About Image Limited v Advaro Limited
[2019] NZCA 337
•26 July 2019
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA710/2018 [2019] NZCA 337 |
| BETWEEN | ABOUT IMAGE LIMITED AND |
| AND | ADVARO LIMITED |
| CA775/2018 | ||
| BETWEEN | ABOUT IMAGE LIMITED AND OTHERS | |
| AND | ADVARO LIMITED | |
| Hearing: | 25 June 2019 |
Court: | Miller, Venning and Dunningham JJ |
Counsel: | D M Fraundorfer and T J Conder for Appellants |
Judgment: | 26 July 2019 at 2.15 pm |
JUDGMENT OF THE COURT
AThe appeals are dismissed.
BThe cross-appeal in relation to CA775/2018 is dismissed.
_____________________________________________________________________
REASONS OF THE COURT
(Given by Miller J)
Introduction
The appellants were small business customers of a telecommunications services provider called Intagr8 Ltd. Intagr8 sold them a package deal under which:
(a)it sold new telecommunications equipment to a financier, usually the first respondent Advaro Ltd (Advaro);
(b)Advaro rented the equipment to each appellant on (usually) five-year terms in exchange for monthly rental payments under a “Master Rental Agreement” (MRA); and
(c)Intagra8 sold each appellant telecommunications services (essentially, calls and data) on terms which delivered them a credit or rebate approximately equal to the rental payments they made to Advaro.
Intagr8’s sales pitch was that its customers could put their telecommunications spend to good use, getting new equipment while paying about the same for calls and data. Its business model was said to be viable because it got discounted rates from large telecommunications suppliers, who benefited from the volume of business and reduced customer churn.
Intagr8’s business model appears to have been flawed. The company went into liquidation on 17 December 2015 and ceased to provide either the services or the rebates, leaving the appellants with obligations under their MRAs with Advaro.
The appellants brought this proceeding together. Originally there were 64 of them; 14 remain. They say they validly cancelled their rental agreements and they seek a refund of money paid. Advaro Funding Ltd (the second respondent) counter‑claimed for outstanding rent and claimed under personal guarantees.
The appellants’ case is that the arrangements with Intagr8 and Advaro were “fundamentally interlinked”, creating a single tripartite contract that they might, and did, cancel for non-provision of the services and credits. Alternatively, the arrangements were marketed as to create a misleading and deceptive impression that they were interlinked, justifying relief under s 43 of the Fair Trading Act 1986.
The trial of the proceeding has been split.[1] In the first part, which was intended to address issues common to all appellants, Jagose J answered questions posed by the parties under r 10.15 of the High Court Rules 2016.[2] The Judge found that the MRA stood alone. He answered “maybe”, and so left open, the question whether Intagr8 might have acted as Advaro’s agent so as to found liability under s 9 of the Fair Trading Act. The CA775/2018 appeal and cross-appeal are brought from that judgment. The balance of the proceeding has not yet been tried.
The documents
[1]About Image Ltd v Advaro Ltd [2017] NZHC 3264.
[2]About Image Ltd v Advaro Ltd [2018] NZHC 3002 [Substantive judgment].
The relevant documents were: the Work Order, the MRA, the “Understanding the Arrangements” form (URA), and a Vendor Relationship Agreement (VRA). We approach them in that order, reflecting generally the business process that Intagr8 appears to have followed with its customers. It generated business by having its sales force cold-call potential customers. A proportion of those calls led to a meeting at which Intagr8 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 choose another financier if it wished. When the customer signed up they would execute all of these documents, including the MRA and also a direct debit authority in favour of Advaro. The Intagr8 sales representative would calculate the rent to be paid by applying rates schedules supplied by Advaro. The relevant pages of the MRA (those with handwritten details relating to the particular transaction) would then be sent to Advaro for its approval, following which Advaro would pay Intagr8 for the equipment and send a signed copy to the customer with its first invoice. This would be the first direct contact between Advaro and the customer.
The Work Order
The Work Order was an Intagr8 form. The customer requested “Intagr8 Ltd to supply and install [specified] equipment at the agreed rental/purchase price” on terms and 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 practice Intagr8 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 form was signed by the customer and the Intagr8 sales consultant.
