ABOUT IMAGE LTD & ORS v ADVARO LTD & ANOR [2019] NZCA 337

ABOUT IMAGE LTD & ORS v ADVARO LTD & ANOR [2019] NZCA 337 [26 July 2019]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA710/2018[2019] NZCA 337BETWEEN ABOUT IMAGE LIMITED ANDOTHERSAppellantsAND ADVARO LIMITEDFirst RespondentADVARO FUNDING LIMITEDSecond RespondentCA775/2018BETWEEN ABOUT IMAGE LIMITED ANDOTHERSAppellantsAND ADVARO LIMITEDFirst RespondentADVARO FUNDING LIMITEDSecond RespondentHearing: 25 June 2019Court: Miller, Venning and Dunningham JJCounsel: D M Fraundorfer and T J Conder for AppellantsD H McLellan QC and B K McLay for RespondentsJudgment: 26 July 2019 at 2.15 pmJUDGMENT OF THE COURTA The appeals are dismissed.B The cross-appeal in relation to CA775/2018 is dismissed._____________________________________________________________________REASONS OF THE COURT(Given by Miller J)Introduction[1] The appellants were small business customers of a telecommunications servicesprovider called Intagr8 Ltd. Intagr8 sold them a package deal under which:(a) it sold new telecommunications equipment to a financier, usually the firstrespondent Advaro Ltd (Advaro);(b) Advaro rented the equipment to each appellant on (usually) five-yearterms in exchange for monthly rental payments under a "Master RentalAgreement" (MRA); and(c) Intagra8 sold each appellant telecommunications services (essentially,calls and data) on terms which delivered them a credit or rebateapproximately equal to the rental payments they made to Advaro.[2] Intagr8's sales pitch was that its customers could put their telecommunicationsspend to good use, getting new equipment while paying about the same for calls anddata. Its business model was said to be viable because it got discounted rates from largetelecommunications suppliers, who benefited from the volume of business and reducedcustomer churn.[3] Intagr8's business model appears to have been flawed. The company went intoliquidation on 17 December 2015 and ceased to provide either the services orthe rebates, leaving the appellants with obligations under their MRAs with Advaro.[4] The appellants brought this proceeding together. Originally there were 64 ofthem; 14 remain. They say they validly cancelled their rental agreements and they seeka refund of money paid. Advaro Funding Ltd (the second respondent) counter-claimedfor outstanding rent and claimed under personal guarantees.[5] The appellants' case is that the arrangements with Intagr8 and Advaro were"fundamentally interlinked", creating a single tripartite contract that they might, anddid, cancel for non-provision of the services and credits. Alternatively, the arrangementswere marketed as to create a misleading and deceptive impression that they wereinterlinked, justifying relief under s 43 of the Fair Trading Act 1986.[6] The trial of the proceeding has been split.1 In the first part, which was intendedto address issues common to all appellants, Jagose J answered questions posed by theparties under r 10.15 of the High Court Rules 2016.2 The Judge found that the MRAstood alone. He answered "maybe", and so left open, the question whether Intagr8might have acted as Advaro's agent so as to found liability under s 9 of the Fair TradingAct. The CA775/2018 appeal and cross-appeal are brought from that judgment.The balance of the proceeding has not yet been tried.The documents[7] The relevant documents were: the Work Order, the MRA, the "Understandingthe Arrangements" form (URA), and a Vendor Relationship Agreement (VRA).We approach them in that order, reflecting generally the business process that Intagr8appears to have followed with its customers. It generated business by having its salesforce cold-call potential customers. A proportion of those calls led to a meeting at whichIntagr8 made its sales pitch. The pitch always involved the use of a finance company,usually but not invariably Advaro, that Intagr8 nominated. The customer could chooseanother financier if it wished. When the customer signed up they would execute all ofthese documents, including the MRA and also a direct debit authority in favour ofAdvaro. The Intagr8 sales representative would calculate the rent to be paid by applyingrates schedules supplied by Advaro. The relevant pages of the MRA (those withhandwritten details relating to the particular transaction) would then be sent to Advarofor its approval, following which Advaro would pay Intagr8 for the equipment and senda signed copy to the customer with its first invoice. This would be the first direct contactbetween Advaro and the customer.1 About Image Ltd v Advaro Ltd [2017] NZHC 3264.2 About Image Ltd v Advaro Ltd [2018] NZHC 3002 [Substantive judgment].The Work Order[8] The Work Order was an Intagr8 form. The customer requested "Intagr8 Ltd tosupply and install [specified] equipment