IRRIGATION SERVICES (WAIRARAPA) LIMITED V AE BENTON AND SW BENTON PARTNERSHIP HC NAP CIV-2010-441-280

IRRIGATION SERVICES (WAIRARAPA) LIMITED V AE BENTON AND SW BENTON PARTNERSHIP HC NAP CIV-2010-441-280 20 September 2011IN THE HIGH COURT OF NEW ZEALANDNAPIER REGISTRYCIV-2010-441-280BETWEEN IRRIGATION SERVICES (WAIRARAPA)LIMITEDPlaintiffAND ALEXANDER ELMON BENTON ANDSTEWART WILLIAM BENTONPARTNERSHIPDefendantAND ADRIAN EDWARD MANNERINGCounterclaim DefendantHearing: 20 September 2011(Heard at Wellington)Counsel: J.O. Upton QC - Counsel for Plaintiff and Counterclaim DefendantT. Anderson and W. Hamilton - Counsel for DefendantsJudgment: 20 September 2011ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLSolicitors: Gifford Devine, Solicitors, PO Box 148, Hastings 4156Gibson Sheat, Lawyers, PO Box 2966, Wellington[1] Before the Court is an application by the plaintiff and counter-claim defendant pursuant to r 7.18 of the High Court Rules for leave to file an amendedstatement of defence to the defendant's counter-claim.[2] This application is opposed by the defendants.[3] Rule 7.77 High Court Rules provides that before trial an amended pleading may be filed by any party. This provision, however, is qualified by r 7.18 HighCourt Rules which at 7.18(2) provides "No statement of defence or amendedpleading or affidavit may be filed, and no interlocutory application may be made or step taken, in the proceeding after the setting down date without the leave of aJudge."[4] As a preliminary matter I note certain time tabling dates which have occurred in this proceeding.[5] The proceeding has been set down for a 3 day hearing commencing 25 October 2011 in the High Court at Wellington.[6] A notice of the date of this hearing was issued by the Deputy Registrar of this Court on 31 August 2011 confirming the trial date. This notice also confirmed that the setting down date was to be 9 June 2011.[7] In any event, pursuant to r 7.13(5) the default setting down date if none had otherwise been allocated would have been 2 August 2011.[8] The present application before me for leave to file the amended statement of defence was not filed until 24 August 2011. It was appropriately entitled an Application On Notice for Leave to File the Amended Statement of Defence. It is clear and before me counsel accepted that, given the setting down dates in this matter, an application for leave was required.[9] I turn now to consider the application itself.[10] By their interlocutory application, the plaintiff and the counter-claimdefendant seek leave to file an amended statement of defence to the defendant'scounter-claim essentially on the following grounds:(a) The counter-claim defendant appears in the original defence to the counter-claim, to have admitted owing an independent legal duty of care to the defendant partnership. This admission was said to be made in error;(b) That original statement of defence to the counter-claim was prepared by counsel earlier instructed; and(c) The counter-claim defendant does not accept that he owes any independent duty of care to the defendant partnership and wishes to argue that point at the hearing of this matter.[11] As I have noted, the application is opposed by the defendant partnership, and they do so essentially on the following grounds:(a) It is suggested there is an evidential vacuam upon which the Court can exercise its discretion in favour of the application in this case;(b) There is said to be no adequate explanation before the Court for the delay on the part of the plaintiff and counter-claim defendant in filing an amended statement of defence;(c) The admissions already made in the original statement of defence on the part of the counter-claim defendant are the correct position in fact and in law;(d) The hearing date scheduled for 25 October 2011 is fast approaching and there is a significant risk to this hearing date if the application is granted. Any postponement of this hearing it is said would cause significant prejudice to the defendant partnership;(e) In addition, granting the leave sought would cause the defendant partnership significant other prejudice; and(f) Finally, it is not in the overall interests of justice to allow an amendment to the statement of defence to the counter-claim at such a late stage in this proceeding.[12] Some brief factual background to this matter is useful. The original claim by the plaintiff against the defendant in this proceeding, as I understand it, is to recover approximately $300,000.00 said to be due under a contract for work carried out on a farm property owned by the defendant partnership.[13] The counter-claim issued by the defendants against both the plaintiff and the counter-claim defendant, Adrian Edward Mannering (Mr Mannering), alleges breaches of duty owed to the defendants by both the plaintiff and Mr Mannering. This counter-claim has recently been quantified at the sum of $1.64 million.[14] The plaintiff's original statement of claim in this proceeding was issued on 5May 2010. The lengthy statement of defence and counter-claim from the defendants was filed on 5 July 2010. The counter-claim at that point was not quantified. The original statement of defence to the counter-claim was filed on 13 August 2010.[15] At that time, counsel instructed for the plaintiff was a Mr Max Courtney, a Napier Barrister who was subsequently appointed as a District Court Judge. His instructing solicitor was a Mr Dougal Matheson, a Hastings Solicitor, who was himself subsequently appointed as a District Court Judge. Those appointments, as I understand it, occurred during the second half of 2010 and thus, in about December 2010, Mr Upton QC, present counsel for the plaintiff was instructed in place of Mr Courtney.[16] It seems to be accepted for the plaintiff and Mr Mannering that a significanterror occurred in the statement of defence to the defendant's counter-claim which was filed on their behalf on 13 August 2010.[17] This error in essence involved an admission by Mr Mannering in the statement of defence that he owed a personal duty of care to the defendant along with the duty of care that was owed by the plaintiff.