About Image Limited v Advaro Limited
[2018] NZHC 3002
•19 November 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV2016-404-2183
[2018] NZHC 3002
BETWEEN ABOUT IMAGE LIMITED AND OTHERS
First to Sixty-Fourth Plaintiffs
AND
ADVARO LIMITED
Defendant
AND
ADVARO FUNDING LIMITED
Counterclaim Plaintiff
AND
JENNIFER DOHERTY AND OTHERS
First to Fifty-Third Counterclaim Defendants
Hearing: 15, 16, 17, 23 and 25 October 2018 Appearances:
D M Fraundorfer and T J Conder for the Plaintiffs and Counterclaim Defendants
D H McLellan QC and J C Adams for the Defendant and Counterclaim Plaintiffs
Judgment:
19 November 2018
JUDGMENT OF JAGOSE J
This judgment was delivered by me on 19 November 2018 at 4:30 p.m. pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Counsel / Solicitors:
D Fraundorfer and T Conder, Holland Beckett, Tauranga D McLellan QC, Barrister, Auckland
J Adams, Barrister, Auckland
P M Hunter, Simpson Western, Auckland
ABOUT IMAGE LTD v ADVARO LTD [2018] NZHC 3002 [19 November 2018]
Introduction
[1] The plaintiffs are each small to medium-sized businesses, who entered into arrangements with the defendant (“Advaro”) and Intagr8 Limited (“Intagr8”) to obtain telecommunications equipment and services.
[2] Intagr8 promoted its provision of telecommunications services over equipment to be leased from Advaro. On each plaintiff’s entry into the arrangement, Advaro acquired the equipment from Intagr8 and leased it to the plaintiff on a five-year term, often secured by guarantees from the plaintiff’s principal. The arrangements’ selling point was Intagr8’s payment of ‘call credits’ to the plaintiffs for the term of the leases, usually equalling their monthly rental charges payable to Advaro. On Intagr8’s liquidation, the plaintiffs ceased receiving telecommunications services (and call credits) from Intagr8.
[3] The plaintiffs principally allege in this proceeding (a) their arrangements with Advaro and Intagr8 are to be construed as a single contract, (b) under which provision of the services and call credits is an essential or implied term, (c) Intagr8’s failure to deliver which entitled them to cancel the contract, and (d) such cancellation caused the guarantees also to lack any legal effect. They also allege the conduct of Intagr8 sales representatives, as agents for Advaro, was in breach of the Fair Trading Act 1996.
[4] These principal allegations, and related ‘common issues’, were ordered to be tried separately in a ‘stage one trial’,1 under HCR 10.15, which my judgment now determines.
Background
[5] The parties agree the following facts for admission as evidence under s 9 of the Evidence Act 2006:
1.Intagr8 Limited (Intagr8) was a telecommunication communication company that facilitated the provision of telephone and internet services (the services) and office equipment (the equipment) to businesses.
2.The equipment was sourced by Intagr8 from various third-party suppliers.
1 About Image Ltd and others v Advaro Limited [2017] NZHC 3264.
3.Advaro Limited (Advaro) is a finance company. Advaro was one of four finance companies that financed the supply of equipment, arranged by Intagr8, to businesses.
4.On 30 June 2014 Rent Plus Limited changed its name to Advaro Limited.
5.Advaro and Intagr8 were parties to a written contract entitled “Vendor Relationship Agreement” (VRA).
6.Under the VRA, when Intagr8 chose to arrange finance for equipment for individual customers through Advaro, Advaro agreed to purchase the equipment from Intagr8 and Advaro would then lease the equipment to customers.
7.Intagr8 provided the services to its customers.
8.Intagr8’s representatives made telephone calls to market the services and the equipment.
9.Customers who were interested in acquiring the services and the equipment then met with an Intagr8 representative.
10.If a customer chose to proceed, the customer signed the following documents:
(a)the Master Rental Agreement (MRA);
(b)the Connection Documents (including a “Work Order” and an “Application for Telephone Service”); and
(c) the Understanding the Arrangements (UTA) document; (together, the Documents)
11.In the case of each of the counterclaim defendants,2 they signed a guarantee in favour of Advaro in respect of the plaintiff’s liability under the MRA.