at the agreed rental/purchase price" on termsand conditions specified on the form (the reverse side of which is not in evidence).A box provided for a specified monthly rental less total monthly call credits. In practiceIntagr8 ensured that the credits usually equalled but never exceeded the rental payment.The capital cost of the equipment listed on the Work Order was not disclosed. The formwas signed by the customer and the Intagr8 sales consultant.The MRA[9] The MRA was an Advaro standard form. The parties were the customer andAdvaro. Intagr8's consultant completed the form, which included calculating the rental,and procured the customer to sign it, then sent it to Advaro for approval and execution.The document stated that the agreement comprised the Rental Schedule and "any otherSchedules" and the Master Rental Terms. It is apparent that the Rental Schedulecomprised the first page, which contained details of the renter, the equipment and theinstalments.3 The document contemplated that more Rental Schedules might be addedif the customer wanted to rent other equipment in the future. The term "Schedule" wasnot defined and was sometimes used in the document without a capital letter.[10] There was provision to name a vendor for "Vendor deals". Although capitalised,"Vendor" was not a defined term. Rather, the vendor would be named in a box on thefirst page of the document. The agreement authorised Advaro to pay the vendor for andacquire the equipment. It stated that the vendor and Advaro were independent of oneanother. It recited prominently, just above the customer's signature, that Advaro, notthe vendor, was the owner of the equipment and the customer's agreement was withAdvaro. The vendor (if any) was Advaro's "agent for limited purposes only", having"no authority to make any representations or statements on behalf of Advaro or to agreeto any modifications to any Advaro documents". The MRA contained a wholeagreement clause which stated that Advaro would not be liable for any statement or3 Substantive judgment, above n 2, at [23].representation purportedly made on its behalf unless included in the MRA as an expressterm.[11] The customer's obligations to pay rental were said to be "absolute andunconditional". No withholding or set-off was permitted. Without limitation,the customer must continue to pay notwithstanding any defect in or loss ofthe equipment. There was no reference to Intagr8's obligations to provide its servicesor the credits. Nor did the MRA confer on the customer any rights with respect tothe equipment at the end of the term. Rather, the customer was to deliver the equipmentup in good working order.The Understanding the Arrangements form[12] There were four versions of this form signed by the appellants, which is calledthe UTA form. In it Intagr8 laid out the "key elements of the arrangements". It wassigned by the customer and Intagr8.[13] Under the heading "Equipment Rental Agreement" the UTA form specifiedthe rental rate and stated that all equipment was rented through [space to insert namedfinance company]. Monthly credits for telephony services would commence with theequipment rental agreement.4 The customer might choose its own financier.[14] The UTA stated that options at the end of the term were to buy the equipment,keep renting it or return it and upgrade. We note that Advaro owned the equipment andno such rights were found in the MRA.[15] Under the heading "Telephony Services" the form set out the monthly call creditsand stated that telephony services would be supplied by Intagr8 under a signed rate plan,with credits being applied at the end of every month.[16] The form contained a third "Entire Agreement" section which specified that therental agreement (MRA) and rate plan superseded all prior representations and4 A generic term. Advaro's MRA was such an agreement.accurately described the whole of the arrangements between Intagr8 and the customer.It stated that:I acknowledge that the Salesperson has explained all of the key elements of thearrangements. I have had the opportunity to ask questions and am satisfied thatI understand the arrangements.[17] Subsequent versions added to this section, stating that:(a) (third version)NOTE 1: The Rental Company's Contract Terms & Conditions willcontrol and determine the rental of equipment. We are not their Agent.NOTE 2: Return of Equipment at End of Term is solely governed bythe relevant Terms & Conditions of the Rental Company's RentalAgreement.