Waterhouse v Contractors Bonding Ltd Hc Ak

JurisdictionNew Zealand
CourtHigh Court
JudgePotter
Judgment Date03 Aug 2012
Neutral Citation[2012] NZHC 566
Docket NumberCIV-2010-404-3074

[2012] NZHC 566

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-3074

BETWEEN
Godfrey Waterhouse
First Plaintiff

and

Robert Waterhouse
Second Plaintiff
and
Contractors Bonding Limited
Defendant
Counsel:

S Grant or Plaintiffs

R E Harrison QC for Defendant

Application by defendant for summary judgment and strike out — plaintiffs owned an insurance company and brokerage which entered agreement with the defendant to underwrite its policies in Georgia, USA — defendant became ineligible to underwrite insurance policies in Georgia but (falsely or incorrectly) claimed it had acquired a company which could issue polices — plaintiffs transferred their underwriting business to this non-existent company — plaintiffs later charged with theft by deception and insurance fraud arising from the issue of the fraudulent insurance policies in the name of the (non-existent) Samoan company and assets were seized — plaintiffs claimed standing under New Zealand law to sue for their personal losses in deceit, negligent misstatement and breach of fiduciary duty against defendant — whether Georgia or NZ law applied — whether the common law rule of double actionability applied — whether plaintiffs had standing to sue.

The issues were: whether Georgia or NZ law applied; whether the proceedings were statute barred; and, whether the plaintiffs had standing to sue.

Held: There was a dispute on what was the lex causae (choice of law) governing the dispute and whether the limitation period of the lex fori (NZ) or the lex causae should apply. The plaintiffs wished to apply the traditional approach and said that under that approach, NZ would be the lex causae and its limitation period would apply so that the proceeding was not barred. The defendant said that the modern approach should be applied and submitted that Georgia law applied to barr the action.

The traditional approach to choice of law in tort applied the “double actionability” rule from Baxter v RMC plc. This held that a tort was actionable in NZ only if it was actionable both in NZ and the place where it was committed. If this rule was satisfied, then the substantive law to be applied was the law of NZ. However, if one country had the most significant relationship with the occurrence and with the parties, the substantive law of that country applied.

This approach involved a two-step inquiry:

  • i. was there a conflict of laws?

  • ii. what was the lex causae?

    • a) could the causes of action be litigated in Georgia and and NZ (double actionability)?

    • b) which country had the strongest links to the occurrence/parties?

In terms of step one (was there a conflict of laws), the threshold requirement for the application of the rule in Baxter, was the identification of a tort committed outside NZ and a cause of action. The plaintiffs did not specifically address whether there was a cause of action in Georgia and just assumed there was a conflict of laws.

The tort of deceit was committed at the place where reliance on the fraudulent misrepresentation occurred. As reliance by the plaintiffs on the alleged representations occurred in Georgia for both of the alleged torts, there was a strong argument that the torts were committed in Georgia. Following Baxter, the rule for determining choice of law in a case where a tort was committed outside New Zealand could therefore be applied.

In respect of step two (what was the lex causae), under the double actionability rule, a tort committed outside NZ was actionable in NZ under NZ law if it was actionable in both NZ and the country in which the tort was committed, in this case Georgia. However the Baxter exception had to be applied — namely that where one country had a significant relationship with the occurrence and with the parties, the substantive law of that country had to be applied. Though the alleged representations were made in NZ, they were relied on in Georgia, and it was likely that the tort thereby arose in Georgia or was at least complete in Georgia. The respective domiciles of the parties arguably cancelled each other out. Though there was no provision in the underwriting agreement that it be governed by the law of Georgia, and there was also no provision that it would be governed by NZ law. The links to NZ relied on by the plaintiffs were relevant to a forum non conveniens assessment, rather than to the identification of the lex causae as they were based on convenience, rather than a connection with the NZ legal system. Applying the Baxter exception, Georgia was the lex causae.

The plaintiffs submitted that if in the alternative the lex loci delicti rule (law of the place of the wrong) applied, the wrong had been committed in NZ and that was the law to apply. The inquiry under that rule mirrored the threshold question in Baxter and therefore the above analysis applied. Whichever line of authority was applied, the end result was the same as that reached by applying the Baxter exception.

