 403 (12 March 2012)

Last Updated: 5 May 2012

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2011-485-1621 [2012] NZHC 403

IN THE MATTER OF an interlocutory application for Interim

Injunction

BETWEEN PHILIP LAWRENCE WHEELANS First Plaintiff

AND JOHN WILLIAM KNOX Second Plaintiff

AND PHIL WHEELANS INVESTMENTS LIMITED

Third Plaintiff

AND TRUCK AND TRAILER HIRE LIMITED Fourth Plaintiff

AND ANDREW DU PLESSIS AS TRUSTEE OF THE HIPPO INVESTMENT TRUST First Defendant

AND THE HIPPO INVESTMENT TRUST LIMITED AS TRUSTEE OF THE HIPPO Second Defendant

AND ANDREW DU PLESSIS Third Defendant

AND NEW ZEALAND ROADING SOLUTIONS LIMITED Fourth Defendant

AND ROADING SOLUTIONS DISTRIBUTORS LIMITED Fifth Defendant

Hearing: 5 March 2012

Counsel: A Olney and O Gascoigne for Applicants

C Potter and K Berry for Respondents

_{Judgment: 12 March 2012}

PHILIP LAWRENCE WHEELANS V ANDREW DU PLESSIS AS TRUSTEE OF THE HIPPO INVESTMENT TRUST HC WN CIV-2011-485-1621 [12 March 2012]

_{JUDGMENT (COSTS) OF WILLIAMS J}

In accordance with r 11.5, I direct the Registrar to endorse this judgment with the delivery time of 2:00pm on the 12 March 2012.

Solicitors:

Russell McVeagh, Wellington

Ford Sumner Lawyers, Wellington

[1] Mr Du Plessis and his associated companies (“the defendants” in the substantive proceeding) apply for an order under r 14.6 of the High Court Rules for increased costs against Mr Wheelans, Mr Knox and their associated companies (“the plaintiffs”).

[2] This application relates to the plaintiffs’ earlier application for interim freezing and preservation of property orders against certain of the defendants’ bank accounts and assets. The matter was heard before me on 22 August 2011. I granted the orders; costs were reserved. Those orders were subsequently discharged by agreement between the parties. Ronald Young J ordered their discontinuance on 21

September 2011.

[3] Broadly, the defendants now claim the orders should not have been granted in the first place, and this should be reflected in an increased and immediate costs award. They have not, however, stipulated the increase above scale they feel they are entitled to.[1] The plaintiffs oppose the application, and submit costs should be reserved until after the determination of the substantive matter.

[4] The plaintiffs are presently claiming against the defendants in misrepresentation, deceit, breach of contract and unjust enrichment. The claims relate to a series of alleged agreements between themselves and the defendants, dated between 4 March 2011 and 22 June 2011, for the sale and purchase of Roading Solutions Distributors Limited (RSD); a roading supplies distribution business the parties envisaged operating together. Under the initial, executed agreement of

4 March 2011, the plaintiffs were to pay $2,000,000 by 31 March, in return for

200 shares in RSD. They failed to pay on time. However, they maintain this was because the contract was induced by misrepresentations. They also allege that subsequent agreements to buy shares in RSD on different terms were both made with and breached by the defendants.

[5] The court has a broad discretion to award costs for freezing order applications (as indeed for costs generally). Rule 32.10 of the High Court Rules

_provides:

The court may make any order as to costs it considers just in relation to an order made under this Part.

[6] The power to award increased costs generally derives from r 14.6 of the High

Court Rules. That section provides:

(1) Despite rules 14.2 to 14.5, the court may make an order—

(a) increasing costs otherwise payable under those rules

(increased costs); or

(b) that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).

(2) The court may make the order at any stage of a proceeding and in relation to any step in it.

(3) The court may order a party to pay increased costs if—

(a) the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or

(b) the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i) failing to comply with these rules or with a direction of the court; or

(ii) taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii) failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

(iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

(c) the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or

(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the

determination of costs should be predictable and expeditious.

[7] The defendants essentially rely on subparagraphs (ii) and (iii) of r 14.6(3)(b). They claim the plaintiffs have contributed unnecessarily to time and expense in two ways. First, they allege the plaintiffs failed, without reasonable justification, to provide the Court with letters dated 6 April 2011 and 25 July 2011 when making their initial application, which masked weaknesses inherent in their case. Second, they assert there was never any merit to the plaintiffs’ argument that they would dissipate their assets to make themselves “judgment-proof”.