(b) (fourth version, replacing the notes added to the third version)NOTE 1: The Rental Company's Rental Agreement Terms &Conditions control and determine the rental of equipment. Their termstake precedence over any other agreement between us. We are not theirAgent and we have no authority to make any representations orstatements on behalf or modify their documents. Your obligations topay Rental and other monies under the Rental Agreement applyirrespective of the condition, quality, fitness for purpose, operability ofor any defect or failure in the Equipment or Telephony Services.NOTE 2: What occurs with the Equipment, including at the End ofTerm, is governed solely by the Rental Company's Terms & Conditions.These versions succeeded one another during the period covered by theproceeding.The Vendor Relationship Agreement[18] This agreement, which we will call the VRA, was entered between Advaro andIntagr8. The customer did not see it. It recited that Advaro was pleased to offer potentialfunding to Intagr8 as Vendor to support the latter's commercial equipment salesactivities. Advaro would provide rate sheets and online pricing applications (so thatInagr8 could offer point of sale quotations) and transaction documents, financeapplication forms, and marketing documents if any. Advaro had an absolute discretionwhether to finance any transaction with customers introduced by Intagr8.[19] The VRA did not specify the price of any particular equipment. Rather, Intagr8agreed that it would sell equipment to Advaro for no more than its Cash Price (as thatterm is defined in the Credit Contracts and Consumer Finance Act 2003). Advaro wasdeemed to have purchased the equipment when it received a tax invoice for the agreedprice and the vendor had complied with all Advaro's procedures specified.[20] The VRA gave the vendor the option to buy equipment back at the end ofthe term if the customer no longer required it and the customer required replacementequipment which would also be rented from Advaro. If the vendor chose not to buy theequipment in these circumstances, Advaro might require the vendor to purchase. It doesnot appear that Intagr8 had a general right to buy the equipment back and sell it to thecustomer at the end of the term.[21] Intagr8 agreed that it would observe procedures imposed by Advaro anddocument contracts subject to Advaro's requirements. The VRA provided thatthe vendor had no authority to make representations or statements on behalf of Advarosave as expressly authorised in writing:11. NO AGENCYExcept as this Agreement expressly provides, nothing in this Agreement shallcreate, constitute or evidence any partnership, joint venture, agency, trust oremployer/employee relationship between the parties. If at any time [Advaro]authorises the Vendor to act as [Advaro's] agent, (such authorisation to beprovided in writing to the Vendor and produced on demand by [Advaro] should[Advaro] so request), the Vendor will not have recourse to [Advaro] for anycosts the Vendor incurs in that capacity or be entitled to be otherwiseindemnified by [Advaro]. The Vendor has no authority to make anyrepresentations or statements on behalf of [Advaro] save as expressly authorisedin writing by [Advaro] and has no authority to vary any Contract terms withCustomers.The questions posed[22] The questions posed (so far as relevant to this appeal) and the Judge's answerswere as follows:Issue Answer1. Whether as a result of the Factual Matrix there is a"Tripartite Agreement" between Advaro, Intagr8 andeach plaintiff as pleaded No5. Whether the Factual Matrix leads to an implied termthat the Master Rental Agreement is conditional uponthe continuing provision of the Services and/or theCredits.No8. Whether Intagr8 representatives marketed the MRA (aspart of the Arrangement) to the plaintiffs as Advaro'sagent.Maybe9. Whether the terms of the Documents prevent theplaintiffs from relying on the Explanation in making aclaim under the Fair Trading Act.MaybeOf these, only questions 1, 5 and 8 are live on this appeal.The trial[23] The trial largely proceeded on the documents and some agreed facts.Four witnesses were called by the plaintiffs/appellants. Two appear to have been calledto show that the prices paid by Advaro for Intagr8's equipment were high.Their evidence was ruled admissible. Two were Intagr8 salespeople, and parts of theirevidence were ruled inadmissible:(a) One, Jennifer Williams, explained that customers were told their internetor phone charges would pay off the equipment and the initial sales pitchdid not mention a finance company. The Judge ruled this evidenceinadmissible on the ground that it went to the contracting parties'subjective intentions;55 Substantive judgment, above n 2, at [91]−[92].