The MRA
The MRA was an Advaro standard form. The parties were the customer and Advaro. 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 other Schedules” and the Master Rental Terms. It is apparent that the Rental Schedule comprised the first page, which contained details of the renter, the equipment and the instalments.[3] The document contemplated that more Rental Schedules might be added if the customer wanted to rent other equipment in the future. The term “Schedule” was not defined and was sometimes used in the document without a capital letter.
[3]Substantive judgment, above n 2, at [23].
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 the first page of the document. The agreement authorised Advaro to pay the vendor for and acquire the equipment. It stated that the vendor and Advaro were independent of one another. It recited prominently, just above the customer’s signature, that Advaro, not the vendor, was the owner of the equipment and the customer’s agreement was with Advaro. 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 agree to any modifications to any Advaro documents”. The MRA contained a whole agreement clause which stated that Advaro would not be liable for any statement or representation purportedly made on its behalf unless included in the MRA as an express term.
The customer’s obligations to pay rental were said to be “absolute and unconditional”. No withholding or set-off was permitted. Without limitation, the customer must continue to pay notwithstanding any defect in or loss of the equipment. There was no reference to Intagr8’s obligations to provide its services or the credits. Nor did the MRA confer on the customer any rights with respect to the equipment at the end of the term. Rather, the customer was to deliver the equipment up in good working order.
The Understanding the Arrangements form
There were four versions of this form signed by the appellants, which is called the UTA form. In it Intagr8 laid out the “key elements of the arrangements”. It was signed by the customer and Intagr8.
Under the heading “Equipment Rental Agreement” the UTA form specified the rental rate and stated that all equipment was rented through [space to insert named finance company]. Monthly credits for telephony services would commence with the equipment rental agreement.[4] The customer might choose its own financier.
[4]A generic term. Advaro’s MRA was such an agreement.
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 and no such rights were found in the MRA.
Under the heading “Telephony Services” the form set out the monthly call credits and stated that telephony services would be supplied by Intagr8 under a signed rate plan, with credits being applied at the end of every month.
The form contained a third “Entire Agreement” section which specified that the rental agreement (MRA) and rate plan superseded all prior representations and 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 the arrangements. I have had the opportunity to ask questions and am satisfied that I understand the arrangements.
Subsequent versions added to this section, stating that:
(a)(third version)
NOTE 1: The Rental Company’s Contract Terms & Conditions will control and determine the rental of equipment. We are not their Agent. NOTE 2: Return of Equipment at End of Term is solely governed by the relevant Terms & Conditions of the Rental Company’s Rental Agreement.
(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 terms take precedence over any other agreement between us. We are not their Agent and we have no authority to make any representations or statements on behalf or modify their documents. Your obligations to pay Rental and other monies under the Rental Agreement apply irrespective of the condition, quality, fitness for purpose, operability of or any defect or failure in the Equipment or Telephony Services.
NOTE 2: What occurs with the Equipment, including at the End of Term, is governed solely by the Rental Company’s Terms & Conditions.
These versions succeeded one another during the period covered by the proceeding.
The Vendor Relationship Agreement
This agreement, which we will call the VRA, was entered between Advaro and Intagr8. The customer did not see it. It recited that Advaro was pleased to offer potential funding to Intagr8 as Vendor to support the latter’s commercial equipment sales activities. Advaro would provide rate sheets and online pricing applications (so that Inagr8 could offer point of sale quotations) and transaction documents, finance application forms, and marketing documents if any. Advaro had an absolute discretion whether to finance any transaction with customers introduced by Intagr8.
The VRA did not specify the price of any particular equipment. Rather, Intagr8 agreed that it would sell equipment to Advaro for no more than its Cash Price (as that term is defined in the Credit Contracts and Consumer Finance Act 2003). Advaro was deemed to have purchased the equipment when it received a tax invoice for the agreed price and the vendor had complied with all Advaro’s procedures specified.
The VRA gave the vendor the option to buy equipment back at the end of the term if the customer no longer required it and the customer required replacement equipment which would also be rented from Advaro. If the vendor chose not to buy the equipment in these circumstances, Advaro might require the vendor to purchase. It does not appear that Intagr8 had a general right to buy the equipment back and sell it to the customer at the end of the term.