[8] More generally, the defendants also claim that the initial application for freezing orders was inappropriate and oppressive. They protest the plaintiffs’ real motive in making the applications was to obstruct the defendants’ business. This would constitute “some other reason” why costs should be increased per r 14.6(3)(d).

[9] These three submissions will be addressed in turn.

Non-disclosure of the letters of 6 April and 25 July 2011

[10] The main question on this ground is whether the plaintiffs ought to have disclosed these letters. Were the letters materially adverse to their case?

[11] The letter of 6 April followed the executed agreement between the plaintiffs and defendants dated 4 March 2011. It set out (among other things) a draft proposal for an altered sale and purchase agreement for RSD.

[12] The defendants claim the letter was relevant to the freezing order application because it reveals the real reason the plaintiffs did not proceed with the initial agreement of 4 March 2011 was lack of cash (not hesitancy based on purported misrepresentations). To support this, they rely on the last paragraph of the 6 April letter which, after it sets out details of a new RSD sale and purchase proposal, reads:

For us it makes it easier to get the cash portion together without relying on family and close friends (sic) support and it reduces our financial risk exposure and at the same time provides an upside to you, where the $2m and all profits for 2 years should exceed the $6m previously agreed.

[13] The plaintiffs in reply say this issue is entirely moot because the letter was admitted at the hearing of 22 August 2011 by counsel for the defendant anyway.

[14] The letter of 25 July was the first letter by the plaintiffs’ lawyers (as opposed to the plaintiffs themselves) to the defendants. The defendants claim it was relevant because it contained no reference to the defendants having made any misrepresentations, or to later oral agreements alleged in the plaintiffs’ statement of claim – despite those matters going on to become the core of the plaintiffs’ case.

[15] Incidentally, that letter was also marked “without prejudice save as to costs”. The defendants dispute this attached privilege to the communication at the interim orders stage. They say the letter did not make any attempt to settle anything in a way that might have prejudiced the plaintiff, and further, the affidavit of John Knox in support of interim orders refers to the letter so any privilege that may have existed was waived.

[16] The plaintiffs dispute this letter was relevant in the way suggested. They say it was never intended to be a letter presaging litigation or disagreement. A positional communication at that stage would, they argued, have been entirely counterproductive. The plaintiffs said they were in a precarious negotiating position at the point the letter was sent (the defendants had $1,000,000 of their money and they had received nothing concrete in return (excuse the bad and entirely unintended pun)). The real purpose of the letter, they claim, was to get the parties back to the bargaining table. The plaintiffs also rely on the fact the letter was stated to be without prejudice.

[17] In my view, neither letter was materially adverse to the plaintiffs’ case. The letter of 6 April does not reveal the plaintiffs breached the agreement of 4 March because they lacked funds. It says the draft proposal would make it “easier for [them] to get the cash portion together” without having to rely on relatives and friends for financial assistance. A perfectly tenable implication is that they could have raised the necessary funds, either on their own (but this would be more difficult) or with others’ help. In any event, the letter was before the court (albeit not due to any effort of the plaintiffs).

[18] Nor can I reject, at this stage, the plaintiffs’ account of the letter of 25 July. The tone of the letter is conciliatory. It admits the plaintiffs’ unhappiness with the agreement of 4 March in cautious terms, describing it as “no longer [reflecting] an appropriate shared way forward in view of concerns [both parties] had about the model and their expectations” and that the venture was “not ... mutually acceptable”. It proposes that the parties meet “so as to achieve an amicable resolution of this matter”. Seen in this light, the omission of any allegations of misrepresentation is consistent with the plaintiffs’ desire to maintain an ongoing commercial relationship with the defendants. To put it another way, the defendants cannot definitively show the omission meant the letter was material and adverse to the plaintiffs’ case merely by pointing to what was not said at that stage of negotiations. There was an alternative and equally tenable explanation.

[19] This conclusion has made it strictly unnecessary for me to address the “without prejudice” issue. The defendants are, of course, correct in their submission that the mere marking of a letter as being without prejudice to costs does not automatically make it so. Section 57 of the Evidence Act 2006 provides the relevant test:

(1) A person who is a party to, or a mediator in, a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of any communication between that person and any other person who is a party to the dispute if the communication—

(a) was intended to be confidential; and

(b) was made in connection with an attempt to settle or mediate the dispute between the persons.

(2) A person who is a party to a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of a confidential document that the person has prepared, or caused to be prepared, in connection with an attempt to mediate the dispute or to negotiate a settlement of the dispute.

