Health at Hand Limited v Green Cross Health Limited [2018] NZHC 1779 (18 July 2018)

Last Updated: 16 August 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-2643 [2018] NZHC 1779

BETWEEN	HEALTH AT HAND LIMITED Plaintiff
AND	GREEN CROSS HEALTH LIMITED Defendant

Hearing:	18 July 2018
Appearances:	A G Stuart for the Plaintiff S Cameron and B E Smith for the Defendant
Judgment:	18 July 2018

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Webster Malcolm (A G Stuart), Warkworth, for the Plaintiff

Cook Morris Quinn (S Cameron/B E Smith), Auckland, for the Defendant

HEALTH AT HAND LIMITED v GREEN CROSS HEALTH LIMITED [2018] NZHC 1779 [18 July 2018]

[1] Green Cross Health Ltd, the defendant, applies for security for costs under r 5.45 of the High Court Rules 2016. It estimates that the costs it will recover on a defended hearing for five days will be approximately $50,000. It proposes security for costs in the sum of $40,000.

Case management

[2] The case has a fixture in this court for five days beginning on 11 February 2019. The parties have not yet carried out discovery. That has been put on hold to await the outcome of the security for costs application. Counsel have conferred and filed a joint memorandum setting out proposed timetabling directions through to the hearing on 11 February 2019, beginning with a close of pleadings date for 26 October 2018.

[3] When the case was started, the plaintiff claimed damages of $356,000 and ancillary relief. Under the plaintiff’s amended statement of claim, the relief sought has been reduced to $198,000 plus ancillary relief. Both sides agree that there is no prospect of the amounts claimed in this case exceeding $350,000. The case is accordingly within the civil jurisdiction of the District Court. Neither side suggested that there were good reasons for keeping the case in this court if the fixture for 11 February 2019 was not kept. Because I shall order security, it seems unlikely that the present fixture can be maintained. The plaintiff will be required to provide security and until it does provide that security, the proceeding will be stayed.

[4] Once the stay is lifted, the parties will have to attend to discovery. It seems unlikely that those steps will be carried out by the proposed close of pleadings date, 26 October 2018. Accordingly, while I will order security to stay the proceeding, the case will be re-allocated a further case management conference after security has been provided. At that conference, the court may make an order transferring the proceeding to the District Court.
[5] The plaintiff is based in Warkworth. The defendant has its head office in Auckland. Following normal practice, it seems appropriate that the transfer be to the Auckland District Court, being the court nearest to the defendant.

Security for costs application

[6] Rule 5.45 of the High Court Rules says:

5.45 Order for security of costs

(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—

(a) that a plaintiff—

(i) is resident out of New Zealand; or

(ii) is a corporation incorporated outside New Zealand; or

(iii) is a subsidiary (within the meaning of section 5 of the Companies Act 1993) of a corporation incorporated outside New Zealand; or

(b) that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff's proceeding.

(2) A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.

(3) An order under subclause (2) —

(a) requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—

(i) by paying that sum into court; or

(ii) by giving, to the satisfaction of the Judge or the Registrar, security for that sum; and

(b) may stay the proceeding until the sum is paid or the security given.

(4) A Judge may treat a plaintiff as being resident out of New Zealand even though the plaintiff is temporarily resident in New Zealand.

(5) A Judge may make an order under subclause (2) even if the defendant has taken a step in the proceeding before applying for security.
(6) References in this rule to a plaintiff and defendant are references to the person (however described on the record) who, because of a document filed in the proceeding (for example, a counterclaim), is in the position of plaintiff or defendant.

Normally an application for security for costs follows these steps:

(a) Has the applicant satisfied the court of the threshold under r 5.45(1)?

(b) How should the court exercise its discretion under r 5.45(2)?

(c) What amount should security for costs be fixed at or should a stay be ordered?

(d) Should a stay be ordered?

[7] In this case, the plaintiff accepts that the defendant has shown that the plaintiff will be unable to pay the defendant’s costs if the plaintiff is unsuccessful in this proceeding. The application turns very much on the exercise of the discretion of the second step and what form security should take.

