STOCKCO LIMITED V DENIZE & Anor HC AK CIV-2010-404-5668

STOCKCO LIMITED V DENIZE & Anor HC AK CIV-2010-404-5668 22 February 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2010-404-5668BETWEEN STOCKCO LIMITEDApplicantAND JOHNATHAN PETER TAPLEN DENIZEFirst RespondentAND BRONWYN MAY DENIZESecond RespondentHearing: 8 February 2011Counsel: Mr Michael Morrison and Mr Kerry Puddle for ApplicantMs Sandra Grant for RespondentsJudgment: 22 February 2011 16:00:00JUDGMENT OF ASSOCIATE JUDGE DOOGUEThis judgment was delivered by me on22.02.11 at 4 pm, pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateCounsel:Lowndes Jordan, Auckland – by email: mhm@lojo.co.nzMs Sandra Grant, Auckland – by email: sgrant@shortlandchambers.co.nzBackground[1] On 3 July 2008, the first and second defendants, who were respectively theManager and Director of Spotburn, signed a guarantee of Spotburn's indebtedness to StockCo under the Livestock Agreement. (Copy of Livestock Agreement and guarantee annexed to Lambess affidavit as exhibit ―KL4). I shall refer to Spotburn in this judgment as ―the Farmer.[2] The substance of the arrangements between the parties was that the plaintiff, in accordance with its usual business practice, would advance money to the Farmer. In return, livestock would be purchased in the name of the plaintiff. That livestock could either be purchased from a third party by the Farmer or the Farmer could sell his own livestock to the plaintiff. The arrangement both enabled and required the Farmer to buy livestock for the plaintiff. The agreement envisaged that the livestock would be farmed through by the Farmer and once it was fattened it would be onsold or sent to a processing facility. The proceeds received would be first applied to payment to the plaintiff of the cost of the livestock and finance charges, with the Farmer receiving the balance. It was common ground that the plaintiff funded its operations by borrowing money from its own bankers.[3] At the heart of the dispute is the livestock agreement and it will be necessary to make references to that agreement in this judgment. The starting point of theplaintiff's claim, though, is clause 17. Clause 17 of the Livestock Agreement set out the terms of the guarantees, providing inter alia that Spotburn and the Guarantors areeach jointly and severally liable for Spotburn's debts and that the Guarantors areliable as if they were principal debtors of StockCo.[4] Under the Livestock Agreement, StockCo was to purchase the following stock (Livestock) from Spotburn and to own such Livestock at all material times:700 deer $250 ph $175,000.00GST $21,875.00Subtotal $196,875.001,100 lamb $45 ph $49,500.00GST $6,187.50Subtotal $55,687.50Total principal advanced $252,562.50[5] Spotburn was to farm the Livestock through to the agreed delivery date of October or November 2008, as specified in Schedule A to the Livestock Agreement, at which time the stock would be sold or processed (clause 6).[6] The Livestock Agreement provided that Spotburn was liable to StockCo forthe ―aggregate cost price of the stock plus interest calculated under Schedule A andother recoverables. See clauses 3.4, 5.2, 6.6 and 6.8, and see ―Purpose on page 1.(Livestock Agreement — exhibit ―KL4).[7] In the event of termination of the Livestock Agreement by StockCo, underclause 8, StockCo could again recover the ―Cost Price plus interest and costs andexpenses.[8] The plaintiff duly paid the funds specified under the agreement to the Farmer. However, Spotburn failed to deliver the Livestock in accordance with the terms of the Livestock Agreement in October or November 2008 for sale or processing. The plaintiff initially agreed to a three-month extension of the delivery period (Lambess affidavit — exhibit ―KL11 at [21]). Subsequently, StockCo issued an invoice dated 18 December 2008 seeking payment of the debt due under the Livestock Agreement(―Invoice) (Lambess affidavit– exhibit ―KL11).[9] In June 2009, the parties entered discussions. A payment plan was agreed that Spotburn would pay $20,000 every two weeks, with settlement in 6–8 weeks. Only one payment of $20,000 was received. The plaintiff now seeks a summary judgment against the defendants in respect of liabilities which the Farmer incurred to it. In its claim it seeks:the amount of the funds it paid to the defendant;interest on the amounts paid; andits legal costs incurred in bringing these proceedings.The Arbitration Agreement[10] The agreement contained an arbitration clause which requires any dispute that cannot be resolved by conciliation with StockCo to be referred to an arbitrator to resolve the dispute.[11] Ms Grant on behalf of the defendants submitted that because Spotburn disputes StockCo's right to the sums claimed in respect of GST, interest, the extension fee and costs, the arbitration provision is engaged.[12] Counsel for Spotburn wrote to counsel for StockCo on 8 September 2010 seeking to refer the dispute to arbitration. Counsel for Spotburn has received no reply to that letter. Due to the lack of a reply, the parties have not been through arbitration. Mr Morrison for the plaintiff said that it was now too late for the defendants to invoke the arbitration clause because they had submitted to the jurisdiction of the Court by filing a notice of opposition to the application for summary judgment. They ought, Mr Morrison said, to have filed a protest to jurisdiction or filed an application for stay instead of filing a notice of opposition.