LHL LEASING SOLUTIONS LTD v PINTO LTD (FORMERLY MPL (PINTO LIMITED) [2016] NZHC 1777

LHL LEASING SOLUTIONS LTD v PINTO LTD (FORMERLY MPL (PINTO LIMITED) [2016] NZHC 1777 [2 August 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2013-404-5240[2016] NZHC 1777BETWEEN LHL LEASING SOLUTIONS LIMITEDPlaintiffAND PINTO LIMITED (FORMERLY MPL(PINTO LIMITED)Hearing: 21 July 2016Appearances: G P Denholm for plaintiffD P Robinson for defendantJudgment: 2 August 2016JUDGMENT OF LANG J[on application by defendant for review of Associate Judge's decision]This judgment was delivered by me on 2 August 2016 at 2.30 pm,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate[1] This proceeding was commenced following disputes that arose between the plaintiff, LHL Leasing Solutions Limited (LHL), and the defendant, Pinto Limited (Pinto), between 2007 and 2010.[2] LHL filed the proceeding on 13 December 2013, a matter of days before the limitation period expired. Despite the fact that the proceeding has now been on foot for nearly three and a half years, the parties have not yet progressed to discovery and inspection. It is obviously still a considerable distance away from being allocated a substantive trial.[3] On 18 May 2016 Associate Judge Doogue refused an application by Pinto for an order under r 15.2 of the High Court Rules dismissing the proceeding for want of prosecution.1 Pinto now seeks review of that decision.Background[4] The factual background to the present proceeding is set out fully in a judgment issued by Associate Judge Osborne when he granted an application by Pinto for an order requiring LHL to provide security for costs2 and in the decision now under review.3 It is not necessary for present purposes to repeat the detailed background contained in those judgments.[5] In short, LHL and Pinto were involved in a contractual relationship under which Pinto rented refrigeration equipment from LHL. LHL was responsible for servicing and maintaining the equipment. It engaged a Mr Harold Leaupepe to service the equipment. Mr Leaupepe then subcontracted this work to a company called Maxro NZ Limited (Maxro).[6] Pinto contends that numerous difficulties arose in its relationship with LHL. It says that much of the equipment that it anticipated leasing was not available. Pinto also discovered that LHL was overcharging it in several respects. These included charging GST on the agreed monthly rental when the master lease1 LHL Leasing Solutions Ltd v Pinto Ltd [2016] NZHC 1017.2 LHL Leasing Solutions Ltd v Pinto Ltd [2014] NZHC 2397.3 LHL Leasing Solutions Ltd v Pinto Ltd, above n 1.agreement expressly provided for the monthly payments to be inclusive of GST. Pinto also contends that LHL failed to meet its obligation to service and maintain the equipment, thereby requiring Pinto to arrange for the equipment to be serviced by third parties at its own cost.[7] Pinto initially ceased to make payments of rental until rental that was due had been set off against overpayments Pinto believed it had made. Pinto then paid a reduced rental before ultimately ceasing to pay any rental at all.[8] The dispute was aired through correspondence between LHL and Pinto and their respective solicitors between 2007 and December 2010, when the lease came to an end. There was then a hiatus between 2010 and December 2013 when little if anything appears to have occurred before LHL issued this proceeding.[9] As at the date upon which the Associate Judge heard the application, LHL sought to recover arrears of rental amounting to $279,962.50 together with interest on that sum of $187,252.62. It also sought an order requiring Pinto to return plant equipment and machines in its possession to the value of $70,000.[10] LHL amended its claim following delivery of the Associate Judge'sjudgment. In an amended statement of claim filed on 1 June 2015 LHL now seeks rental arrears amounting to $228,553, together with interest on that sum of $110,509.20. In addition, it seeks liquidated damages against Pinto in the sum of $607,015.98. I take the latter to be a claim for loss of profits that LHL could have generated had Pinto returned the equipment to it at the end of the lease.[11] Pinto admits that it ceased making payments to LHL at one point, but says it did so in order to bring into account the overpayments previously made because LHL had wrongly charged it for GST on the payments due under the contract. Secondly, it says that the payments it made reflected the fact that LHL had failed to supply equipment to it and had not employed its best endeavours to rectify all defects. Pinto says that it ultimately ceased to make payments because LHL failed to maintain the plant that it leased to Pinto with the consequence that most of the plant was missing, obsolete, unserviceable or otherwise unavailable.[12] Pinto denies retaining equipment that it was obliged to return to LHL. It contends that all equipment belonging to LHL was returned in late December 2010 or early 2011.