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Manukau Golf Club Incorporated v/s Shoye Venture Limited


Company & Directors' Information:- B B VENTURE PRIVATE LIMITED [Active] CIN = U52209CT2008PTC020645

Company & Directors' Information:- S A R VENTURE PRIVATE LIMITED [Active] CIN = U70102DL2015PTC275704

Company & Directors' Information:- K & A GOLF PRIVATE LIMITED [Active] CIN = U92412DL2013PTC259149

Company & Directors' Information:- N J VENTURE PRIVATE LIMITED [Strike Off] CIN = U70101MH2008PTC186387

    CA No. 747 of 2011

    Decided On, 19 April 2012

    At, Court of Appeal of New Zealand

    By, THE HONOURABLE MR. JUSTICE HARRISON
    By, THE HONOURABLE MR. JUSTICE WHITE & THE HONOURABLE MR. JUSTICE ASHER

    For the Appellant: J Long , K Simcock, Advocates. For the Respondent: M Colthart , S Shin, Advocates.



Judgment Text

Asher, J.

Introduction

[1] The Manukau Golf Club Inc appeals a decision giving summary judgment to the respondent (the defendant in the proceeding) Shoye Venture Ltd.[1] It is argued that the judgment was procedurally unfair and substantively wrong.

[2] The appellant (the plaintiff in the proceeding) is an established Auckland Golf Club. During the relevant period in 2007 the general manager of the Golf Club was a Ross Keown. Amongst its activities the Golf Club lawfully operated gaming machines at its premises. In 2007 Shoye owned a bar in South Auckland known as the Trophy Bar. It had operated some gaming machines from that bar. The director in charge of Shoye was a Maurice Joyce.

[3] During 2007 Mr Keown and Mr Joyce had discussions about placing the Golf Club’s gaming machines in the Trophy Bar for the mutual profit of both the Golf Club and Shoye. It was necessary for any arrangements to reflect the legal requirements of the Gambling Act 2003. That Act required a separation of 'key persons' in relation to the operation of the gaming machines. It is not necessary to go into the requirements of the Act in detail, but the parties considered that they meant that the Golf Club could not operate the gaming machines itself and needed a non-related party to do so. Shoye was to be that non-related party. A venue agreement had to be entered into by the parties and approved by the Department of Internal Affairs.

[4] An initial agreement was entered into on 10 September 2007, but was rejected by the Department of Internal Affairs because it did not meet the requirements of the Act and had to be redrafted. Ultimately the relevant agreements between the parties and other persons were as follows:

(a) A management agreement between Shoye and Ms Tania Mara (who up to that time had been working at the Golf Club bar) dated 10 September 2007 for Ms Mara to manage the Trophy Bar business;

(b) A deed of guarantee between Shoye and a Mr Donald Wilson, a senior member of the Golf Club, dated 10 September 2007 in which Mr Wilson guaranteed Ms Mara’s obligations under the management agreement; and

(c) A venue agreement relating to the gaming machines and the running of the Trophy Bar between the Golf Club and Shoye dated 9 October 2007.

[5] The venue agreement was for a three year term. Shoye was engaged as an independent contractor to operate the Golf Club’s gaming machines at the Trophy Bar. Mr Joyce was stated to be the venue manager. The venue agreement contained detailed terms setting out the obligations placed on each party. The Golf Club had an obligation to pay venue payments to Shoye at fixed rates, and Shoye had to run the gaming machines during certain hours and hold all takings from the gaming machines on trust for the Golf Club. It had to account in various specified ways for the income.

[6] Under the management agreement between Shoye and Ms Mara, Shoye assigned all its rights and interest in the income earned by the business to Ms Mara in consideration of a regular weekly payment. One party could terminate by written notice to the other in the event of material breach of the agreement and failure to remedy within a certain period. If Shoye terminated under this provision, Ms Mara was required to buy the business for $300,000 plus GST. Mr Wilson guaranteed all her obligations under the deed of guarantee.

[7] The business was not a success and there were apparent shortfalls in the returns from the machines. In March 2009 the Department of Internal Affairs commenced an audit of the gaming machine operation at the Trophy Bar. It was alleged that in September 2009 Mr Keown instructed Ms Mara to cease operating the gaming machines. The gaming machines were then disconnected. In September 2009 the bar closed.

High Court

[8] In November 2009 Shoye commenced proceedings against the guarantor of the management agreement, Mr Wilson, under CIV-2009-404-7912 ('the Wilson proceeding') alleging significant breaches of the management agreement and claiming a large sum of damages. The Golf Club then issued these proceedings against Shoye claiming a large sum of damages for breaches of the venue agreement.