12.The 16th, 30th, 38th, and 52nd counterclaim defendants signed a guarantee in favour of Rent Plus Limited in respect of the plaintiff’s liability under the MRA and did not sign a further guarantee after Rent Plus Limited changed its name to Advaro.
13.By signing the Connection Documents, the customer authorised Intagr8 to provide the services and acknowledged that Intagr8 would invoice the customer monthly for the services at specified rates.
14.The Connection Documents and the UTA referred to the maximum monthly credits (the credits) that Intagr8 would provide against Intagr8’s charges for the line rentals and eligible calls as set out in its monthly invoices to customers.
15.The MRA specified the monthly rental charge payable to Advaro.
16.In most, but not all, cases the maximum monthly credits available from Intagr8 were equal to the monthly rental charge payable to Advaro.
2 With the exception of the 16th, 30th, 38th, and 52nd counterclaim defendants.
17.The Intagr8 representative provided the Documents (and the guarantee documents, where relevant) together to the customer at the same time.
18.After a customer signed an MRA, it was sent by Intagr8 to Advaro for Advaro to sign if its approval processes were satisfied (including customer credit checks).
19.After signing an MRA, Advaro made a payment to Intagr8 in accordance with an invoice issued by Intagr8 for the cost of the equipment.
20.Intagr8’s representatives made follow-up telephone calls to customers to repeat the particulars of individual agreements (including the real charge and the credits) and to confirm a date for the installation of the equipment covered by each agreement.
21.After Advaro approved and signed the MRA, each customer received a letter from Advaro which enclosed a copy of the MRA signed by Advaro and a schedule of the direct debit payments to be made to Advaro each month under the MRA.
22.In the ordinary course, and with the exception of those customers who had had prior contracts with Advaro, this was the first communication that a customer received from Advaro.
23.Customers also received monthly invoices from Intagr8 showing their telephone and internet usage, the total charges for that usage, the credit applied against those charges, and any balance to be paid to Intagr8.
24.On 17 December 2015, Intagr8 was placed in liquidation and from that date it ceased to provide the services.
The parties similarly agree identified documents in the bundle are representative examples of those various arrangements’ documentation. (Advaro objects to other documents in the bundle on grounds of relevance, which I address at [96] below ).
Relevant pleadings
[6] The crucial pleading is the plaintiffs’ paragraph 63: “[a]s a result of the Factual Matrix there is an agreement between Advaro, Intagr8 and the respective plaintiff (the Tripartite Agreement)”. The pleaded ‘Factual Matrix’ is essentially that of the contractual documents’ establishment between each plaintiff and Advaro, and the plaintiff and Intagr8, with the addition of Intagr8’s follow-up telephone call to each plaintiff.
[7] Accordingly, the parties agree the following list of ‘common issues’, for my determination in this ‘stage one trial’:
1.Whether as a result of the Factual Matrix there is a “Tripartite Agreement” between Advaro, Intagr8 and each plaintiff as pleaded at [63].
2.If so, whether the following were essential terms of the Tripartite Agreement as pleaded at [64]:
a. that Intagr8 would provide the Equipment and Services to the plaintiffs;
b. that the plaintiffs would pay the Rental Charge to Advaro;
c. that the plaintiffs would pay the Line Rental Charge to Intagr8;
d. that the plaintiffs would receive the Credits against the Line Rental Charge.
3.If so, whether an essential term was breached by Intagr8, namely provision of the Services and/or Credits.
4.If so, whether the plaintiffs were entitled to cancel the Master Rental Agreement.
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.
6.If so, whether the implied term has been breached.
7.If so, and subject to the trial Judge holding that this issue can properly be determined as a common issue at the stage one trial, whether breach of the implied term entitled the plaintiffs to cancel the Master Rental Agreement.
8.Whether Intagr8 representatives marketed the Arrangement to the Plaintiffs as agents for Advaro.3
9.Whether the terms of the Documents prevent the plaintiffs from relying on the Explanation in making a claim under the Fair Trading Act.
10.Whether the guarantees cease to have any legal effect as a consequence of the plaintiffs being entitled to cancel the Master Rental Agreement, subject to them having validly exercised that right.
