MECHANICAL PLASTICS CORPORATION V HOLDFAST NEW ZEALAND LIMITED HC HAM CIV 2007-419-000845

MECHANICAL PLASTICS CORPORATION V HOLDFAST NEW ZEALAND LIMITED HC HAM CIV 2007-419-000845 9 February 2009IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY CIV 2007-419-000845UNDER the Fair Trading Act 1986 IN THE MATTER OF a Breach of the Fair Trading Act 1986, Passing Off and Breach of Distribution of Formal Agreement BETWEEN MECHANICAL PLASTICS CORPORATION Plaintiff AND HOLDFAST NEW ZEALAND LIMITED Defendant Hearing: 4 February 2009 Counsel: DL Marriott for plaintiff BP Henry for defendant Judgment: 9 February 2009 at 3:30pmJUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for summary judgment]Solicitors: James & Wells, Private Bag 11 907, Ellerslie for plaintiff Dennis J Gates, PO Box 222, Whangaparaoa for defendantThe application[1] The defendant applies for summary judgment. [2] The application is opposed by the plaintiff. [3] The submissions filed by the defendant in support were couched in terms of an application to strike out the statement of claim. This has caused some confusion in the disposal of the matter. Mr Henry, however, has confirmed to me that I should deal with the matter in accordance with the amended application for summary judgment and on the basis that it is an application by the defendant for summary judgment. I proceed accordingly.The legal basis for determination of an application for summary judgment[4] The defendant pleads, in its amended application, reliance on r 136 of the High Court Rules. As a result of the Judicature (High Court Rules) Amendment Act 2008, s 9, I must determine this application in accordance with the Judicature (High Court Amendment Rules) 2008. The relevant r is now r.12.2. [5] For the purpose of a defendant's application for summary judgment, r 12.2(2) provides:12.2 Judgment when there is no defence or when no cause of action can succeed(2) The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff's statement of claim can succeed.[6] The Court of Appeal has given helpful guidance as to the approach which is to be adopted when the Court considers an application for summary judgment made by a defendant. That was given in Westpac Banking Corporation v MM Kembla (NZ) Ltd [2001] 2 NZLR 298 and [58]-[64] and Bernard v Space 2000 Ltd (2001) 15 PRNZ 338 [7] In Westpac Banking Corporation v MM Kembla (NZ) Ltd the Court said:[58] The applications for summary judgment were made under R 136(2) of the High Court Rules which permits the Court to give judgment against the plaintiff "if the defendant satisfies the Court that none of the causes of action in the plaintiff's statement of claim can succeed". [59] Since R 136(2) permits summary judgment only where a defendant satisfies the Court that the plaintiff cannot succeed on any of its causes of action, the procedure is not directly equivalent to the plaintiff's summary judgment provided by R 136(1). [60] Where a claim is untenable on the pleadings as a matter of law, it will not usually be necessary to have recourse to the summary judgment procedure because a defendant can apply to strike out the claim under R 186. Rather R 136(2) permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer so that the proceedings can be summarily dismissed. The difference between an application to strike out the claim and summary judgment is that strike-out is usually determined on the pleadings alone whereas summary judgment requires evidence. Summary judgment is a judgment between the parties on the dispute which operates as issue estoppel, whereas if a pleading is struck out as untenable as a matter of law the plaintiff is not precluded from bringing a further properly constituted claim. [61] The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiff's claim. Examples, cited in McGechan on Procedure at HR 136.09A, are where the wrong party has proceeded or where the claim is clearly met by qualified privilege. [62] Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective. [63] Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff's claim. That would permit a defendant, perhaps more in possession of the facts than the plaintiff (as is not uncommon where a plaintiff is the victim of deceit), to force on the plaintiff's case prematurely before completion of discovery or otherinterlocutory steps and before the plaintiff's evidence can reasonably be assembled. [64] The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.