[18] This error appeared to go undetected until sometime in August 2011.[19] Mr Upton QC for the plaintiff and Mr Mannering now contends that, at a private mediation arranged between the parties on 12 August 2011, for the first timethe defendant's counter-claim was quantified and this totalled approximately $1.64 million. This was in contrast to the original claim by the plaintiff against the defendant which was for slightly under $300,000.00.[20] Mr Upton QC submitted that it was only at this mediation that, in addition to the substantial quantification of the counter-claim, it became apparent that the claim against Mr Mannering personally was on the basis that he had a personal duty of care to the defendant and that a closer analysis of the pleadings carried out at that point revealed ambiguities and purported admissions by Mr Mannering as to this duty of care which should not have been made. Mr Upton QC noted that, on the face of it, there appeared to be a fundamental error in the drafting of the 13 August 2010 statement of defence to the counter-claim in that in particular whatever admissions were made in that pleading on behalf of Mr Mannering personally should not have been made.[21] There seems to be little argument that the effect of these apparent admissions is to potentially expose Mr Mannering personally to a risk of a finding against him in this proceeding in circumstances where the entire purpose of Mr Mannering incorporating his plaintiff company was to protect him as a director from such personal liability.[22] Before me, Mr Upton referred to the fact that in the past the Court's haveconsistently recognised that they should not risk imposing a personal duty of care on the owners of "one-man" companies which would erode the concept of limited liability and separate identity, except in exceptional cases. On this he referred toTodd, The Law of Torts in New Zealand Fifth Edition at para 6.8.01, Trevor IvoryLimited v Anderson [1992] 2NZLR 517 and Auckland Christian Mandarin Church Trust Board v Canam Construction (1955) & Ors, CIV-2008-404-8526, 25 June 2010.[23] Mr Upton QC submitted before me that following this mediation, when theextent of the defendant's counter-claim was known and the ambiguities and errors in the plaintiff's and Mr Mannering's statement of defence were identified, the present Application for Leave to Amend was filed, this occurring shortly thereafter on 24 August 2011.[24] As I have noted above, r 7.77 addresses the filing of an amended pleading. McGechan on Procedure at para HR7.77.03 deals with the requirement for leave of the Court to be granted for an amendment after the setting down date and notes:HR7.77.03 Amendment after setting down dateAfter the setting down date, an amended pleading may be filed only with leave. (The rule does not prohibit service of an amended pleading already filed before setting down, if delay has occurred.)Granting of leave to amend after setting down was briefly considered by the Court of Appeal in Thornton Hall Mfg Ltd v Shanton Apparel Ltd (1989) 3 TCLR 249, [1989] 1 NZLR 234 (dismissing an appeal from Henry J, reported), where the Court said the parties should have every opportunity to ensure that the real controversy goes to trial so as to secure the just determination of the proceedings.That paragraph in McGechan on Procedure goes on to state:Lateness (a fortnight before adjourned trial date), incompleteness in proposed additional pleading of consequential losses without factual basis for them, the need for further interlocutory applications and the weakness of the allegations were seen as decisive against permitting amendment in Grey v Elders Pastoral Holdings LtdHC Auckland CP417/95, 1 May 1997. In Fordham v Xcentrix Communications Ltd(1996) 9 PRNZ 682, Fisher J considered the magnitude of and explanation for the delay, and the merits of the amended pleading that the applicant sought to file, as relevant factors............In Whakatane DC v Bay of Plenty RC (2008) 19 PRNZ 91, the High Court held thatan application for leave to permit late amendments to a pleading "requires the Courts to conduct a balancing exercise between the general concern that parties to litigation comply properly with procedural requirements and the particular interestin each case of ensuring that the case is justly determined."[25] In addition, in Pegasus Group Ltd v QBE Insurance (International) LimitedHC, Auckland, CIV-2006-404-6941, Winkelmann J, 10 July 2009, referred to me here by Mr Anderson for the defendants, para [9] identifies three "formidable hurdles" (taken from the decision in Ketterman v Hansel Properties Limited (1987) 2WLR 312) which an applicant must surmount in order to obtain leave to make a belated amendment to a pleading. These are:(a) Is granting the application in the interests of justice?(b) Will it significantly prejudice the other party?(c) Will it cause significant delay?[26] I turn now to address these particular issues here.Is Granting Leave in this Application in the Interests of Justice?[27] On this aspect, the first point to note as I see it, is that the application to amend the statement of defence is not simply a case of requiring an amendment for some minor slip, typographical error or the like. The issue in this case is a fundamental one. The question is does Mr Mannering have a personal duty of care owed to the defendants here?[28] So far as the defendant's contentions are concerned first, that an evidential vacumn exists and secondly, that the plaintiff and Mr Mannering have not done sufficient to place before the Court sufficient evidence to show that the present application should be granted, I take the view that there is a sufficient basis which exists here and adequate material before the Court on which it is able to act. There is no doubt in my mind that the concession at the time presumably by counsel instructed by the plaintiff and Mr Mannering in their 13 August 2010 statement of defence to the counter-claim, was made in error. As I have noted above, a fundamental issue which will arise at trial in this matter is whether indeed such a personal duty of care was owed.