11.Whether the Rent Plus Guarantees cease to have any legal effect as a consequence of the plaintiffs being entitled to cancel the Master Rental Agreement, subject to them having validly exercised that right.
Subject to my finding in the plaintiffs’ favour on common issues 1 and 5, Advaro’s counsel, Daniel McLennan QC, accepts common issues 2-4 and 6-7 may be answered affirmatively.
3 But see [53] below.
Issue 1: a ‘Tripartite Agreement’?
[8] The plaintiffs contend for a ‘tripartite agreement’, in which each party – the respective plaintiff, Integr8, and Advaro – is discharged from liability for performance to the others on cancellation after failure of any of the single agreement’s essential terms.
—contractual interpretation, in principle
[9] As said in my interlocutory judgment in this proceeding,4 contract construction is an objective exercise to determine:5
… what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean[,] … aware of the commercial or other context in which the contract was made and of all the facts and circumstances known to and likely to be operating on the parties’ minds.
That is, ‘known to and likely to have been operating on all parties’ minds’;6 there is a “need to maintain the key distinction between the parties’ objectively apparent consensus and subjective individual intentions”.7
[10] The parties take no substantial dispute with such a characterisation of the task. Intagr8’s junior counsel, Tim Conder, confirmed the pleading’s specification of the ‘Factual Matrix’ was not intended to exclude from consideration anything a reasonable person would consider relevant to the task of interpretation.
[11] Intagr8’s senior counsel, David Fraundorfer, argues a contract is to be interpreted in light of its clear commercial purpose (if that can be determined), with consideration of each party’s private knowledge casting light on their shared knowledge. Moreover, he suggested a contract should be interpreted against a party (with power to remove ambiguity in a document) who later seeks to rely on that ambiguity. Thus he recommends my progressive examination of all relevant
4 About Image Ltd v Advaro Ltd [2018] NZHC 2749 at [12].
5 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19].
6 Firm PI 1 Ltd v Zurich Australian Insurance [2014] NZSC 147, [2015] 1 NZLR 432 at [66] per McGrath, Glazebrook and Arnold JJ.
7 New Zealand Air Line Pilotsʼ Association Inc v Air New Zealand Ltd [2017] NZSC 111, [2017] 1 NZLR 948 at [86] per Arnold, O’Regan and Ellen France JJ.
information, “cross-checking the meaning implied by each to reach a single interpretation that properly reflects the full ambit of the relevant evidence”.
[12] That is not how contractual interpretation works. It is not an exercise of interpreting the words so as to accommodate all relevant evidence. The starting point, instead, is the language of the contract itself, interpreted in the context of the contract as a whole:8
While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.
[13] Cautions against using relevant background “to read the contract in a different way than the language might suggest” are legion, the tension being between unavoidable contractual disadvantage and avoidable commercial absurdity:9
… where contractual language, viewed in the context of the whole contract, has an ordinary and natural meaning, a conclusion that it produces a commercially absurd result should be reached only in the most obvious and extreme of cases.
—the contractual documents
[14] The plaintiffs plead the ‘Tripartite Agreement’ to be constituted by “three documents”:
Parties who entered into an Agreement with Advaro and Intagr8 signed three documents:
(a)a set of documents that were also signed by Intagr8 for the provision of the Services and installation of the Equipment, which included documents headed “Work Order”, “Application for Telephone Services” and the associated terms and conditions (the Connection Documents);
(b)a document that was also signed by Advaro (the Master Rental Agreement); and
8 Firm PI 1, above n 6, at [63] per McGrath, Glazebrook and Arnold JJ (internal footnotes omitted).
9 At [88]-[93] (internal footnotes omitted). See also Suzanne Robertson QC “Making sense of commercial common sense” (2018) 49 VUWLR 279.
(c)a document summarising certain terms of the Master Rental Agreement and entitled “Understanding the Arrangements” (the Understanding Documents)
Advaro admits the plaintiffs’ signature of those documents, and adds each plaintiff signed a direct debit authority in Advaro’s favour, and some of the plaintiffs’ directors also provided a personal guarantee to Advaro.