[8] This passage was cited with approval by the Privy Council in Jones v Attorney-General [2004] 1 NZLR 433 at 437.Background[9] The plaintiff is an American corporation carrying on business as a manufacturer and exporter of building products, including wall anchors. [10] The defendant is a New Zealand company which carries on business as an importer and distributor of building products, including wall anchors. [11] On 20 October 1994 the plaintiff and the defendant entered into an agreement. That provided for the defendant purchasing particular products of the plaintiff for distribution and sale in New Zealand. Those products included the plaintiff's hollow wall toggler and alligator anchors. They are both marketed under the 'Toggler' trademark. [12] The formal agreement was for an initial period of one year. It could be renewed for a second year if the defendant purchased a minimum value of product. It could then be further extended subject to mutually agreed minimum purchase benchmarks. [13] The formal agreement contained the following terms:a) The defendant was required to package the products in accordance with conditions which were specified in the agreement; b) The defendant was required to use its best efforts to develop effectively the maximum volume of sales of the product continually throughout the market in the territory reserved for the defendant; c) The agreement gave the defendant an exclusive territory, being New Zealand and certain South Pacific Islands not actually revealed in the copy of the agreement provided to the Court; d) The agreement specified the defendant's marketing area of responsibility for the sale of the products as: i) The "do-it-yourself (DIY)" market which means the consumer orientated retail trade (including retail hardware stores, home centres, lumberyards, supermarkets, drug stores, department stores, etc); and ii) The "construction trade" market which means the non- consumer orientated distribution to the construction and industrial trade (including speciality fastening wholesalers, contractors, job-site tradesmen, electrical wholesalers, plumbing wholesalers, mill supply houses, etc); e) The agreement covered the use of trademarks and patents and provided for any situation where there was an infringement of same. It also has specific provisions dealing with what was to happen on the termination of the agreement; f) The agreement set out the terms and conditions of sale in an exhibit annexed to it;g) There is also a choice of law provisions nominating the laws of the State of New York, United States of America and an arbitration provision; and h) The agreement provides that it is an entire agreement. [14] The formal agreement was not renewed on expiry of the initial one-year period on 20 October 1995. The plaintiff pleads that the formal agreement terminated at that date. That is common ground. [15] The plaintiff pleads that the agreement was replaced by an informal distribution agreement which came into operation from 20 October 1995. The plaintiff pleads that the parties implicitly recognised that the terms of the informal agreement were the same in all respects as those of the formal agreement. [16] The plaintiff further pleads that it terminated the agreement in 2006 by advising the defendant that it would cease to supply the plaintiff's products to the defendant. It has an alternative pleading, however, that it terminated the agreement by letter dated 30 April 2007. [17] It is common ground that trading between the plaintiff and the defendant continued after 20 October 1995. The defendant denies, however, that that was pursuant to an informal distribution agreement on the same terms as the formal agreement, which had not been renewed. [18] Ray Staiger Limited on 22 November 2006 was appointed the exclusive New Zealand distributorship agency for the plaintiff's hollow wall toggler and alligator anchors.The causes of action[19] The test that I must apply in this summary judgment application requires a consideration of each cause of action that has been pleaded by the plaintiff. Thedefendant must satisfy me that the plaintiff cannot succeed on any of those causes of action. [20] Three causes of action are pleaded. [21] The first alleges breach of s 9 of the Fair Trading Act 1986. It alleges that certain pleaded actions of the defendant were conducted in trade and were misleading and deceptive. Injunctive relief and certain consequential orders are sought together with an inquiry as to damages. [22] The second alleges that certain pleaded conduct of the defendant is calculated to pass off the defendant's BULLDOG anchors as and for the plaintiff's anchors and/or to pass off the plaintiff's products as products of the defendant. Injunctive relief is sought together with an inquiry as to damages. [23] The third alleges breach of contract. It pleads breaches of three specific terms which are said to correspond with the written terms of the formal agreement which was entered into on 20 October 1994. It seeks an inquiry as to damages or, at the plaintiff's election, an account of profits.The Fair Trading Act cause of action[24] The plaintiff's response to the defendant's application for summary judgment is that: a) There is an arguable basis for this cause of action; b) The plaintiff has provided particular examples of actions by the defendant which constitute misleading or deceptive conduct; and c) There are factual disputes which are not appropriate for determination by summary judgment.