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Accident Compensation Cases

Heidenstrom v Accident Compensation Corp (HC, 12/02/92)

Judgment Text

This is an application to strike out parts of Mr Heidenstrom's latest Statement of claim in this proceeding on the ground that the passages to which objection is taken do not disclose a reasonable cause of action or other case appropriate to the nature of the pleading or are likely to cause prejudice, embarrassment and delay. 
The application is, therefore, based on the provisions of rule 186(a) and, before embarking on a consideration of the detailed issues raised by the application, it may be appropriate to make some general observations concerning applications under rule 186(a), those observations being prompted not so much — as will be seen — by the facts of this case but by the Court's common experience in dealing with such applications. 
In the first place, the standard of proof to be achieved by applicants is made deliberately difficult to attain. In considering such applications, the Court assumes that the allegations in the Statement of Claim are capable of being proved or will be admitted (Innes v Ewing, Dunedin A82/83, 23.12.86 Eichelbaum J) and the application is not be granted unless the pleading is “so clearly untenable as to be incapable of success” (Peerless Bakery Ltd v Watts [1955] NZLR 339; Lucas & Son (Nelson Mail) Ltd v O'Brien [1978] 2 NZLR 284, 294-5; Takaro Properties Ltd v Rowling [1978] 2 NZLR 314, 316-7; Gartside v Sheffield Young & Ellis [1983] NZLR 37. It is appropriate that such should be the case so as not to stifle the right of recourse to the Courts for the resolution of disputes and so as not to stifle the orderly development of the law. 
The second matter to be noted is that affidavits have a limited part to play in striking out applications brought under rule 186(a). They are admissible only if the matters to which they refer are facts which are incontrovertible New Zealand Guardian Trust Co Ltd v Peat Marwick (Wellington CP 429/90, 5.11.90, Master Williams QC). This limitation is not as widely recognised as is desirable. In this Court's experience, there has recently grown up a regrettable tendency to treat applications for striking out under rule 186(a) almost as if they were summary judgment applications and for the parties to file affidavits, often both numerous and voluminous, dealing with disputed questions of fact. Such affidavits will not be read and no decisions will be attempted on disputed facts (although there is no objection to the filing of such affidavits and the determination of disputed factual questions on them in accordance with the well recognised principles in striking out applications brought on other grounds or under other rules, particularly for non-prosecution under rule 478). 
Thirdly, as a matter of law, many such applications depend for their success on learned counsel successfully persuading the Court to a adopt a particular interpretation of a point of law, often arcane or recondite, which is commonly found not to be the only interpretation conceivable on the pleadings and the limited evidence available on such applications and which is often better decided in the context of a full trial. 
Two further matters arise. It not infrequently appears during argument on applications for striking out under rule 186(a) that the application is based not so much on a genuine assertion that the claim is so clearly untenable as to be incapable of success but results from infelicitous pleading which arguably does not comply with the requirements of the rules, especially with RR108, 109, 181 and 184. Given that that parties whose pleadings are attacked in a striking out application under rule 186(a) will normally be given the opportunity of amendment if amendment will cure the matters complained of (McKendrick Glass Co Ltd v Wilkinson) [1965] NZLR 717, 719; Kupenga & Hays (Auckland A 1523/84, 4.2.86 Barker J); McGechan on Procedure para 186.04(7) p 3.210-210(a)), notices under rule 185 for further particulars should be a much more common precursor than they are to applications under rule 186(a). 
On a more pedestrian note, more frequently than should be the case, it becomes apparent during the argument of learned counsel that no discussions have taken place between them prior to the commencement of the hearing with the results, first, that the ambit of the argument often shrinks once one has heard the other's submissions and, secondly, that costs and delay to the clients and uneconomic use of the Court's time has resulted which might have been avoided had counsel ascertained the general nature of the objection and the general nature of the response prior to the hearing. 
The result of all those matters in combination is two fold: 
In general, applications for striking out under rule 186(a) are more common and are more productive of cost and delay to the clients and more inefficient use of the Court's time than should be the case. 
The failure rate of applications to strike out under rule 186(a) is high, in this Court's experience probably higher than for any other interlocutory application commonly met. They are only only infrequently successful in part and much less frequently successful in total. 