(b) The other, Phillip Hall, was involved in sales meetings and explained theprocedure followed at sales meetings, when the transaction wasdocumented; he confirmed that Intagr8 insisted that the customer sign upwith a finance company as part of a deal and would not permit customersto switch to Intagr8 using their existing equipment. The Judge ruled thisevidence inadmissible for the same reasons.6[24] Jagose J also ruled irrelevant and so inadmissible a number of documents,comprising mostly Advaro internal emails and manuals.7 These indicate that Advarohad paid close attention to Intagr8's documents (the Work Orders and UTAs) andpractices, apparently conscious of a risk to itself should they be deficient in some way.It is evident that Advaro was anxious to ensure that Intagr8's documents did not givecustomers an opportunity to cancel their agreements with Advaro.[25] The appellants wanted to adduce this material to show that Advaro had approvedof the full set of documents that Intagr8 presented to customers and had even beeninvolved in drafting them, and also to establish the true extent of the agency relationshipbetween Advaro and Intagr8. The Judge held that it was contextual evidence knownonly to one party.8 It cast no objective light on the commercial context or structure ofthe bargain. To the extent that it recorded another party's position, it was hearsay.Nor were the documents relevant to Intrgr8's alleged agency, which would only beestablished by external representations by or for Advaro to customers.9[26] The Judge also refused the appellants permission to reopen their case to call adefence witness, Kerry McNae, to whose disclosed brief of evidence defence counselhad referred in what were described as "mini opening submissions" beforeunexpectedly, as the appellants see it, electing not to call his evidence.106 At [89]−[90].7 At [96]−[100].8 At [97].9 At [99].10 About Image Ltd v Advaro Ltd [2018] NZHC 2749 [Judgment on application to reopen].The appeal[27] On appeal, counsel focused on the fifth question: whether the factual matrixleads to an implied term that the MRA was conditional on the continuing provision ofIntagr8's services and/or credits.11 The appellants also take issue with the Judge'sconclusion that the disputed "contextual" evidence was irrelevant and inadmissible,12and his refusal to allow them to reopen their case to call Mr McNae.13[28] The appellants say that the bargain was an exchange in which they accepted anew and sometimes substantial rental expense in return for credits against the cost ofIntagr8's services. For its part, Intagr8 received payment from Advaro forthe equipment when the MRA was signed and it locked the customer into its servicesfor the term of the MRA. The MRA was plainly part of a single transaction the parts ofwhich were entered at the same time. They argue that the overall arrangement was"based around" the UTA, which set out the essential terms of the bargain. The UTA wasa "term sheet" which referred to the rental charges and the credits and specified that thecredits would coincide with commencement of the MRA. The MRA contained a wholeagreement clause but expressly contemplated that further schedules might be added. Allof the Intagr8 documents should be regarded as schedules.[29] We do not agree with the Judge's reasons for ruling the evidence of Ms Williamsand Mr Hall and the internal Advaro documents inadmissible in the proceeding. It wasevidence of behaviour rather than Intagr8's beliefs or intentions. In part it recordedrepresentations made to customers by Intagr8. In part it went to show the nature anddepth of the agency relationship that, as the Judge recognised, plainly existed betweenAdvaro and Intagr8. That made it relevant to the Fair Trading Act cause of action, forreasons we go on to explain.[30] This conclusion does not affect question 5, however. We accept the submissionof Ms McLay, who argued the evidential issues for the respondent, that the answer tothat question would be the same with or without the disputed evidence.Manifestly the two transactions — the supply of equipment by Advaro and of11 CA775/2018.12 Substantive judgment, above n 2, at [87]−[100].13 CA710/2018: Judgment on application to reopen, above n 11.telecommunications services by Intagr8 — were interconnected. Intagr8 would notoffer its rebated services without an equipment sale financed by Advaro or anotherfinance company. The customer would not purchase the equipment without the credits.It does not follow that the two transactions formed a single contract. We make twopoints.