[8] As to the exercise of the discretion, there is important guidance in the Court of Appeal’s decision in A S McLachlan Ltd v MEL Network Ltd:¹

[13] Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge if he or she thinks fit in all the circumstances. The discretion is not to be fettered by construing “principles” from the facts of previous cases.

[14] While collections of authorities ... can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of going through a checklist of so-called principles. That creates a risk that a factor accorded weight in a particular case will be given disproportionate weight, or be treated as the requirement for the making or refusing of an order, in quite different circumstances.

[15] The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken a contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has

¹ A S McLachlan Ltd v MEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747 (CA) at [13]–[16].

little chance of success. Access to the Courts for a genuine plaintiff is not likely to be denied.

[16] Of course, the interests of defendants must also be weighed. They must be protected against being drawn into unjustified litigation, where it is over-complicated and unnecessarily protracted.

[9] In Highgate on Broadway Ltd v Devine, Kós J set out a number of factors which point towards security being ordered:²

(a) Is the plaintiff a nominal one?

(b) Is there evidence of the plaintiff disposing of assets to avoid meeting an adverse costs order?

(c) Is the plaintiff’s substantive claim prima facie unmeritorious?

(d) Does the plaintiff have access to third party funding?

(e) Would the denial of security for costs in the circumstances of this litigation be oppressive to the reasonable interests of the defendant and parties other than the plaintiff?

He also set out matters which point in the opposite direction:

(a) Is it reasonably probable that impecuniosity was caused by the defendant?

(b) Would ordering security deprive the plaintiff of the capacity to advance a prime facie meritorious claim?

(c) Has the applicant delayed unduly in applying for security?

He referred to matters of a general nature but which must be considered:³

(f) Is the conduct of either party relevant?

(g) Are there any other relevant considerations?

(h) How should the respective interest of the parties best be balanced?

[10] The defendant, Green Cross Health Ltd, provides health care services. It is a profitable and prominent public company. One arm of its business is pharmacies. It holds the franchise for the Unichem and Life Pharmacies brands, apparently licensed to 350 pharmacies throughout New Zealand. It has equity interest in about 80 of those

² Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [22]–[23].

³ At [24].

pharmacies. Many of the licensed pharmacies also hold shares in Green Cross Health Ltd. It acts as the marketing and purchasing agent for its member pharmacies. For product suppliers it offers access to Unichem and Life pharmacies. It offers marketing packages under which suppliers’ goods are given enhanced promotion and visibility in the pharmacies and in Green Cross Health’s sales promotions.

[11] Health at Hand Ltd is a small company based in Wellsford. The main man behind the company is Mr Paul Price, the director and majority shareholder. At one stage he was the only shareholder but has transferred some of the shares to his elderly father, Hugh. Health at Hand obtained the New Zealand and Australia distribution rights for products manufactured by a French company, Laboratoire Dielen. This case concerns two of those products, “Molval” and “Osteocalm”. Molval is a fish protein capsule alleged to have significant cardio-vascular benefits and is said to be better than fish oil. Osteocalm is also a fish product, which is said to be good for joints by contributing to cartilage, bone and muscle function.

[12] Towards the end of 2014, Health at Hand Ltd was looking to how it could launch Molval and Osteocalm in New Zealand. Both Mr Hugh Price and his son Paul Price had background experience in pharmacies and in supplying products to pharmacies. Paul Price says that he has worked in pharmacy supply companies for over 20 years. But at the end of 2014 his circumstances were relatively modest. Health at Hand Ltd did not have significant capital to promote a major launch of Molval and Osteocalm. They decided that a way of launching the products would be through an organisation such as Green Cross Health Ltd, which would allow a large bulk order for the products. That would then provide further finance to fund further stock purchases. It might also provide a basis for obtaining finance from banks or investors. It understood that Green Cross Health Ltd was a dominant force in the pharmacy market, said to have between 50 and 60 per cent of the retail pharmacy trade. From enquiries by Paul Price and his father in the market they had established that it was important that a product be “core-ranged”. That gave some assurance that Green Cross Health Ltd would support the product being supplied to pharmacies within its group. It did not ensure guaranteed stocking, but it did indicate a strong level of support and recommendation for products to be stocked.
[13] Approaches were made to Green Cross Health Ltd towards the end of 2014. That led to a meeting on 6 March 2015 between Mr Paul Price and Mr Kevin Anstiss, a senior category manager at Green Cross Health. They discussed how Molval and Osteocalm could be marketed through Green Cross Health. Mr Anstiss provided Mr Price with a brochure, “Driving Sales through Pharmacy”, sub-titled “2015/2016 Sales Opportunities for Unichem and Life Pharmacies.” According to Mr Price, Mr Anstiss referred to the “Premium Package” as suitable for Health at Hand Ltd’s products. A purchase order for the products would allow Health at Hand Ltd to prepare and plan around a large fixed order with a known time-frame and size. The page describing the premium package says that the price for it is $18,400. “Product distribution” would be:

