LHL LEASING SOLUTIONS LIMITED v PINTO LIMITED [2016] NZHC 1017

LHL LEASING SOLUTIONS LIMITED v PINTO LIMITED [2016] NZHC 1017 [18 May 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2013-404-5240[2016] NZHC 1017BETWEEN LHL LEASING SOLUTIONS LIMITEDPlaintiffAND PINTO LIMITEDDefendantHearing: 10 May 2016Appearances: G Denholm for plaintiffD Robinson for defendantJudgment: 18 May 2016JUDGMENT OF ASSOCIATE JUDGE J P DOOGUEThis judgment was delivered by me on18.05.16 at 4 pm, pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateBackground[1] This proceeding has its origins in events which took place from approximately 2005 onward. A juice processing distribution and sales company sold off its enterprise in that year. I will call that party the original vendor. The originalvendor had entered into a "master lease agreement" with a company associated with a Mr Leaupepe. That company I will call the "Leaupepe company". Under thatagreement the Leaupepe company acquired, and then leased back to the original vendor, the juice processing equipment. Under a subsequent novation arrangement the parties became the plaintiff, as owner/lessor of the equipment in the place of the Leaupepe company, and the defendant, in place of the original vendor as lessee of the equipment.[2] Under the master lease agreement the lessor was obliged to pay a rental of$9,059.94 "including GST" per month. There is no dispute that the defendantbecame subject to that obligation through the deed of novation dated 9 August 2006.[3] Not long after entering into the deed of novation, disputes arose. The defendant claimed that it had been paying too much to the plaintiff under the lease agreement. In particular, rather than the figure of $9,059.94 per month being inclusive of GST, the plaintiff and its predecessor had added on GST.[4] There were also disputes over what the parties termed the "swap out"agreement. Mr Leaupepe, it is said, represented to the defendant that some of theplaintiff's equipment was obsolete or unserviceable or otherwise unavailable and that that would be replaced from an alternative supplier (that is, from an entity associated with Mr Leaupepe). As I understand the argument, the defendant says that because of the replacement of the equipment, its liability to the plaintiff under the master lease agreement would be reduced. I understand, that is to say, the monthly rental would be reduced.[5] The defendant says that in reliance upon what Mr Leaupepe told it, which statement it claims the plaintiff authorised Mr Leaupepe to make, it entered into lease transactions for replacement equipment with third parties.[6] Mr Leaupepe or one of his companies was undoubtedly the service agent whowas responsible for carrying out servicing of the plaintiff's equipment while it was in the possession of the defendant. But the plaintiff alleges Mr Leaupepe had no additional authority to give assurances or enter into arrangements of the kind comprised in the alleged swap out agreement.[7] The foregoing matters have relevance to a further area of dispute whichconcerns the defendant's assertion that the plaintiff breached its obligation tomaintain, service, repair or maintain the equipment leased and breached its obligation to replace obsolete stock or stock that was incapable of repair. The defendant says that as a result it was obliged to acquire equipment from an alternative source at a cost of at least $150,000.[8] Also in dispute is whether the defendant was entitled to make deductions from the rent it paid for the equipment on account of changed circumstances in relation to the master agreement. The position which the plaintiff takes is that no matter what happened to the equipment, the defendant would continue to have the obligation to pay the rental required by the master agreement without any reduction. It says the possibility that equipment would become obsolete or unserviceable was implicit in the fact that what was being supplied was not new equipment at the time when the lease was entered into. By novation the defendant became the leasing party and therefore was bound to the understanding between the original parties which underlay the master agreement. The plaintiff says that factor, together with the fact that the obligation to pay the rent was for the defined term of the lease agreement until expiry coupled with the absence of any contractual recognition of an entitlement to reduce the rent, supports its contentions.[9] As well, the plaintiff points out that the master agreement contained a "noset-off" clause. Therefore, the plaintiff claims, even if there were defects in the equipment supplied or some of it actually ceased to be operative at all, the no set-off provision prevented the defendant from making deductions, as it did, from the rental.[10] In answer to the "no set-off" point the defendant points out that the contractstates that the plaintiff is only able to avail itself of this provision so long as it usesits best endeavours to maintain the equipment. The defendant says the plaintiff breached this requirement and that accordingly it cannot rely upon the "no set-off"clause.