PARTMASTER LTD v MOUNT SHOP LTD [2015] NZHC 281

PARTMASTER LTD v MOUNT SHOP LTD [2015] NZHC 281 [25 February 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2014-404-3218[2015] NZHC 281BETWEEN PARTMASTER LIMITEDPlaintiffAND MOUNT SHOP LIMITEDDefendantHearing: 23 February 2015Counsel: S E Cameron for the PlaintiffG P Muller for the DefendantJudgment: 25 February 2015JUDGMENT OF MUIR JThis judgment was delivered by me on 25 February 2015at 4.30 pm, pursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors: Cook Morris Quinn, AucklandSmith & Partners, Waitakere, AucklandIntroduction[1] The plaintiff applies for an order setting aside the defendant's statutorydemand. It does so on the basis of an alleged set-off arising out of discussions and correspondence in 2012 and 2013 whereby it says the defendant agreed to provide a minimum rebate of four per cent on purchases.[2] There is no dispute in terms of quantification. If the rebate applies it is acknowledged that the plaintiff has paid the defendant all that it is owed.[3] Similarly there is no issue as to the solvency of the plaintiff. The disputedamount, totalling $115,577.96, has been paid into the plaintiff's solicitor's trust account and undertakings are available. The sum of $115,577.96 covers all matters in dispute between the parties. The statutory demand itself relates to a September 2014 invoice, but a subsequent invoice was issued in October 2014 making for a total amount payable of $196,504.91. Against this, the plaintiff says it is entitled to a rebate of $115,577.96. On 9 December 2014 it paid to the defendant the undisputed amount of $80,926.95.[4] The hearing was, as the Court of Appeal suggests is appropriate in thesecases, "short and to the point".1 I am enjoined to adopt a similar approach in respect of the judgment.Factual background[5] This can be briefly stated. The plaintiff ("Partmaster") and the defendant ("Mount Shop") are both automotive parts suppliers. For the period 2005 to October 2014 Partmaster was a distributor of Mount Shop products. Mount Shop had both a warehouse and retail store but primarily sold wholesale to retail distributors such as Partmaster.[6] In 2012 Partmaster decided to implement supplier agreements with all of its suppliers. Among concessions sought from such suppliers were "rebates" on purchases. Mr Cook for the plaintiff deposes that, while arrangements vary slightly1 Industrial Group v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413 at [25].between market participants, the general practice within the industry is that all distributors are invoiced the same price. Suppliers then provide a rebate on sales. This practice avoids competitors finding out what price other distributors are paying for product as all distributors pay the same or similar invoice (or list price) and the"discount" is provided by the rebate which is usually only known by the chieffinancial officer and general manager of the respective companies.[7] A preliminary meeting was held between the plaintiff's Mr Cook and the defendant's Mr Toia in July 2012 at which Mr Cook says Mr Toia seemed "receptive to providing a rebate". There was a follow-up meeting on 30 August 2012. There is a conflict in the affidavits as to the outcome of that meeting. Mr Cook says that there was agreement between the parties that the defendant would provide a rebate although the exact percentage was yet to be settled. The defendant says there was no such agreement at that time.[8] After a short period of delay the defendant's Mr Toia wrote to Mr Cook on11 October 2012. The terms of that email are key and I set them out in full:Hi JohnSorry had lots on the plate especially with Graeme falling sick. Thinking about our meeting and where we are heading in the future I have come up with the following to get things moving and then as we go forward we can relook at things.1) 4% rebate off your current purchases to be paid bi monthly. Obviously the more new business we can do together then we can relook at the %. You may have other product you are currently importing that can be switched over with special pricing as per what we currently do on a few things.2) Credit return policy remains as per existing 60 days from point of invoice.3) If signing any form of supply agreement it will essentially be as per our terms of trade with the above clauses added.I see this as a starting point with the aim to move forward working together. Once again sorry for delay in replying lots of things going on at moment.Hemi ToiaManaging DirectorMount Shop Ltd[9] The next relevant correspondence is an email from Mr Cook to Mr Toia on 18 December in which he says, among other things:Hemi, in regards to below, why don't we split things down the middle and go with 6%. I have had John Campbell range a lot more product since October and you will see our monthly spend has increased significantly (Nov $115K + GST).I would like to sit down with you next year and iron out a couple of efficiencies I would like to implement. In the meantime at what date are you willing to start the rebate from (we started discussions in June) and do you require me to send you an invoice or do you want to credit the account?