KROMA COLOUR PRINTS LIMITED V ATCO CONTROLS LIMITED HC AK CIV 2004-404-408

KROMA COLOUR PRINTS LIMITED V ATCO CONTROLS LIMITED HC AK CIV 2004-404-408 2 March 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2004-404-408BETWEEN KROMA COLOUR PRINTS LIMITED Plaintiff AND ATCO CONTROLS LIMITED Defendant Hearing: 1 March 2007 Counsel: MR Crotty and JK Goodall for Plaintiff MS Cole for Defendant Judgment: 2 March 2007 at 6.00 p.m.JUDGMENT OF RODNEY HANSEN JThis judgment was delivered by me on 2 March 2007 at 6.00 pm, pursuant to Rule 540(4) of the High Court Rules. Registrar/Deputy Registrar Date: .Solicitors: Russell McVeagh, P O Box 10214, Wellington for Plaintiff Simpson Grierson, Private Bag 92518, Auckland for DefendantIntroduction[1] This application to review a decision of Sargisson AJ raises the short but important point of whether the High Court Rules permit an interlocutory application to be served on an overseas non-party. [2] The plaintiff applied under r 97 of the Rules to join two additional defendants, both Australian companies. Sargisson AJ held, as a preliminary issue, that although r 97 does not require service of the application on the proposed defendants, they should in the circumstances be served. However, she went on to find that the Rules do not permit service of an interlocutory application. The plaintiff could not therefore proceed with the application. [3] The plaintiff applies to review the decision. Counsel submits that the Associate Judge was wrong to find that the application could not be served. Alternatively, and if she was right on that score, the plaintiff says she should not have ordered the application to be served, thereby depriving the plaintiff of a hearing on the merits.Further background[4] On 12 January 2002 the plaintiff's premises in Whangarei were seriously damaged by fire. The fire is thought to have been caused by a faulty light capacitator in the ceiling of the building, though this is denied by the defendant. In January 2004 legal proceedings were issued against the defendant whom the plaintiff believed to have manufactured the light capacitator. Lengthy delays ensued while the parties attempted to reach a resolution. These finally broke down following a meeting of experts on 15 June 2006. [5] In August 2006 the plaintiff became aware for the first time that the capacitators were probably manufactured by an Australian company related to the defendant, Atco Controls Pty Limited (Atco Australia). That company is inliquidation. It is unlikely that it could satisfy any judgment. However, another Australian company, Gerling Australia Insurance Company Pty Limited (Gerling) provided liability insurance for both plaintiff and Atco Australia and is thought to cover both for any claim relating to the negligent manufacture of capacitators. [6] At the end of August, the plaintiff notified both companies of its intention to join them as defendants and, on 13 September 2006, it filed the application for joinder. It sought leave to join both proposed defendants under r 97 and leave under s 9 of the Law Reform Act 1936 to join Gerling. Leave under the Law Reform Act is required by s 9(4) to enforce a charge over insurance money payable by Gerling to Atco Australia. [7] In accordance with the Rules and with standard practice, the plaintiff's application was served only on the existing party, the defendant. One of the grounds on which the application was opposed was that the plaintiff had not also served the proposed defendants. While maintaining that service was not required, the plaintiff proceeded to serve the application on the proposed defendants. Then, at the direction of Sargisson AJ, the question of whether service was required was heard as a preliminary issue.The decision[8] Sargisson AJ acknowledged that there is no requirement to serve a joinder application on the person sought to be joined and it is not established practice to do so, referring to McGechan on Procedure at HR97.03. Instead when an order for joinder is made, the Court usually makes provision for the party joined to file either a statement of defence or a strike out application, referring to Westgate Transport Limited v Methanex NZ Limited (No 2) HC AK CP93/98 27 August 1999. She noted that this allows the new party to raise any argument that joinder was inappropriate. [9] However, Sargisson AJ accepted a submission that the usual approach should not be followed. She noted that leave would be required from an Australian Court to proceed against Atco Australia pursuant to s 471B of the Australian Corporations Act 2001, the equivalent of s 248 of the New Zealand Companies Act 1993. Sheaccepted that established practice is for an application for leave to commence or continue legal proceedings against a company in liquidation to be made on notice to the liquidator – Western and Brazilian Telegraph Company v Bibby (1880) 42 LT 821, Fisher v Isbey (1999) 13 PRNZ 182, Johnson v CBD Real Estate Limited (in liq) (1999) 14 PRNZ 320. She noted that joinder would have the effect of making Atco Australia a party to the proceeding while the application to the Australian Court was pending. This raised issues of jurisdiction which would be assisted by the liquidator's presence before the court. [10] Sargisson AJ also noted