[11] Whether or not the "no set-off" clause applied is a relevant issue becausewhether or not the defendant was entitled to make deductions from the rent is a factor which is at the heart of the dispute about whether the defendant was justified in reducing the amount of rental and therefore the claim for unpaid rental which the plaintiff brings against the defendant.The strike out application[12] The defendant has applied for an order dismissing the plaintiff's claim ongrounds which are summarised in the notice of application as being:(h) The plaintiff has been guilty of inexcusable and inordinate delay in the conduct of this proceeding which has seriously prejudiced the Defendant.[13] The application is made in reliance on HCR 15.2 which provides as follows:15.2 Dismissal for want of prosecutionAny opposite party may apply to have all or part of a proceeding or counterclaim dismissed or stayed, and the court may make such order as it thinks just, if—(a) the plaintiff fails to prosecute all or part of the plaintiff's proceeding to trial and judgment; or(b) the defendant fails to prosecute all or part of the defendant's counterclaim to trial and judgment.[14] The parties agreed that one of the leading authorities in this area was the judgment in Lovie v Medical Assurance Society New Zealand Ltd where Eichelbaum J discussed the question of what periods of relevant prejudice were admissable where there had been pre-issue delay and post-issue delay.1 The Judge considered1 Lovie v Medical Assurance Society New Zealand Limited [1992] 2 NZLR 244 (HC) at 248.the judgment of the House of Lords in Birkett v James.2 Specifically, the Judge approved as being applicable in New Zealand two holdings in regard to this point:3To justify dismissal of an action for want of prosecution the delay relied upon must relate to time which the plaintiff allows to lapse unnecessarily after the writ has been issued.A late start makes it the more incumbent upon the plaintiff to proceed with all due speed and a pace which might have been excusable if the action had been started sooner may be inexcusable in the light of the time that has?already passed before the writ was issued.[15] In his judgment, Eichelbaum J also referred to the following passage fromLord Diplock's judgment in Birkett:4To justify dismissal of an action for want of prosecution some prejudice tothe defendant additional to that inevitably flowing from the plaintiff'stardiness in issuing his writ must be shown to have resulted from his subsequent delay (beyond the period allowed by rules of the court) in proceeding promptly with the successive steps in the action. The additional prejudice need not be great compared with that which may have been already caused by the time elapsed before the writ was issued, but it must be more than minimal; and the delay in taking a step in the action if it is to qualify as inordinate as well as prejudicial must exceed the period allowed by rules of court for taking that step.[16] Eichelbaum J identified three matters which an applicant must establish:(a) inordinate delay;(b) that such delay was inexcusable;(c) serious prejudice had resulted to the applicant;[17] It would seem to be necessary to first identify the relevant periods of delay in this case (pre-issue and post-issue), and also to attempt to identify whether the subsequent delays following the issue of proceedings has materially added someprejudice to that inevitably flowing from the plaintiff's tardiness in issuing his writ.2 Birkett v James [1978] AC 297.3 At 322.4 At 323.[18] The disputes between these parties emerged towards the end of 2007. At that stage the defendant ceased making rent payments. It had calculated that it had been making over-payments. Consistent with that position, it wrote to the plaintiff on 11 January 2008 setting out a planned abatement of payments to off-set the overcharges to which it claimed it had been subject. It referred to the unjustified adding on to the rent of a GST figure when the contract explicitly envisaged that the monthly figure was inclusive of GST.[19] The plaintiff's solicitors also advanced the plaintiff's position that monthlylease payments were payable whether or not there was equipment available. There followed very protracted exchanges between the solicitors acting on each side. Amongst other additional disputes that emerged was the assertion by the defendants that the equipment was not being serviced or maintained. The last rent payment was made by the defendant on 20 January 2010.[20] Further statements of position and threats were issued each way.[21] On 20 December 2010 the lease came to the end of its term.[22] A further three years went by before the plaintiff issued its proceedings on 19 December 2013.[23] Since the time when the proceeding was issued, the proceedings have continued at a desultory pace. Since that date the defendant has filed and served an application for security for costs on which it was successful.5[24] The plaintiff did not meet the timetable according to which it was to pay the tranches of security. The defendant filed an application on 22 April 2015 to strike out the proceeding.