SHUTTLE PETROLEUM DISTRIBUTION LIMITED V CHEVRON NEW ZEALAND HC WN CIV-2002-485-000826

SHUTTLE PETROLEUM DISTRIBUTION LIMITED V CHEVRON NEW ZEALAND HC WN CIV-2002- 485-000826 27 October 2006IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2002-485-000826BETWEEN SHUTTLE PETROLEUM DISTRIBUTION LIMITED Plaintiff AND CHEVRON NEW ZEALAND Defendant Hearing: 26 October 2006 Appearances: M D Branch for Plaintiff S Barker for Defendant Judgment: 27 October 2006JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN Upon Applications: a) by Defendant for Leave to Commence Counterclaim b) by Plaintiff to Permit Inspection of Discoverable Documents[1] Shuttle's claims against Chevron are for alleged breaches of a supply agreement dated 1 July 1999. Relevant terms of the supply agreement included: a) Chevron was required to give Shuttle the first option to complete deliveries of petroleum products that Chevron was unable to make, with Chevron free to engage another party to complete the deliveries if Shuttle was unable to do so; b) Chevron was enabled, after prior consultation with Shuttle, to replace the pricing mechanism for the price paid by Shuttle for product, upon written notice to Shuttle and provided that any replacement pricingformula would not render the price paid less competitive and the price immediately prior to the replacement; c) Chevron and its related companies would not compete directly with Shuttle's business; and d) Shuttle and Chevron were to meet at specific intervals to discuss ways of growing Shuttle's business for the benefit of Shuttle and Chevron. [2] Contemporaneously Shuttle entered into a sale and purchase agreement with Shuttle Tankers Petroleum (1997) Limited to purchase its assets. Chevron owned all of the shares in Shuttle Tankers. [3] Shuttle was in business for about nine months until 4 May 2001, at which date it said Chevron refused to sell further petroleum products to it. This forced it to cease trading. By notice dated 24 May 2001, Chevron purported to terminate the supply agreement on the basis that Shuttle had suspended for five working days or longer its principal business activities. Shuttle disputes the purported termination. Its claims include: a) The loss in the value of the business as at date of termination; b) The loss of profit to date of termination; c) Redundancy payments incurred as a result of having to cease trading; d) Future profits to the date of expiry of the supply agreement or damages for loss of chance. [4] Shuttle's claims also assert: a failure by Chevron to give it first option to complete deliveries Chevron was unable to make; that Chevron failed to consult with it prior to replacing the pricing mechanism; that Chevron supplied product by itself or to Shuttle's competitors; and that Chevron divested itself of bulk delivery operations without first offering that business to Shuttle.Other relevant background facts[5] The sole director and principal shareholder of Shuttle is Tony Galbraith, or interests controlled by him. In his capacity as director he executed the supply agreement and sale and purchase agreement on behalf of Shuttle. In person, Mr Galbraith guaranteed Shuttle's performance of its agreement for sale and purchase with Shuttle Tankers. The supply agreement with Chevron contained no provision for his personal guarantee. [6] Shuttle's registered office is in Hamilton, and Chevron's is in Wellington. Mr Galbraith resides in Hamilton.Procedural history[7] Shuttle filed its claim in the Wellington High Court on 30 September 2002. A statement of defence and counterclaim was promptly filed. The counterclaim was for a sum of $876,420.69 for unpaid petroleum product deliveries to Shuttle. Shuttle responded with a statement of defence claiming Chevron's debt was not due because Shuttle's claim exceeded Chevron's. [8] Earlier, in the High Court in Hamilton on 22 February 2002, Master Faire (as he then was) upheld Shuttle's application to set aside a statutory demand served by Chevron in relation to its debt claim. The learned master held there was an issue to be argued upon Shuttle's claims. [9] In this proceeding, in January 2003, Chevron applied for security for costs. It sought security in the sum of $200,000, together with leave to apply for further security at a later time. In a judgment dated 12 May 2003, Master Gendall (as he then was) held that whilst Shuttle was impecunious, there was a reasonable argument its impecuniosity was caused in whole or in part by Chevron's actions. He refused Chevron's application for security. [10] Chevron applied for a review of that decision. MacKenzie J's judgment upon that review application was given on 3 May 2004. The review application failed.[11] On 19 June 2003 the parties attended mediation but were unable to reach a settlement. The plaintiff filed its lists of documents on 23 September 2004, and the defendant filed its on 28 February 2005. [12] On 13 May 2005 Shuttle applied for an order for production of documentation which Chevron claimed was confidential, or commercially sensitive, or irrelevant. The judgment of Associate Judge Lang (as he then was) on that application was delivered on 3 August 2005. That judgment favoured Shuttle. [13] Adopting the learned judge's suggestions regarding disclosure safeguards, the parties agreed upon a protocol for delivery of the documentation Shuttle sought. The protocol enabled the disclosure of information to Shuttle's expert accountancy advisers, to its lawyers, to Mr Galbraith and to employees of Shuttle, including its accountant, Mr Woods. The protocol required signed undertakings to respect the purpose of disclosure. It directed that inspection would occur at specified premises controlled by Chevron. An Order incorporating these conditions was sealed by the Court on 18 August 2005. On 31 October 2005 Mr Woods signed an undertaking that: a) He would not discuss the confidential information with anyone (other than Shuttle's solicitors) who had not signed a similar undertaking. b) He would not make any copies