MOTOR VEHICLE DEALERS INSTITUTE INCORPORATED V MOORES SERVICE STATION LIMITED CA CA181/02

MOTOR VEHICLE DEALERS INSTITUTE INCORPORATED V MOORES SERVICE STATION LIMITED CA CA181/02 3 July 2003IN THE COURT OF APPEAL OF NEW ZEALAND CA181/02BETWEEN MOTOR VEHICLE DEALERS INSTITUTE INCORPORATED Appellant AND MOORES SERVICE STATION LIMITED Respondent Hearing: 26 June 2003 Coram: Keith J O'Regan J Doogue J Appearances: M P Reed QC and P Morten for Appellant M Branch and K A McDonald for Respondent Judgment: 3 July 2003JUDGMENT OF THE COURT DELIVERED BY O'REGAN J[1] This is an appeal against a decision of Master Faire to set aside a statutory demand under which the appellant, the Motor Vehicle Dealers Institute Inc (the Institute), demanded payment by the respondent, Moores Service Station Limited (the company), of the sum of $38,500. That sum was said to be owing as a result of a claim by the Institute in respect of the Motor Vehicle Dealers Fidelity Guarantee Fund (the Fund).Background[2] The background to the Institute's claim is as follows: a) A motor vehicle owner, Mr Trial, placed his vehicle with "Five Star Auto Court LMVD" for sale on a "sell on behalf of" basis.b) Five Star Auto Court was the trading name of the company which had been approved by the Motor Vehicle Dealers Licensing Board (the Board); c) The transaction was arranged through a Mr Marc Day. d) The vehicle was sold and Mr Trial should have been paid the sum of $38,500 for it, but the sum was not paid. e) Mr Trial made a claim on the Fund, alleging that the company had breached its obligations under s 59 of the Motor Vehicle Dealers Act 1975 (the Act). f) The Committee of Management of the Fund accepted Mr Trial's claim and paid him $38,500, relying on s 39(b) of the Act. g) The Institute then issued the statutory demand in reliance on s 42 of the Act, under which it can, on behalf of the Fund, exercise any rights and remedies of Mr Trial against the company by way of subrogation.The Master's decision[3] In the High Court, the company argued that the statutory demand should be set aside on two grounds, namely: a) There was a substantial dispute whether the company had any liability to the Institute. The company contended that the Institute could not recover against it, as the company had not committed and was not liable for the act which gave rise to the Institute making payment to Mr Trial from the Fund. In essence, the company said that Mr Trial had been transacting with Marc Day personally, or with a partnership comprising Marc Day and his partner, Brenda Fillingham, and not with the company;b) The decision to make a payment of $38,500 to Mr Trial was of no effect because it was made in breach of the obligation of the Committee of Management to give the company an opportunity to be heard, and to give reasons for its decision. [4] The Master rejected the second ground, finding that there was no obligation on the part of the Institute to conduct a hearing and give the company an opportunity to appear and make submissions, and also no obligation to give reasons for its decision. That aspect of the decision has not been challenged. [5] The Master noted that, with one exception, the evidence indicated Mr Trial was dealing with the company rather than with Mr Day personally. That exception was that in Mr Trial's affidavit, he had made a statement which could be construed as indicating that he thought Mr Day was the person with whom he was contracting. The Master also noted that Mr Trial referred to the party with whom he had dealt as Five Star Auto Court, but did not refer to the company. [6] The Master considered the decision of this Court in Crown Motor Court Ltd v Motor Vehicle Dealers Institute Inc [1982] 1 NZLR 757, in which this Court found that a motor vehicle dealer's licence could not be transferred to the benefit of a person other than the original licensee. The Court found that contracts entered into by the purported transferee were entered into by an unlicensed dealer and there was therefore no entitlement to bring a claim against the Fund. The Master considered this decision supported the company's case. [7] The Master determined that the company had raised a fairly arguable claim that the contract was not with the company but either with Mr Day or Mr Day and Ms Fillingham. Accordingly, he set aside the statutory demand.Facts[8] Most of the key facts are not disputed and can be summarised as follows:a) The company was licensed on 1 April 1998 as a motor vehicle dealer. At all relevant times its directors and shareholders were Mr and Mrs Milner and Mr Milner was the chief executive officer. Its business was originally located at Paeroa. b) On 23 September 1998, Mr Day was approved by the Board as a motor vehicle salesperson for the company until 31 March 1999. This approval was then renewed. c) On 9 December 1998 the company was granted approval by the Licensing Board for the removal of the licence from its site at Paeroa to