[25] For completeness sake, I record that no argument was addressed suggesting that the defendant was not acting in trade in this matter. Further consideration of that matter is not required. [26] Mr Marriott in his submissions in opposition set out a comprehensive summary of the allegations of the conduct which the plaintiff pleads breach s 9 of the Fair Trading Act 1986. I adopt and now set out that summary.7. The instances of conduct complained of by the plaintiff are particularised at paragraphs 2.9 to 2.11 of the Statement of Claim. These are as follows: 7.1 On diverse occasions between 1995 and the present, the defendant has, without the authority of the plaintiff, misrepresented that its BULLDOG anchor products are the same as the plaintiff's products or are in some way associated with or endorsed by the plaintiff.Particulars(a) Supplying the defendant's BULLDOG anchors and/or products contained within the defendant's BULLDOG packaging in response to orders placed by Bunnings Limited for the plaintiff's products according to the plaintiff's products' unique SKU product identification codes, including: (i) Supply of BULLDOG anchor products in fulfilment of an order placed with Bunnings Limited Albany by Martin Van Den Brock of MT Installations in or about July 2005. (ii) Samples of product purchased from Bunnings Limited Whangarei on 9 April 2008 featuring the plaintiff's products contained within the defendant's BULLDOG packaging and identified by the plaintiff's products unique SKU numbers. (b) Supplying the defendant's BULLDOG anchors in response to orders placed by Mitre 10 Limited for the plaintiff's products, including: (i) A sample of the defendant's BULLDOG wallboard anchors purchased from Mitre 10 Mega Ashburton on 7 March 2008 identified by the SKU code corresponding to the plaintiff's Hollow Wall TOGGLER product. (ii) A sample of product purchased from mitre 10 Botany on 10 April 2008 featuring boththe plaintiff's and the defendant's products contained within the defendant's BULLDOG packaging and identified by the plaintiff's products unique SKU number. (c) Supplying the defendant's BULLDOG anchors in response to orders placed by Hammer Hardware Mt Roskill for the plaintiff's products according to the plaintiff's products' unique SKU product identification codes. (d) Representing to trade customers that the BULLDOG packaging and product was the new packaging for the plaintiff's products and/or the way the plaintiff's product are now made: (i) Representing to Hammer Hardware Mt Roskill that the BULLDOG packaging was "the way they came now"; and (ii) Representing to Martin Van Den Brock of MT installations in or about July 2005 that the BULLDOG product was "the way [the plaintiff's products] are made now". (e) Without discovery the plaintiff is unable to particularise all instances of such conduct but seeks relief in respect of each instance. 7.2 Following the termination of the Agreement the defendant has, without the authority of the plaintiff, misrepresented that it continues to be a distributor of the plaintiff's products and/or that it has an affiliation with the endorsement or support of the plaintiff.Particulars(a) Display of the plaintiff's Hollow Wall Toggler product on the defendant's website www.holdfast.co.nz (b) Depiction of the plaintiff's ALLIGATOR Toggler product on the defendant's brochure entitled "Holdfast Site Guide". (c) Depiction of the plaintiff's ALLIGATOR Toggler product on a brochure entitled "Holdfast Site Guide" under the heading "Strategic Alliances". (d) Continuing to accept and fulfil orders placed for the plaintiff's products and according to the plaintiff's products' unique SKU identification codes.(e) Failing to notify trade customers that it was no longer an authorised distributor of the plaintiff's products. (f) Without discovery the plaintiff is unable to particularise all instances of such conduct but seeks relief in respect of each instance. 7.3 On diverse occasions the defendant has, without the authority of the plaintiff, misrepresented that the plaintiff's products are its own by distributing and/or selling the plaintiff's products under or by reference to its own BULLDOG trade mark.Particulars(a) Sale of the plaintiff's products in the defendant's BULLDOG anchor packaging, including: (i) Samples of products purchased from Bunnings Limited Whangarei on 9 April 2008 featuring the plaintiff's products contained within the defendant's BULLDOG packaging and identified by the plaintiff's products' unique SKU numbers. (ii) A sample of product purchased from Mitre 10 Botany on 10 April 2008 featuring both the plaintiff's and the defendant's products contained within the defendant's BULLDOG packaging and identified by the plaintiff's products' unique SKU number. (b) Display of the plaintiff's Hollow Wall Toggler product on the defendant's website www.holdfast.co.nz labelled as Holdfast Bulldog Heavy Duty Anchors. (c) Depiction of the plaintiff's ALLIGATOR Toggler product on the defendant's brochure entitled "Holdfast Site Guide".