[25] As a result of the strike out application, the plaintiff was obliged to seek an extension of time which was granted. The judge who dealt with the matter5 LHL Leasing Solutions Ltd v Pinto Ltd [2014] NZHC 2397.considered that that was a preferable way to deal with the breach. The plaintiff is currently compliant with that timetable as amended.[26] I enquired at the hearing whether there had been any engagement between the parties to settle the terms of discovery pursuant to their obligation under HCR 8.2. I am told that there have not been any such discussions.[27] The position is that some two and a half years approximately after the issue of the proceedings, an essential interlocutory step, namely discovery, has not been started. Further, the plaintiff intends, Mr Denham advised me, to file an amended statement of claim. There would be little point in scheduling discovery until that step and the statement of defence in response have been filed in court and served.[28] The defendant characterises this delay as being inordinate.[29] The defendant claims that there has been prejudice which has been materially added to by the delays since the plaintiff issued proceedings. The defendant says that contrary to an earlier position which Mr Leaupepe took, which was that the plaintiff was a party to the discussions for the swap out agreement, he now takes the position that he never had any authority from the plaintiff and that such steps as he took were taken on his own behalf. The plaintiff says that this raises the possibilitythat Mr Leaupepe's company will need to be added as a third party and that because these events occurred so long ago, there may be difficulties with obtaining records from 2007 about the swap out. As well, the very availability of a remedy against Mr Leaupepe may be in issue because of limitation difficulties caused by delay.[30] The defendant says, generally, that there has been a dimming of memories over time which will have been added to in the two and a half years that went by since the end of December 2013.[31] The defendant says that there has potentially been a loss of evidence available to it concerning the dispute about whether the plaintiff properly maintained the equipment, it being recalled that this was a circumstance precedent to the right ofthe plaintiff to invoke the "no set-off" clause in the agreement. It said that its salesstaff, who would have been able to give evidence about complaints arising from the alleged non-maintenance of the processing equipment which was provided to customers of the defendant, have now left the employment of the defendant. Additionally, Mr Robinson submitted, the focus of their commercial concerns will now be elsewhere. These have added to the prejudice occasioned to the defendant.[32] It points as well to the fact that an engineer who actually carried out the maintenance of the hired equipment has died, although I note that I was also told that that person, Mr Benny, died in 2011 before the proceedings had even been issued. That being so his passing cannot be seen as generating additional prejudice to the defendant.[33] The defendant claimed additional prejudice because it was unable to wind up its business affairs and it has had to maintain in its accounts an item representing a contingent debt owed to the plaintiff.[34] Against this, Mr Denham essentially argued that the delays in meeting the security for costs judgment were due to the fact that the defendant had not paid what it contractually owed to the plaintiff and that the principal of the plaintiff, Mr Raki, had been obliged to source funds from private interests in order to meet on behalf of the plaintiff its obligation to make the security payments.[35] The defendant in response, though, points out that one of the steps that it took which was abating the rental payments to take account of excessive amounts paid to the plaintiff was plainly justified, at least in part, because the defendant had been paying GST additional to the monthly rental in error when the contract expresses in black and white terms that the obligation of the defendant was GST inclusive.[36] Further, the explanation which the plaintiff advances assumes that it would be successful on the argument concerning whether the defendant may have been justified in reducing or abating the rental paid because of unserviceability or non- availability of equipment which the plaintiff was supposed to make available under the lease agreement. It is by no means a straight forward argument that the defendant was obliged in terms of the agreement to continue paying the full amountof the rental regardless of the extent and value of services which the lessor, the plaintiff, was actually providing.