Stockweight based on allocation to at least 200 pharmacies on a sale or return basis.

“In Store Execution” would include:

Gondola End Shelf⁴

Gondola Point of Sale and Ticketing Package Product Spot in Sales Companion
Product Spot on in-store Digital Signage. Advertising in the catalogue campaign would include:

1. x Hero Product Spot⁵

2. x Standard Product Spot

[14] Mr Price says Mr Anstiss stipulated that Health at Hand Ltd would have to give more margin to Green Cross pharmacy members, there would be a rebate on sales and also a compliance fee, and the terms of sale would be “sale or return”. That meant that for any product not sold Health at Hand Ltd would have to take the product back

4. A “gondola” is a structure used for shelving for setting out goods inside pharmacies and other retail outlets.

⁵ A hero spot means that prominence is given to a particular product.

and refund any price paid. There were ongoing discussions and contact between Mr Price and Mr Anstiss. Mr Price says that he signed forms on 17 March 2015 for a supplier trading terms agreement.

[15] There is a dispute as to how much product was to be ordered and whether Green Cross Health Ltd had the sole say in the quantities ordered. Mr Price says that there would be 6,000 units altogether – 3,000 of Molval and 3,000 of Osteocalm, and that was on the basis that he would take two premium packages. That seems to have been modified later on, with 4,500 units being supplied and that was subject to approval by PDC. I was informed that PDC is a separate company that operates as a wholesale pharmacy operation under the trade name, Pro-Pharma.

[16] Confident that he had a basis for launching his products in Green Cross Health’s pharmacies, Mr Price ordered Molval and Osteocalm. The products were unsuccessful. There were limited sales. There was also limited uptake from the pharmacies.

[17] The plaintiff’s case is that only 154 pharmacies bought the product rather than the 200 that had been represented under the premium package. Although the figures vary between the parties, it seems that approximately 850 units of Molval were supplied to pharmacies and a similar quantity of Osteocalm. Some of the products were returned but some were not.

[18] Health at Hand Ltd not only ordered enough for the supplies to Green Cross Health pharmacies – that is, 6,000 units – but it ordered additional quantities in the hope of having back-up quantities if the launch was successful. Health at Hand Ltd says that Green Cross Health Ltd did not purchase the agreed initial quantity of 6,000. It delayed in placing its order. It did not allocate stock to the minimum 200 members; it failed to include the products in the hero product spots to give them prominence; and the Malvol advertisement fell well short of describing the product accurately. It was misdescribed as a “fish oil”.

[19] Health at Hand Ltd says Green Cross Health Ltd is responsible for the failure of the launch. It sues for breach of contract. It also alleges contractual
misrepresentation under s 35 of the Contract and Commercial Law Act 2017 and misleading and deceptive conduct under s 9 of the Fair Trading Act 1986. It claims damages of $198,903.83. That is made up:

(a) $85,305.44 for the costs of purchasing the Molval and Osteocalm;

(b) $75,245.07 for the costs of engaging sales representatives to promote the product from July 2015 to January 2016;

(c) $22,708.16 for the costs of marketing and advertising to support the sales team and marketing services between July 2015 and January 2016; and

(d) $15,645.16 for the financing charges from the ASB Bank which provided a facility for $60,000.

[20] A feature of the security for costs application is that Green Cross Health Ltd has tried to set matters up so that it is bound to obtain an order for costs against Health at Hand Ltd, whatever the outcome of the trial. It has made an open offer of settlement to Health at Hand Ltd. Green Cross Health Ltd has offered Health at Hand Ltd $60,000 in full and final settlement. Its submissions were directed, to a large part, in showing why that was an appropriate offer of settlement, even if there should be findings of liability against it. It accepts that there was a mistake in the advertising of Molval and it has reversed the charge for the premium package.