… Vendor Relationship Agreement
[15] These documents were against the backdrop of a Vendor Relationship Agreement (the “VRA”) between Advaro and Intagr8, by which Advaro offered “potential funding to Intagr8 Ltd (the Vendor) to support its commercial sales activities”, while retaining “absolute discretion whether or not to enter into proposed Contracts with Customers introduced by the Vendor”. On each such contract, Integr8 was liable to pay Advaro booking and other fees, but Advaro had no recourse to Intagr8 in the event of its customers’ non-performance of their obligations.
[16]The general scheme of the arrangement appeared in the VRA’s first paragraph:
The Vendor is in business selling Equipment (Equipment). The Vendor may from time to time ask [Advaro] to purchase Equipment from the Vendor to enable Advaro to lease that Equipment to the customers who approach the Vendor (Customers).
Mr Fraundorfer emphasises the VRA required Intagr8 to sell the Equipment to Advaro “for no more than its Cash Price”, meaning the “lowest price” or “fair market value” of the Equipment at the time of the lease.
[17] Under the VRA, Advaro was to provide to Intagr8 “Rates Sheets and online pricing application to enable point of sale quotations”, “[f]inance application forms”, “[t]ransaction documents relating to proposed Contracts”, and “[m]arketing documents if any”.
… Master Rental Agreement
[18] The primary transaction document was the Master Rental Agreement (the “MRA”), titled “[i]ncluding Application and Rental Schedule”, and marked with Advaro’s brand. The front page of the document identified Advaro and the renter as
the parties, and provided space for identification also of any vendor. It made provision for the renter’s identification and contact details, and of the detail of the equipment subject to the agreement.
[19] After details of insurance and rental payments, the front page concluded with renter acknowledgments, above which the renter was to sign the MRA:
The Renter acknowledges and agrees that by forwarding of this Rental Schedule for acceptance by Advaro the Renter authorises Advaro to pay the vendor of the Equipment and acquire the Equipment. Advaro rents to the Renter described in the Rental Schedule, and the Renter rents from Advaro at the Rentals set out in this Rental Schedule, the Equipment described in this Rental Schedule upon the terms set out in this Agreement. None of the Renter, Advaro or any Guarantor will be bound by this Agreement until Advaro has advised the Renter that this Rental Schedule and any other Schedules have been signed by all of the relevant parties. The Renter agrees to the Privacy Act Requirements set out on the Additional Information Section.
IMPORTANT ACKNOWLEDGEMENTS BY THE RENTER - the Renter
confirms that they have read and understood the following declaration and acknowledgements.
The Renter acknowledges:
1) that Advaro is the owner of the Equipment and not the vendor and that the Renter’s agreement is with Advaro (where a vendor is involved, the vendor is Advaro’s agent for limited purposes only and has no authority to make any representations or statements on behalf of Advaro or to agree to any modifications to any Advaro documents);
2) that Advaro will not give any warranties, conditions or guarantees in relation to the Equipment and the obligations of the Renter to pay Rental and other monies under this Agreement will apply irrespective of the condition, quality, fitness for purpose or operability of or any defect or failure in the Equipment.
3) and declares that it will enter into each proposed rental transaction with Advaro under this Agreement for business purposes.
At the foot of the front page was a section to indicate Advaro’s acceptance of the proposed rental.
[20] The MRA continued with two pages of small print, described as the “Master Rental Terms”. Its principal recitals explained a completed and signed application for rental of equipment, together with a vendor’s invoice for the equipment, may be accepted (or rejected) by Advaro in its absolute discretion:
Our discretion will not be affected if you pre-pay any moneys or take delivery of any Equipment. The vendor is not our agent, nor are we the vendor’s agent. Both we and the vendor operate independently and neither have authority to bind the other or make representation on behalf of the other.
[21] Clause 3.2(d) of the MRA’s terms contained renters’ acknowledgment “any representation or warranty made by the vendor is not binding on us and is a matter between you and the vendor”. Clause 3.3(b) contained renters’ representation, in deciding to rent the equipment, renters relied entirely on their “own skill and judgment and not on any advice information, representations or warranties from us or from any person acting, or purporting to act, on our behalf”. And clause 26 provided:
This Agreement together with each Rental Schedule, the Fees, Charges and Interest Schedule and any Variation Schedule constitutes the whole agreement between the parties and no representation made by either party, whether express or implied, shall form part of this Agreement. In no case shall we be liable for any statement or representation made or purported to be made to you by us or on our behalf unless it has been included in this Agreement as an express item.
