Ipsofactoj.com: International Cases [2001] Part 8 Case 15 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Bernard

- vs -

Space 2000 Ltd

THOMAS J

HERON J

JOHN HANSEN J

5 JULY 2001


Judgment

Thomas J

(delivered the judgment of the court)

THE QUESTION IN ISSUE

  1. The question in issue in this case is whether the Master was correct in the circumstances of this case to enter judgment for the fifth defendant against the plaintiff under r 136(2) of the High Court Rules.

    THE BACKGROUND FACTS

  2. On 4 May 1988, the appellant, Mr Bernard, entered into a contract with Space 2000 Ltd and Knobs and Knockers Ltd, the proprietors of a coin-operated video arcade business situated in Waitakere City, to purchase that business. The purchase price was $290,000. A deposit of $24,000 was paid. The sum of $121,000 was due in cash in one sum on the date of possession, and the balance of $145,000 was to be made up by way of vendor finance. The date of possession was fixed at 8 June 1988.

  3. Nine days later, on 13 May, Mr Bernard delivered a copy of the contract to his solicitor, Mr McIntosh, the fifth defendant in the proceeding. Mr McIntosh carries on practice in Henderson. It is accepted that Mr Bernard’s instruction to Mr McIntosh created a contract of retainer and that it was an implied term of the contract that Mr McIntosh would exercise reasonable skill and care in carrying out Mr Bernard’s instructions.

  4. In terms of the agreement Mr Bernard was to receive an assignment of the lease of the business premises and various items of plant which were set out in the agreement. The agreement contained an express warranty by Space 2000 Ltd and Knobs and Knockers Ltd that the turnover for the period from 15 April 1997 to 31 March 1998 was $300,000, including GST. The agreement was also conditional upon Mr Bernard or his nominated accountant perusing and approving the books of accounts of the business by 28 May 1998. Mr Bernard duly instructed an accountant to carry out due diligence in terms of this clause and the condition was satisfied.

  5. On 5 June 1998, Mr McIntosh received a letter from the vendor’s solicitors attaching a copy of a letter from the landlord’s solicitors dated 4 June 1996. The letter indicated that the landlord, Hayes Securities Ltd, consented to the assignment of the lease to Mr Bernard subject, among other things, to

    arrears of rent (currently totalling $10,305) to be paid to the landlord on settlement

  6. Mr McIntosh prepared an assignment of lease and wrote to Mr Bernard asking that he call at his office and sign the document as soon as possible so that he could send it to the landlord’s solicitor. Mr McIntosh did not mention in that letter, or when Mr Bernard duly called to sign the document, or at any other time, that the rent was in arrears.

  7. Settlement was delayed for other reasons and took place on 17 June. The sum of $121,000 was paid pursuant to the agreement.

  8. Mr Bernard claims that, within a short time, he discovered that the turnover and profitability of the business was much less than what had been represented to him. He decided to continue trading in an effort to mitigate his loss. After approximately 18 months, he sold the business for $45,000.

    THE PROCEEDING

  9. Mr Bernard duly commenced the present proceeding against Space 2000 Ltd and Knobs and Knockers Ltd, and various other parties, including Mr McIntosh. The solicitor acting for Mr Bernard pleaded two causes of action against the solicitor. The first is breach of contract and the second negligence. In each cause of action Mr Bernard provided particulars of eight aspects in which he alleged the solicitor was in breach of contract or negligent. The allegations were identical in respect of both causes of action.

  10. The application was heard by the Master on 13 June 2000, and judgment was delivered promptly, on 15 June. Each of the eight aspects in which it was alleged that there was either a breach of the contract of retainer or that Mr McIntosh was negligent was examined by the Master. It would be an apt analogy to say that the Master took out a demolition order on the eight aspects which he identified and dealt with. Each was succinctly and convincingly demolished. As pleaded, none could possibly succeed.

  11. In fact, reference was made in the amended statement of claim before the Master to the fact Mr McIntosh was aware that the rental for the lease of the business was in arrears in the sum of $10,305 and that he failed to advise the plaintiff of that fact or make any inquiries of the landlord as to the reason for the arrears. But this pleading is simply left up in the air. Not surprisingly, the Master was unable to detect any basis upon which loss could arise from this bare allegation.