[21] Green Cross Health Ltd has analysed the plaintiff's claim. It says that even if the plaintiff had sold 6,000 units - 3,000 of Molval and 3,000 of Osteocalm - the gross sales would have come to $115,680. Given that the costs to import and promote the products are $198,903.83, Health at Hand Ltd would inevitably suffer a loss of
$83,223.83, even if all 6,000 units had been purchased and allocated to pharmacies. That loss of $83,223.83 is irrecoverable because it was sustained right at the outset, whether or not there had been any breach of contract or any misleading or deceptive conduct on the part of Green Cross Health Ltd. It also points out that the plaintiff has already been paid $28,771.83 for goods ordered, and that reduces the amount of the
claim in turn to $86,908.17 as a maximum amount of damages. It also proposes that, just as the goods were supplied on sale or return and there were returns, there is likely to have been returns of product even if everything had been sold in the first place. It proposes a further deduction on that account, suggesting a figure of $14,600.00.

[22] That would seem to bring the plaintiff’s claim down to about $72,000.00 as the maximum amount of damages. The defendant also suggests other areas to attack the amount of damages. The general thrust is that the $60,000.00 amount looks a fairly good estimate of its potential liability if the case goes against it. On that basis, it anticipates receiving an order for costs even if Health at Hand Ltd can prove some liability.

[23] The submission for Green Cross Health Ltd on likely damages was mainly for the claim for breach of contract. As to the claim for contractual misrepresentation, it pointed out that there is the same measure of damages for a claim for breach of contract as for a claim for contractual misrepresentation. As to the Fair Trading Act, it noted the implausibility of the claim because – while it did not put it in quite these words – it saw the Fair Trading Act allegations as a repackaging of the claims for breach of contract. It made the point that, recognised in the case law, merely because a contractual promise has not been performed, does not mean that the promisor is liable for misleading or deceptive conduct under s 9 of the Fair Trading Act. It accepted, of course, that a false promise may be misleading conduct, but pointed out that there was no such misleading conduct here.

[24] Mr Stuart, on the other hand, submitted that the plaintiff's strongest cause of action was under the Fair Trading Act. He said that the misleading conduct was in indicating that the products would be core-ranged – and that was not done – and that there would be allocations to 200 pharmacies. That led Health at Hand Ltd to believe that Green Cross Health Ltd did have significant influence so that it could ensure that the product was launched in 200 pharmacies. Green Cross Health Ltd does not accept those allegations. It points, for example, to emails where Mr Anstiss made it clear to Health at Hand Ltd that any supplies would be subject to approval by PDC. Mr Price says in response that Mr Anstiss assured him that PDC would do what Green Cross Health Ltd said.
[25] Ultimately Green Cross Health Ltd submits that it is not responsible for the failure of the launch because the product did not sell well. In submitting that, it disclaims any responsibility for the product not selling well. It says that its responsibilities were to give the opportunity for the product to sell, but it did not give any contractual promises or make any representations as to future sales of the product for which it could be liable. Part of its evidence suggests possible reasons why the product did not sell. It points out that, alongside any launch in the pharmacies, the product had to be promoted to the public at large to elicit customer interest. That was not done. That seems to have been because Health at Hand Ltd did not have the funds to launch the product in a major way in the media.

[26] Green Cross Health Ltd also points out that if any Fair Trading Act liability were established, under the approach in Red Eagle Corporation Ltd v Ellis,⁶ there will be significant causation issues and it cannot necessarily be held liable for all losses which Health at Hand Ltd may have suffered. It points to other factors which made it likely that Health at Hand Ltd would suffer losses; the first being that it could not hope to cover all its costs for the initial launch, the absence of any major advertising and the poor financial position of Health at Hand Ltd at the outset.