The Court now returns to the application before it. The pleadings show that Mr Heidenstrom was employed by ACC from 1975 until June 1987 and that in about 1963 he developed what he claims was an “original system for the recording of accident details for statistical purposes”. He refined that system in later years and he says that for a period from 1978 onwards ACC used his system or a variant of it. His pleading says that that initially occurred with his consent but then in November-December 1984 the parties entered into a contract granting ACC the right to use Mr Heidenstrom's system, paying him a fee for its use from 1 April 1980 — 31 March 1987. His claim is that during this period ACC could only use his system internally, that it was not entitled to vary it or to use it as the basis for a new system and that: 
“the Defendant was required at all times to account for all copies of the Plaintiff's system and was to ensure no unauthorised copies were made and, upon termination of the contract, the Defendant was required to account for and hand over all copies of the Plaintiff's system to the Plaintiff. ”
His current pleading then alleges that in breach of the contract between the parties ACC has produced and developed a variation of his system or a new system based on his and has: 
“Continued to use the Plaintiff's system or a variation of it from the expiry of its licence on 31 March 1987 to the present day without paying the Plaintiff any annual licence fee; ”
As a result of that, Mr Heidenstrom alleges: 
“The Plaintiff has suffered loss to the extent of the remuneration he would have received in terms of the contract, had the contract continued in effect after 1 April 1987 and the Defendant has received an unjustifiable benefit from its breach of the contract. ”
and claims special damages of “an amount equivalent to an annual licence fee” for the years beginning 1 April 1987-1991 inclusive for sums commencing at $6,814.94 and increasing annually to give a total of $38,872.67. 
The short point in relation to this facet of the application was that if the plaintiff claims as he does that ACC was in breach of the contract between the parties from 31 March 1987 onwards by continuing to use his system or a variation of it, then it cannot be right for him to seek, as damages for that asserted breach, a sum of money which is plainly predicated on the basis of the contract remaining in force after 31 March 1987 and Mr Heidenstrom's being entitled to an annual licence fee under the contract for that period. 
This application was not preceded by a Notice under rule 185 and, once it became apparent during submissions that that was the nub of the defendant's complaint in relation to this aspect of the application, as the Court understood it Mr Guy for Mr Heidenstrom was disposed to acknowledge that that aspect of the current Statement of Claim required to be reconsidered and repleaded. But this is clearly one of those cases where, notwithstanding that the current Statement of Claim is the fourth filed since the proceedings were commenced on 12 May 1987, there is no ground for striking out the pleading for the reasons just discussed. Pursuant to the dicta in McKendrick Glass, the plaintiff is entitled to the opportunity to cure the deficiency by amendment and that aspect of the application should therefore be adjourned part heard to enable that to done and to consider whether the amended pleading then complies with the rules. 
The second aspect of the application is, however, somewhat more complex. In the first cause of action in his current Statement of Claim, the cause of action based on the breach of contract earlier discussed, Mr Heidenstrom pleads in paragraphs 13 and 14 that: 
The Defendant has acted in a high handed manner and in reckless disregard of the Plaintiff's rights and has by its actions limited the Plaintiff's ability to obtain further remuneration by marketing the Plaintiff's system. 
The Plaintiff has suffered loss to the extent of the renummeration (sic) he would have received in terms of the contract, had the contract continued in effect after 1 April 1987 and the Defendant has received an unjustifiable benefit from its breach of the contract. ”
and then claims exemplary damages (described in his prayer for relief as “aggravated and/or exemplary” damages) of $25,000.00 relying, in paragraph 15, on allegations that ACC has acted knowingly in breach of contract, with reckless disregard as to whether its actions were in breach and has continued with its actions because the economic advantage to it outweighs the prospects of economic loss or penalty. 
ACC applied to strike out paragraphs 13 and 15 of Mr Heidenstrom's latest Statement of Claim and the prayer for exemplary damages on the ground that the Court has no power to award exemplary damages in breach of contract claims. 