  12. Of his own initiative, however, the Master raised two other points which he thought might benefit from further inquiry. Neither counsel were prepared to deal with these fresh matters at the time. Mr Gilbert, who appeared for Mr McIntosh, conceded that Mr Bernard’s lawyer, Mr Cutting, should have the opportunity to amend the pleading having regard to the points raised by the Master. In the result, the Master adjourned the application and granted leave to Mr Bernard to file an amended statement of claim by 30 June 2000.

  13. The amendments which the Master contemplated were not made. Competent counsel had been instructed to act for Mr Bernard in the meantime and he at once moved to the gist of the case. He focused on Mr McIntosh’s failure to advise Mr Bernard that the rent was in arrears. His argument was that, had Mr Bernard been given this information, he would have made further inquiries and these inquiries would or could have led him to refuse to settle the purchase of the business.

  14. An amended statement of claim was filed intended to give effect to this argument. No additional evidence was produced to support the allegations contained in that amended pleading.

  15. The matter came back before the Master on 26 July. He correctly perceived that Mr Bernard was claiming that he had lost the opportunity to make further inquires before settlement which, if such inquires had been undertaken, would or could have justified the issue of a cancellation notice. Mr Bernard, it is argued, would then have avoided suffering the losses which he incurred. The Master considered that the issue was really one of causation. He took the view that it is incumbent on a plaintiff in such a situation to plead the factors specifically relied upon to show that his loss would have been reduced. In short, the Master said, bearing in mind that he had entered into the contract before he had even consulted Mr McIntosh, Mr Bernard had not spelt out how he could avoid settlement and the completion of the contract. The Master concluded that any loss which Mr Bernard had suffered had in fact arisen from the contract itself. It arose from the legal obligation undertaken by Mr Bernard when he entered into the contract. In the Master’s view, therefore, the claim fell into that small group of cases where the Court could conclude that the proposition pleaded by the plaintiff was untenable and could not possibly succeed. The Master entered summary judgment for Mr McIntosh.

  16. We consider that the Master was led into error in entering summary judgment for Mr McIntosh. No doubt, this error arose in large part because of the history of the proceeding. Faced with a multiple of untenable points, the Master is not to be blamed for failing to discern the wheat from the chaff. Moreover, the Master was at a disadvantage in that this Court’s decision in Westpac Banking Corp v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 relating to r 136(2) had not been delivered. This decision is critical and is dealt with below. Had it been available to the Master we do not doubt that his approach would have been different.

  17. Our judgment can proceed under the following headings:

    • The scope of r 136(2)

    • A question of causation?

    • Adducing further evidence

    • Permitting an amendment

    • The essence of Mr Bernard’s claim

    • Conclusion

    THE SCOPE OF R. 136(2)

  18. Rule 136 of the High Court Rules reads as follows:

    136.

    Judgment where there is no defence or where no cause of action can succeed

    (1)

    The Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a claim in the statement of claim or to a particular party of any such claim.

    (2)  

    The Court may give judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed.

  19. It is not surprising that most of the case law relating to r 136 relates to subrule (1). This case law either does not apply, or is to be applied with considerable caution, to applications for summary judgment by a defendant under subrule (2). As the commentary in McGechan on Procedure, HR 136.09A, points out, the position is different when it is the defendant who applies for summary judgment. Most significantly, the procedure under subrule (2) must be reconciled with the procedure available to a defendant to apply to strike out the plaintiff’s cause of action pursuant to r 186 or r 477. This Court examined this point in Westpac Banking Corp v MM Kembla New Zealand Ltd, supra, and confirmed (at 313) that the procedure under subrule (2) is not directly equivalent to the plaintiff’s summary judgment procedure in subrule (1). Where a claim is untenable on the pleadings as a matter of law, it will not usually be necessary to have recourse to the summary judgment procedure at all. The defendant can apply to strike out the claim.

  20. Consequently, it was held (at 313), the Courts should not permit r 136(2) to be used to circumvent the restrictions on adducing evidence in support of an application to strike out a cause of action. Nor should the Courts allow an application to proceed under r 136(2) where the effect would be to unfairly create an issue estoppel against the plaintiff. If a pleading is struck out on an application to strike out, the plaintiff is not precluded from bringing a further properly constituted claim. Entering judgment under r 136(2) is discretionary, and the Courts should not hesitate to exercise that discretion against a defendant if the application could more appropriately have been made by way of an application to strike out the plaintiff’s cause of action.