[13] Pinto advances three affirmative defences. It contends that some of the amounts claimed by LHL are based on claims that are statute barred by s 4 of the Limitation Act 1954. Secondly, Pinto contends that LHL is estopped from claiming some of the amounts by virtue of representations made to it by Mr Leaupepe asLHL's duly authorised agent. Thirdly, Pinto alleges that LHL waived a requirement in the agreement for Pinto to return all equipment to it. Pinto also advances two counterclaims alleging breaches of the lease by LHL.Relevant principlesApproach on review[14] In the present case I proceed on the basis that the Associate Judge's decisioncomprised an evaluative judgment as to whether the interests of justice required the proceeding to be struck out because of the prejudice suffered by Pinto as a result ofLHL's delay. The appellate principles summarised in Austin, Nicholls & Co Inc v Stichting Lodestar therefore apply to the present application.4 Pinto is entitled to thisCourt's assessment of whether or not the Associate Judge's decision was correcthaving regard to the material on which he based his decision.Dismissal for want of prosecution[15] Pinto relies on r 15.2 of the High Court Rules, 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.4 Austin, Nicholls & Co Inc v Stichting Lodestar [2007] NZSC 103, (2007) 18 PRNZ 768 (SC).[16] Applications under r 15.2 are rare these days, principally because the case management procedures now employed by the Court generally prevent any proceeding from becoming procedurally delayed. Applications under r 15.2 were, however, relatively common in the days before case management when the progression of cases was left to solicitors and counsel for the parties.[17] The authority generally cited in relation to the application of r 15.2 is Lovie v The Medical Assurance Society of New Zealand Limited.5 In that case Eichelbaum J (as he was then) surveyed earlier New Zealand and English authorities, including the decision of the House of Lords in Birkett v James.6 In particular, His Honour noted the following observations in Birkett v James:7To 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.[18] Eichelbaum J also cited8 the following passage from the speech of Lord Diplock in the same case:9To 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.[19] Eichelbaum J summarised the principles to be extracted from earlier cases as follows:105 Lovie v The Medical Assurance Society of New Zealand Ltd [1992] 2 NZLR 244 (HC).6 Birkett v James [1978] AC 297 (HL).7 At 322.8 Lovie v The Medical Assurance Society of New Zealand, above n 5, at 250.9 Birkett v James above n 6, at 323.1. By itself, delay prior to the issue of proceedings cannot constitute inordinate and inexcusable delay for purposes of a striking out application.2. If such delay has occurred, further delay after issue of proceedings will be looked at more critically by the Court, and will be regarded more readily as inordinate and inexcusable than if the proceeding had been commenced earlier.3. The defendant must show prejudice caused by the post-issue delay. If however the defendant has suffered prejudice as a result of pre- issue delay, he will need to show only something more than minimal additional prejudice to justify striking out the proceeding.4. An overriding consideration is whether justice can be done despite the delay. As to that, all factors, including pre-issue prejudice and delay, have to be taken into account.Delay alleged in the present case[20] Pinto contends that LHL has been guilty of inordinate and inexcusable delay both before and after it issued the present proceeding. It therefore relies on LHL'sconduct during both periods.Pre issue delay[21] As recorded above, the dispute arose towards the end of 2007 when Pinto ceased making payments of rental because it considered LHL had overcharged it in respect of several items including GST. Correspondence between the parties and their respective solicitors then followed. Pinto made a final rental payment on 20 January 2010 and the lease came to the end of its term 11 months later on 20 December 2010. Although there was some correspondence between solicitors during 2011, LHL took no further steps to prosecute its claim until it issued the present proceeding on 19 December 2013.Post issue delay[22] Pinto had not filed its statement of defence by 27 June 2014. As a result, the Registry sent an email to LHL's solicitors on that date seeking an update as to the status of the proceeding. In response, LHL's solicitors advised that Pinto had obtained LHL's agreement to defer filing a statement of defence until LHL had10 Lovie v Medical Assurance Society of New Zealand Ltd above n 5, at 253.provided further particulars of its claim. LHL's solicitors said they had provided this information to Pinto's solicitors on 24 June 2014, and expected Pinto to file itsstatement of defence within 10 working days.[23] Pinto subsequently filed its statement of defence and counterclaim on 8 July 2014. LHL then filed a statement of defence and reply to these on 7 August 2014.[24] In the meantime, Pinto filed its application for security for costs on 23 July 2014. LHL filed its opposition to the application on 22 August 2014 and the application was timetabled to a hearing in a minute issued by Associate Judge Sargisson on 29 August 2014. That minute appears to be the first occasion on which the proceeding was the subject of judicial oversight.[25] Associate Judge Osborne heard the application for security on 30 September 2014. In a judgment delivered on the same date, the Associate Judge required LHL to provide security for costs in a total sum of $43,000.11 He directed that security be provided in two tranches. The first of these was to comprise a payment of $25,800 to be made by 31 October 2014. LHL was required to pay the remaining sum of $17,200 on the date when pleadings closed. The Associate Judge directed that the proceeding was to be stayed in the event that LHL failed to comply with either of these directions. Pinto sealed the order for security on 8 October 2014.