It has, of course, long been the case that exemplary damages are recoverable for breach of contract only in the most limited circumstances. In Chitty on Contracts 26th ed, para 1781, p1124 the position is described in the following way: 
Exemplary damages. Exemplary damages are damages awarded against the defendant as a punishment, so that the assessment goes beyond mere compensation of the plaintiff. Such ‘punitive’ or ‘vindictive’ damages were permitted in some cases of tort until 1964 when the House of Lords in Rookes v Barnard [1964] AC 1129, 1231 severely restricted their use in such cases by specifying only two categories where they may be awarded at common law. The right to receive exemplary damages for breach of contract was, for many years before 1964, confined to the single case of damages for breach of promise of marriage, but this cause of action was abolished in 1970. In 1909, the House of Lords in Addis v Gramophone Co Ltd [1909] AC 488 held that exemplary damages could not be awarded for wrongful dismissal: no compensation should be given for the plaintiff's injured feelings even where the dismissal was carried out in a humiliating manner, nor for the loss caused by the fact that the dismissal made it more difficult for him to obtain other employment. The principle of this decision is not confined to cases of wrongful dismissal, and it is submitted that it now prevents the recovery of exemplary damages for any breach of contract. In special circumstances, damages may be awarded for mental distress where the parties contemplated it as a not unlikely consequence of breach. ”
The learned author of McGregor on Damages (15th ed, para 96-101 p53-58) first treats the decision in Addis as limiting or prohibiting damages for mental distress and social discredit and secondly treats it as affecting claims for injury to the plaintiff's feelings or reputation arising out of dismissal from his employment (paras 1178ff p 724ff). The learned author does not regard the decision in Addis as affecting the right to claim exemplary damages, preferring to deal with that in Chapter 11 headed “The General Ban on Exemplary Damages” and then including amongst the exceptions “conduct calculated to result in profit” (para 416-423 p260-the decision of the House of Lords in Rookes v Barnard (1964) AC 1129, 1226, the learned author takes the view that exemplary damages are available at common law if “the defendant's conduct has been calculated by him to make a profit for himself which may exceed the compensation payable to the plaintiff”
In Australia in the decision of the Federal Court in Flamingo Park Pty Ltd v Dolly Dolly Creation Pty Ltd (1986) 65 ALR 500. Wilcox J discussed Addis (at 523-4) and noted that although the decision was originally one that in an action for wrongful dismissal compensation could not be awarded for injured feelings, it had for a long time been regarded as debarring compensation in contract claims for non-pecuniary damage. The learned Judge noted the argument in the then current edition of McGregor on Damages suggesting that that should no longer be the case, the English cases allowing damages for mental stress and inconvenience arising out of spoiled holidays and certain other limited cases which “represented the denial of the purpose of the promise”, noted that damages had been awarded in contract for loss of reputation and allowed such damages in the case before him. The learned Judge then went on to consider (at 525-6) the availability of exemplary or aggravated damages; held that, by reason of his earlier award, there was no occasion for aggravated damages in the case before him even if such were available; and continued (at 526): 
“The High Court has rejected, for Australia, the limitation upon the circumstances in which exemplary damages may be awarded which were suggested by Lord Devlin in Rookes v Barnard [1964] AC 1129 at 1226-8: see Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118. This rejection was accepted by the Privy Council in Australian Consolidated Press v Uren [1969] 1 AC 590. The traditional view, which thus remains the law in Australia, is that exemplary damages may be awarded, without rigid limitation as to categories, to punish a defendant whose conduct has been high-handed, insolent, vindictive, malicious or in contumelious disregard of the plaintiffs' rights. According to McGregor (14th ed para 323) there has never been an award of exemplary damages for breach of contract; although the learned author suggests that, in the wake of Rookes v Barnard, supra, this may now be possible in England. It is not impossible to conceive of circumstances in which a defendant's conduct, in relation to a breach of contract, will be conduct of the type attracting exemplary damages in tort. However, that would probably be a rare event; and if it arose it would be a matter of policy for the courts to determine whether it was appropriate to extend what some see as an anomaly — punishment in a civil action — from tort into contract law. The question does not arise in the present case. Although the circumstances of (the) breach of contract reflect no credit upon that company, its behaviour does not merit the epithets necessary, upon the traditional view, to attract exemplary damages. ”
The position appears to be more complicated in Canada. In Cornell v Pfizer C & G Inc (1981) 81 CLLC 180 the Ontario Supreme Court declined to strike out a claim for punitive damages in a wrongful dismissal action. Without reference to authority other than Addis Osler J held (at 183) that it would be going “too far to state that a trial judge might not properly award punitive damages in such a case”
In Nantel v Parisien (1981) 18 CCLT 79 an award of punitive or exemplary damages was made in a trespass case by Galligan J In an oral judgment, that learned judge allowed a claim for such damages (at 87-8) but a perusal of the report shows that the circumstances of the case were extraordinary and, since it was a case in trespass and not in contract and is devoid of reference to authority, its assistance in this particular case may be limited. 