a site at 1057 Great North Road in Auckland. d) On 22 December 1998, the company was licensed by the Board to trade under the name "Five Star Auto Court". The application for this approval was made by Mr Milner as chief executive officer of the company. e) On 22 December 1998, the company entered into an agreement with Mr Day and Ms Fillingham. This agreement was called "Agreement for Sale and Purchase of a Business" but the place in the standard form agreement for the description of the business was left blank. The total purchase price was $100,000 of which $55,000 was payable immediately with the remainder being paid by monthly instalments over a five year period. The agreement said that the full $100,000 was on account of "stock in trade". There was a term in the agreement under which the company allowed Mr Day and Ms Fillingham to operate "the business" under the company's motor vehicle dealers licence for a two year period from 1 January 1999. The agreement also provided that property in the stock did not pass until payment was received in full, with a requirement that Mr Day and Ms Fillingham maintain the stock level at $100,000. The agreement said that they would be responsible for any claims made against the company under relevant consumer protection legislationand would be responsible for the costs of moving the motor vehicle dealers licence to new premises. There was also a provision for indemnification of the company against any claims by third parties in connection with the business. f) On 19 July 1999, the company was granted approval by the Board to remove the licence to 3013 Great North Road, Auckland. It was this address which was entered on the documentation involving Mr Trial. Mr Milner made this application to the Board on the company's behalf. g) On 19 June 2000, Mr Trial signed the "on behalf of" agreement, authorising Five Star Auto Court to sell his car on his behalf. h) On 15 August 2000, Mr Milner signed an application to the Board seeking the approval of Mr Day as the person who would personally supervise, manage and control the conduct of the company's business as a motor vehicle dealer at the company's principal place of business. The Board granted approval for Mr Day to manage the company's principal place of business for a period of one month from 25 August to 25 September 2000 pending determination of the application, but no final determination was every made. i) During this one month period, Mr Trial's car was sold (on 12 September 2000). The vehicle offer and sale agreement was completed in the name of "Five Star Auto Court LMVD" and the change of ownership from Mr Trial to the purchaser was registered on 15 September 2000.Institute's submissions[9] On behalf of the Institute, Mr Reed QC argued that the Master was wrong to conclude that it was arguable that Mr Trial's dealings were not with the company. He emphasised that the "on behalf of" agreement executed by Mr Trial was with"Five Star Auto Court Licensed Motor Vehicle Dealer, 3013 Great North Road". The only licensed motor vehicle dealer approved to use the trading name "Five Star Auto Court" was the company, and the address shown was the address approved by the Board as the licence address. The agreement was entered into on 19 June 2000, that is at a time when Mr Day was approved to be a salesperson for the company. When Mr Trial's vehicle was sold, the vehicle offer and sale agreement was also entered into by Five Star Auto Court of 3013 Great North Road. The agreement was headed up "Licensed Motor Vehicle Dealer" and it was entered into on 12 September 2000 when Mr Day was the approved manager of the company's business. The claim against the Fund was in respect of a default of "Five Star Auto Court, 3013 Great North Road, New Lynn". The particulars of the claim included a statement by Mr Trial that he had placed his car for sale "with Five Star Auto Court", and later referred to his having sought payment from "Marc at Five Star". [10] In the affidavit of Mr Trial which was before the Master, Mr Trial referred to Mr Day as "a salesman at Five Star Auto Court", and to having signed an agreement with "Five Star Auto Court". He also referred to having visited the Five Star Auto Court premises to seek payment for his car after it had been sold. However, Mr Trial also said in his affidavit "I understood that Mr Day was a licensed motor vehicle dealer and that he had a licence to operate his yard and showroom". It was this last mentioned statement which led the Master to the conclusion that there was an arguable case because Mr Trial was dealing with Mr Day personally and not with the company. [11] Mr Reed argued that that statement had to be read in the context of the other references in the affidavit to Five Star Auto Court, the fact that the "on behalf of" agreement had been with Five Star Auto Court LMVD and the clear reference to Five Star Auto Court in the claim made by Mr Trial on the Fund. [12] Mr Reed pointed