Intagr8 agreed that it would observe procedures imposed by Advaro and document contracts subject to Advaro’s requirements. The VRA provided that the vendor had no authority to make representations or statements on behalf of Advaro save as expressly authorised in writing:
11. NO AGENCY
Except as this Agreement expressly provides, nothing in this Agreement shall create, constitute or evidence any partnership, joint venture, agency, trust or employer/employee relationship between the parties. If at any time [Advaro] authorises the Vendor to act as [Advaro’s] agent, (such authorisation to be provided in writing to the Vendor and produced on demand by [Advaro] should [Advaro] so request), the Vendor will not have recourse to [Advaro] for any costs the Vendor incurs in that capacity or be entitled to be otherwise indemnified by [Advaro]. The Vendor has no authority to make any representations or statements on behalf of [Advaro] save as expressly authorised in writing by [Advaro] and has no authority to vary any Contract terms with Customers.
The questions posed
The questions posed (so far as relevant to this appeal) and the Judge’s answers were as follows:
Issue
Answer
1.
Whether as a result of the Factual Matrix there is a “Tripartite Agreement” between Advaro, Intagr8 and each plaintiff as pleaded …
No
5.
Whether the Factual Matrix leads to an implied term that the Master Rental Agreement is conditional upon the continuing provision of the Services and/or the Credits.
No
8.
Whether Intagr8 representatives marketed the MRA (as part of the Arrangement) to the plaintiffs as Advaro’s agent.
Maybe
9.
Whether the terms of the Documents prevent the
plaintiffs from relying on the Explanation in making a claim under the Fair Trading Act.Maybe
Of these, only questions 1, 5 and 8 are live on this appeal.
The trial
The trial largely proceeded on the documents and some agreed facts. Four witnesses were called by the plaintiffs/appellants. Two appear to have been called to 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 their evidence were ruled inadmissible:
(a)One, Jennifer Williams, explained that customers were told their internet or phone charges would pay off the equipment and the initial sales pitch did not mention a finance company. The Judge ruled this evidence inadmissible on the ground that it went to the contracting parties’ subjective intentions;[5]
(b)The other, Phillip Hall, was involved in sales meetings and explained the procedure followed at sales meetings, when the transaction was documented; he confirmed that Intagr8 insisted that the customer sign up with a finance company as part of a deal and would not permit customers to switch to Intagr8 using their existing equipment. The Judge ruled this evidence inadmissible for the same reasons.[6]
[5]Substantive judgment, above n 2, at [91]−[92].
[6]At [89]−[90].
Jagose J also ruled irrelevant and so inadmissible a number of documents, comprising mostly Advaro internal emails and manuals.[7] These indicate that Advaro had paid close attention to Intagr8’s documents (the Work Orders and UTAs) and practices, 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 give customers an opportunity to cancel their agreements with Advaro.
[7]At [96]−[100].
The appellants wanted to adduce this material to show that Advaro had approved of the full set of documents that Intagr8 presented to customers and had even been involved in drafting them, and also to establish the true extent of the agency relationship between Advaro and Intagr8. The Judge held that it was contextual evidence known only to one party.[8] It cast no objective light on the commercial context or structure of the 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 be established by external representations by or for Advaro to customers.[9]
[8]At [97].
[9]At [99].
The Judge also refused the appellants permission to reopen their case to call a defence witness, Kerry McNae, to whose disclosed brief of evidence defence counsel had referred in what were described as “mini opening submissions” before unexpectedly, as the appellants see it, electing not to call his evidence.[10]
The appeal
[10]About Image Ltd v Advaro Ltd [2018] NZHC 2749 [Judgment on application to reopen].
On appeal, counsel focused on the fifth question: whether the factual matrix leads to an implied term that the MRA was conditional on the continuing provision of Intagr8’s services and/or credits.[11] The appellants also take issue with the Judge’s conclusion that the disputed “contextual” evidence was irrelevant and inadmissible,[12] and his refusal to allow them to reopen their case to call Mr McNae.[13]
[11]CA775/2018.
[12]Substantive judgment, above n 2, at [87]−[100].
[13]CA710/2018: Judgment on application to reopen, above n 11.
The appellants say that the bargain was an exchange in which they accepted a new and sometimes substantial rental expense in return for credits against the cost of Intagr8’s services. For its part, Intagr8 received payment from Advaro for the equipment when the MRA was signed and it locked the customer into its services for the term of the MRA. The MRA was plainly part of a single transaction the parts of which 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 was a “term sheet” which referred to the rental charges and the credits and specified that the credits would coincide with commencement of the MRA. The MRA contained a whole agreement clause but expressly contemplated that further schedules might be added. All of the Intagr8 documents should be regarded as schedules.