In Cardinal Construction Ltd v The Queen in Right of Ontario (1981) 122 DLR (3rd) 703 Boland J was dealing with a claim that the Crown and its Engineers had failed to consider its compensation claims in good faith. The learned Judge referred to Chitty, Rookes and a number of Canadian decisions and struck out the claim. The learned Judge's decision was confirmed on appeal (though without specific reference to that issue) (128 DLR (3rd) 662). 
Cardinal Construction and the earlier cases dealing with the topic were considered by Linden J in the Ontario High Court in Brown v Waterloo Board of Commissioners of Police (1982) 136 DLR (3rd) 49. That was a wrongful dismissal case brought by a Chief of Police and, after a consideration of the authorities, the learned Judge concluded (at 65): 
“Although the general principle that punitive damages are not awarded for breach of contract survives, there is no requirement that the general principle be followed invariably. Certainly in the vast majority of situations of contract breach, there would be no possible issue of punitive damages arising. However, just as our courts have recognized the utility of awards for damages for mental suffering caused by breach of contract in appropriate circumstances, so too should punitive damages be allowed where the facts demand that they be awarded. It is clear that such damages would rarely be awarded, but this does not mean that it should never be done. To tie the hands of the courts by denying them the power to penalize defendants, who flout contract law in a high-handed and outrageous fashion, is unwise and unnecessary. Punitive damage awards should be part of the judicial arsenal in contract cases in the same way as they are in tort cases. I can see no sound reason to differentiate between them. Canadian courts, unlike English courts, have retained their broad power to award punitive damages in tort cases. Thus, if a high-handed breach of contract also happens to amount to tortious conduct, punitive damages would be awardable pursuant to tort theory. It is said that if this conduct is purely a breach of contract and not tortious, then no punitive damages can be awarded, despite the callousness of the conduct. That makes no sense. It is wrong to treat one contract breach different from another merely because one violates tort principles while the other does not. In recent years, the principles of damages in tort and contract are becoming more consistent. That is good and should be encouraged. By allowing punitive damages for contract breach, that laudable trend will be advanced. Moreover, hopefully those who plan to breach contracts in a callous fashion will think twice. 
Consequently, I conclude that it is not beyond the power of this court to award punitive damages in those rare situations where a contract has been breached in a high-handed, shocking and arrogant fashion so as to demand condemnation by the court as a deterrent. ”
but, having considered the facts of the matter, the learned Judge decided that the case before him was not one for an award of punitive damages. 
Cardinal Construction was also relied upon by the Ontario High Court in Attorney General for Ontario v Tiberius Productions Inc (1984) 8 DLR (4th) 479 where a claim for exemplary damages was struck out because (at 480) “such a claim may not be brought forward in an ordinary action for breach of a commercial contract”
Returning to New Zealand, this country has, of course, preserved exemplary damages in tort notwithstanding the coming into force of the Accident Compensation Acts 1972 and 1982 (Donselaar v Donselaar [1982] 1 NZLR 81 and Taylor v Beere [1982] 1 NZLR 97). The place of Addis in New Zealand contract claims is less certain. 