[22] A fourth page provided identification of guarantors and specification of the terms of the guarantee, and a section for additional information required of partnerships, trusts and sole traders, before concluding with general information about Advaro’s treatment of personal information in terms of the Privacy Act 2006.
[23] Mr Fraundorfer sought to make something of the uncertainty he says is inherent in the MRA’s definition of itself as “comprised by the Rental Schedule and any other Schedule and the Master Rental Terms”. But the rental terms defined ‘Rental Schedule’ as meaning:
… each rental schedule entered into by the Renter and us in, or substantially in, the form incorporated in or attached to this Agreement, including any further rental schedule in the future in relation to additional equipment.
The ‘Rental Schedule’ is plainly the first page of the MRA. Before acceptance by Advaro, it is simply an application to rent equipment from Advaro; on Advaro’s acceptance, it becomes the Rental Schedule. That is express in the renter’s first acknowledgement set out at [19] above. Other “Schedules” referred to in the MRA are anticipatory: for example, where listing the equipment to be rented takes more than the five lines allowed in the MRA, such details are to be completed “on the Equipment
Schedule form”; a countersigned ‘Variation Schedule’ would specify any changes to the MRA.10
[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. Neither is the fourth page, containing the ‘Guarantor’ and ‘additional information’ sections, part of the MRA itself.
[25] On acceptance by Advaro, a copy of the countersigned MRA was returned to the renter under cover of a letter on Advaro letterhead. The letter thanked the renter “for choosing Advaro as your rental solution partner”. It continued, “[y]our Master Rental Agreement is vendor and equipment independent which means that you can lease additional equipment at your discretion”, “[s]ubject to meeting Advaro credit criteria”.
… Understanding the Arrangements
[26] To that relative clarity, Intagr8 added a document under its brand, titled “Understanding the Arrangements” (the “UTA”).
[27] Each of the plaintiffs signed at least one of what appear to be four iterations of the UTA. Their signatures acknowledge an Intagr8 salesperson “explained all of the key elements of the arrangement”, affirmed by the salesperson’s similar signed acknowledgment. The UTA commenced, “Intagr8 Ltd appreciates your business and for the avoidance of any misunderstanding, our staff and customers must acknowledge that the key elements of the arrangements have been explained”.
[28] Each iteration referred separately to rental payable under an Equipment Rental Agreement, and to call credits payable in respect of Telephony Services (or under a
10 There does not appear to be any document expressly titled “Fees, Charges and Interest Schedule”. There is a separate document, seemingly subsequently generated on Advaro letterhead, titled “Payment Schedule”, but it is entirely derivative of the MRA’s front page’s identification of rental instalments and frequency over its term. I do not comprehend the ‘Payment Schedule’ to be part of the MRA itself.
Telephony Services Agreement). Each iteration recorded the understanding those “supercede all prior representations [made to you],11 whether verbal or written, and they accurately describe the whole of the arrangements between us”. All but the third iteration prefixed that statement with a heading “This is the entire agreement”.
[29] Again, Mr Fraundorfer sought to make something of the contended contradictory references to the ‘whole’ or ‘entire’ agreement in each the MRA and the UTA. But each expressly is referring respectively to the arrangements between the renter and Advaro on the one hand, and between the customer and Intagr8 on the other. Neither universality contains, or contradicts, the other.
[30]Notes to the UTA’s third and fourth iterations also respectively specified:
NOTE 1: The Rental Company’s Contract Terms & Conditions will control and determine the rental of equipment. We are not their Agent.
And:
NOTE 2: Return of Equipment at End of Term if solely governed by the relevant Terms and Conditions of the Rental Company’s Rental Agreement
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 their 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.
The latter two notes to the UTA’s fourth iteration expressly were prefaced by the renter’s acknowledgment of having read and understood them.