We do not agree with the Judge’s reasons for ruling the evidence of Ms Williams and Mr Hall and the internal Advaro documents inadmissible in the proceeding. It was evidence of behaviour rather than Intagr8’s beliefs or intentions. In part it recorded representations made to customers by Intagr8. In part it went to show the nature and depth of the agency relationship that, as the Judge recognised, plainly existed between Advaro and Intagr8. That made it relevant to the Fair Trading Act cause of action, for reasons we go on to explain.
This conclusion does not affect question 5, however. We accept the submission of Ms McLay, who argued the evidential issues for the respondent, that the answer to that question would be the same with or without the disputed evidence. Manifestly the two transactions — the supply of equipment by Advaro and of telecommunications services by Intagr8 — were interconnected. Intagr8 would not offer its rebated services without an equipment sale financed by Advaro or another finance 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 two points.
First, Mr Fraundorfer noted that the MRA contemplated schedules, and argued that these included all of the Intagr8 documents. However, neither the admitted nor the disputed evidence establishes that the documents formed schedules to the MRA. As counsel conceded, the evidence showed only that the documents were presented to the customer together. The Judge referred to the defined term “Rental Schedule” and held:
[24] I do not find the MRA’s definition at all uncertain, and certainly not enough to accommodate the MRA as the foundation of the ‘tripartite agreement’ for which the plaintiffs contend. The definition’s “any other Schedule” does not expand the MRA to encompass documents external to the relationship between Advaro and the renter. …
We agree that the Intagr8 documents are not Rental Schedules. They are not described as schedules to the MRA and they were not attached to it. They do not do any of 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 to the MRA and potentially incompatible with it. Incompatibility would arise if the customer’s absolute and unconditional obligation to pay were said to be qualified by the addition of Intagr8’s obligations to deliver services and credits. We observe that Lang J reached a similar conclusion in a case in which a plaintiff alleged a tripartite agreement that included the same MRA.[14] (In that case the question was whether Advaro was obliged to ensure that the equipment was in good functioning order.)
[14]John Austin Ltd v CTrack Ltd [2014] NZHC 2687 at [24]. (Advaro was formerly called Rent Plus Ltd.)
Second, the commercial purpose or business efficacy of the customer’s transactions with Intagr8 and Advaro did not require that the two arrangements form a single contract, which also precludes the implied term in question 5. The services and credits mattered, but the appellants received those from Intagr8. It is only the subsequent insolvency of Intagr8 that has made the arrangement unsatisfactory. As Lord Neuberger held in Arnold v Britton:[15]
…commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. …
[15]Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [19].
We have concluded that the excluded evidence discussed above did not assist the appellants’ claim in contract. We add that the Judge did not err in the exercise of his discretion to permit further evidence after the close of the appellants’ case.[16] Mr McNae’s brief of evidence described the documents as he understood them. It did not appear to assist the appellants. It is said that had he been called he could have “contextualised” the disputed evidence by explaining the Advaro internal communications. We are not persuaded by this submission, which invites us to speculate on what Mr McNae might have said about documents that, as we have said, do not assist the appellants’ claim that the Advaro and Intagr8 documents form a single tripartite contract.
[16]Evidence Act 2006, s 98.
For these reasons the Judge was right to answer questions 1 and 5 in the negative. The appeals fail.
The cross-appeal
The cross-appeal concerns question 8: whether Intagr8 was Advaro’s agent.[17] The Judge reasoned that Intagr8 was plainly Advaro’s agent for some purposes, since the 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, but misleading conduct need not be confined to representations or statements.[19] He also recognised in this part of his judgment that any question of misleading and deceptive conduct was a matter for individual proof.[20] With respect to question 9, which is not challenged on the cross-appeal, the Judge doubted whether the MRA’s acknowledgements and exclusions qualified as permissible contracting-out provisions under s 5D of the Fair Trading Act.[21] Assuming they were, he found that it was not possible, on the material before him, to decide whether those provisions were fair and reasonable in the circumstances.[22]
[17]In respect of CA775/2018.
[18]Substantive judgment, above n 2, at [57].
[19]At [56].
[20]At [54].
[21]At [69].
[22]At [71].