[27] Mr Henry submitted: a) The packing of the plaintiff's product is not misleading; b) There is no arguable evidential basis, in terms of s 10 of the Fair Trading Act 1986, that the defendant's conduct misleads the public as to the nature, manufacturing process, characteristics, suitability for apurpose, or quality of the goods which the defendant dealt with which goods had ultimately come from the plaintiff; c) There is no evidence of any loss nor would one expect loss because the defendant was simply fulfilling orders for the plaintiff's products; and d) There has been no dilution of the plaintiff's reputation or diminution of goodwill or loss of sales in respect of the "Toggler" or "Alligator" trademarks. He claimed that there is no evidence that the defendant had represented the plaintiff's products were, in fact, its products. [28] With respect to the Fair Trading Act cause of action, I do not consider that the matters raised by Mr Henry satisfies the onus which lies on the defendant that this cause of action cannot succeed. They are matters which should be determined at trial and not on an interlocutory application. My reasons for that conclusion are as follows: a) The pleaded circumstances of the packing which is set out in [26] at 7.3 is not denied. In my view it is arguable that if a person sells a wall anchor in a packet marked BULLDOG the seller is representing that it is a BULLDOG wall anchor that is being sold. If in fact it is not, but is the plaintiff's hollow wall toggler or an ALLIGATOR anchor, then the actions in selling the wall anchor in the packet marked BULLDOG are misleading; b) The same position applies to the display of product on the defendant's website and in the defendant's brochure. These matters are referred to [26] at 7.3(b) and (c); c) It is also arguable that it is misleading to allow a product to be ordered using a reference number if, in the past, the reference number has been used to identify the plaintiff's product but is later used to identify the defendant's product without explaining to the personmaking the order that a change has occurred. That is because the person ordering the product would not know that a change has in fact occurred. If, as the evidence before me suggests, retailers have come to identify a particular SKU code with the plaintiff's product, then, they must be confused if, and when, the defendant substitutes its own stock for orders placed under that SKU code. That is regardless of whether the defendant believed it had the right to supply whatever stock it liked under that code. Mr Marriott correctly submitted that the Fair Trading Act is concerned solely with the impact on the purchasing public which, in this case, includes retailers, and not upon the rights or interests of individual traders. He referred, by way of example, to the judgment of Heath J in Robertson Engineering Ltd v Gallagher Group Ltd HC HAM CIV 2008-419-000744 11 July 2008 where His Honour was considering, amongst issues, the use of product codes and where His Honour at [102](d) made it plain that an injunction restraining the defendant from entering the market could not be lifted until product codes had been changed. The purpose was to ensure that there was no prospect of anyone using the product code from historical information, wrongly ordering the defendant's product; d) It is also arguable that, when the defendant sells a product under its SKU code and the product is a mixture of the defendant's and the plaintiff's product, that also can have the same misleading effect; e) Mr Henry's reference to s 10 of the Fair Trading Act 1986 does not specifically answer the cause of action because it simply instances certain specific prohibitions. Section 10 is no answer to the matters that I have already referred to; and f) It follows from what I have referred to in (c) above, that the lack of proof of loss is not fatal to the plaintiff's cause of action under the Fair Trading Act. Indeed, the Act's objective would be met by the issue of an injunction.[29] My conclusion, in respect of the Fair Trading Act cause of action, is, by itself enough to refuse the application for summary judgment. [30] Although, strictly speaking, it is not necessary to go on to make a determination of the position in relation to the other causes of action some brief comments are nevertheless made.The passing off cause of action[31] The passing off cause of action is largely repetitive of the Fair Trading Act cause of action. The same issues arise plus the issue that a plaintiff must proof that the defendant's actions have caused loss in the sense of damage to goodwill and reputation. The plaintiff currently seeks an inquiry as to damages in respect of this cause of action. Mr Henry endeavoured to persuade me that the plaintiff would never, on the facts alleged in the statement of claim, be able to prove loss. That is something, in my view, which cannot be precisely determined on this application. When Mr Henry made this submission, both in relation to the Fair Trading Act and contractual causes of action, I invited him to supply me with any specific authority. He properly acknowledged that he had none which dealt with this issue in a defended summary judgment context..The contract cause of action[32] Once again, it is not necessary to make a final decision on this matter because the conclusion reached on the Fair Trading Act cause of action itself is sufficient to decline the defendant's application. [33] This cause of action, however, was the one to which Mr Henry devoted the majority of his submissions. This is understandable because the plaintiff's pleading of an informal agreement begs the question: has a legally binding contract been made?