[13] I accept the submissions for the plaintiff. I consider that the position is correctly stated in the following passage from McGechan:If a defendant takes a step that is necessary or useful only if jurisdiction is conceded, then by that step a defendant submits to New Zealand jurisdiction:Equiticorp Industries Group Ltd (in stat man) v Hawkins (No 2) [1991] 3 NZLR 700 (HC), at 715-717. This includes taking a step in response to a summary judgment application: Advanced Cardiovascular Systems Inc v Universal Specialties Ltd [1997] 1 NZLR 186; (1996) 9 PRNZ 632 (CA). yet appointed an arbitrator in accordance with clause 12.1 of the agreement.[14] The submissions to arbitration does not provide a defence to the summary judgment application.Other Defences[15] I will next consider the other defences that have been advanced by the defendants.[16] The defendants do not dispute the right of the plaintiff to claim back the amount of $252,562.50 originally advanced to Spotburn. However, the defendantsdispute the plaintiff's entitlement to charge interest or to recover GST. They also oppose the plaintiff's claim to an extension fee. This last point has now beenconceded by the plaintiff and nothing more needs to be said about it. Finally, the defendants dispute that the plaintiff is entitled to indemnity costs.Interest[17] The agreement states in the ―Purpose section as follows:The Farmer will be liable to StockCo for the aggregate cost price of all Stock including all Stock subsequently acquired, interest on that amount until it is repaid ... .[18] It is a curious feature of the agreement that it did not make any clear provision for the Farmer to pay interest on outstanding monies. There are some provisions in the agreement that touch on the matter of interest and I shall make reference to the more important of these.[19] Schedule A of the agreement contained the following paragraph in clause 4:4. INTEREST RATEThe interest rate shall be fixed by reference to the current commercial bank rate of interest payable by StockCo Limited. In the case of any doubt or dispute over the rate of interest applicable, the decision of StockCo shall be final.[20] In clause 5.2 of the Livestock Agreement there is a reference to the responsibilities of the Farmer in the event of death or loss of the stock and in thatcircumstance the Farmer was to be responsible for the value of the stock and ―pay toStockCo by way of liquidated damages an amount calculated by reference to theCost Price plus interest.[21] Additionally, clause 6.8 covered the position that would apply if there was a shortfall when the stock was processed so that the proceeds were not sufficient to cover the aggregate owing to StockCo. In that circumstance: the deficiency shall be a debt payable forthwith together with interest at therate specified in Schedule A or any subsequent amendment until the date of its payment.[22] One matter that was discussed at some length at that hearing was the fact that no specific interest rate had been provided for in Schedule A to the parties' contract.The issue is whether it is open to the plaintiff to determine that interest shall be payable at any rate above the rate charged to it by its own bank.[23] One might have expected that the agreement would make clear provision for a fixed margin to be payable over and above the interest rate charged from time to time to StockCo by its bank. I think it is fair to say that clause 4 of Schedule A is not well-drafted.[24] The question that arises is whether the contractual provisions set out above, and in particular the second part of clause 4, entitle the plaintiff to unilaterally decide what interest rate is to be charged. Mr Morrison invited me to treat the matter as being parallel to the situation where banks and credit card companies reserve to themselves the right to increase interest rates by notifying their customers through advertisements in newspapers and by other means.[25] It is clear that the parties expected that the Farmer would pay interest under the contract. That contractual expectation should not be defeated unless necessary. But it is necessary to consider if a binding contract results where a contract term reserves to one party to the contract a power or authority to determine a matter which is not the subject of a specific provision that the parties have agreed upon.[26] I consider that the position is correctly stated in Burrows, Finn and Todd Law of Contract in New Zealand (3rd ed, LexisNexis, Wellington, 2007) at 3.7.7 as follows:[I]t may be possible to have a valid contract where the parties have agreed that the terms of the bargain are to be set by one party alone. This may occur where the parties have agreed that the final form of their agreement shall be determined by one of them, or by one party's agent using terms which are common or usual in an area or trade or profession. The agreement must, however, be clear as to the identity of the person to fix the terms in this manner. [Emphasis added.][27] The authority referred to in Burrows, Finn and Todd is Roberts v Cittadini(1908) 10 GLR 386 (SC). In that case, the agreement contained a term whichprovided that the necessary terms of the mortgage was ―to be arranged by some disinterested person. Justice Cooper, in an obiter statement, considered that this term rendered the agreement void for uncertainty:These are essential terms, and the agreement of sale contains no mention of the manner in which or by whom the disinterested person is to be appointed, or the method by which he is to fix the terms, or whether the parties are to be bound by the terms so fixed.