out that Mr Milner had remained as the approved chief executive officer of the company throughout the relevant period and had signed the renewals of the licence, the application for Mr Day to be an approved manager and the application to change the premises of Five Star Auto Court to the address from which the Trial transaction was undertaken. He argued that the fact there had been apurported sale of the business, including a requirement that Mr Day indemnify the company for claims made in respect of sales after the date of that agreement, was a private matter which did not affect the rights of Mr Trial, or those of the Fund which was exercising Mr Trial's rights by subrogation. [13] Mr Reed and Mr Morten made extensive submissions on the issues of ostensible authority which had been the principal focus of the High Court decision. For reasons which will become apparent we do not need to refer to those submissions.Company's submissions[14] On behalf of the company, Mr Branch argued that Crown Motor was authority for the proposition that Mr Day could not be a licensee under the licence held by the company. There is no dispute about that and we therefore do not need to consider that decision any further. Mr Branch argued that clause 18 of the agreement for sale and purchase of the business, under which the company allowed Mr Day and Ms Fillingham to operate the business under the company's licence, was not intended by Mr Milner, as Chief Executive of the company, to make them agents of the company. He said that it would be possible to rectify the agreement if Mr Day and Ms Fillingham agreed to do so. [15] Mr Branch said the approval obtained by the company to appoint Mr Day as manager did not indicate that Mr Day had actually been appointed. In any event, he said the company could have revoked this appointment the day after it was made. Mr Branch said Mr Day had never actually been appointed as manager, and that Mr Trial's affidavit could be interpreted as indicating Mr Trial thought he was dealing with Marc Day personally. He also argued that Marc Day did not have the actual authority of the company or ostensible authority to act on the company's behalf, and that therefore the High Court decision should be upheld in this Court.Decision[16] We accept the Institute's submission that the evidence establishes that Mr Trial was dealing with the company. The company traded under the name Five Star Auto Court and that was the trading name approved by the Board. Its approved address was 3031 Great North Road. Mr Trial's "on behalf of" agreement was with Five Star Auto Court, Licensed Motor Vehicle Dealer. Mr Day was not a licensed motor vehicle dealer and could not enter into a transaction in the name of Five Star Auto Court, LMVD on his own behalf. He had the express authority of the company to operate the company's business under its motor vehicle dealer's licence, under the clause in the agreement for sale and purchase of a business which gave him permission to do so. Mr Milner's interpretation of clause 18, and the potential for rectification of the clause if Mr Day and Ms Fillingham agreed with it, are irrelevant. The clause is clear, and Mr Day acted on the authority it gave him. [17] We do not attach particular significance to the statement in Mr Trial's affidavit that he thought Marc Day was a licensed dealer. That statement is inconsistent with his earlier reference to Mr Day as being a salesman for Five Star Auto Court and with the statements in his claim to the Fund that he dealt with Five Star Auto Court. Most significantly it is inconsistent with the legal documentation which clearly establishes that Mr Trial's contract was with Five Star Auto Court. The company gave specific authorisation to Mr Day to operate its business under its Motor Vehicle Dealers Licence. Its Chief Executive throughout the relevant period, Mr Milner, arranged for renewal of the licence and, approval of the business premises and approval of Mr Day as manager. It is bound by transactions which it has entered into through the agency of Mr Day. [18] In our view, there can be no substantial dispute the company was liable to pay $38,500 to Mr Trial. It is now liable to the Institute, on behalf of the Fund, because the Institute is entitled to exercise Mr Trial's rights by subrogation. There is no basis to set aside the statutory demand of the Institute, and we therefore allow the appeal.[19] The Institute is entitled to costs of $3,000 in this Court together with its reasonable disbursements including the reasonable travelling and accommodation expenses of Mr Reed as agreed or as fixed by the Registrar of this Court. The Institute is also entitled to its costs in the High Court on a 2B basis together with its reasonable disbursements, such costs and disbursements to be as agreed or as fixed by the Registrar of that Court.Solicitors: Izard Weston, Wellington for the Appellant Harkness Henry & Co, Hamilton for the Respondent