Hamish Fletcher

Hamish Fletcher is a business reporter for the NZ Herald

Telecom fights High Court firm collapse claim

Telecom has been accused in the High Court of contributing to the collapse of an Auckland engineering company. Photo / Dean Purcell.
Telecom has been accused in the High Court of contributing to the collapse of an Auckland engineering company. Photo / Dean Purcell.

Telecom is defending High Court action from an Auckland engineering supply firm that blamed the NZX-listed company and another communications provider for its business collapsing.

GSE Group - now called R Cameron and Shortts Engineering and Plumbing Supplies (RC&S) - alleges it suffered trading losses because of problems with Telecom moving phone services to a new location and the transfer of services to communications firm Sietec.

The company sold supplies for the engineering and manufacturing industry and its business is not presently trading, director Harry Memelink said today.

RC&S filed a claim in the High Court in Auckland last year accusing Telecom of negligence and breach of contract in both 2007 and 2010.

In that same claim it accused Sietec of inducing Telecom to break its contract with RC&S or unlawful interference with that contract.

Both denied breaching any duties.

RC&S was trying to claim around $4 million from Telecom in general, aggravated and special damages and a similar amount from Sietec.

However, Telecom has succeeded it limiting the amount of damages which the engineering supply firm can try chase.

As well this, Telecom's lawyer Sally Fitzgerald said all but one aspect of RC&S' claim against the company was struck out by Associate Judge David Abbott late last month.

According to this judge's summary of the allegations, RC&S began buying phone services from Telecom in 2005.

In 2007, the firm looked to move premises from Penrose to Otahuhu, which would involve transferring some telephone lines.

There is a dispute over what was actually discussed between the parties but Memelink said he was assured by a Telecom service rep that there would be no problem in transferring numbers from the Penrose to Otahuhu site.

There were, however, difficulties with this process when the move took place that were never resolved to RC&S' satisfaction.

Around two years later in February 2010, a RC&S consultant approached a subsidiary of Sietec discussing telecommunication services for another company in Memelink's group. RC&S says it did not agree to buy services from Sietec.

While this subsidiary provided RC&S with a contract for services that would be provided, the plaintiff says it did not ask for it to take over as its communications supplier.

It alleges Sietec, acting of its own accord and without authority, advised Telecom it would take over communications services for RC&S.

In March 2010 after a request from Sietec, Telecom transferred some telephone lines to it.

RC&S alleges that as a result of the transfer of the nominated lines, some of its numbers ceased functioning and internet services were lost. It alleges customers were unable to place orders and because they couldn't get a response from RC&S they stopped ordering or refused to pay. In October 2010, Telecom permanently cancelled RC&S lines for credit reasons, Judge Abbot's decision said.

In February of this year, Telecom went to the High Court to try get the engineering firm's claims struck out. It sought to have the court dismiss allegations associated with the transfer of lines to Sietec.

Telecom said it could not be reasonably argued that the transfer was a breach of contract or a duty or care.

This was accepted by Associate Judge Abbott, who said these allegations should be struck out from RC&S's case.

Telecom also took issue with RC&S' damages claims and applied to have these struck out.

Associate Judge Abbott believed RC&S' present pursuit of damages against Telecom was untenable and said there was a cap of what the engineering supply firm could claim from the listed company.

This cap was between $50,000 and $100,000.

According to the judge's decision, Sietec believes it is not the appropriate defendant as its subsidiary was the party with whom RC&S contracted. It also strongly disputes the claim it (or its subsidiary) transferred lines without authority. It also says the alleged losses are grossly exaggerated and that RC&S' accounts show it was insolvent from as early as 2006.

Both Telecom and Sietec successfully argued before the judge for security of costs from RC&S, which totalled $100,000.

Fitzgerald said today the proceedings are stayed until this is paid.

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