In the notice of cross-appeal Advaro alleges that the VRA expressly provided that nothing in that agreement made Intagr8 Advaro’s agent, and there was no evidence before the High Court to support its conclusion that Intagr8 could have been Advaro’s agent on any basis in relation to the allegedly misleading and deceptive conduct pleaded at para 111 of the second amended statement of claim.
As developed in argument, the essence of the cross-appeal is that question 8 ought to have been answered “no” because the VRA and MRA precluded Intagr8 from making “representations and statements” on Advaro’s behalf. It is said that the allegedly misleading and deceptive conduct pleaded in the second amended statement of claim all comprises representations (some by omission) and statements. That being so, the Judge ought to have answered in the negative. He wrongly found, instead, that the pleading encompassed misleading and deceptive conduct that need not take the form of misrepresentations or statements.
The second amended statement of claim pleaded that Intagr8 explained the key parts of the arrangement. Particulars of the explanation are:
Material Particulars of the Explanation
(a)The Intagr8 Representative stated that the Plaintiff would pay the Rental Charge for the Equipment;
(b)The Intagr8 Representative stated that the Plaintiff would receive a Credit from Intagr8 that would offset the Rental Charge; and
(c)The Intagr8 Representative explained the consequence was a Plaintiff would only make one payment for the Services and the Equipment, provided that their usage of the Services was less than a certain volume.
This conduct was said to be misleading and deceptive in the following respects:
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 Credit and would be a cheaper way to obtain the Services;
(e)Intagr8 did not advise that the Rental Charge would be payable even if Intagr8 failed to provide the Credit or the Services.
Mr McLellan QC argued that the appellants’ claim is that there existed an express agency. He attributed that assertion to para 108 of the second amended statement of claim and the appellants’ submissions in the High Court. Para 108 pleads that:
108.The Explanation was provided by an Intergr8 Representative to each Plaintiff in their capacity as an agent of Advaro.
He argued that the only express agency is that found in the VRA, which provides as noted that there is no agency except and to the extent authorised in writing.
Mr Conder, who argued this part of the case for the appellants, submitted that they do plead an express agency under which Advaro is liable for Intagr8’s representation or statements. Advaro knew of and ratified the explanation, and with it the representations and statements pleaded in para 111; that being so, Intagr8 acted with actual authority. The appellants also say that Intagr8 was indisputably Advaro’s agent for some purposes, involving at least presentation and execution of the MRA, and that agency carried with it the implied or apparent authority to give the explanation complained of.[23] We accept that this characterisation of the claim is plainly available on the pleadings. Paragraph 108 of the claim is not confined to express agency.
[23]Giltrap City Ltd v Commerce Commission [2004] 1 NZLR 608 (CA) at [40] per Tipping J.
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 attempt was made to replead following late discovery but it was made late and was declined for purposes of the hearing before Jagose J.
This cross-appeal faces a more fundamental difficulty. Ultimately it rests on provisions of the VRA and MRA that have the effect of excluding Advaro’s liability for misleading and deceptive conduct by Intagr8. But it remains to be decided whether it is fair and reasonable to allow such provisions to prevail. It is not in dispute that the relevant provisions are contracting-out provisions for purposes of s 5D of the Fair Trading Act. They purport to exclude liability for anything Intagr8 has done, partly by denying its agency, and so permit conduct that might otherwise contravene s 9 of the Act. Question 9 having been answered as it was, the MRA and VRA could not provide a 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 (at minimum) presenting the MRA and having it executed by the customer.
We observe that Jagose J plainly had reservations about the use of the separate questions procedure to decide the Fair Trading Act questions posed. We share those reservations. The extent of Intagr8’s agency is a question of fact that must be decided at trial, which will establish exactly what was said to customers and what Advaro knew about it. As noted above, the disputed evidence is relevant to these questions. The trial may also explore the presently obscure relationship between the capital cost of the equipment and Advaro’s and Intagr8’s charges.
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 a representation nor a statement but is nonetheless said to be misleading and deceptive.[24]
[24]Compare the Substantive judgment, above n 2, at [56]–[57].
The cross-appeal fails.
Decision
We dismiss both appeals and the cross-appeal in relation to CA775/2018. In the circumstances, costs will lie where they fall.
Solicitors:
Holland Beckett Law, Tauranga for Appellants
Simpson Western, Auckland for Respondents
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