[9] Shoye filed a statement of defence and counterclaim in which it admitted the existence of the venue agreement, but pleaded that there was in fact a 'real agreement' between the parties which differed from the written words of the venue agreement. Under the 'real agreement' it was the Golf Club that was to be responsible for the operation of the gaming machines and the Trophy Bar and not Shoye. It was alleged that the Golf Club had effectively appointed Ms Mara as manager and that she acted at all material times in accordance with the instructions of the Golf Club. It was claimed that it was understood that Shoye would not be responsible for the management of the gaming machines.

[10] As a first affirmative defence Shoye’s pleading raised waiver and estoppel, and also referred to the terms of the agreement having been varied. There was a second affirmative defence of non est factum alleging that Mr Joyce did not understand what he was signing. The counterclaim relied on the venue agreement and the 'real agreement'. It was asserted that as a consequence of the machines no longer operating, and the closure of the Trophy Bar and suspension of the licence, Shoye had suffered substantial losses for which the Golf Club was liable. Damages were sought for breach of contract. There was also a claim against the Golf Club for misleading and deceptive conduct under the Fair Trading Act 1986 and damages and an order declaring the venue agreement void were sought.

[11] Approximately eight months after the filing of its statement of defence, Shoye sought summary judgment against the Golf Club. An affidavit of Mr Joyce was filed in support of that application, which was later supplemented by a short second affidavit. Mr Joyce’s affidavit referred to affidavits of himself, Ms Mara and Mr Wilson, all of which had been filed in the Wilson proceedings where Shoye was also seeking summary judgment. Those affidavits were read and considered in the summary judgment application.

[12] Mr Joyce stated in his affidavit that the purpose of the venue agreement and other arrangements was to enable the Golf Club to control the gaming machines and the operation of the bar lawfully, but without any involvement on the part of Shoye. The Golf Club would appoint and control the manager, Ms Mara. Mr Joyce asserted that Ms Mara did effectively run the bar and that she was controlled by the Golf Club through Mr Keown. Mr Joyce exhibited a quantity of documents he had obtained on discovery which he asserted showed that the Golf Club had arranged for the management of the Trophy Bar, and controlled and indemnified Ms Mara, and that the Golf Club was in effect running the bar.

[13] No affidavit was filed in opposition to the summary judgment. We were informed by the Golf Club without opposition that Mr Keown is no longer working for the Golf Club and had not been co-operative in relation to the dispute. It is expected that he will need to be called under subpoena at the trial.

[14] Both this proceeding and the Wilson proceeding are set down for trial at a four day fixture on 11 June 2012. If this appeal is not successful, it will only be the counterclaim in relation to this proceeding that will be heard, judgment already having been entered for Shoye on the claim.

The decision

[15] Associate Judge Bell granted leave for Shoye to file its application for summary judgment out of time. He set out the facts fully, and traversed the relevant provisions of the Gambling Act. He went on to analyse the pleaded affirmative defences in which it had been asserted that the venue agreement was a sham, and effectively varied by waiver and estoppel. He concluded that neither of those affirmative defences warranted an entry of summary judgment against the plaintiff.

[16] The Associate Judge also considered two defences that had not been pleaded: first, that the venue agreement was illegal; and second, an implied term. He rejected the illegal contract argument. Under the heading of 'Construction of venue agreement' he proceeded to consider whether Shoye had breached the venue agreement in a manner that precluded it from bringing the claim. At the heart of his consideration of this matter was his apparent acceptance of Shoye’s factual assertion that the Golf Club disregarded the contractual arrangements in the venue agreement and ran the venue itself.[2] He observed:[3]

To hold that Shoye should make good any losses of the club when the club has taken over the management of the gambling operation would change the role of Shoye from supplier of services to underwriter of the club’s gambling operation.

He also stated that:[4]

None of the provisions in [the venue agreement] can be construed to apply, when Shoye is not supplying services under the agreement.

[17] Associate Judge Bell asked whether Shoye was to be liable to the Golf Club for the alleged lack of services, or defective service, if the Golf Club was conducting the gambling itself and through its own management thereby suffered loss. He determined that the provisions of the venue agreement could not apply when Shoye was not supplying services under that agreement. He relied on the legal proposition that if a party enters into an arrangement that can only take effect through the continuance of a certain state of circumstances, there is an implied engagement on the part of that party that nothing will be done of that party’s own motion to put an end to that set of circumstances. Relying on Stirling v Maitland[5] and Southern Foundries (1926) Ltd v Shirlaw[6] he stated:[7]

The club put an end to [the supply of services by Shoye] by managing the operation of the Trophy Bar itself. There is an implied term under Stirling v Maitland that the club should not put an end to Shoye supplying the services under the agreement. The club cannot allege breach by Shoye when it has itself broken the implied term by managing the Trophy Bar instead of Shoye.