[28] These authorities only allow a party to fix a term when there is some objective criteria to be applied, such as the usual terms common in a particular trade or profession. This is not the case here.[29] My conclusion is that the authorities do not establish conclusively that the plaintiff can fix an interest rate unilaterally in reliance on Schedule 4.[30] The plaintiff in the alternative claimed that it had come to an agreement with the first defendant that interest would be charged at the rate of 15 per cent, which resulted from the addition of a rounded margin of 5 per cent over the cost of funds charged to the plaintiff by its bank. The first defendant denies that such an agreement was reached and it is impossible for the Court on a summary judgment application to resolve that issue one way or the other.[31] There may also be problems arising from a further submission that Ms Grant made which can be summarised as a submission that it would be necessary for the plaintiff to establish what the underlying bank rate was for any period for which interest was to be calculated. While she was prepared to accept that as at July 2008 the evidence established that the underlying interest rate was 10.05 per cent, the rate may have changed thereafter.[32] The sum claimed for interest is not a minor one. When the proceedings were commenced in August 2010, judgment was sought under this head for $105,826.66.[33] It is my conclusion that the plaintiff has not persuaded me that the defendants have no available defence to the claim for interest.[34] I conclude that given the terms of the contract which the parties entered into and the fact that there is a dispute about an alleged oral agreement, it is not possibleto enter judgment for the plaintiff for any amount representing interest. The matterof interest will need to be tried in the usual way.GST[35] As will be apparent from the makeup of the original advance from the plaintiff to Spotburn, the sum included an amount that was advanced to enable Spotburn to pay both the cost of the livestock which Spotburn was to acquire (but did not) and the GST on the sale price. It was to enable Spotburn to discharge its liabilities arising out of the transaction whereby the funds were advanced to Spotburn. Spotburn was to acquire the stock from the third party and sell them to StockCo. But Spotburn never acquired the stock and never will. It has, however, received the money. StockCo says that they were not informed of the fact that the stock was never purchased until they received an affidavit in June 2010 given by Mr Denize in related Court proceedings where the true history of matters was set out. StockCo now claims to be entitled to recover the $252,562.50 as well as interest. It says that Spotburn and therefore the guarantors were or are indebted to it by that amount. Of course, if the transaction had followed the anticipated course, after Spotburn received funds from StockCo to purchase the stock, it would then have made a purchase for and on behalf of StockCo who would thereafter own the stock.Spotburn's liability for the original advance is conceded by the defendants. That is inevitably so. One analysis of StockCo's right to recover the money is that Spotburn is liable to account for the funds which are monies had and received, the funds having being paid to Spotburn in anticipation of a transaction which failed. But however it is analysed, the basis upon which StockCo now sues for the funds is not as an unpaid vendor of stock who is entitled to recover the purchase price plus the GST component of the price. In short, StockCo was never a vendor of livestock to Spotburn: the transaction was the other way around. That being so the submissions that Ms Grant has made concerning ss 8 and 9 and the Goods and Services Tax Act1985 are incorrect. That is because StockCo is not seeking to recover GST owing asa consequence of a ―supply.Costs[36] The plaintiff claims indemnity costs. It bases this upon clause 8.3 of the agreement between the parties which provides:In the event of termination pursuant to Clause 8.1 and without diminution of any or all the remedies provided by virtue of Clause 8.2, in the event that the Farmer has sold or disposed or otherwise parted with the possession of the Stock then StockCo at its option is entitled to elect to make demand upon the Farmer a sum equal to all the aggregate of the sums set forth in clause 6.6 insofar as they are applicable together with penalty interest at a rate 6% above the rate set out in Schedule A calculated from the date of sale or disposal together with the costs and expenses and the Farmer shall be bound upon receipt of such notice to make payment immediately to StockCo.