The next issue was whether the limitation period was governed by the lex fori or the lex causae. The defendant had pointed to a strong trend towards classifying the limitation period as substantive. There was potential for a gap where limitation periods were classified as substantive by the lex fori and procedural by the lex causae. There was merit in the defendant's suggestion that the Court should apply the modern trend and characterise the Georgia limitation law as substantive so as to clearly bar the plaintiffs' claims.

However it was important to note that s55(2) Limitation Act 2010 (limitation law of foreign countries part of substantive law) was not a retrospective provision. The claims should be governed by the traditional approach under which at common law the limitation period was governed by NZ law as the lex fori. The defendant had failed to establish that the causes of action were so clearly statute barred as to be frivolous, vexatious or an abuse of process. The limitation period for the plaintiffs' causes of action was governed by NZ law.

It could not be excluded on the pleadings and the evidence that GW could establish independent duties owed to him by CBL and that the alleged misrepresentation was made to him and relied upon by him in his personal capacity, as distinct from his position as the alter ego of Phoenix. There were limited circumstances when non-disclosure, as distinct from a false representation as to a past or existing fact, could amount to a false representation for the tort of deceit. With regard to the claim of negligent misstatement, the question of whether CBL had assumed responsibility to GW for its statements regarding its acquisition of MSI and whether it would have foreseen or ought to have foreseen that he was relying on what was said, were issues for trial.

RW was not a director or a shareholder of Phoenix and only appeared to have performed administrative functions and had no direct contact with CBL. There was no evidence that RW was the recipient of the alleged misrepresentation by CBL to GW.

In ascertaining whether a fiduciary relationship existed, the Court would consider the course of dealing, including the express agreement between the parties (the underwriting agreement). Fiduciary law would not apply if the alleged fiduciary was able to act completely in its own interests. An expectation that a commercial party would honestly and conscientiously carry out its contractual obligations did not render the relationship fiduciary. The reasoning by which fiduciary duties were said to be owed to GW was tenuous (in that he was entitled to place trust and confidence in CBL). However, the existence of such a duty might be indicated by factors such as the geographical separation between GW and CBL, and the fact that the arrangements involving MSI and all knowledge about them were in the control of CBL alone. The claim by GW for breach of fiduciary duty was not so clearly bad that it should be precluded from going forward.

Summary judgment granted in favour of CBL with regard to RW.

Summary judgment against GW declined.

Strike out application declined.

JUDGMENT OF Potter

on defendant's applications for summary judgment and striking out

Table of Contents

Introduction

[1]

Summary judgment principles

[8]

Strike out principles

[10]

Pleadings

[12]

Statement of claim

[15]

Deceit

[19]

Negligent misstatement

[22]

Breach of fiduciary duty

[24]

Statement of defence

[26]

CBL's interlocutory application

[28]

Notice of opposition

[30]

Affirmative defences

[31]

Is the proceeding statute barred?

[33]

Approach to choice of law

[38]

Double actionability

[39]

Step one: is there a conflict of laws?

[42]

Step two:what is the lex causae?

[48]

Application

[52]

The exception in Baxter

[53]

Lex loci delicti

[56]

Conclusion

[60]

Is the limitation period governed by the lex fori or the lex causae?

[61]

Do the plaintiffs have standing to sue CBL?

[78]

The underwriting agreement

[85]

Authorities

[98]

Conclusions

[103]

Causes of action

[107]

Deceit

[108]

Negligent misstatement

[116]

Breach of fiduciary duty

[126]

Result

[133]

Next steps

[134]

Costs

[135]

Introduction
1

The first plaintiff owned a company, Phoenix Brokers Inc (Phoenix), registered in Georgia USA which carried on business in livery insurance. In December 2000 Phoenix entered into an agreement with the defendant Contractors Bonding Ltd (CBL), a New Zealand company, for the underwriting by CBL of insurance policies in Georgia.

2

In about 2002, as a consequence of amendments to the Georgia Insurance Code, CBL became...

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