[34] The Privy Council in Aotearoa International Ltd v Scancarriers A/S [1985] 1 NZLR 513 at 556 drew attention to the two-staged process which is involved when there is a question as to the existence of a contract on the one hand, and a further question as to when an implied term should be added. The Privy Council said at 556:But the first question must always be whether any legally binding contract has been made, for until that issue is decided a Court cannot properly decide what extra terms, if any, must be implied into what is ex hypothesi a legally binding bargain, as being both necessary and reasonable to make that legally binding bargain work. It is not correct in principle, in order to determine whether there is a legally binding bargain, to add to those terms which alone the parties have expressed, further implied terms upon which they have not expressly agreed and then by adding the express terms and the implied terms together thereby create what would not otherwise be a legally binding bargain.[35] The pleading of an informal distribution agreement is contained in 2.6 of the first amended statement of claim, which provides as follows:2.6 From 20 October 1995 the defendant continued to distribute and sell the plaintiff's products in New Zealand, under an informal distribution Agreement ("the Agreement").Particulars(a) From the date of expiry of the Formal Agreement, the parties continued to transact in the same manner as they had while the Formal Agreement was in effect; (b) The relationship between the plaintiff and the defendant continued to be that of manufacturer/distributor; (c) The parties thus implicitly recognised that the terms of the Agreement were the same in all material respects as those of the Formal Agreement.[36] The continuing course of conduct between the parties involved the ordering and supply of product. That is of no real significance or assistance in this case as to whether it implied a meeting of minds to continue a contract on the same terms and conditions as the written contract for the simple reason that the supply was both in terms of the formal agreement, and subsequent to its termination, simply on the plaintiff's standard supply terms.[37] I do not intend, in this judgment to continue an analysis of this cause of action. It is, strictly speaking, unnecessary for the purpose of determining the summary judgment application. Suffice to say, there are problems with the way it is currently pleaded. Whether those problems can be cured by an amended pleading which can point to a clear agreement on the parties' part to enter into an agreement on certain terms will have to be reserve, possibly, for consideration at another time. Suffice to say, that I record that I had a discussion with counsel that if such contract did exist on terms not identical to the terms currently pleaded, whether that would be sufficient to defeat the summary judgment application in this case. The matter could not progress in argument before me. I intend making no further comment in this judgment on the matter because there may well, in time, be an amended pleading as there may well be an application to strike out the contractual cause of action. That would seem to be the appropriate time, if that eventuates, to examine closely this issue.Conclusion[38] The conclusion, as I have already recorded, is that the defendant's summary judgment application must be refused. What is apparent, however, is that there will need to be, at the next conference on this file, an examination of: a) The pleadings; b) The discovery requirements; and c) A clear identification of the issues that do require determination at trial. Provided those matters can be finalised, the question of settlement and trial time and trial directions must also be considered. [39] When these matters are taken into account, it is clear to me that a case management conference must be called to deal with them and that is the reason for the orders that are made, in addition to the order dismissing the summary judgment application.Decision[40] The defendant's application for summary judgment is refused.Case management conference[41] A case management conference shall be held at 9am on 26 February 2009. The matters that will be addressed are those referred to in [38] of this judgment. Counsel shall file and serve a memorandum two working days before the conference dealing with those matters. [42] The plaintiff's application for particular discovery is also adjourned to the conference at 9am on 26 February 2009 for the purpose of making directions for hearing, if appropriate.Costs[43] The defendant's summary judgment application has been unsuccessful. Unlike a plaintiff's summary judgment application, the usual course is for costs to be fixed on the conclusion of the application. I signal that position to counsel and indicate that I will either hear submissions or call for memoranda on costs at the conference scheduled for 9am on 26 February 2009. Costs at this time are therefore reserved. _____________________ JA Faire Associate Judge