[37] Further, Mr Robinson referred me to the conclusion which Osborne AJ came to in his judgment of 30 September 2014 which made it clear that he had considered the ability of the plaintiff to meet an obligation to pay security for costs. The Judge expressed himself satisfied that there was no ground for concern about access to justice issues which can only mean that he took into account the relevant facts and concluded that the plaintiff should be able to make the payments owing. In any event, it is my view that unless and until a successful review or appeal application was made against the orders that Osborne AJ made they were required to be complied with in their terms, and that included an obligation on the part of the plaintiff to make the payments as and when the Judge directed. It would be inconsistent with such an approach to now revisit the timetables that the Judge set and come to a view that the plaintiff was justified in not meeting its terms.[38] I conclude therefore that there has been an additional two and half years of delay on the part of the plaintiff. I consider that there will have been material prejudice because the difficulties of acquiring evidence after such a long time can only have increased in the last two and a half years. I consider that common sense can lead to no other conclusion. Some of the other explicit assertions of prejudice (such as the argument about the need to retain the plaintiff as a contingent creditor inthe company's financial statements) do not justify any weight being attached to themin my view.[39] I also consider it relevant to the exercise of the court's discretion to haveregard to the fact that if the claim is now struck out it will be the end of matters so far as the plaintiff is concerned because any fresh pleading of the claim would be time barred.[40] It is my view that even if satisfactory progress could be maintained from this point by means including the mechanism which Mr Denham put forward which I will discuss shortly, that is no answer to the accrued prejudice to the defendant which has already mounted up because of the passage of time since issue.[41] The defendant's objections could be met, Mr Denham considered, by thecourt making an "unless order" for completion of the step of giving discovery anddisclosure. The fact that the plaintiff issued these proceedings which relate to events in 2007/2008 as late as it did gave rise to grave difficulties on the part of the defendant in mounting an effective defence even had the proceeding been brought to trial promptly. The proceeding is an estimated one year behind schedule in progressing toward trial compared with what the position would have been had the plaintiff proceeded expeditiously. There has been unjustified delay. No adequate explanation has been put forward for the delay.[42] The key issue though is whether the delay has resulted in additional prejudicethat is "more than minimal" in the words of Lord Diplock. Having regard to the extent of the delays and the fact that the defendant is driven to rely upon presumed prejudice rather than prejudice which has been explicitly established by evidence, I consider that the discretion ought to be exercised against striking out the proceeding at this time. Because the cause of action would now be time barred, striking out the proceeding would be excessive having regard to the limited additional prejudice which the court is asked to assume has accrued since the commencement of the proceeding.Further steps[43] The plaintiff is to file any amended statement of claim that it wishes to within 10 working days. Statement of defence to amended statement of claim is to be completed within a further 10 working days. Any reply is to be filed and served within another five working days. The parties are to confer thereafter on the matter of what categories of documents are to be discovered. There will be an order directing the parties to give standard discovery 15 working days after the date for filing the reply which I have directed above. There will need to be exact compliance with the timetable now directed. The court will be particularly concerned if there is any failure to meet the timetabled dates on the part of the plaintiff.[44] The Registrar is to allocate a further case management conference for this proceeding to take place no earlier than 1 August 2016. Any interlocutoryapplications are to be filed and served not later than 28 July 2016. The agenda for that conference will include:(a) review of compliance with the discovery order;(b) scheduling of any interlocutory applications for hearing;(c) review of number of witnesses to be called at trial, estimate of trial duration, allocation of close of pleading date and trial date and directions as to the pre-trial programme.Costs[45] Mr Robinson submitted that costs ought to lie where they fall in the event that the application was dismissed. It was his submission that the application had been properly brought. Having regard to the fact that it has been established that there has been unjustified and un-excused delay on the part of the plaintiff, I do not consider that it has any reasonable entitlement to a costs order to be made in its favour. Costs are to lie where they fall._____________J.P. DoogueAssociate Judge