[10] On 19 December Mr Toia responded in terms that he would be in touch in the New Year.[11] By March there had been no substantive response and Mr Cook emailed in terms:HemiAs per our discussion on the phone, I am still waiting to see all the invoices that you said you would get through to me by last week.I attach an invoice from a customer who buys at a better rate then (sic) we do, and I look forward to your response on this. I am still waiting for you to clarify when you are starting the rebate from and refer to your email below back in October.Regards,John[12] The next significant correspondence is Mr Cook's email to Mr Toia of 10 April 2013, the final paragraph of which states:Hemi, I am over this cat and mouse game. We met in July and in October you put in writing that you were going to pay us a rebate and since then all I have had is you saying that you are going to send something through. Ifyou're not going to honour what you have previously offered please just say so. Just give me a Yes or No as I don't want to waste any more time on this.[13] The rebate position then remained in limbo until October 2014 when MountShop removed all reference to Partmaster from its website and cut Partmaster'saccess to it. When this was queried Mr Cook deposes that Partmaster was toldMount Shop was having server problems. However, he was able to establish that other retailers were having no such difficulty. He therefore concluded that the relationship with Mount Shop had no commercial future and directed staff not to purchase any more product from it.[14] He says that he had in fact been looking at alternative suppliers for some months.[15] On 4 November 2014 Partmaster endeavoured to arrange a meeting with Mr Toia to discuss the state of accounts between the two companies. Mr Toia advised that he was too busy to attend.[16] On 7 November 2014 Mr Toia wrote asking why Partmaster considered it had a dispute in respect of the September invoices. Mr Cook deposes he was in hospital when this email was received and so did not respond until 28 November. He says he was just about to send his response when the plaintiff was served with the statutory demand.The contest between the parties[17] Partmaster's position is that it clearly signalled its requirement for a rebate if its commercial relationship with Mount Shop was to continue. It says that it read MrToia's email of 11 October 2012 as a firm offer to pay a rebate of at least four percent, with Mr Toia signalling a willingness to look at that percentage again if the volume of orders supported an increased payment. Partmaster says that in response to that correspondence a specific direction was given to its product manager to switch over some of the product it was importing to Mount Shop product so as to strengthen the commercial relationship. It points to the fact that for the six month period from October 2012 to 31 March 2013 overall purchases increased by 15.3 per cent on the same period in the previous year.[18] It says that after two months of that arrangement and with increased sales already occurring, it sought to have the four per cent increased to six per cent. It acknowledges that this was never accepted by the defendant. It says however that this was not a rejection of the four per cent offer and a counteroffer at six per cent. Itsays that there was already an agreement in respect of the four per cent rebate but, as Mr Toia had invited in his October correspondence, Partmaster were now asking that this be revisited in light of the increased sales volumes.[19] It further says that the final paragraphs of each of Mr Cook's emails of18 December 2012 and 13 March 2013 make it clear that Partmaster regarded there as being an existing arrangement in place on which it was relying, albeit that the exact start date of the rebate was still unresolved. In that respect, Partmaster had sought that the rebate be back-dated to when discussions had started in June 2012. However, its calculations, for the purposes of the set-off, assume an October 2012 start date coincident with Mr Toia's email.[20] In relation to the email of 10 April 2013 it says that it specifically askedMount Shop to say if it did not intend to "honour what you have previously offered"and that at no time did Mount Shop say so.[21] By contrast, Mount Shop's position is simply that the parties were never ad idem on the quantum of the rebate and that all the correspondence indicates is a series of offers and counter-offers in that respect.[22] In written submissions the defendant went further and suggested that the email of 11 October 2012 was not an offer capable of acceptance. It suggested that on its proper construction it was simply a "starting point to negotiations". Thatsubmission was not, however, pursued in oral argument, and it is not supported by the email on its natural and ordinary meaning.