[31] First, Mr Fraundorfer noted that the MRA contemplated schedules, and arguedthat these included all of the Intagr8 documents. However, neither the admitted nor thedisputed evidence establishes that the documents formed schedules to the MRA.As counsel conceded, the evidence showed only that the documents were presented tothe customer together. The Judge referred to the defined term "Rental Schedule" andheld:[24] I do not find the MRA's definition at all uncertain, and certainly notenough to accommodate the MRA as the foundation of the 'tripartite agreement'for which the plaintiffs contend. The definition's "any other Schedule" does notexpand the MRA to encompass documents external to the relationship betweenAdvaro and the renter. [32] We agree that the Intagr8 documents are not Rental Schedules. They are notdescribed as schedules to the MRA and they were not attached to it. They do not do anyof the things that a schedule might be expected to do, such as itemising equipment.Rather, they introduce a party (Intagr8) and a set of obligations that are external tothe MRA and potentially incompatible with it. Incompatibility would arise ifthe customer's absolute and unconditional obligation to pay were said to be qualified bythe addition of Intagr8's obligations to deliver services and credits. We observe thatLang J reached a similar conclusion in a case in which a plaintiff alleged a tripartiteagreement that included the same MRA.14 (In that case the question was whetherAdvaro was obliged to ensure that the equipment was in good functioning order.)[33] Second, the commercial purpose or business efficacy of the customer'stransactions with Intagr8 and Advaro did not require that the two arrangements form asingle contract, which also precludes the implied term in question 5. The services andcredits mattered, but the appellants received those from Intagr8. It is only14 John Austin Ltd v CTrack Ltd [2014] NZHC 2687 at [24]. (Advaro was formerly calledRent Plus Ltd.)the subsequent insolvency of Intagr8 that has made the arrangement unsatisfactory.As Lord Neuberger held in Arnold v Britton:15commercial common sense is not to be invoked retrospectively. The merefact that a contractual arrangement, if interpreted according to its naturallanguage, has worked out badly, or even disastrously, for one of the parties isnot a reason for departing from the natural language. [34] We have concluded that the excluded evidence discussed above did not assist theappellants' claim in contract. We add that the Judge did not err in the exercise of hisdiscretion to permit further evidence after the close of the appellants' case.16Mr McNae's brief of evidence described the documents as he understood them. It didnot appear to assist the appellants. It is said that had he been called he could have"contextualised" the disputed evidence by explaining the Advaro internalcommunications. We are not persuaded by this submission, which invites us to speculateon what Mr McNae might have said about documents that, as we have said, do not assistthe appellants' claim that the Advaro and Intagr8 documents form a single tripartitecontract.[35] For these reasons the Judge was right to answer questions 1 and 5 in the negative.The appeals fail.The cross-appeal[36] The cross-appeal concerns question 8: whether Intagr8 was Advaro's agent.17The Judge reasoned that Intagr8 was plainly Advaro's agent for some purposes, sincethe MRA said as much.18 In the MRA customers acknowledged that Intagr8 had"no authority to make any representations or statements" on Advaro's behalf, butmisleading conduct need not be confined to representations or statements.19 He alsorecognised in this part of his judgment that any question of misleading and deceptiveconduct was a matter for individual proof.20 With respect to question 9, which is notchallenged on the cross-appeal, the Judge doubted whether the MRA's15 Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [19].16 Evidence Act 2006, s 98.17 In respect of CA775/2018.18 Substantive judgment, above n 2, at [57].19 At [56].20 At [54].acknowledgements and exclusions qualified as permissible contracting-out provisionsunder s 5D of the Fair Trading Act.21 Assuming they were, he found that it was notpossible, on the material before him, to decide whether those provisions were fair andreasonable in the circumstances.22[37] In the notice of cross-appeal Advaro alleges that the VRA expressly providedthat nothing in that agreement made Intagr8 Advaro's agent, and there was no evidencebefore the High Court to support its conclusion that Intagr8 could have been Advaro'sagent on any basis in relation to the allegedly misleading and deceptive conduct pleadedat para 111 of the second amended statement of claim.[38] As developed in argument, the essence of the cross-appeal is that question 8ought to have been answered "no" because the VRA and MRA precluded Intagr8 frommaking "representations and statements" on Advaro's behalf. It is said that the allegedlymisleading and deceptive conduct pleaded in the second amended statement of claim allcomprises representations (some by omission) and statements. That being so, the Judgeought to have answered in the negative. He wrongly found, instead, that the pleadingencompassed misleading and deceptive conduct that need not take the form ofmisrepresentations or statements.