[27] Mr Price says that his circumstances do not allow him to make any contribution to the defendant's costs at all. He says that he is now a beneficiary and he appears to have partial blindness. He has no significant assets. Perhaps in a show of bravado, he says he is prepared to go bankrupt if need be. Health at Hand Ltd appears to have no assets of any significance. Green Cross Health Ltd, to a certain extent, queries these pleas of absolute absence of assets. It points out that Health at Hand Ltd has engaged a lawyer to bring the proceeding and the lawyer must be paid somehow.

[28] In my judgment, it is appropriate to require Health at Hand Ltd to provide security. While I do not say that its claim is hopeless, there appear to be significant challenges for it to establish liability in the first place, and any monetary relief is likely to be extremely modest – certainly unlikely to be more than $100,000. The present indications are that its present impecuniosity is not chiefly attributable to Green Cross

⁶ Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492.

Health Ltd. It started off with limited funds, its venture was unsuccessful but the failure of the venture seems to be equally explainable by other factors than the conduct of Green Cross Health Ltd, primarily, I think, because of the initial undercapitalisation of Health at Hand Ltd.

[29] Notwithstanding that, Health at Hand Ltd ought to be given the opportunity to have its case heard. It is still a strong call to deny a litigant the opportunity of having their case heard in court. Against that is to be balanced the need of a defendant to be protected against a barren order for costs. In that context, it ought to be borne in mind that the prospect of liability for costs affects parties' conduct in litigation generally. Parties take costs seriously. Even if the sums are not large in the overall context of the case, the prospect of adverse cost orders tends to dampen any enthusiasm for irresponsible litigation. Green Cross Health Ltd is entitled to make the point that that discipline does not operate on Health at Hand Ltd at present.

[30] Green Cross Health Ltd proposes that security for costs of $40,000 be ordered to be paid into Court and that the proceeding be stayed until then. I put to the parties my decision in Oxygen Air Limited v LG Electronics Australia Pty Ltd.⁷ In that case an insolvent company with a single director and shareholder brought a proceeding alleging breaches of a distribution agreement. The defendant, a substantial corporation, sought security for costs. I ordered the director of the company to provide an undertaking to pay any costs ordered in favour of the defendant if the plaintiff failed in its claim against the defendant. I did not order security for the defendant's counterclaim against the plaintiff. The plaintiff in that case had no assets. Requiring the director to provide the undertaking allowed the plaintiff in that case to continue its proceeding to a hearing; whereas requiring funds to be put up by way of security would have required a stay. The case was less likely to get to a hearing. The merits of that case were not easy to ascertain on the material, admittedly substantial, which was provided.

[31] Green Cross Health Ltd opposes my making a similar order in this case because it points to Mr Price's admitted insolvency and his statement that he does not mind if

⁷ Oxygen Air Limited v LG Electronics Australia Pty Ltd [2018] NZHC 945.

he goes bankrupt. In my experience, while some businessmen may be indifferent to their companies going into liquidation, they take personal solvency far more seriously. Most businessmen are very anxious to avoid going bankrupt. It imposes a restraint on their freedom to go into business on their own account or to be involved in directing companies or managing any business. Mr Price is clearly entrepreneurial. While he has difficulties at present, he is likely to resent any fetter on his ability to go into business afresh. I therefore consider that there will be the appropriate discipline if he is required to give an undertaking that he personally will meet any order for costs.

[32] I order that Mr Price is to give Green Cross Health Ltd a written undertaking that he will meet any order for costs which Green Cross Health Ltd may obtain against Health at Hand Ltd in this proceeding. I ask the parties to confer and agree as to the terms of the undertaking.

[33] I direct a telephone conference. A minute will issue giving the date and time. That is to ensure that the terms of the undertaking are agreed.

[34] Mr Price will then have until 10 August 2018 in which to sign the undertaking. If he does not sign the undertaking by then, the proceeding will be stayed. If he does sign the undertaking, I will give directions for the proceeding to be transferred to the District Court at Auckland. Discovery can be carried out in the District Court proceeding rather than here. Discovery is available in the District Court under the District Court Civil Rules. If Mr Price does not sign the undertaking by 31 October 2018, Green Cross Health Ltd will be entitled to apply for the proceeding to be struck out.

Costs

[35] Green Cross Health Ltd is entitled to costs for the hearing today. I trust counsel will be able to agree on costs. If they cannot, a memorandum may be filed.



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Associate Judge R M Bell