[23] The defendant next relies on the plaintiff's email of 18 December which, it says, is a simple counter-offer of a six per cent rebate in circumstances where its offer had been four, and on the email of 10 April 2013 which it says "clearly shows John Cook did not believe that any rebates were in place at the time".[24] It then relies on the significant effluxion of time between that point and October 2014 when the dispute arose.[25] Mr Muller submits that if ever Partmaster considered itself entitled to a rebate, the fact that it did not either raise invoices nor apply a rebate against MountShop's invoices at any time over the succeeding two year period speaks persuasively to the fact either that it did not regard itself as ever entitled to such rebate or, if it did, that it had at some time abandoned that position.The legal test on application to set aside[26] In terms of s 290(4)(b) of the Companies Act 1993 the Court may grant an application to set aside a statutory demand if it is satisfied that -(b) the company appears to have a counter-claim, set-off or cross demand and the amount specified in the demand less the amount of the counter-claim, set-off or cross-demand is less than the prescribed amount;[27] The general principles applicable to applications under s 290(4) are wellestablished. The applicant must establish "on a fairly arguable basis" that it has acounter-claim, cross-claim or set-off which extinguishes the debt. In Industrial Group v Bakker the Court of Appeal confirmed that it would be unusual for the High Court to engage in a detailed analysis of the merits of any counter-claim, set-off or cross-demand in the context of an application to set aside, and that the section calledfor a prompt judgment as to whether there is "a genuine and substantial dispute".2The Court of Appeal further confirmed that the approach required by the"appearance" test in s 290 is a review "with a low threshold".3[28] I reject the proposition in the defendant's written submissions, relying onBryanston Finance Ltd v de Vries (No 2),4 that the applicant must show there are"clear and persuasive grounds" for the set-off claim. As the Court of Appeal has noted in Covington Railways Ltd v Uni-Accommodation Ltd,5 the de Vries test is applicable only in the context of unliquidated cross-claims. This is not such a case.2 At [24].3 At [25].4 Bryanston Finance Ltd v de Vries (No 2) [1976] Ch 63 (CA).5 Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272 (CA) at 274-275.[29] I am mindful also of the numerous authorities reinforcing the proposition that the statutory demand procedure should be used as a means of establishing a presumption of insolvency rather than to recover commercial debts. Where, as here, solvency is not in issue, the Court of Appeal in Magsons Hardware Ltd v Concepts 124 Ltd6 has emphasised that the use of the procedure as an enforcement mechanism will only be justified where, for example, there is an adamant and unreasonable refusal to pay a significant sum which is indisputably owed. Again I do not regard this as such a case.Analysis[30] The plaintiff submits that it is fairly arguable that the defendant's email of11 October 2012 constitutes an offer to pay a rebate of at least four per cent and that this was accepted by conduct. Alternatively, it says it is fairly arguable that an estoppel applies and that the plaintiff, having redirected business to the defendant in reliance on its belief that a rebate of at least four per cent applied, it would be unconscionable of the defendant now to deny that.[31] I accept both points appear to be fairly arguable, conscious in that context ofthe "low threshold" said by the Court of Appeal to apply.[32] In my view Mr Toia's email of 11 October 2012 amounted to an offer to pay arebate of four percent immediately but with the incentive that such sum could be revisited in the future if the volume of sales justified it. If that is the correct construction of the letter, then it is at least fairly arguable that when Mr Cook proposed a figure of six per cent in December 2012 it was against an existingagreement but taking up Mr Toia's offer to look at the matter again in light of the increased sales already recorded. Whether therefore I adopt a classical approach and analyse the position in terms of an offer dated 11 October 2012 accepted by conduct (the placement of new orders) or alternatively adopt what Burrows, Finn and Todd7call the "global" approach to contract formation (whereby I look at the totality ofdealings between the parties to identify whether a contract has come into existence) I6 Magsons Hardware Ltd v Concepts 124 Ltd [2011] NZCA 559.7 Burrows, Finn and Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at [3.2.1].regard it as fairly arguable that there was, as at 11 October 2012, agreement between the parties to pay a rebate at the minimum level of four per cent.