[26] LHL failed to meet its obligation to pay the first tranche of security on 31 October 2014. As a result, the proceeding was stayed. LHL also failed to pay the costs awarded to Pinto in relation to the successful application for security for costs. It only paid those costs in January 2015 after Pinto had served a statutory demand upon it.[27] The first case management conference in the proceeding was set down for 13 November 2014. Associate Judge Sargisson vacated this conference in a minute issued on 11 November 2014 because the proceeding was stayed by virtue of LHL'sfailure to provide security.11 LHL Leasing Solutions Ltd v Pinto Ltd, above n 1.[28] On 23 April 2015 Pinto filed an application for an order dismissing the proceeding on the basis that LHL had failed by that date to provide the first tranche of security. By that stage the first tranche of security was more than six monthsoverdue. On 15 May 2015 Associate Judge Sargisson directed that LHL's claimwould be deemed struck out if it did not provide the first tranche of security by 16June 2015. LHL complied with the Associate Judge's direction by paying the sum of$25,800 into Court on 16 June 2015.[29] Thereafter LHL failed to take any further steps to prosecute its claim. As a result, Pinto filed the present application on 2 March 2016 seeking an order dismissing the proceeding for want of prosecution.Prejudice[30] Pinto relies on several factors in support of its argument that it has been seriously prejudiced by the delay in the present case. The first is that the critical events occurred nearly ten years ago. As a result, it can be presumed that the memories of witnesses will have dimmed significantly. This will be a matter of some importance because Pinto says the Court will be required to make credibility findings in relation to several issues, one of which relates to discussions held in 2007and 2008 between Mr Leaupepe and members of Pinto's staff.[31] Secondly, Pinto sold its business in December 2009. As a result, staff members who dealt with LHL and Mr Leaupepe, and who were familiar with theissues raised by the proceeding, left Pinto's employment several years ago.[32] Thirdly, Pinto would have called Mr Graeme Benney to give evidence as a key witness on its behalf at trial. Mr Benney was the manager of Maxro at the time of the dispute with LHL, and could have given evidence regarding the fact that much of the equipment that LHL leased to Pinto was unserviceable. Mr Benney died in 2011 and is therefore unavailable to give evidence on Pinto's behalf.[33] Fourthly, any claims that Pinto may have had against third parties such as Mr Leaupepe and/or his company are now statute barred by virtue of s 4 of the Limitation Act 1950.[34] Fifthly, Pinto is likely to need non-party discovery against such entities, and it can reasonably be anticipated that those parties will no longer hold relevant documents.[35] Finally, Pinto ceased to carry on business in 2010 and the existence of the present proceeding is the only matter preventing it from being wound up.The Associate Judge's decision[36] After summarising the delays that had occurred before the proceeding was issued, the Associate Judge turned to the delay by LHL in complying with the security for costs orders made by Associate Judge Osborne on 30 September 2014. This led him to observe:12[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 toretain the plaintiff as a contingent creditor in the company's financialstatements) do not justify any weight being attached to them in my view.[39] I also consider it relevant to the exercise of the court's discretion tohave regard 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 [LHL's counsel] considered, by the court making an "unless order" for completionof the step of giving discovery and disclosure. 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.12 LHL Leasing Solutions Ltd v Pinto Ltd, above n 1.[42] The key issue though is whether the delay has resulted in additionalprejudice that is "more than minimal" in the words of Lord Diplock. Havingregard 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.The arguments[37] Mr Robinson advanced several arguments on Pinto's behalf. First, he reliedon the arguments as to delay and prejudice that the Associate Judge accepted in thepassage set out above. He also submitted that the Associate Judge's conclusion at[40] amounted to a positive finding that Pinto could not adequately contest theproceeding because of the prejudice caused by LHL's post issue delay. That beingthe case, Mr Robinson contended that it was not open to the Associate Judge to reach the conclusion stated in [42]. As I have already observed, however, when the Court exercises its review function it must consider the matter afresh in order to provide the applicant with its own view as to whether the ultimate decision of the Associate Judge was correct.[38] Mr Robinson expanded on this argument by submitting that a particularlyconcerning aspect of the case from Pinto's perspective is that it will be reliant on Mr Leaupepe to provide documentary material relating to contact between Mr Leaupepe and clients of Pinto with whom Mr Leaupepe dealt directly. Pinto was not party to these discussions and does not hold any documentary evidence in relation to them. It fears that Mr Leaupepe will not have kept a full record of his discussions withPinto's clients.