In March 1991 the New Zealand Law Commission published its report No 18 Aspects of Damages: Employment Contracts and the Rule in Addis v Gramophone Co. In the thorough way in which lawyers in New Zealand have come to expect from the Law Commission, it carefully reviews the whole of the topic and recommends legislation to overturn the effect of the rule in Addis in the employment context (p 7-9). Appendices B-G summarise the current position in New Zealand, England, Australia, Canada, The United States, France and Germany. In Appendix B relating to New Zealand appears the following (p 63-4): 
Whether the rule in Addis v Gramophone [1909] AC 488 (HL) has been followed in New Zealand has depended largely on whether it has been interpreted in its narrow or wide sense. In the narrow sense the rule states that an employee who is wrongfully dismissed cannot claim general damages for distress and humiliation arising from the manner of dismissal or for loss of reputation. As early as in 1913 Addis was followed in New Zealand in Cutler v Dimdore (1913) 33 NZLR 489 (SC), and it has been followed subsequently — without reservation — in other wrongful dismissal cases such as Cowles v Prudential Assurance [1957] NZLR 124 (SC), Vivian v Coca-Cola Export Corporation [1984] 2 NZLR 289 (HC), and Francis v Bryce Francis Ltd, unreported, HC, Wellington, CP 79/86, 8/9/1986. However Whelan v Waitaki Meats Ltd, unreported, HC, Wellington, CP 990/88, 13/11/1990 marks a recent more radical approach. 
In its wider sense, Addis has been taken to exclude general damages arising out of breaches of contract generally. But it seems that only in two cases — Last-Harris v Thompson Bros Ltd [1956] NZLR 995 (SC) and Geron v Cable-Price Corporation, unreported, HC, Auckland CP 988/88, 1/8/1990 — has the Addis rule been applied to exclude non-pecuniary damages in non-employment contracts. New Zealand courts have tended to follow English precedents excluding the rule such as Jarvis v Swans Tours Ltd [1973] QB 233 and Heywood v Wellers [1976] QB 446. They have found it convenient to distinguish Addis either on the ground that distress and anxiety as a result of breach were within the reasonable contemplation of the parties at the time of making the contract, or on the ground that freedom from mental distress had actually been contracted for. Cases which encompass such reasoning are Bass v Arbuckle, unreported, HC, Christchurch, CP 48/88, 20/8/1990 (relating to a building contract), Gaunt v Gold Star Insurance, unreported, HC, Wellington, CP 754/88, 15/8/1990 (insurance contract), Innes v Ewing [1989] 1 NZLR 598 (sale and purchase of land) and McKaskell v Benseman [1989] 3 NZLR 75 (solicitor/client). The contracts at issue in these cases might all be said to be of a ‘personal’ rather than a ‘commercial’ nature. 
In assessing non-pecuniary damages, the courts have adverted to the difficulty of fixing an appropriate amount (Clemance v Hollis, McKaskell v Benseman), and to the necessity of keeping awards in perspective (4 Aces Cleaning v Barrell, unreported, HC, Whangarei, A 27/82, 3/10/90). The largest award so far has been $50 000 in Whelan v Waitaki Meats Ltd; $25 000 was awarded in Clemance v Hollis; and in Monkley v Guardian Royal Exchange Assurance, unreported, HC, Hamilton, CP 209/8, 23/8/1990, the sum of $10 per day from the date of breach was arrived at. Modest sums in the region of $1 000 to $2 500 have been more usual, which perhaps reflects not only some unease at departing from Addis but also the difficulty of putting a figure on mental distress. ”
There then follows a comprehensive list of case notes including a discussion of what is probably one of the most helpful cases for Mr Heidenstrom, Whelan v Waitaki Meats Ltd [1991] 2 NZLR 74. That was a case resulting from the wrongful dismissal of a General Manager. He was awarded general damages after the learned judge had considered the present status of Addis in New Zealand law (at 83-89): 
“The scope of Addis v Gramophone Co Ltd was comparatively early in its history and to extent at least, limited, see for example Wilson v United Counties Bank Ltd [1920] AC 102. …  
In Jarvis v Swans Tours Ltd [1973] QB 233, the Court of Appeal was directly concerned with a claim for damages for mental distress arising out of an alleged breach of contract. 