  21. Rule 136(2), as indicated in Kembla (at 313), is only appropriate where the defendant has a

    clear answer to the plaintiff which cannot be contradicted.

    Summary judgment for a defendant [emphasis added]

    will arise where the defendant can offer evidence which is a complete defence to the plaintiff’s claim.

    The requirement that there be a clear answer which cannot be contradicted and a complete defence before judgment is entered for a defendant under r 136(2) is not to be disregarded. Examples which are given of appropriate cases for summary judgment under the subrule are where the wrong plaintiff has proceeded (Coastal Tankers Ltd v Southport NZ Ltd 17/5/99, Master Venning, HC Invercargill, CPI4/96) or where the situation is clearly one of qualified privilege (Ferrymead Tavern Ltd v Christchurch Press Ltd 11/8/99, Master Venning, HC Christchurch, CPI84/98). Thus, the subrule contemplates an answer which is clear-cut; what in colloquial language would be described by counsel as a "king hit".

  22. The different approach to be adopted in relation to subrules (1) and (2) is founded on a fundamental principle; a citizen’s right of access to the courts. As stated by this Court in McEvoy v Dallison [1997] 3 NZLR 11, at 21, it is an integral element of the rule of law that everyone having a proper issue to be tried should obtain access to the court process. When that right of access is denied, justice is denied, and the ability of society to order its affairs and resolve its differences in a regular manner is impaired. Consequently, where a plaintiff has a proper issue to be tried it is inappropriate to apply a test or adopt an approach which would bar him or her from the judicial process. That process, of course, includes interlocutory procedures which may aid the plaintiff’s cause. This Court’s insistence on a clear answer which cannot be contradicted and a complete defence to the plaintiff’s claim, that is, a "king hit", recognises that a plaintiff’s fundamental right to his or her "day in court" is not to be lightly denied.

    A QUESTION OF CAUSATION?

  23. The Master concluded that the question in issue in respect of this allegation was essentially a question of causation. He cited in support the dicta of McKay J in Sew Hoy & Sons Ltd v Coopers & Lybrand [1996] 1 NZLR 392, at 399, to the effect that causation is an essential element in the recovery of damages for breach of duty, whether in contract or in tort, and means more than the mere creation of the opportunity to incur loss.

  24. The Master’s analysis may or may not be correct. It would be inappropriate to decide the issue at this stage. For present purposes, the point is that a question of causation is particularly unsuitable for resolution in the context of an application by a defendant under r 136(2). Causation, as Lord Reid said in Stapley v Gypsum Mines Ltd [1953] AC 663, at 681,

    must be determined by applying common-sense to the facts of each particular case.

    Such an approach makes a full grasp of the facts imperative. As stated in Sew Hoy & Sons Ltd v Coopers & Lybrand (at 407), if the question whether there is a causal connection between the wrong-doing and the damages is to be resolved by the application of common-sense, it is difficult to see how that question can properly be resolved in advance of the evidence.

  25. This point is illustrative of the fact that r 136(2) is not a suitable vehicle for the determination of questions of fact.

    ADDUCING FURTHER EVIDENCE

  26. The Master commented on the lack of evidence of any adverse consequences arising from the fact that Mr McIntosh failed to inform Mr Bernard that the rent under the lease being assigned to him was in arrears. With respect, no such evidence was required at this stage. As stated in Kembla (at 313), an application for summary judgment is inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be found from affidavit evidence. Such an application is also inappropriate where the ultimate determination turns on a judgment which is only able to be properly arrived at after a full hearing of the evidence. Summary judgment may be suitable for cases where an abbreviated procedure and evidence by way of affidavits will sufficiently expose the facts and the legal issues, but not otherwise.