[39] Mr Robinson also emphasised that, unlike LHL, Pinto will not be relying principally on the terms of the lease to establish its defences and counterclaims. Rather, it will need to call oral evidence from persons who dealt with Mr Leaupepe and LHL between 2007 and 2010. Those persons have not worked for Pinto for a considerable time, and Pinto has no means of knowing whether they will still be able to recall the events at the heart of the defences and counterclaims.[40] Mr Denholm disputed these submissions on LHL's behalf. He submitted theAssociate Judge was entitled to conclude that Pinto had failed to demonstrate actual prejudice caused by post issue delay, and that presumed delay alone was not sufficient to satisfy the test referred to in Lovie. Mr Denholm also submitted that LHL and Mr Leaupepe are both in a position to provide lists of documents shortly, and that Pinto will find that both have kept excellent records.DecisionPre issue delay[41] There can be no doubt that LHL was guilty of serious delay during the two to three year period immediately before it issued this proceeding on 19 December 2013. Although the parties and their solicitors appear to have corresponded with each other reasonably regularly up until 2010, this tapered off between 2011 and 2013. Onlysix items of correspondence passed between the parties' solicitors in 2011, one in2012 and three in 2013. Other than these desultory exchanges LHL did not take any further steps to pursue its claim. It has not provided any explanation for its apparent inaction during this period. I would therefore characterise pre issue delay as being both inordinate and unexplained. I took Mr Denholm to accept this proposition during oral argument.[42] Pinto was also clearly prejudiced by LHL's pre-issue delay. Pinto ceased to trade during this period, and therefore ceased to employ and have regular contact with staff members who could have given evidence on its behalf. Those persons presumably moved on to other jobs, and would have had no cause to keep in mind the dispute between LHL and their former employer. By December 2013 the dispute was probably no more than a distant memory for them. Mr Benney died during this period, and it is also probable that any claims Pinto may have had against third parties became statute barred under the Limitation Act 1950 at or about the point where LHL issued this proceeding.[43] Having said that, Pinto ought to have retained documentary evidence relating to its dealings with LHL and relevant third parties notwithstanding the fact that it had ceased to trade. It would also have been prudent for Pinto to maintain links withstaff members who were familiar with the dispute so that it could ask them to give evidence if need be. Those matters were important because Pinto could not assume the dispute was no longer in existence until such time as the limitation period expired.[44] Like the Associate Judge, I place little weight on the fact that Pinto cannotnow be wound up until the dispute has been resolved. Pinto's shareholders couldhave passed a resolution placing the company in liquidation at any stage between 2010 and December 2013.[45] Overall, I would characterise the prejudice to Pinto as a result of LHL's preissue delay as being moderate to serious. I reach that conclusion primarily becauseof Mr Benney's death and the problems Pinto was likely to face by December 2013in contacting former staff members and asking them to recall events that occurred six or seven years earlier.[46] As the authorities make clear, however, prejudice caused by pre issue delay is insufficient without more to justify a proceeding being dismissed for want of prosecution. This flows from the fact that the jurisdiction to make an order under r 15.2 only arises where the plaintiff fails to prosecute all or part of the proceeding to judgment. As a result, a plaintiff who has been guilty of even serious pre issue delay is not at risk of having the proceeding dismissed provided the proceeding is prosecuted diligently. Where there has been serious pre issue delay, however, thedefendant need only show "something more than minimal prejudice" arising out offurther delay in prosecuting the proceeding to obtain an order under r 15.2.Post issue delay[47] Given that LHL filed the proceeding on 19 December 2013, it could ordinarily be expected that Pinto would file its statement of defence within approximately six weeks of that date. As recorded above, however,13 Pinto did not file its statement of defence and counterclaim until 8 July 2014. That was clearly a delay in the proceeding, but it is explained to a large extent by the fact that Pinto was13 At [22].seeking further particulars from LHL before it filed its statement of defence. LHL also agreed to give Pinto further time within which to file its statement of defence.This delay is therefore explained. Although I take Mr Robinson's point that LHLshould have provided the particulars when it filed the proceeding, I am not prepared to say the delay was inordinate. Furthermore, both parties were responsible for causing it. It therefore cannot be held against LHL for present purposes.