of the confidential information. [14] On 7 July 2006 Chevron applied for leave to commence a counterclaim against Mr Galbraith. [15] On 25 August 2006 Shuttle made application for additional discovery. Although initially opposed by Chevron, that opposition was not pursued. Accordingly I make orders in terms sought, and direct Shuttle's costs thereon be paid on a category 2B basis. [16] On 1 September 2006 Shuttle applied for orders enabling it to complete inspection of documents required to be disclosed by the order of Associate JudgeLang. Apparently Chevron required its solicitors to be present during the inspection process and Shuttle to meet its solicitors' costs for doing so. Chevron's notice of opposition also indicates an objection based upon the claim that Mr Woods is no longer employed by Shuttle.Application by Shuttle to permit inspection[17] Chevron's position requiring Shuttle to pay for the presence of its solicitor during the inspection process is justified upon the basis that this requirement is in principle reasonable, but also necessary because Mr Woods is no longer employed by Shuttle. On neither ground do I consider it is justified. [18] Considerations of confidentiality and commercial sensitivity have already been adequately addressed by the protocol agreed and incorporated in the order that has been sealed. Without further explanation suggesting Mr Woods cannot properly be engaged by Shuttle to assist it with the inspection process, Chevron has no basis for its position. Mr Woods is bound by his undertaking no less now than he was when he completed it. Shuttle still requires him for the inspection process. Chevron have not identified any reason that this would be objectionable. There is no reason Mr Woods' undertaking should apply any the less even if Mr Woods was no longer a salaried employee of Shuttle. [19] The Court would expect exceptional circumstances to be shown if the parties' solicitors should be present during the inspection process, much less that those solicitors services should be paid for by the inspecting party. This is particularly so if this requirement was not ordained as part of the agreement by which documents were to be produced for inspection. A Court could be expected to take a dim view of the means by which a party has belatedly attempted to prescribe rules for a process openly discussed and agreed to beforehand.Chevron's application for leave to commence counterclaim against Mr Galbraith[20] In support of that application Chevron has filed a draft of an amended statement of defence and counterclaim. It pleads that when Mr Galbraith signed thesupply agreement he also wrote the words "director and guarantor". Thereby, Chevron says, he guaranteed the obligations of Shuttle to Chevron, including the obligation for Shuttle to pay Chevron for petroleum product purchases. Chevron wishes to file its claim against Mr Galbraith in the sum of $750,000 because that is the amount his guarantee of the sale and purchase agreement with Shuttle Tankers was limited to. Chevron claims that by the sale and purchase agreement Mr Galbraith unconditionally and irrevocably guaranteed to Shuttle Tankers the due and punctual payment by Shuttle of all monies from time-to-time payable by Shuttle under the supply agreement. That position is explained by the fact that Chevron was the only party to which any monies could be or were owed by Shuttle under the supply agreement, and accordingly the only party upon whom a benefit could be conferred by the guarantee for the purposes of the Contracts (Privity) Act 1982. Should the Contracts (Privity) Act not avail it, then Chevron pleads in aid rectification in order to fix Mr Galbraith's guarantee obligation to Chevron as well as to Shuttle Tankers because that was what was intended by all parties when both agreements were completed. [21] Chevron claims as much is implicit by the manner in which Mr Galbraith signed the supply agreement in the manner, and using the words he did. [22] Mr Barker, for Chevron, submits the decision of the High Court in McCarthy v Derbyshire (Keane J, HC AK CIV-2005-404-003105 6 December 2005) applies. [23] As for other matters usually considered upon applications of this kind, Mr Barker submits: i) Any delay in applying to join Mr Galbraith needs to be considered in view of the context of the slow pace at which this proceeding has progressed. He submits it is still only at the inspection stage. ii) No additional interlocutory steps or hearing time would be required.iii) Mr Galbraith's joinder would not affect the progress of the case. iv) There is a substantial connection between the original proceeding and in matters affecting Mr Galbraith's joinder, and because substantive and credible causes of action against him exist. v) Considerations of prejudice favour Chevron more than they do Shuttle.Considerations upon Chevron's application[24] Balance and reason do not support Chevron's application. Mr Galbraith has said he agrees to be bound by any finding as to how much Shuttle may owe Chevron in relation to the supply agreement. His defence will be limited to whether or not he has guaranteed the sum which Shuttle is found to owe (if any) to Chevron. Notwithstanding Mr Galbraith's concession, Chevron's application, if granted, has the potential to considerably widen the scope of the present proceeding. It may require additional discovery because Chevron's rectification claim will open up all of the agreement negotiations to inspection. The proceeding will be expanded to involve a subjective inquiry surrounding the making of both agreements – until now not required. Also, it will have the potential to involve the joinder of yet further parties, in particular the professional advisers involved in constructing the agreement by which Chevron now claims Mr Galbraith's guarantee was intended to be provided. Conceivably, the solicitors advising Chevron and Shuttle at all relevant times could be connected. [25] Chevron claims that it is not responsible for the delay in progressing