that, notwithstanding the usual practice under r 97, applications for leave under s 9(4) of the Law Reform Act are usually served on the insurer. She referred to Registered Securities Limited (in liq) v Brockett HC CHCH CP293/87 17 October 1991; Hatea Motors Limited v Foote [1993] 1 NZLR 629; FAI (NZ) General Insurance Co Limited v Blundell and Brown Limited [1994] 1 NZLR 11. She said that there may be good reasons why an insurer would be able to resist an application for joinder. It may be able to point to non-compliance by the insured with conditions in the policy or there may be relevant exemption clauses. She also referred to factors which may create an unfair prejudice to the insurer if leave were granted, including unreasonable delay between the event giving rise to the claim and notification. These factors, and the onus on the party seeking leave to satisfy the Court that leave should be granted, indicated to the Judge "the necessity or desirability" for notice to be served on the insurer. [11] She concluded that the application to join Atco Australia and Gerling should not be heard without giving them an opportunity to be heard. [12] The Judge then went on to consider whether the Rules permitted service of the application for joinder on the proposed defendants. She discussed rr 219 and 220. Rule 219 makes provision for service without leave in proceedings brought by way of a statement of claim or counterclaim and notice of proceeding or third party notice. Rule 220 provides for documents to be served out of New Zealand by leave "in any other proceeding". It was not disputed that r 219 did not apply to interlocutory applications and the Judge found that r 220 permitted service out of New Zealand only on a party to a proceeding. She concluded that the Court has nojurisdiction to grant leave to a plaintiff to serve an interlocutory application for joinder outside New Zealand. [13] She acknowledged at [46] that her conclusion may point to an hiatus in the Rules "because unless and until [the plaintiff] can join the proposed defendants, it is not able to seek leave to serve its proposed proceeding on them". She said even if the plaintiff were to abandon its current proceeding and commence proceedings afresh, it still faced the problem of obtaining leave to serve its application under the Law Reform Act on Gerling. These factors suggested to her that the plaintiff should start fresh proceedings against all three parties or continue with its proceeding against the defendant in New Zealand and issue separate proceedings against the proposed defendants in Australia. [14] In the result the Judge made an order that the application should not be heard without giving the proposed defendants the opportunity to be heard and then dismissed the application.DiscussionService of joinder application[15] I consider first whether the Judge was right to find that the Rules do not provide for service of the joinder application overseas. The relevant rules are rr 219 and 220 which read as follows:219 When allowed without leaveWhere in any proceeding a statement of claim or counterclaim and the relevant notice of proceeding or third party notice cannot be served in New Zealand under these rules, they may be served out of New Zealand without leave in the following cases: (a) Where any act or omission for or in respect of which damages are claimed was done or occurred in New Zealand: (b) Where the contract sought to be enforced or rescinded, dissolved, annulled, or otherwise affected in any proceeding, or for the breach whereof damages or other relief is demanded in the proceeding—(i) Was made or entered into in New Zealand; or (ii) Was made by or through an agent trading or residing within New Zealand; or (iii) Was to be wholly or in part performed in New Zealand; or (iv) Was by its terms or by implication to be governed by New Zealand law: (c) Where there has been a breach in New Zealand of any contract, wherever made: (d) Where it is sought to compel or restrain the performance of any act in New Zealand: (e) Where the subject-matter of the proceeding is land, stock, or other property situated in New Zealand, or any act, deed, will, instrument, or thing affecting such land, stock, or property: (f) Where the proceeding is for the execution of the trusts of any written instrument of which the person to be served is a trustee and which ought to be executed according to the law of New Zealand: (g) Where any relief is sought against any person domiciled or ordinarily resident in New Zealand: (h) Where any person out of New Zealand is a necessary or proper party to a proceeding properly brought against some other person duly served or to be served within New Zealand: (i) Where the proceeding is for the administration of the estate of any deceased person who at the time of his death was domiciled in New Zealand: (j) Where the proceeding is brought under Part 9A or Part 9B of the Civil Aviation Act 1990, unless the party to be served is a High Contracting Party or a Party to a Convention referred to in Part 9A of the Civil Aviation Act 1990: (k) Revoked.