[31] At the time of the UTA’s signature, the MRA was, at best, only a draft application to rent. It still required to be both dispatched to and accepted by Advaro, and had no effect “until Advaro has advised the Renter” of its execution. The UTA explains under ‘Equipment Rental Agreement’, “[a]lthough Advaro is able to provide
11 The [square-bracketed words] are added in the UTA’s third and fourth iterations.
the finance required you may choose to organise your own financing arrangements”. ‘Telephony Services’ were to “be delivered and billed monthly by Intgr8 Ltd in accordance with the Rate Plan, also signed by me”. The UTA included an acknowledgement, under the Telephony Services heading, the renter understood the terms and conditions.
… Connection Documents
[32] Also under Intagr8’s brand was an Application for Telephone Service, by which the Customer sought to transfer its existing telecommunications services to Intagr8. The application identified the “Maximum Monthly Call Credits” and the calling rates that would apply, and provided all necessary authority for Intagr8 to reassign the customer’s telephone numbers and other services from its existing provider to Intagr8.
[33] An Intagr8-branded Work Order also was completed. The Work Order listed the rental equipment and the term and cost of that rental, together with the matching call credits, and any sum payable to the customer’s existing provider on account of early termination of those services. The customer “request[ed] Intagr8 Ltd to supply and install the above mentioned equipment at the agreed rental/purchase price and agree[d] to the terms and conditions overleaf which I have read”. No such terms and conditions were in evidence, the evidenced Work Order consisting of a single-sided page. In closing submissions, Mr Fraundorfer referred to this document as “the ‘trump’ document”,12 which drew all the component parts of the ‘tripartite agreement’ together.
—analysis
[34] I cannot discern from the documents the interdependent structure for which the plaintiffs contend. On their faces, the arrangements between each the renter and Advaro, and the customer and Intagr8, expressly are distinct. The renter rents equipment from Advaro, and (as customer) takes services from Intagr8, paying each a fee or charge for doing so. The closest point of intersection is Intagr8 will credit its
12 The phrase is that of a witness, Phillip David Hall, who added “everything in this document had its own document to support it”. Advaro objected to some of the witness’ evidence as inadmissible. I address the objection at [89]-[90] below.
customer an amount equal to the sum of monthly rental it has calculated as prospectively payable to Advaro. That is not enough to draw Advaro into the mix.
[35] At the point of the customer’s commitment to Intagr8’s offer, the agreement with Advaro has yet to come into force. The equipment notionally is owned by Intagr8. The customer’s agreement with Intagr8 entitles it to organise its own financing arrangements to rent the equipment, whether or not through Advaro (and even if at the same rental). I do not read the UTA as referring to the MRA itself, or in any way to be conditional on it coming into force. Neither does the VRA commit Advaro to the MRA: to the contrary, it maintains Advaro’s “absolute discretion” to enter it.
[36] Rather the UTA attributes an amount of monthly rental for the equipment (the “Equipment Rental Agreement”), which sum it will credit to its customer’s monthly call costs (the “Telephony Services Agreement”). As at the date of the UTA, the Equipment Rental Agreement is written on the MRA’s form, signed by Intagr8’s customer and witnessed by Intagr8’s sales representative, and the Telephony Services Agreement is comprised by the Application for Telephone Service, signed by the customer and “[e]xecuted as an Agreement” by the sales representative “for Integr8”.
[37] Regardless of Advaro’s subsequent involvement, as at the date of the UTA, the customer was entitled to take telecommunications services from Intagr8, on rented equipment supplied and installed by Intagr8, with a maximum credit to its monthly call costs equal to the monthly rental calculated as available from Advaro (whether or not that was from whom the customer rented the equipment). Intagr8’s sales representative, Phillip David Hall, explained:
In practice, the new equipment would be supplied as a rental through a finance company such as [Advaro]. Other finance companies were also used but Advaro was the most common.
The finance company was usually required as part of the deal. We would not sign up customers if they did not sign up with a finance company as part of the transaction. When people asked if they could use their existing equipment and switch to Intagr8, we would explain that this was not possible. It was a package deal.
