Blackmount Forests Limited v Trinity Foundation (Services no.2) Limited [2013] NZHC 2209 (28 August 2013)

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BETWEEN	BLACKMOUNT FORESTS LIMITED First Plaintiff BRUNEL PEAK FORESTS LIMITED & ORS Second Plaintiffs
AND	TRINITY FOUNDATION (SERVICES NO 2) LIMITED First Defendant PGG WRIGHTSON LIMITED Second Defendant

Hearing:	28 August 2013
Counsel:	S Grant and A Steel for Plaintiffs No appearance by or on behalf of First Defendant P Fee for Second Defendant
Judgment:	28 August 2013

This judgment was delivered by me on 28 August 2013 at 4.00pm pursuant to Rule

BLACKMOUNT FORESTS LIMITED v TRINITY FOUNDATION (SERVICES NO 2) LIMITED [2013] NZHC 2209 [28 August 2013]

[1] The plaintiffs (to whom, for present purposes, I refer as Brunel) seek an order granting leave to amend their Sixth amended Statement of Claim. Amendments are sought in terms of a marked up copy of that document provided with the application.

[2] PGG Wrightson Ltd (Wrightson) opposes the grant of leave, in respect of one aspect of the proposed amendment.1 The other defendant, Trinity Foundation (Services No 2) Ltd has taken no steps.

[3] In 1977, Trinity Foundation (Services No 2) Ltd (Trinity) owned a block of land in Southland. By a conditional agreement dated 19 November 1997, Trinity agreed to provide 374 hectares for Blackmount to establish and harvest a forest of Douglas fir. As part of the agreement, Blackmount was to engage the services of Wrightson to plant and manage the forest. Wrightson was to certify the area of land suitable for planting Douglas fir.

[4] In due course, Wrightson certified that 340 of the 374 hectares were suitable. In consequence, the agreement was declared unconditional on 26 November 1997. Blackmount entered into licence and lease agreements with Trinity and a management agreements with Wrightson, on 26 and 27 November 1997. Blackmount asserts that, in August 2002, it discovered that only 220 of the 374

hectares were suitable for Douglas fir. The present proceedings were filed in 2004.2

[5] The opposed aspect of the leave application arises out of the plaintiffs’ intention to make claims, under its negligence cause of action against Wrightson, for payment of some penalties it was required to pay to the Commissioner of Inland Revenue. The background to that claim is a Deed of Settlement into which Brunel (and three of the other plaintiffs) entered to compromise claims made by the Commissioner. While those plaintiffs agreed to pay a shortfall penalty of 10%, they

_{do not accept that any tax avoidance was involved. Their view is that
acceptance of}

2 The tortuous procedural history is described in Blackmount Forests Ltd v Trinity Foundation

the shortfall penalty component of the Settlement Deed was nothing more than a pragmatic and commercial means by which to achieve a desired settlement with the Commissioner.

[6] Brunel alleges that Wrightson, an expert in forestry management and development, owed a duty of care to it “to exercise due care, skill and diligence in assessing the suitability of the site for Douglas fir”. Wrightson assessed the area of plantable hectares as 340, compared with what Brunel states was, in effect, an area of 220 hectares. In consequence, it is alleged that Wrightson acted in breach of its duty “in failing to identify and properly assess those areas of the site unsuitable for Douglas fir in or about November 1997”.

[7] In consequence of its breach Brunel and the other three relevant plaintiffs have sought particularised damages. They now seek to amend their claim for loss by adding a head based on the penalties. The intended pleading states:

(b) The second plaintiffs lodged tax returns with the Inland Revenue Department (“IRD”) claiming losses based on the licence premium calculated on 340 hectares, instead of 220 hectares. This resulted in IRD

(i) Requiring them to make payments on settlement of a tax dispute with IRD that were 35.5% higher than would have been required had the losses been calculated on the basis of 220 hectares. This resulted in an overpayment of:

A. For Brunel Forests Limited, $291,689.43; B. For Sylvia Forests Limited, $162,043.56;

D. For Fiordland Forests Limited, $9,482.25. [(ii)] Requiring them to pay Use of Money Interest on the

[8] The proceeding is due to be tried in this Court over three weeks, commencing on 16 September 2013. Pleadings have now closed. That being the case, the plaintiffs require leave to file and serve an amended Statement of Claim.3

[9] The Court has a wide discretion to grant leave to amend. The high-water mark, from a plaintiff ’s perspective, is the judgment of the Court of Appeal in Elders Pastoral Ltd v Marr.4 In that case, on the sixty-third day of a hearing in the High Court, Tompkins J permitted an amendment to the Statement of claim. He did so on the basis that, despite the time at which it was advanced, the amendment was necessary to determine the “real controversy between the parties” and no injustice would result to other parties.

