Contractors Bonding Ltd v Godfrey Waterhouse

• Jurisdiction: New Zealand
• Judge: Ellen France J
• Judgment Date: 31 August 2012
• Neutral Citation: [2012] NZCA 399
• Docket Number: CA200/2011
• Court: Court of Appeal
• Date: 31 August 2012

Between

Contractors Bonding Limited

Appellant

and

Godfrey Waterhouse

First Respondent

and

Robert John Waterhouse

Second Respondent

[2012] NZCA 399

Court:

Ellen France, Harrison and White JJ

CA200/2011

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal from High Court (“HC”) decision declining to stay proceedings pending disclosure of agreement with an independent litigation funder — respondents were involved in insurance business in Georgia, USA — insurance underwriting agreement between parties — authorities in Georgia took steps in 2005 against parties after law change, claiming applicant was not qualified to operate as underwriter in Georgia — respondent filed proceedings in 2010 in NZ (applicant company registered in NZ) having entered into litigation funding agreement with third party — HC considered disclosure of agreement to applicant was not necessary based on approach in Saunders v Houghton — whether courts should exercise any form of oversight over proceedings between individual litigants where a third party in the business of litigation funding was involved — what was the nature and extent of oversight in cases involving individual claims (non-representative actions).

Counsel:

R E Harrison QC for Appellant

S A Grant for Respondents

JUDGMENT OF THE COURT

A The appeal is allowed. The respondents must provide the appellant with a redacted copy of their agreement with the litigation funder revealing the information set out at [67] in the reasons within 10 working days. Any issues of privilege arising must be the subject of an application to the High Court within the 10 working day period. Filing of such an application will stay the disclosure requirement pending further order of the High Court. Any application by the appellant arising out of disclosure of the funding agreement must be made to the High Court within 10 working days of receipt of the redacted funding agreement.

B The proceeding in the High Court is stayed pending disclosure of the redacted version of the agreement or further order of that Court.

C The respondents must pay the appellant costs for a standard appeal on a band A basis plus usual disbursements.

D The costs award in the High Court is quashed. Costs in that Court are to be re-visited in light of the outcome in this Court.

REASONS OF THE COURT

(Given by Ellen France J)

Table of Contents

	Para No
Introduction	[1]
Background	[2]
The High Court judgment	[10]
The issues on appeal	[17]
The competing contentions	[20]
The Australian and English authorities	[27]
Campbells Cash and Carry v Fostif	[28]
Jeffery & Katauskas v SST Consulting	[32]
Martell v Consett Iron	[39]
Abraham v Thompson	[41]
Stocznia Gdanska	[45]
Conclusion	[46]
This Court's decision in Saunders v Houghton	[47]
Our evaluation	[56]
What is required?	[63]
Disclosure of some details of the funding arrangements	[67]
Beyond disclosure?	[73]
Results in this case	[77]
Costs	[80]

Introduction

1 This is an appeal from a decision of Allan J declining to stay proceedings pending disclosure by the respondents, Godfrey Waterhouse and Robert Waterhouse, to the appellant, Contractors Bonding Ltd, of their agreement with an independent litigation funder. 1 The appeal raises issues about the courts' role in non-representative actions when a party's legal costs are being met by a litigation funder. The role of the court in relation to litigation funding has been considered previously by this Court in Saunders v Houghton but only in the context of a representative action. 2

Background

2 The factual narrative and details of the respondents' claim are set out in full in Allan J's judgment. 3 For present purposes we need only summarise that description.

3 The respondents formerly engaged in insurance business in Georgia, the United States of America. They each directed a company that specialised in shuttle limousine and taxi insurance. In particular, Godfrey Waterhouse was a director and sole shareholder of Phoenix Brokers Inc (Phoenix). In December 2000, Phoenix entered into an insurance underwriting agreement with the appellant, which is a company registered in New Zealand. The respondents also held their own insurance licences to enable them to carry on business in Georgia. The ability to do so was dependent on compliance with Georgia's laws about insurance underwriting.