The question of whether or not on a breach of contract damages could be given for mental distress was specifically dealt with by Lord Denning MR who said at pp 237-238: 
‘In a proper case damages for mental distress can be recovered in contract, just as damages for shock can be recovered in tort. One such case is a contract for a holiday, or any other contract to provide entertainment and enjoyment. If the contracting party breaks his contract, damages can be given for the disappointment, the distress, the upset and frustration caused by the breach. ’
In Bliss v South East Thames Regional Health Authority [1987] ICR 700 … . The Court refused to follow the decision in Cox v Philips Industries Ltd and although accepting that modern thinking tends to be that the amount of damages recoverable for a wrong should be the same whether the cause of action is framed in contract or in tort, considered that it was bound by Addis v Gramophone Co Ltd and in particular they did not accept that damages could be recovered if it could be said to have been in the contemplation of the parties that the breach would cause distress. 
The current situation in England would therefore appear to be that Addis v Gramophone Co Ltd continues as a binding authority that damages of the kind awarded by Lawson J in Cox v Philips Industries Ltd and sought in this case, cannot be awarded for breach of contract. 
The question has been considered on a number of occasions in the Canadian Courts. In Tippett v International Typographical Union Local 226 (1976) 71 DLR (3d) 146, Anderson J in the British Columbia Supreme Court was concerned with a situation where a claim was brought for damages as the result of the wrongful expulsion of a union member. The damages claimed was the loss of reputation. The Judge said at p 148: 
‘I cannot conceive that we have progressed so slowly that damages for breach of contract in all cases must be limited to pecuniary loss, and that no damages can be given for what has already been held to be “a monstrous injustice”. ’
The Judge considered that Addis v Gramophone Co Ltd was distinguishable because the contract was solely related to commercial purposes. In the case before him he described the contract as being in a sense a social contract and that the consequences of breach were foreseeable in the effects which they would have upon the member. He considered that the consequences for which damages were sought in Addis v Gramophone Co Ltd were not foreseeable. In particular he considered that the reasoning of Lord Denning in Jarvis v Swans Tours Ltd should be extended to cover the case with which he was dealing and found in favour of the plaintiffs who were awarded damages. 
In Newell v Canadian Pacific Airlines Ltd (1976) 74 DLR (3d) 574, a claim was based on a refusal of the airline company to allow a couple travelling by air from Toronto to Mexico City to be accompanied by their dogs in the passenger compartment. The dogs were consigned to the cargo bay where both were affected by carbon monoxide poisoning from gas given off by a quantity of dry ice. One dog died and the other was so ill that on the return journey the owner elected to pay for a block of six seats so that the dog could travel in comfort. They sued for the cost of the extra four seats and for mental suffering resulting from the death of the dog and the illness of the other. The Judge came to the conclusion that the basis of the claim was the test in Hadley v Baxendale (1854) 9 Exch 341 and that Addis v Gramophone Co Ltd was no more than a case where foreseeability was not established. 
The Judge expressed the view that the rule in Hadley v Baxendale permits a plaintiff to recover damages in a proper case where in the contemplation of the parties vexation, frustration and distress are likely to result and do in fact result from a breach of contract. The Judge accepted that where damages for breach of contract in terms of commercial loss were considered there could be little quarrel with the proposition that in ordinary commercial settings only commercial losses are as a rule within the contemplation of the parties as a likely consequence of breach. The Judge accepted that the Hadley v Baxendale test was appropriate and that Addis v Gramophone Co Ltd should be confined to its own facts. 
Those cases dealt generally with the question of whether or not damages could be awarded for mental distress occasioned by breach of contract but in Pilon v Peugeot Canada Ltd (1984) 114 DLR (3d) 378 the Court was obliged to deal with a situation directly involving employment. Galligan J was required to deal with a situation where a man had spent all his working life in the employ of the defendant. His employment was terminated on three months notice. The Judge held that a reasonable notice would have been a period of 12 months. No payment having been given in lieu of notice, the defendant was in breach of contract and was liable in damages. One of the heads of damages claimed was mental distress. The Judge accepted what had been said in Newell v Canadian Pacific Airlines Ltd and noted the decision in Tippet v International Typographical Union Local 226 … .The Judge accepted that it must have been in the contemplation of the defendant that if it suddenly without warning unlawfully discharged a man who it had led to believe was secure in his job, there would be the gravest likelihood that he would suffer vexation, frustration, distress and anxiety. The Judge also said however that if he had been given adequate notice of payment he would have had no right to recovery because there would have been no breach of contract. He considered that the right to recover damages for mental distress was conditional upon there being an actionable breach of contract. 

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