  27. Consequently, the plaintiff is not ordinarily to be put in the position of having to adduce evidence to resist a defendant’s application under r 136(2). Proof is properly a matter for trial. The procedure is not to be converted into a mini-trial. As pointed out in Kembla (at 314), it is not necessary for the plaintiff to put up evidence at all, although if the defendant supplies evidence which satisfies the Court that the plaintiff cannot succeed, a plaintiff will usually have to respond with credible evidence of his or her own. Be that as it may, it is not enough that the evidence adduced by the defendant might show that the plaintiff’s case has "weaknesses". The assessment made by the Court on an interlocutory application is not one to be arrived at on a fine balance of the available evidence (at 314).

  28. Nor is the defendant entitled to utilise the procedure in order to obtain a preview of the evidence which the plaintiff will adduce at trial. Case management or other procedures may be used for that purpose at the appropriate stage of the proceeding. The very fact that the plaintiff is called upon to adduce evidence by way of affidavit to refute the defendant’s affidavit evidence will generally be a strong indication that the defendant’s answer to the plaintiff’s claim is not so clear-cut as to justify the peremptory dismissal of his or her claim under r 136(2).

    PERMITTING AN AMENDMENT

  29. The Master considered that counsel for Mr Bernard had not properly pleaded the cause of action relating to Mr McIntosh’s failure to advise Mr Bernard of the deficit in the rent payable under the lease. An amendment to the pleading would be required. But, Mr Gilbert argued, both before the Master and in this Court, that no further amendments should be permitted. He claimed that his client would be prejudiced.

  30. The Master applied the principles generally applicable when a party seeks an amendment, namely, that the amendment be in the interests of justice, that it will not significantly prejudice the defendant and that it will not cause significant delay. He cited as authority the dicta of Casey J in Cegami Investments Ltd v AMP Financial Corporation (NZ) Ltd [1990] 2 NZLR 308, at 314. Casey J stated that the Court could see no good reason

    why the ordinary provisions about amendment should not apply to such proceedings [applications for summary judgment by a plaintiff] if the justice of the case requires it and there is no prejudice to the defendant.

    This observation is to be read in context. It is clear that the Court was not seeking to restrict a party’s ability to amend his or her pleading on an application for summary judgment, but, rather, was seeking to establish that ability. Thus, the learned Judge began by saying that there was no justification for holding the summary judgment rules suspect and needing to be strictly confined because they are thought to deprive defendants of the privilege of a full trial. Moreover, immediately after the comment cited, the Judge stated:

    It would be a matter for regret if these salutary rules became hedged with restrictive interpretations narrowing the ordinary scope of amendment

    Indeed, it is difficult to conceive of any case under r 136(2) where the defendant would be able to claim prejudice in the face of a proposed amendment or a case where the interests of justice would not require the amendment to be permitted if it would serve to remedy a defect in the plaintiff’s pleading.

  31. Again, in Kembla, this Court pointed out (at 314) that under r 186 the Court does not strike out pleadings where a defect can be cured by amendment which the party is willing to make. Similarly, the discretion of the Court under r 136(2) to refuse to enter summary judgment is properly invoked to avoid the oppression which will otherwise result if an application by the defendant would pre-empt a plaintiff exercising the right to amend the pleadings pursuant to r 187. Indeed, the Court said that, because a summary judgment creates an issue estoppel, the use of the discretion to enable an amendment to be made is arguably more necessary in the interests of justice in the case of summary judgment than in the case on an application to strike out.

  32. The Court in Kembla concluded (at 314-315) that the wording of r 136(2) is consistent with the wording of r 186 and is subject to the same residual discretion to avoid oppression. Any real prejudice to a defendant through surprise, it stated, could be adequately met by allowing the defendant time to respond. The Court was therefore firm in stating that a summary judgment should not be applied for unless the substantive merits of the case are clear and capable of summary disposal. It would, the Court thought (at 315), serve the ends identified by r 4 of a just, speedy and inexpensive determination of proceedings, including interlocutory applications, if defendants are discouraged from applying for summary judgment "opportunistically" in cases where there is a correctable error in the plaintiff’s pleading.

    THE ESSENCE OF MR. BERNARD'S CLAIM

  33. The essence of Mr Bernard’s claim is that Mr McIntosh was in breach of his contract of retainer or negligent in not informing him that the rent for the lease was in arrears thereby giving Mr Bernard the opportunity to make further inquiries. Such inquiries, he claims, would or could have revealed that there had been a gross misrepresentation of the turnover and profitability of the business and caused Mr Bernard to cancel the contract and refuse to settle.