[39] The second amended statement of claim pleaded that Intagr8 explained the keyparts of the arrangement. Particulars of the explanation are:Material Particulars of the Explanation(a) The Intagr8 Representative stated that the Plaintiff would pay the RentalCharge for the Equipment;(b) The Intagr8 Representative stated that the Plaintiff would receivea Credit from Intagr8 that would offset the Rental Charge; and(c) The Intagr8 Representative explained the consequence was a Plaintiffwould only make one payment for the Services and the Equipment,provided that their usage of the Services was less than a certain volume.[40] This conduct was said to be misleading and deceptive in the following respects:21 At [69].22 At [71].Material Particulars of Misleading and Deceptive Conduct(a) Intagr8 was Advaro's agent;(b) Intagr8 provided the Explanation;(c) Intagr8 did not advise that Advaro and Intagr8 were separate companies;(d) Intagr8 explained that the Rental Charge would be offset by the Creditand would be a cheaper way to obtain the Services;(e) Intagr8 did not advise that the Rental Charge would be payable even ifIntagr8 failed to provide the Credit or the Services.[41] Mr McLellan QC argued that the appellants' claim is that there existed an expressagency. He attributed that assertion to para 108 of the second amended statement ofclaim and the appellants' submissions in the High Court. Para 108 pleads that:108. The Explanation was provided by an Intergr8 Representative to eachPlaintiff in their capacity as an agent of Advaro.He argued that the only express agency is that found in the VRA, which provides asnoted that there is no agency except and to the extent authorised in writing.[42] Mr Conder, who argued this part of the case for the appellants, submitted thatthey do plead an express agency under which Advaro is liable for Intagr8'srepresentation or statements. Advaro knew of and ratified the explanation, and with itthe representations and statements pleaded in para 111; that being so, Intagr8 acted withactual authority. The appellants also say that Intagr8 was indisputably Advaro's agentfor some purposes, involving at least presentation and execution of the MRA, and thatagency carried with it the implied or apparent authority to give the explanationcomplained of.23 We accept that this characterisation of the claim is plainly availableon the pleadings. Paragraph 108 of the claim is not confined to express agency.[43] For these reasons the pleadings argument advanced by Mr McLellan must fail.Mr Conder added that if necessary the claim could be repleaded. We agree. An attemptwas made to replead following late discovery but it was made late and was declined forpurposes of the hearing before Jagose J.23 Giltrap City Ltd v Commerce Commission [2004] 1 NZLR 608 (CA) at [40] per Tipping J.[44] This cross-appeal faces a more fundamental difficulty. Ultimately it rests onprovisions of the VRA and MRA that have the effect of excluding Advaro's liability formisleading and deceptive conduct by Intagr8. But it remains to be decided whether it isfair and reasonable to allow such provisions to prevail. It is not in dispute thatthe relevant provisions are contracting-out provisions for purposes of s 5D of the FairTrading Act. They purport to exclude liability for anything Intagr8 has done, partly bydenying its agency, and so permit conduct that might otherwise contravene s 9 of theAct. Question 9 having been answered as it was, the MRA and VRA could not providea conclusive answer to question 8. The Judge's answer to question 8 was then inevitable,since it could not be disputed that Intagr8 did in fact act as Advaro's agent by (atminimum) presenting the MRA and having it executed by the customer.[45] We observe that Jagose J plainly had reservations about the use of the separatequestions procedure to decide the Fair Trading Act questions posed. We share thosereservations. The extent of Intagr8's agency is a question of fact that must be decidedat trial, which will establish exactly what was said to customers and what Advaro knewabout it. As noted above, the disputed evidence is relevant to these questions. The trialmay also explore the presently obscure relationship between the capital cost ofthe equipment and Advaro's and Intagr8's charges.[46] We accordingly conclude that the Judge was right to answer question 8 "maybe".Our reasons differ, meaning that the inquiry can go beyond conduct that is neither arepresentation nor a statement but is nonetheless said to be misleading and deceptive.24[47] The cross-appeal fails.Decision[48] We dismiss both appeals and the cross-appeal in relation to CA775/2018. In thecircumstances, costs will lie where they fall.Solicitors:Holland Beckett Law, Tauranga for AppellantsSimpson Western, Auckland for Respondents24 Compare the Substantive judgment, above n 2, at [56]–[57].