[38] A risk was Intagr8 may not remain in a position to underwrite or subsidise the customer’s obligation to rent the equipment. But that is nonetheless the request made
of Intagr8 by the customer through the Work Order. The Work Order cannot be a ‘trump’ document, whatever that means, because it is the customer’s unilateral request of Intagr8 alone. It is not in any event comprehensive, because it does not address Intagr8’s telecommunications services beyond the provision of call credits. Instead, it simply requests Intagr8 “to supply and install the … equipment at the agreed rental”. It is, as its title explains, just a ‘work order’, subsidiary to the contractual arrangement.
[39] Neither can I see anything in the wider context that calls for a different interpretation. Intagr8’s offer is founded in a change to its customers’ telecommunications equipment and services. I apprehend business people would assess the benefits and burdens of such a change before accepting it. The documentary evidence illustrates direct financial costs incurred in making such changes, including liability for current service providers’ early termination charges. Early termination of Intagr8’s services on any basis would leave customers at least without their call credits, but without any interpretative necessity for coterminous rental arrangements (however commercially desirable such may be):13
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.
[40] The result complained of by the plaintiffs does not arise from any particular interpretation of the contracts, but from the fact of Intagr8’s liquidation. Nothing – let alone anything “obvious and extreme” – has “gone wrong” with the contractual language.14
[41]I answer Issue 1 with a “No”. Issues 2 to 4 therefore do not require answer.
[42] And thus I need not to consider Mr Fraundorfer’s contention Advaro’s involvement in the drafting of, in particular, the UTA requires any ambiguity in that document to be construed against Advaro’s interests. But, as I have identified at [36]-
[37] above, there is in any event no ambiguity in that document’s iterations.
13 Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [19] per Lord Neuberger SCJ (with whom Lord Sumption and Lord Hughes SCJJ agree).
14 Firm PI 1, above n 6, at [88] and [93] per Arnold, O’Regan and Ellen France JJ.
Issue 5: an implied term?
[43] Alternatively, the plaintiffs argue the MRA was impliedly conditional on Intagr8’s continuing provision of services and/or call credits to them.
—implication of terms, in principle
[44] So far as implied terms are concerned, “the correct approach to the issue of implication is currently uncertain”.15 The uncertainty is:16
… whether the implication of a term is to be dealt with by applying the same test and, perhaps, addressed as part of the same process as for the interpretation of existing contractual terms.
[45] The uncertainty is resolved in the United Kingdom,17 in favour of a return towards the orthodox position set out in BP Refinery (Westernport) Pty Ltd, which established the following conditions for implication of terms in a contract:18
(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”;
(4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
—analysis
[46] Had I to address the question of implication as part of contractual interpretation, then I would see no basis for its inclusion, for all the reasons I have outlined above as illustrating nothing had ‘gone wrong’ with the contractual language.
[47] Neither is the proposed condition reasonable or equitable. To the contrary, it is to import into a standalone contract between a plaintiff and Advaro the circumstances of an independent supplier of services. In contracting for that supply, Intagr8 required the plaintiff to rent equipment. Nothing required the plaintiff to rent the equipment
15 Ward Equipment Ltd v Preston [2017] NZCA 444, [2018] NZCCLR 15 at [46] citing Mobil Oil New Zealand Ltd v Development Auckland Ltd [2016] NZSC 89, [2017] 1 NZLR 48 at [81].
16 Ward Equipment Ltd v Preston, above n 15, at [46] citing Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988.
17 Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2016] AC 742.
18 At [18] citing BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 52 ALJR 20 (PC) at 26.
from Advaro. Advaro’s knowledge of those arrangements, and preparedness to finance the rental, is nothing exceptional: that is no more than would be the position in any pre-established corporate financing arrangement.
[48] The additional proximity between Advaro and Intagr8 established by the VRA does not make the proposed condition equitable as between Advaro and a plaintiff. The VRA’s limited warranties are prefaced: “Intagr8 introduces Customers to [Advaro] and directly benefits from [Advaro] purchasing Equipment and entering into Leases with Customers”. They plainly delineate between Intagr8’s role in introducing Advaro to the customer and the equipment, and Advaro’s discretionary acceptance of the plaintiff as a customer. Recourse to Intagr8 for customers’ performance of their obligations to Advaro under the MRA is expressly excluded by the VRA.