[29] Next, on this question as to the general interests of justice, in my view it is self-evident in this case that the detrimental impact on Mr Mannering will be obvious if his admission that he owed a personal duty of care to the defendants remains unchallenged. Mr Mannering will clearly be significantly more at risk then he would otherwise have been if that personal duty of care had been denied. In effect to "punish" Mr Mannering in this case for what may well turn out to besignificant errors made by his counsel at the time, would not in my view be conducive to ensuring that the present case is justly determined. Here, it is important as I see it, that the real controversy between the parties goes to trial, in order that as McGechan puts it "the just determination of the proceeding" can occur.Will Granting Leave Significantly Prejudice the Defendants Here?[30] On this aspect, before me Mr Anderson referred on a number of occasions (and quite properly if established) to what he contended would be significant delay in this proceeding if the present leave application is granted. If that was to occur, he argued that the hearing date set for 25 October 2011 could not be maintained. To this extent he contended that the defendants would be under some significant prejudice if the application was successful. I will talk more on this issue of delay shortly.[31] Generally, as to other aspects of prejudice argued for the defendants, Mr Anderson endeavoured to persuade me that there were limited prospects of success of the proposed amended pleading and that in any event further substantial additional evidence and submissions would be required if the present application was to succeed.[32] So far as the prospects of success of the proposed amendments are concerned, as I see it, this is not the appropriate occasion to endeavour to determine those likely prospects. What is clear to me however is that, as with the situation which prevailed in cases such as Trevor Ivory Limited v Anderson and the subsequent cases which have addressed the potential liability of directors in these situations, all these determinations are significantly fact specific. That said, in my view, these are matters which should go to trial.[33] So far as the complaint that additional evidence and submissions will be required, there can be no doubt that there will need to be some additional evidence asto Mr Mannering's involvement with the defendants and the general contractual arrangements which seem to have been entered into with the plaintiff. I do not see, however, that this would necessarily be substantial.[34] As to the additional submissions required on this issue, there can also be no argument that these will be required. As I see it again however, they are not likely to need to be unduly substantial and, in any event, the clear interests of justice in this case in my view require that Mr Mannering should have the whole duty of care question properly considered by the Court.[35] And finally on this prejudice question generally, I accept that if the application before me is to succeed, there will be clearly some impact upon the defendant. In my view, however, this impact is outweighed by considerations as to the just determination of this proceeding which I have noted above.Would Granting Leave Cause Significant Delay[36] As I have noted above, this matter has been allocated a 3 day hearing commencing 25 October 2011. Mr Anderson for the defendants contended that this hearing date was substantially at risk if leave is granted to the filing of the amended statement of defence.[37] In response on this, Mr Upton QC for the plaintiff and Mr Mannering submitted that the hearing date would not necessarily be lost.[38] Both counsel seem to agree, however, that some additional hearing time might be required if the leave sought here is granted and that the hearing might be required to extend to 4 days.[39] On this, I have had the opportunity of discussing this aspect with the Registrar and can confirm that an allocation for this hearing of 4 days is now available commencing on Tuesday, 25 October 2011. That 4 day allocation is now confirmed.[40] That said, although the hearing date itself is fast approaching, I have some degree of confidence that, with due attention from counsel to the parties and a speedy service of briefs of evidence on the part of the plaintiff and Mr Manneringand on the part of the defendant, together with proper attention to other pre-trial matters, the 25 October 2011 hearing date can be preserved.[41] I do note however that the present application for leave has been filed rather late in the piece. It will be apparent from the reasons outlined above that notwithstanding this, the application is to be granted. This is, however, as I see it an indulgence granted to the plaintiff and Mr Mannering, in particular, because in my view the delays in this case it seems cannot be attributed to actions on their part but rather because of actions on the part of their advisers.Conclusion[42] As I have noted, for the reasons outlined above the present application succeeds. Leave is now granted to the plaintiff and the counter-claim defendant to file an amended statement of defence to the defendant's counter-claim as set out in the draft document attached to the present application.[43] As to costs on this application, given my comment above that in effect the granting of leave at this rather late stage is an indulgence to the plaintiff and Mr Mannering, in my view, the defendant is entitled to an order for costs with respect to the present application. That may seem rather surprising given that the defendant'sopposition to that application has failed. Notwithstanding that, this is an appropriate case in my view where costs should be awarded to the defendant.[44] Costs are awarded to the defendants on this application on a 2B basis together with disbursements as fixed by the Registrar.[45] Leave is reserved for either party on 24 hours notice to approach the Court further if additional directions are required to get matters on track for the approaching trial of this matter.'Associate Judge D.I. Gendall'