4 In early 2002, Georgia changed its laws relating to the eligibility of insurers. The appellant became ineligible to underwrite further business unless and until it qualified under the new regime. The appellant advised the respondents that it was able to continue to underwrite business placed by the respondents because it had recently acquired a qualifying insurer in American Samoa. The appellant and the respondents carried on business for several years.

5 However, in March 2005 the authorities in Georgia took steps against Phoenix, the respondents and the appellant. The claim was that the appellant was not qualified to operate as an underwriter in Georgia and that the parties were carrying on business unlawfully. Criminal charges were laid against the respondents but it

appears that they did not proceed to trial. A class action was launched against the appellant and Phoenix but was ultimately compromised, although the precise details of the arrangement are not before the court. Phoenix was struck off the register in Georgia and the respondents say they suffered significant losses

6 The respondents filed the present proceeding in the High Court in May 2010. Their claim centres on the allegation that the appellant misled the respondents as to its acquisition of a qualifying insurance entity in American Samoa. The respondents allege that this acquisition did not occur, so that the parties were not qualified to conduct insurance business in Georgia. The appellant denies these allegations. The respondents allege deceit, breach of fiduciary duty and negligence. As Allan J said, they are unable to rely directly on the contractual arrangements with the appellant because Phoenix, the contracting party, no longer exists. The respondents jointly claim special damages of $4.3 million, together with general damages of $50,000 each and exemplary damages of $50,000 each. There is also a claim for interest.

7 The respondents say they could not pursue their claim earlier because of their impecuniosity. However, in 2010 they reached an agreement with an independent litigation funder. The respondents informed the appellant of the existence of their agreement with the litigation funder but have not disclosed the agreement itself to the appellant, nor the identity of the funder. The appellant then sought a stay of the proceeding pending disclosure by the respondents of the agreement.

8 Allan J heard the stay application. The Judge made an order that the respondents produce the litigation funding agreement to the High Court for inspection. A stay was imposed pending production of the agreement. After consideration of the agreement, the Judge considered disclosure to the appellant was not necessary and lifted the stay.

9 We turn now to summarise the Judge's reasoning.

The High Court judgment

10 Allan J approached the application for a stay on the basis that this Court in Saunders v Houghton was intending to set out an approach which was applicable to litigation funding generally. Accordingly, the Judge said he should follow the implicit direction in the case. Allan J's assessment of what that direction meant is set out in this excerpt:

[38] In my view, the proper course is to follow the implied direction of the Court of Appeal in Houghton at [79] and to direct production of the litigation funding agreement in question. But production is to be made to the Court alone, and not to the defendant, at least in the first instance. The purpose of a production order limited in that way is to enable the Court to ensure that the litigation funder concerned is not legally able to usurp control over the proceeding.

11 The Judge gave two reasons for not ordering production of the agreement to the appellant. The first reason was that maintenance (assisting another to sue) and champerty (taking part of the proceeds of the action) would not, even if present, amount to a defence to the substantive proceeding. The Court had the task of supervising the operation of any litigation funding agreement, not the appellant. Second, Allan J considered issues arose about confidentiality and privilege, in that disclosure of sensitive information may grant a tactical advantage to the appellant.

12 Accordingly, Allan J made an order directing production of the litigation funding agreement to the Court for inspection within 15 working days of the date of judgment. The proceeding was stayed pending production of the agreement.

13 The agreement was duly disclosed to the Court. Allan J subsequently issued a minute in which he recorded: 4

[3] In my view there is nothing in the deed which would warrant disclosure to the defendant or its counsel. In particular, I am satisfied that the deed does not confer upon the litigation funder an unacceptable level of control over the conduct of the proceeding.

14 On 15 March 2011, Allan J made an order granting the appellant leave to appeal those aspects of his earlier judgment concerning the funding of the respondents' case by a third party funder. 5

15 There are two other aspects of the subsequent procedural steps we should record. First, the appellant made an application for strike out and summary judgment. That application has been successful in part in that Potter J has granted the appellant summary judgment against Robert Waterhouse, the second respondent. 6 We have nonetheless proceeded to deal with the matters raised before us....