[33] If that is the case then I accept Ms Cameron's position that it is again fairly arguable that the plaintiff's election not to enforce its rights over the intervening period does not disentitle it from making that claim now.8[34] I also accept as fairly arguable Ms Cameron's alternative analysis based on estoppel. Mr Cook makes out sufficient evidential foundation, in my view, to satisfy me (again applying the low relevant threshold) that relying on Mr Toia's statedagreement to provide a four per cent rebate, Partmaster continued dealing with the company (indeed redirected additional business to it) in circumstances where, without that commitment the company would have "immediately looked for a new supplier of their [Mount Shop's] products". Earlier in his affidavit Mr Cook deposes to the fact that all of Partmaster's preferred suppliers pay rebates to it with the resultthat it is, in my view, fairly arguable on the evidence that had Partmaster redirected business otherwise destined to Mount Shop, it could have secured a rebate of the type now denied by the defendant. To that extent I find a sufficient case of detrimental reliance to invoke the concept of unconscionability which underpins all estoppel arguments.[35] I accept that the plaintiff would, in this context, be using the doctrine of estoppel to hold a party to a promise even though that promise was not, ex hypothesi, contractual and that such argument takes estoppel beyond its classical defensive role. The Court of Appeal has however confirmed that "any suggestion that estoppel is available only as a shield has disappeared".9[36] Ms Cameron fairly concedes that, in this equitable context, delay in prosecution of the rebate claim may be a relevant issue but says that any application8 In Mainzeal Property and Construction Ltd v Facility Finance Ltd [2000] 3 NZLR 594 (CA) the Court of Appeal held that in the absence of estoppel it could see no reason why a creditor should be prejudiced by a failure to bring a claim immediately in respect of the amount due. There is noevidence at this stage of prejudice to Mount Shop from Partmaster's non prosecution of therebate claim over the intervening period such as to sustain an estoppel.9 Goldstar Insurance Co Ltd v Gaunt [1998] 3 NZLR 80 at 86; (1991) 3 NZBLC 102,294 at 102,299.of the doctrine of laches should be considered against the full factual background only a trial allows. I agree.[37] I do not see Mr Cook's email of 10 April 2013 as decisive against the plaintiff as suggested by the defendant in its written submissions. It is pre-dated by two emails from Mr Cook each of which assume an existing rebate arrangement. Moreover, it refers on its face to the defendants "having put in writing [in October] that you were going to pay us a rebate".[38] I accept that in that the email the four per cent rebate is described in terms ofwhat was "previously offered" rather than "previously agreed". However, I consider it fairly arguable that the terms are being used synonymously – a conclusion which is in my view supported by the use of the word "honour". The fact that the defendantwas invited immediately to advise if it was walking away from the arrangement and did not do so is, in my assessment, significant in terms of the test I must apply.[39] If Mr Toia had said he was withdrawing the rebate he clearly ran the real risk that the plaintiff would withdraw its business. He chose to leave opaque what, at that stage, he had been invited to clarify.[40] I am mindful also of the direct conflict of evidence in the affidavits in terms of the point reached at the 30 August meeting. Although ultimately what the plaintiff relies on is the later correspondence, and particularly the defendant's email of11 October 2012, the meeting provides obvious context to what followed and that conflict needs to be resolved in the normal way.Conclusion[41] I conclude therefore that it is fairly arguable that the defendant is bound by or at least cannot now retreat from the offer to pay a rebate of four per cent on sales. Beyond that it would be inappropriate to make any further comment about the merits of the case at this stage.Undertaking[42] The disputed component of all relevant invoices is currently held in the trust account of Cook, Morris, Quinn. Ms Cameron indicated that an undertaking is available to the Court that the monies remain in that account until determination of the dispute.Result[43] I make the following orders:(a) I set aside the statutory demand served by the defendant on the plaintiff on 28 November 2014; and(b) The plaintiff is to provide to the Court, within five working days of receipt of this judgment, an undertaking in terms that the sum of $115,577.96 be held on an interest bearing deposit through the trust account of Cook, Morris, Quinn pending determination of the dispute between the parties.[44] I reserve leave to the plaintiff to apply for orders withdrawing its undertaking in the event the defendant does not prosecute its claims to the amount outstanding with reasonable diligence.Costs[45] I award costs to the plaintiff on a 2B basis. In the event that any issue arises in respect of the calculation of these, memoranda may be provided. I encourage counsel to exchange memoranda in advance so as to limit areas of dispute.________________________________Muir J