Waterhouse v Contractors Bonding Ltd Hc Ak

• Jurisdiction: New Zealand
• Judge: Potter
• Judgment Date: 03 August 2012
• Neutral Citation: [2012] NZHC 566
• Docket Number: CIV-2010-404-3074
• Court: High Court
• Date: 03 August 2012

BETWEEN

Godfrey Waterhouse

First Plaintiff

and

Robert Waterhouse

Second Plaintiff

and

Contractors Bonding Limited

Defendant

[2012] NZHC 566

CIV-2010-404-3074

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

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.

Counsel:

S Grant or Plaintiffs

R E Harrison QC for Defendant

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 ineligible to issue insurance policies in Georgia.

3 The plaintiffs allege that Mr Peter Harris of CBL advised the first plaintiff, Mr Godfrey Waterhouse, that CBL was acquiring, and subsequently, that CBL had acquired, Mark Solofa Insurance (MSI) located in American Samoa, which qualified as a foreign underwriter under the Georgia Insurance Code. The plaintiffs say that in reliance on this advice they arranged for Phoenix to transfer its underwriting business to MSI. However, CBL had not acquired MSI.

4 In 2005 the second plaintiff was arrested. The plaintiffs were charged with numerous fraud-related charges arising from the issue of insurance policies in the name of MSI, a non-existent insurer, assets were seized and the first plaintiff's licence to operate as an insurance broker was revoked. Phoenix was dissolved in January 2009. 1

5 The plaintiffs issued these proceedings on 21 May 2010 without protest to jurisdiction by CBL. They claim against CBL in deceit, negligent misstatement and breach of fiduciary duty. They seek to recover personal losses they claim to have suffered independently of Phoenix.

6 CBL has applied for:

• a) Summary judgment against the plaintiffs; or in the alternative

• b) Striking out of the pleaded causes of action.

7 The plaintiffs oppose CBL's applications. They say they have good causes of action in deceit, negligent misstatement and breach of fiduciary duty against CBL, and standing under New Zealand law to sue for their personal losses. They say that any defects in the pleadings (which they deny) can be remedied by filing an amended statement of claim: Marshall Futures Ltd v Marshall. 2

Summary judgment principles

8 Rule 12.2(2) of the High Court Rules provides that the Court may give judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiffs' statement of claim can succeed.

9 The applicable principles are well settled and are not in dispute:

• a) The defendant must show on the balance of probabilities that none of the plaintiffs' causes of action can succeed: Jones v Attorney-General. 3

• b) The Court must be left without any real doubt or uncertainty: Krukziener v Hanover Finance Ltd. 4

• c) The test is exacting. The Privy Council said in Attorney-General v Jones: 5

  … summary judgment should not be given for the defendant unless he shows on the balance of probabilities that none of the plaintiff's claims can succeed. That is an exacting test,

  and rightly so since it is a serious thing to stop a plaintiff bringing his claim to trial unless it is quite clearly hopeless.

• d) The procedure is not suitable where there are bona fide questions of fact or law which can be determined only after trial: Westpac Banking Corp v M M Kembla NZ Ltd; 6 Bernard v Space (2000) Ltd. 7

• e) Summary judgment will be unsuitable where the plaintiff is able to amend its claim to remedy the defects relied upon by the defendant: Westpac Corp v M M Kembla NZ Ltd. 8

• f) The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents: Krukziener v Hanover Finance Ltd. 9

• g) The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel. 10

Strike out principles

10 Rule 15.1(1) of the High Court Rules provides for the Court to order the whole or any part of a statement of claim to be struck out where it discloses no reasonably arguable cause of action; is likely to cause prejudice or delay; is frivolous or vexatious; or is otherwise an abuse of the process of the Court. The criteria for striking out are well established: Attorney-General v Prince & Gardner; 11 Couch v Attorney-General. 12 In Couch Elias CJ and Anderson J said: 13

It is inappropriate to strike out a claim summarily unless the Court can be certain that it cannot succeed. The case must be “so certainly or clearly bad” that it should be precluded from going forward.

11 The applicable criteria are:

• a) Pleaded facts, whether or not admitted, are assumed to be true;

• b) The cause of action must be clearly untenable, that is, it cannot succeed;

• c) The jurisdiction is to be exercised sparingly, and only in clear cases;

• d) In Takaro Properties Ltd (In Receivership) v Rowling, 14 Richmond P referred with approval to the statement of Barwick CJ in General Steel Industries Inc v Commissioner for Rails NSW 15 that this jurisdiction is to be “sparingly employed” and is not suitable for use:

  … except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion.

• e) The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument;

• f) The Court should be particularly slow to strike out a claim in any developing area of law;

• g) Defendants should not be subjected to substantial costs, often only partially recoverable, in defending untenable claims: Attorney-General v Body Corporate 200200; 16 and

• h) The Court can and will strike out a cause of action when it is time-barred, doing so on the basis that the proceeding is frivolous or vexatious or an abuse of process: Nathan v Smith. 17

Pleadings

12 While contending that the amended statement of claim dated 24 February 2011 is adequately pleaded and sufficiently particularised, at the hearing Ms Grant for the plaintiffs submitted with the synopsis of submissions in opposition to the defendant's interlocutory application, a draft second amended statement of claim.

13 Mr Harrison QC, counsel for CBL, accepted that in this amended pleading the three causes of action are pleaded separately as to liability and damages in respect of each of the first and second plaintiff (submitted to be a crucial flaw in the amended statement of claim dated 24 February 2011). But he maintained that the draft pleading does not remedy other pleading inadequacies identified by the defendant, including that particulars of the damages claimed are still not provided.

14 In summarising the pleadings I shall proceed on the basis that the draft second amended statement of claim submitted by the plaintiffs will be completed with missing detail such as dates where noted, and will be filed as an amended statement of claim (subject to this judgment). In relation to the defendant's application for striking out the plaintiffs' claims in whole or in part, I therefore proceed on the basis that the facts pleaded in the draft second amended statement of claim are true.

Statement of claim

15 The plaintiffs plead in their draft statement of claim:

• a) The first plaintiff (whom I shall call Mr Geoff Waterhouse) owned 100 per cent of the shareholding in Phoenix which had its registered office in Georgia in the United States of America and carried on...