(3) This section does not apply to—

(a) the terms of an agreement settling the dispute; or

(b) evidence necessary to prove the existence of such an agreement in a proceeding in which the conclusion of such an agreement is in issue; or

(c) the use in a proceeding, solely for the purposes of an award of costs, of a written offer that—

(i) is expressly stated to be without prejudice as to costs; and

(ii) relates to an issue in the proceeding.

[20] It is at least arguable that s 57 covered the letter of 25 July. The header “without prejudice” suggests an intention for the letter to be confidential. The references to the plaintiffs’ disagreement with how matters had proceeded, coupled with their expressed desire to “achieve an amicable resolution” suggest the letter was made in connection with an attempt to settle or mediate.

[21] Section 65 of the Evidence Act deals with waiver. The relevant subsections provide:

(1) A person who has a privilege conferred by any of sections 54 to 60 and 64 may waive that privilege either expressly or impliedly.

(2) A person who has a privilege waives the privilege if that person, or anyone with the authority of that person, voluntarily produces or discloses, or consents to the production or disclosure of, any significant part of the privileged communication, information, opinion, or document in circumstances that are inconsistent with a claim of confidentiality.

(3) A person who has a privilege waives the privilege if the person—

(a) acts so as to put the privileged communication, information, opinion, or document in issue in a proceeding;

...

[22] In his affidavit in support of the application for freezing orders, Mr Knox stated:

We instructed Ford Sumner to write to Mr Burnett on 25 July 2011; in response I understand Mr Burnett advised that he had no instructions.

[23] Again, it is at least arguable Mr Knox did not waive privilege by mentioning the 25 July correspondence. While he was in a position to waive it (as the owner), he certainly did not disclose a “significant part” of the contents of the letter (required by ss (2)), nor did his reference appear to put the communication “in issue in [the] proceeding”. He simply mentioned the existence of the communication in passing.

[24] Accordingly, the letter of 25 July was not materially adverse to the plaintiffs’ case, and in addition, the plaintiffs may well have been able to rely on privilege to justify non-disclosure. Its non-disclosure cannot found a claim for increased costs.

No belief in risk of dissipation

[25] Next, the defendants claim that, at the time the freezing order application was made, the plaintiffs did not subjectively believe there was any risk the defendants would dissipate their assets. They allege this aspect of the plaintiffs’ claim was without merit.

[26] They rely on the fact the plaintiffs eventually agreed the orders should be released. They say their acquiescence is evidence the plaintiffs never really appreciated a “real” risk the defendants might dissipate the relevant assets.

[27] The plaintiffs do not accept that inference from their conduct. They say their agreement to discharge the orders was prompted only after receipt of a letter on

16 September 2011, which confirmed the accounts subject to the orders were hopelessly overdrawn, due to Soil Tac stock being entitled to be sold in the ordinary course of business under an exception to the orders. They say they agreed to release the orders because they were simply ineffective, and emphatically deny they were “abandoning” their initial application.

[28] The defendants respond that this is not credible. They note there was

$600,000 worth of Soil Tac stock that had been sold to a third party, but not yet delivered or paid for. The preservation of property order attached to the relevant property, and it was open for the plaintiffs to apply to vary the orders to cover proceeds of sales if title in the property passed to third party purchasers. The plaintiffs did not make any such application.

[29] At this stage, and without further evidence, I am not prepared to go behind counsel for the plaintiffs’ submission that the consent memorandum agreeing to discharge the order was signed on the basis of the letter of 16 September. I am not persuaded that the plaintiffs’ failure to move to freeze Soil Tac’s proceeds reveals an

acceptance that no such application would be successful. Something more is needed. Without further evidence one way or another, it cannot be said that, on the balance of probabilities, the claim the plaintiffs honestly believed there was a real risk of dissipation “lacked merit” sufficient to engage r 14.6.

Inappropriate and oppressive

[30] It follows from the rejection of the first two grounds that the initial freezing order application cannot be said to have been inappropriate or oppressive. On the evidence before me, the defendants have not persuaded me that material information was not before the court, or that the plaintiffs pursued arguments that were without merit. It appears the plaintiffs were not trying to obstruct the defendants’ business; they genuinely believed there was a real risk the defendants might have dissipated their assets.

Conclusion

[31] The defendants’ application accordingly fails. Costs will be reserved until after the determination of the substantive matter.

_{[32] Costs for this application will also be reserved.}

Williams J

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[1] Holdfast NZ Ltd v Selleys Ltd [2005] NZCA 302; (2005) 17 PRNZ 897 (CA).