[48] Thereafter there was no further procedural delay up until 30 September 2014, when Associate Judge Osborne delivered his judgment in relation to Pinto'sapplication for security. As I have already recorded, there was then a delay ofapproximately nine months before LHL complied with the Associate Judge'sdirections. That delay is explained by the fact that LHL needed to find the sum of approximately $25,000 in order to provide the first tranche of security. Although the length of the delay is unfortunate, I am not prepared to find that it was inordinate. I reach that conclusion because it is not uncommon for a plaintiff to take some time to gather together the necessary funds to enable it to satisfy an order for security. I note also that Associate Judge Sargisson was not prepared to dismiss the proceeding when Pinto applied for such an order on 15 May 2015. Rather, she granted LHL an extension of time to 16 June 2015 to provide the security and LHL complied with that direction.[49] Thereafter, however, LHL took no steps to prosecute its claim until Pinto filed the application to dismiss the claim for want of prosecution on 2 March 2016. That is a period of nearly nine months. LHL has not provided any reasons for its inaction during this period, so the delay must be treated as unexplained. Given that it was for such a lengthy period I also consider the delay to have been inordinate.[50] The difficulty for Pinto, however, is that it cannot point to any prejudice referable specifically to the delay that occurred between 15 June 2015 and 2 March 2016. As the Associate Judge observed, it is forced to rely upon the presumed prejudice arising out of the fact that as time passes it will be more difficult to locate witnesses, and the memories of witnesses will have dimmed further. I do not underestimate the effect of such prejudice, but I consider that more was required in the present case for the application under r 15.2 to succeed. Although Pinto is onlyrequired to show that it suffered something more than minimal prejudice arising out of the delay, it failed to meet that threshold. This was essentially the reason why the Associate Judge decided the application in favour of LHL.[51] I also consider that Pinto's concerns about the documentary material thatLHL and Mr Leaupepe will be able to provide are premature. That issue will not become clear until such time as they provide their lists of documents. If the lists are grossly deficient because records have been lost or destroyed Pinto may be entitled to ask the Court to revisit the issue of dismissal again. Similarly, Pinto has not said it will be unable to call evidence to prove its defences and counterclaims. Rather, it has expressed a concern that it may not be able to do so. That issue may also need to be revisited once Pinto has had an opportunity to review the discovery provided by LHL and Mr Leaupepe.[52] It follows that the application for review of the Associate Judge's decisioncannot succeed.The future of the proceeding[53] It is now imperative that this proceeding be brought to a conclusion within an acceptable time frame. It is so far behind the position it ought to have been in that special measures are required to place it back on track.[54] Directions given by the Associate Judge at the end of his decision set a timetable for the parties to file and serve their lists of documents. LHL is also required to file and serve a list of documents held or within the control of MrLeaupepe. Pinto filed and served its list of documents on 13 July 2016, and LHL'slists were due to be filed and served on or about the same date. I was concerned to learn during the hearing that LHL is now in default in filing its lists of documents. Mr Denholm advised me that LHL expects to file and serve both lists of documents no later than Friday 29 July 2016.[55] To ensure that this occurs I direct that the proceeding is to be listed for mention in the Chambers List before the Associate Judge on Friday 5 August 2016 at 2.15 pm. If the lists of documents have been filed prior to that date, the listing willbe vacated. If they have not, LHL can expect "unless orders" to be made on 5 August.[56] The delay that occurred in providing the first tranche of security cannot be permitted to be repeated in relation to the second. It is better to know now rather than later whether LHL is in a position to fund the second tranche. During the hearing Mr Denholm advised me that LHL is in a position to pay the second tranche immediately. I therefore vary the orders made by Associate Judge Osborne and direct that the second tranche of security is to be paid into Court no later than 29 July 2016.Result[57] The application for review of the Associate Judge's decision is dismissed.Costs[58] Although LHL was the successful party in relation to the present application, my tentative view is that costs should lie where they fall. The application was filed because of significant pre and post issue delays by LHL that the Associate Judge found were inordinate and unexplained. This Court has reached the same conclusion. I consider it would be wrong to award costs against Pinto in those circumstances. My decision cannot, however, be described as the granting of an indulgence to LHL because the grounds for review were not made out. It would therefore also be wrong in principle to make an award of costs in favour of Pinto.[59] If either party takes a different view, counsel for that party should file and serve a concise memorandum (ie not more than five pages in length) setting out the orders sought and I will give directions setting a timetable for the filing and service of memoranda in response and reply.Lang J