[37] It will also assist to set out the terms of clause 8.2:In the event of termination pursuant to Clause 8.1 above, and without detracting from any rights StockCo has to recover any outstanding debts or to seek remedies or damages against the Farmer then:8.2.1 StockCo shall no longer be required to make any payments to the Farmer.8.2.2 All Stock then shall forthwith be removed from the property of the Farmer and delivered to the property or properties nominated by StockCo. All costs associated with the removal of the Stock shall be paid by the Farmer.8.2.3 StockCo shall be entitled to remove the stock from theFarmer's property and carry out a sale of the Stock either byauction or private agreement. The Farmer agrees to co-operate fully with the identification, rounding up and removal of the Stock[38] Both the provisions which I have quoted apply in the event of termination of the contract. It is not in dispute that the plaintiff has terminated the agreement. In the generality of cases, once there had been the termination of the contract, certain expenses would normally be incurred. Because there would be stock depastured on the Farmer's property, expenses of uplifting the stock could be anticipated. In thiscase, in breach of its contractual obligations, the Farmer, having accepted payment of the finance funds, did not apply them to the purchase of livestock on behalf of the plaintiff. While I regarded as being established that there has been a justified termination pursuant to clause 8.1, the events that clause 8.3 anticipates have not occurred. It would not be unreasonable to interpret clause 8.3 (which applies to a situation where livestock has been acquired and the Farmer has parted with possession in breach of the contract) as applicable, to the extent possible, in circumstances where no stock was ever acquired at all. But obviously there are differences between the two contingencies. In the present case, no expenses will be outlaid to recover the stock.[39] But the other option of StockCo under clause 8.3 is to ― elect to makedemand upon the Farmer [of] a sum equal to all the aggregate of the sums set out inclause 6.6 insofar as they are applicable together with the costs and expenses andthe Farmer shall be bound upon receipt of such notice to make payment immediately to StockCo. The text, in my view, supports the view that costs and expenses whichfall within the clause include those of enforcing the demand which clauses 8.3 and8.2 entitle StockCo to make. The expresson ―costs and expenses does not require tobe read down in any way and therefore would include the actual out-of-pocket expenses incurred by StockCo in bringing proceedings.Withholding the Entry of Judgment[40] The defendant sought leave to file a late affidavit by Mr Denize. In the affidavit it was stated that an entity associated with the defendants had entered a contract to sell property which was to settle in May 2011. On the basis of the contents of the affidavit, Ms Grant submitted that if I was minded to enter judgment I should defer its effect until funds became available from that transaction.[41] I am not persuaded that what Ms Grant proposes is the correct course. The transaction which is the subject of these proceedings dates back to July 2008 which is when StockCo transferred the sum of $252,562.50 to Spotburn. It would appear that even though Spotburn accepted the money it did not acquire the livestock. It would further appear that the structure of the agreement required that the livestockwas to be sold or processed in October or November 2008, which is when the amounts owing under the agreement would be repaid. StockCo began seeking the payment of the funds to which it was undoubtedly entitled at the end of 2008. It has had a right to the return of the money for over two years. Against that, thedefendants submit that in effect, the plaintiff's enjoyment of its contractual rightsshould be deferred further still in order to provide the defendants time to acquire the money to satisfy the terms of any judgment.[42] I do not consider it is the Court's function to grant indulgences to persons in the Denizes' position when they have undeniably owed money to the opposing partyfor a lengthy period of time. That is particularly so when their inability to pay does not seem to be in any way linked to actions of the opposing party which have been placed in the balance in determining whether some moratorium should be made available to the defendants. I decline to postpone judgment.Judgment[43] There will be judgment for the plaintiff for the amounts originally advanced including GST, and the actual costs of enforcing the claim against the defendants. I accordingly enter judgment for the plaintiff against the first and second defendants for the sum of $252,562.50 originally advanced to the defendants.[44] The plaintiff has also sought solicitor and client costs of $58,269.29. Counsel for the defendant made no comment on the issue of costs other than to dispute that the plaintiff was entitled to solicitor and client costs and submitting that instead the plaintiff should receive costs on a 2B basis. Ms Grant did not make any comment on the quantum of the indemnity costs sought.[45] While I accept that there is an entitlement to solicitor and client costs, I have concerns about the quantum there has been sought. I do not regard this proceeding as being particularly complicated. There has not been a great volume of affidavit material placed before the court. I appreciate that the costs are not limited to the court proceedings but extend to the enforcement steps generally which the plaintiff has taken. Even allowing for that consideration, and without expressing a firm viewon the matter, I would have thought that a figure of about half of what has been claimed would be fair and reasonable as solicitor and client costs. I reserve the matter of costs. The parties have two alternatives available to them. They can either negotiate a satisfactory figure or, if that is not possible, I will arrange for the registrar to fix a one-hour hearing time so that I can hear the issue and determine it. Counsel should advise by memorandum in due course what the position is. The proceeding is to be listed for a further call in my chambers list 1 April 2011 at 2:15 pm._____________J.P. DoogueAssociate Judge