  34. There can be no question but that Mr Bernard’s claim is tenable in alleging that Mr McIntosh was in breach of a duty to his client, either in contract or in negligence, in failing to inform Mr Bernard of the arrears of rent. Nor is it untenable for Mr Bernard to claim that, if he had received this advice, he would have made further inquiries. On the face of it, such arrears would call for an explanation where the proprietors of the business have warranted the turnover as being $300,000 and, it is alleged, made representations that the business was trading profitably. What Mr Bernard would have learned, and what action he would or could have taken as a result of what he learned, are matters which should be determined on the evidence adduced at trial. It is not for the Court to speculate at this stage.

  35. The basis on which the Master dealt with this claim, both in his judgment of 15 June 2000 and his judgment of 28 July, was to hold that any loss which Mr Bernard suffered in fact arose from the contract itself, that is, from the legal obligation undertaken by Mr Bernard when he entered into the contract. With respect, this is to beg the question whether Mr Bernard lost the opportunity to cancel the contract and so avoid the loss which he alleges he subsequently suffered. If Mr Bernard was entitled to cancel the contract, it cannot be held that he was obliged to settle and suffer such losses as might thereafter arise. This question will essentially turn on the evidence to be adduced at trial.

    CONCLUSION

  36. For the reasons given, we do not consider summary judgment should have been entered for the fifth defendant in this case. The Master’s dismissal of the point now being pressed in his judgment of 15 June was premature and the reasons which he elaborated in his judgment of 28 July are inconsistent with the principles now laid down in Kembla and emphasised above.

  37. Mr Bernard’s counsel is entitled to amend the pleadings if he thinks fit. Some amendments may prove prudent in the light of the discussion which took place at the hearing and in view of what is said in this judgment.

  38. Nor is there any question of the defendant being able to claim prejudice. In an otherwise forceful and comprehensive argument, Mr Gilbert was singularly unable to demonstrate any legitimate prejudice in allowing the pleading to be amended. Any prejudice which the fifth defendant may be able to point to at this stage has been brought about as a result of his own application under r 136(2).

  39. This Court in Kembla rightly discouraged opportunistic applications by defendants pursuant to r 136(2). Where such applications fail to comply with the principles which have been identified, defendants can expect short shrift from the Courts. In appropriate cases, solicitor and client costs may be awarded to the plaintiff to offset the unnecessary costs which will have been incurred.

  40. We do not consider, however, that solicitor and client costs are appropriate in this case. At the time Mr Gilbert applied for summary judgment the plaintiff’s pleading was in an inept state. Although buried in a number of other points, the present issue had been only sketchily notified in the amended statement of claim and was not pressed as the plaintiff’s main cause of action until Mr Keene appeared before the Master at the second hearing. But the defendant must bear ordinary party and party costs.

  41. In the result, the summary judgment entered for the fifth defendant against the plaintiff on 28 July 2000 is set aside. There will be no order for costs or disbursements in the High Court in respect of the hearing before the Master on 13 June 2000. Costs in the High Court for the hearing before the Master on 26 July 2000 and in this Court are fixed in the total sum of $7,500. Disbursements, including travelling and accommodation expenses are, failing agreement, to be fixed by the Registrar.


Cases

Westpac Banking Corp v MM Kembla New Zealand Ltd [2001] 2 NZLR 298; Coastal Tankers Ltd v Southport NZ Ltd 17/5/99, Master Venning, HC Invercargill, CPI4/96; Ferrymead Tavern Ltd v Christchurch Press Ltd 11/8/99, Master Venning, HC Christchurch, CPI84/98; McEvoy v Dallison [1997] 3 NZLR 11; Sew Hoy & Sons Ltd v Coopers & Lybrand [1996] 1 NZLR 392; Stapley v Gypsum Mines Ltd [1953] AC 663; Cegami Investments Ltd v AMP Financial Corporation (NZ) Ltd [1990] 2 NZLR 308

Legislations

High Court Rules, R. 136(2)

Representations

G A Keene for Appellant (instructed by Derek Cutting & Co, Auckland).
M A Gilbert for Respondents (instructed by Chapman Tripp, Auckland).


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