[18] Thus, the Associate Judge’s conclusion appeared to be that it was an implied term that the Golf Club should not stop Shoye supplying services under the venue agreement, and that if it did, it could not claim for breaches of the venue agreement by Shoye.

[19] On this basis Associate Judge Bell concluded that as the Golf Club was suing Shoye for breaches of the venue agreement, none of its causes of action could succeed. He therefore granted the summary judgment application.

[20] In the course of his consideration of this issue the Associate Judge did not refer to the pleadings. There was no pleading alleging an implied term of the type that the Judge found to be determinative of the claim.

Procedural error?

[21] A defence that relies on material outside the admission and denial of the facts alleged by a plaintiff in a statement of claim is known as an affirmative defence.[8] Under r 5.48(4) of the High Court Rules it must be pleaded. A duty is then placed on the plaintiff to file a reply.[9] The need to plead an affirmative defence was considered by this Court in James v Wellington City[10] where Buckley LJ’s statement in Re Robinson Settlement[11] was quoted:

The effect of the rule is, I think, for reasons of practice and justice and convenience to require the party to tell his opponent what he is coming to the Court to prove. If he does not do that the Court will deal with it in one of two ways. It may say that it is not open to him, that he has not raised it and will not be allowed to rely on it; or it may give him leave to amend by raising it, and protect the other party if necessary by letting the case stand over. The rule is not one that excludes from the consideration of the Court the relevant subject-matter for decision simply on the ground that it is not pleaded. It leaves the party in mercy.

[22] There are good reasons for the requirement of pleading an affirmative defence. The whole purpose of pleadings is fully and fairly to inform the opposite parties of the claims or defences they face. If an affirmative defence is not pleaded in the statement of defence, a plaintiff will have no notice of it and not be able to answer it. Further, if there is no pleading setting out the nature of the affirmative defence, there is nothing defining the issue so it can be properly understood and determined by the Court. The need for any affirmative defences to be pleaded applies no less to a defended summary judgment than to a trial. Only if such affirmative defences are pleaded can they be defined, answered and properly analysed. It is possible for an affirmative defence that has not been pleaded to arise and be considered in the course of a hearing, but only if leave is granted to amend and add that defence.

[23] The implied term which was raised, that the determination of the supply of services by Shoye precluded the Golf Club from claiming damages for breach, goes beyond the denial of the facts in the statement of claim, and is an affirmative defence. The only implied term that was pleaded by Shoye was in the counterclaim. This is an assertion that it was an implied term of the venue agreement that the plaintiff would comply with the requirements of the Gambling Act, or directives issued by the Department of Internal Affairs and all other relevant legislation and regulations.[12]

[24] The pleaded implied term in the counterclaim is quite different from that which was found to exist by the Associate Judge. Indeed, it contradicted the implied term found by him in that it presupposed the ongoing operation of the agreement in the months following its execution. Both counsel confirmed that the implied term that found favour with Associate Judge Bell was not in fact proposed or discussed by either of them during their submissions in the High Court.

[25] Mr Colthart for Shoye was not able to say whether the implied term referred to by the Associate Judge would be relied on should the appeal be allowed and the case proceed to trial. Significantly, he did not seek to amend the statement of defence and counterclaim to plead this defence. There might be some difficulties in Shoye relying on such an implied term, given the reliance placed on a different implied term in the venue agreement by Shoye, and other paragraphs of the statement of defence and counterclaim which admit the agreement but allege variation or waiver,[13] or which assert breaches by the Golf Club of the venue agreement.[14]

[26] Given the lack of any pleaded affirmative defence, we are unable to see how the Judge had jurisdiction to enter judgment on the basis of such a defence.

[27] Further, it is a fundamental principle that adverse findings are not to be made against a party without that party having notice of the allegation and an opportunity to respond to it.[15] This is because when a point is decided without a party having an opportunity to answer there is presumptive prejudice. Megarry J in a well-known passage explained the principle this way in John v Rees:[16]

As everybody who has anything to do with the law well knows, the path of the law is strewn with examples of open and shut cases which, somehow, were not; of unanswerable charges which, in the event, were completely answered; of inexplicable conduct which was fully explained; of fixed and unalterable determinations that, by discussion, suffered a change. Nor are those with any knowledge of human nature who pause to think for a moment likely to underestimate the feelings of resentment of those who find that a decision against them has been made without their being afforded any opportunity to influence the course of events.