(l) Where the proceeding is brought under the Maritime Transport Act 1994: (m) Where the person to be served has submitted to the jurisdiction of the Court.220 When allowed with leave(1) In any other proceeding which the Court has jurisdiction to hear and determine, any document may be served out of New Zealand by leave of the Court. (2) An application for leave under this rule shall be made on notice to every party other than the party intended to be served.(3) A sealed copy of every order made under this rule shall be served with the document to which it relates. (4) Upon any application for leave under this rule, the Court, in exercising its discretion, shall have regard to— (a) The amount or value of the property in dispute or sought to be recovered; and (b) The existence, in the place of residence of the person to be served, of a Court having jurisdiction in the matter in question; and (c) The comparative cost and convenience of proceeding in New Zealand or in the place of residence of the person to be served. (5) Every application for leave under this rule shall be supported by an affidavit— (a) Stating the particulars referred to in subclause (4); and (b) Showing— (i) In what place or country the person to be served is or possibly may be found; and (ii) Whether or not the person to be served is a New Zealand citizen.[16] Both rules are directed to service of proceedings – r 219 to a proceeding commenced by filing a statement of claim and r 220 to "any other proceeding". Mr Crotty sought to argue that an application for joinder was a document in any other proceeding under r 220. I am satisfied that is not so and that the Judge was right to find the Rules do not provide for service of the application. [17] Rules 219 and 220 provide the means by which jurisdiction is assumed over a defendant outside the territory – see the discussion in Cockburn v Kinzie Industries Inc (1988) 1 PRNZ 243, 246-248. Rule 219 specifically provides for that jurisdiction to be assumed by service of a statement of claim or counterclaim and the relevant notice of proceeding or a third party notice. Rule 220 covers proceedings not covered by r 219 that the Court would be entitled to hear and determine were the defendant in New Zealand – Cockburn at 247-8. That is why, as stated in McGechan on Procedure at HR220.01(2) and approved in Cockburn, "documents" in r 220 include the pleadings referred to in r 219. The term must also include any otherdocument by which a proceeding may be commenced such as an originating application and other exceptions to the general rule that a proceeding is to be commenced by statement of claim – r 106 and see McGechan at HR106.02. [18] But there is no reason why an interlocutory application should be a document for the purpose of the Rule. Jurisdiction over an overseas defendant is assumed by service of the proceeding. An interlocutory application is not a proceeding. Rule 3 provides:Proceeding means any application to the Court for the exercise of the civil jurisdiction of the Court other than an interlocutory application:Jurisdiction could not be achieved by service of an interlocutory application, including an application for leave which by r 220(2) is made on notice to every party other than the party intended to be served. [19] With the exception of an application for summary judgment, a special case provided for by r 138A, the provisions for service out of New Zealand in rr 219-233 contemplate only service of documents which initiate a proceeding against a party. Interlocutory applications can be served on an overseas party only after service of the proceeding itself has been effected pursuant to rr 219 or 220.Order requiring service[20] By requiring service of an application which could not be served under the Rules, Sargisson AJ effectively declined the application for joinder before it was heard. She required the plaintiff to take a step which was neither required nor permitted by the Rules. In my view, that was an error. [21] Sargisson AJ's primary concern was that the intended defendants should not be joined without being heard, contrary to the usual practice where leave is sought to sue a company in liquidation or an insurer under s 9(4) of the Law Reform Act. That may properly be a matter for consideration at a hearing of the application for joinder although it is by no means a bar to a successful application. It is to be borne in mind that the plaintiff will still be required to obtain leave in Australia to sue a company inliquidation; the liquidator will not be denied the opportunity to argue joinder. And both intended defendants will be able to challenge improper joinder by way of a protest to jurisdiction or an application to strike out the claim. I would expect any order for joinder to include timetabling orders which would provide for the new parties to apply to rescind the order. It is not a case therefore where an intended party is being denied the right to oppose joinder. [22] But these are all matters which should be argued at a hearing of the application on its merits. As the Rules do not require the presence of the intended defendants, the plaintiff should be allowed to continue in their absence. It should not be disqualified by a condition which the Rules do not permit it to fulfil.Result[23] For these reasons, the orders made by Sargisson AJ are set aside. The joinder application must be heard in the normal way. A fixture for half a day should be allocated for that purpose.