[10] The breadth of the discretion was confirmed, on appeal to the Court of Appeal. Delivering the judgment of the Court, Cooke P, in answer to a submission that a “disciplinary approach” should be taken to belated applications for amendment, said:5

... In our opinion, if an applicant can surmount the three formidable hurdles of showing that the amendment is in the interests of justice and will not significantly prejudice defendants or cause significant delay, very little if any weight should be given to the suggested desirability of something akin to the denunciation which is an established factor in criminal sentencing. We find it difficult to envisage a case in which the relevant considerations are not all comprehended in the three just mentioned.

[11] Although Ms Fee, for Wrightson, opposed the grant of leave on the grounds that the proposed amendment raised a new cause of action that was time-barred, I do not need to address that particular issue. I am satisfied that, as a matter of discretion, I should dismiss the application for leave by reference to the criteria accepted by the Court of Appeal in Elders Pastoral Ltd v Marr. There are two reasons why I

_{consider that the amendment should be refused. The first involves the
nature of the}

claim. The second involves discretionary factors. Both impact on whether the trial can proceed on 16 September 2013.

[12] The essence of Brunel’s claim is that in consequence of Wrightson’s alleged

negligence, it filed tax returns based on a licence premium calculated by reference to

340 hectares, rather than 220. As a result of the use of the higher figure, Brunel contends that it was required to pay a higher sum by way of penalty than would have been the case if the true position had been disclosed by Wrightson. The proposed amendment calculates that overpayment as 35.5% higher than the agreed penalty that would otherwise have been payable, based on its settlement with the Commissioner.

[13] I prefer to address this question as a matter of causation. The tax problem arose out of the Commissioner’s assessment that the tax position taken by Brunel amounted to avoidance. The question whether a particular arrangement should be characterised as tax avoidance is assessed objectively, rather than subjectively.6

[14] There is no suggestion that Brunel would have made returns to the Commissioner on any different basis, had Wrightson represented that the plantable hectares were 220, rather than 340. The same tax position would have been taken. That being so, it is difficult to see how Brunel taking a tax position attracting penalties could have been caused by any negligence on Wrightson’s part.

[15] In those circumstances, I consider that the claim is weak. If permitted to go to trial, it would open the door to much evidence about whether the tax position taken by Brunel was, in fact, tax avoidance. There is a subtle different between the need for evidence going to that issue and the evidence required for another (raised in an earlier Statement of Defence by Wrightson); namely, that Brunel’s (subjective) “principal intention of entering into the relevant arrangements was tax avoidance”. The latter point goes to reliance on any representation made and will not require evidence about whether the arrangements, viewed objectively, amounted to tax

[16] Discretionary considerations also tell against granting the leave application. I refer to delay. Ms Grant, for Brunel, acknowledged that a deliberate decision, on pragmatic grounds, had been made not to seek damages of the type now sought. This was because of an unwillingness on the part of Brunel to conduct an “extensive search for documents relating to the tax payable”.

[17] As a result of discovery orders that I made on 27 June 2013,7 it became necessary for those documents to be obtained and disclosed. In effect, the amendment is now promoted on the grounds that the evidence is now available, as a result of Brunel being forced to disclose information through my discovery orders.

[18] That is an unacceptable explanation for the delay. As much new evidence would be required to address the new issue, on the basis on which Wrightson opposes, it would not be possible for the trial to proceed on 16 September 2013. In the context of a proceeding first launched in 2004, an adjournment of the hearing would prejudice Wrightson. It would also throw further costs on it, to respond to the allegations.

[19] The considerations to which I have referred lead me to the view that the interests of justice do not require the amendment to be made. Indeed, it would cause an injustice to Wrightson, as a result of the need for further evidence to be briefed which would undoubtedly require an adjournment of the imminent trial.

[20] Following discussions with counsel, it transpired that directions made on 31

(a) A Reply to affirmative defences pleaded in the most recent Statement of Defence shall be filed and served by 4pm on 30 August 2013.

7 Blackmount Forests Ltd v Trinity Foundation (Services No 2) Ltd [2013] NZHC 1571.

The directions set out in (b), (c) and (d) above supersede those made on 31 July

	(a)	The application for leave to amend the Statement of Claim, to add para 37(b), is dismissed. In all other respects, leave is granted to
		make all other amendments proposed in the marked-up version of the
		Sixth amended Statement of Claim provided with the leave application.
	(b)	Consequential timetabling directions are made, in accordance with para [20] above.
[22]	Wri	ghtson is entitled to costs on the application for leave to amend the

Statement of Claim. In respect of the only proposed amendment of any significance, leave has been refused. I order that the plaintiffs pay costs to Wrightson on a 2B basis, together with reasonable disbursements, in respect of the application. Both costs and disbursements shall be fixed by the Registrar.

8 Blackmount Forests Ltd v Trinity Foundation (Services No 2) Ltd HC Auckland CIV 2004-404-

High Court of New Zealand Decisions

Blackmount Forests Limited v Trinity Foundation (Services no.2) Limited [2013] NZHC 2209 (28 August 2013)