[28] It was unfair to enter judgment against the Golf Club without it having notice of the point and an opportunity to call evidence (in particular from Mr Keown), and make submissions on the topic of the implied term. We accept Mr Long’s submission that the determination of a claim on the basis of a defence that was not pleaded, and of which the Golf Club had no notice, constituted a breach of the right to natural justice.[17]

An implied term?

[29] It was recognised in Dysart Timbers Ltd v Nielsen[18] referring to Attorney-

General of Belize v Belize Telecom Ltd[19] that an implied term is not a term which the Court adds to a contract. It is already part of the contract as a matter of construction, and the Court is simply recognising it. The five element approach adopted in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[20] is not to be regarded as a cumulative list of elements all of which must be satisfied before the term may be implied. However, this Court recognised in Hickman v Turn and Wave Ltd[21] that each element remains a useful indicator relevant to the ultimate question of fact of what a reasonable person would have understood the contract to mean.

[30] The Associate Judge, while referring to this approach to implied terms, relied on Stirling v Maitland and Southern Foundries (1926) Ltd v Shirlaw in considering the state of circumstances that applied when the parties entered into the arrangement, and its continuance. He considered that the state of circumstances was the supply of services by Shoye, and the termination of that circumstance precluded the Golf Club from claiming breach by Shoye.

[31] The difficulty with this proposition is that Shoye itself in its pleadings has asserted that it was agreed and understood at the time the parties entered into the venue agreement that it would not be providing the services.[22] In light of this, it is arguable that the contract had to be construed to mean that the Golf Club could enforce its obligations even if Shoye was not managing the bar. This was, after all, what Shoye had accepted from the start. There was no change of circumstances. Shoye asserts that it was understood that the contract would continue, with the Golf Club in effective control. It is arguable that it is quite contrary to business efficacy and obviousness for a state of affairs that the parties knew about and accepted when they entered into the contract to be treated as a discharge of liability under the contract.

[32] Therefore, even if an implied term of the type relied on by the Associate Judge had been pleaded, it would not have constituted a knock-out blow to the claim, sufficient to sustain the entry of summary judgment for Shoye. The pleadings disclose a factually uncertain and legally complex situation, and it will be necessary for there to be a full trial to unravel the tangle.

Conclusion

[33] It was not open to the Associate Judge to find against the Golf Club on the basis of an affirmative defence that was not pleaded. It was a breach of natural justice for an affirmative defence to be adopted when it was not pleaded and no notice had been given of it, and when the Golf Club had no opportunity to respond with evidence or submissions. An implied term of the type articulated by the Associate Judge was not a defence that

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was certain to succeed. [34] We discussed what should happen should we allow the appeal with counsel and it was agreed that the Golf Club’s claim should now be heard with the Wilson claim and the counterclaim which, as noted, is scheduled for a fixture commencing on 11 June 2012. Counsel are to make arrangements for that purpose with the Registry. Result [35] The appeal is allowed. [36] The entry of summary judgment for the respondent in the High Court is set aside. [37] The order for costs made in the High Court is quashed. [38] There is no order for costs in this Court. 1. Manukau Golf Club Inc v Shoye Venture Ltd HC Auckland CIV-2010-404-4422, 17 October 2011. 2. At [61]. 3. At [64]. 4. At [63]. 5. Stirling v Maitland (1864) 5 B & S 840, 852, [1864] EngR 752; 122 ER 1043 at 1047. 6. Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 (HL) at 714. 7. At [65]. 8. McGechan on Procedure (online looseleaf ed, Brookers) at [HR5.48.15(1)]. 9. High Court Rules, rr 5.62–5.63. 10. James v Wellington City [1972] NZLR 978 at 982. 11. Re Robinson’s Settlement [1912] 1 Ch 717 (CA) at 728. 12. Amended Statement of Defence and Counterclaim, 9 November 2010 at [38]. 13. At [4]–[8]. 14. At [42]. 15. O’Regan v Lousich [1995] 2 NZLR 620 (HC) at 631 and Ali v Deportation Review Tribunal [1997] NZAR 208 (HC) at 220. 16. John v Rees [1970] Ch 345 (Ch) at 402. 17. See New Zealand Bill of Rights Act 1990, s 27(1). 18. Dysart Timbers Ltd v Nielsen [2009] NZSC 43, [2009] 3 NZLR 160 at [25]. 19. Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988. 20. BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC) at 282–283. 21. Hickman v Turn and Wave Ltd [2011] NZCA 100, [2011] 3 NZLR 318 at [234]–[249]. 22. Amended Statement of Defence and Counterclaim, 9 November 2010 at [4].
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