the proceeding to the stage it has in the last four years. It says its intention to join Mr Galbraith was known as early as June 2003. [26] But that submission ignores these facts:i) In all interlocutory applications in this proceeding, the Court has found in favour of Shuttle. ii) In all judgments upon those interlocutory applications, costs have been awarded in favour of Shuttle. iii) Chevron has had four years to apply to join Mr Galbraith, but have done nothing about it until now. iv) Likely any independent claim against Mr Galbraith could not be commenced in Wellington in any event. v) If it is proved Mr Galbraith is a guarantor of Shuttle's obligations under the supply agreement, then arguably he is entitled to have any claim against him personally pursued by way of arbitration initially. vi) The joinder of Mr Galbraith may potentially expose him to a costs award for the whole proceeding should Chevron succeed in the outcome. Shuttle is admittedly impecunious, but that has not persuaded the Court to prevent it from pursuing its claim. vii) The guarantee argument is likely to require a significant part of Court fixture hearing time. [27] In my judgment, the decision in McCarthy v Derbyshire does not support Chevron's cause. Even if it did, I would not, for reasons already explained, have granted Chevron's application. Putting to one side the Court's ability to provide fixture time, this case is nearer the finishing straight than Chevron will admit. There has not, until this hearing, been the slightest indication of other interlocutory concerns, and in recent times delay has been caused by Chevron's unreasonable attitude over production and inspection of documents.[28] McCarthy v Derbyshire is distinguishable because in that case the agreement recorded the vendor as being "EMBROIDERY SPECIALISTS LTD John McCarthy as Guarantor". The District Court, and later the High Court, held that the description of Mr McCarthy as guarantor was intended to have effect, and although he signed as director only, he was also bound as a guarantor. In this case the supply agreement contains no guarantee at all, nor even the word guarantee. A reasonable explanation for him signing the agreement with the words "Director and Guarantor" is the fact that at the same time the supply agreement was signed, so too was the sale and purchase agreement which did contain a guarantee obligation. [29] Of course it is not my function at this time to provide any judgment upon the guarantee issue. But, if that issue is to be pursued, there is, in the context of and having regard to the history of this proceeding, no compelling reason for it to be joined as part of those issues which are well overdue for determination. [30] Because of Mr Galbraith's concession to abide the Court's decision regarding the extent, if any, of Shuttle's liability to Chevron, the issue concerning any personal liability by Mr Galbraith is limited to the concise point about whether or not he is a guarantor of Shuttle's obligations under the supply agreement. This provides no basis for Mr Galbraith's attendance in his personal capacity for the four weeks or so (Mr Barker's estimate) of hearing time to hear Shuttle's claim against Chevron, and Chevron's counterclaim against Shuttle. [31] Mr Galbraith's undertaking to abide the Court's decision regarding the Court's determination upon Chevron's counterclaim against Shuttle will eliminate Chevron's concern that its counterclaim proceeding against Mr Galbraith will involve a duplication of its claims against Shuttle. [32] By a process of successive applications, in none of which Chevron has been successful, the course of this proceeding has been disrupted. In the course of submissions to me, Mr Barker hinted at the prospect of further interlocutory applications including one for determination of a preliminary point about whether or not a clause in the supply agreement is arguably void for uncertainty. My clear impression is that Chevron may be employing a tactic of using interlocutoryprocesses to exhaust the resolve and the resources available to Shuttle to prosecute its claim. [33] Consideration of elements of delay and prejudice favour Shuttle much more than they do Chevron.Judgmenti) Without further condition or requirement, Chevron is to comply with its obligation to enable inspection of agreed documents by Shuttle's solicitors or by other persons on behalf of whom appropriate undertakings have already been given. That facility is to be provided at any time during normal working hours, and upon not less than two working days' notice being given by Shuttle's solicitors. It is not necessary for me to make an "unless" order to ensure compliance. I accept Mr Barker's assurance that Chevron will assist inspection by Mr Woods and will provide to Shuttle's solicitors copies of any documents thereafter requested. ii) Chevron's application for leave to commence a counterclaim against Mr Galbraith is refused. iii) Shuttle does not seek any order for costs other than that ordinarily payable upon applications of this kind. Accordingly Chevron will pay: a. Upon Shuttle's application, Shuttle's costs calculated on a 2B basis; b. Upon its application, the costs of Shuttle calculated on a 2B basis.Further orders[34] I direct that the Registrar schedule a fixture for four weeks. In the first instance the setting down fee is to be paid equally by Shuttle and by Chevron. It is not discernible at this point to what extent, if any, the claim by either party is greater than the other. Therefore, failure by other party to meet its share of the setting down fee may provide cause for this Court to rule that its claim may not, at that time, be heard. [35] General leave is reserved to the parties to apply on short notice for a telephone conference to be convened. [36] Meanwhile, this matter will be adjourned to a telephone conference at 9.15 a.m., 7 February 2007, for progress to be monitored.Solicitors: Harkness Henry & Co, Hamilton for Plaintiff Buddle Findlay, Wellington for Defendant