[49] And the MRA has complete business efficacy without the proposed condition: the MRA’s effectiveness is exactly from what the plaintiffs seek relief. It is not at all obvious the MRA should accommodate the conduct of a non-party as effective to terminate it. Whether or not the proposed condition was capable of clear expression (and in particular how it would identify with requisite certainty obligations of a non- party under other contracts), any conditionality directly contradicts the plaintiffs’ “absolute and unconditional” obligation to pay rental under the MRA.
[50]I also answer Issue 5: “No”. Issues 6 and 7 therefore do not require answer.
Issue 8: is Intagr8 Advaro’s agent?
[51] The plaintiffs allege they were approached by Intagr8 representatives who marketed the “Arrangement” to them. The ‘Arrangement’ is defined as comprising five elements: Intagr8’s offer to prospective customers of equipment and services; Advaro’s acquisition and lease of the equipment to customers; the customers’ payment of rental to Advaro; the customers’ payment of line charges to Intagr8; and Intagr8’s provision of credits to customers against the line charges. They also allege the Arrangement’s “Explanation” was given by the Intagr8 representative as Advaro’s agent. (That “Explanation” is defined to mean the plaintiff would: pay rent for the equipment, receive a credit from Intagr8 offsetting the rent, and thus make only one
payment for both services and equipment – so long as the services did not exceed a particular volume.)
[52] Intagr8’s conduct in marketing the Arrangement is contended to be misleading and deceptive conduct in breach of the Fair Trading Act, with Intagr8 acting as Advaro’s agent. The impugned conduct is pleaded as a failure to advise Advaro and Intagr8 were separate companies; an explanation the rent would be offset by the credit and would be a cheaper way to obtain the services; and a failure to advise rent would be chargeable even if Intagr8 failed to provide the credit or the services. Advaro denies Intagr8 was its agent.
[53] The ‘common issue’ for my determination under this head is “whether Intagr8 representatives marketed the Arrangement to the Plaintiffs as agents for Advaro”. In the course of his closing submissions, I asked Mr Fraundorfer to explain what aspect of marketing the Arrangement it was alleged the Intagr8 representatives had Advaro’s authority. He initially responded “so far as it related to Advaro”. Subsequently, he and Mr McLellan agreed the common issue for my determination in this respect was “whether Intagr8 representatives marketed the MRA (as part of the Arrangement) as Advaro’s agent”. (Incidentally, such a position seems inimical to the existence of any ‘Tripartite Agreement’: if such existed, Advaro’s authority would be required for the whole of the Arrangement, and not simply the component parts attributable to Advaro.)
[54] It is accepted any question of misleading and deceptive conduct is a matter for individual proof. But it does not require asking on the present pleading, if the Intagr8 representatives are not Advaro’s agent. It is also accepted such agency requires the agent’s actual authority (express or implied), or Advaro’s representation of the agent’s apparent authority.19
[55]Mr McLellan says Intagr8 lacks actual authority, given the VRA’s clause 11:
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
19 Bishop Warden Property Holdings Ltd v Autumn Tree Ltd [2018] NZCA 285 at [28]-[30].
employer/employee relationship between the parties. … 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.
And he says Intagr8 lacks apparent authority vis-à-vis the plaintiffs, because of the MRA’s recitals and the plaintiffs’ acknowledgments.20 In circumstances in which Intagr8 is involved as vendor, those acknowledgments include “the vendor is Advaro’s agent for limited purposes only and has no authority to make any representations or statements on behalf of Advaro”.
[56] Thus, whatever authority Intagr8 has to act as Advaro’s agent, it does not go so far as to make any representation or statement on Advaro’s part. But the impugned conduct may be broader than merely representations or statements on Advaro’s behalf. The common issue is whether Intagr8 “marketed the MRA (as part of the Arrangement) as Advaro’s agent”. The pleading is such marketing was misleading and deceptive in particularised ways, not expressly constituting representations or statements on Advaro’s behalf.
[57] Contrary to Advaro’s denial, the MRA is express Intagr8 is Advaro’s agent – but “for limited purposes only”. Although it is difficult to see how misleading and deceptive conduct could be otherwise than by way of representations or statements, that is not the express statutory threshold. Rather, “[n]o person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”.21 It is not explicit the particularised conduct is exclusively comprised of representations or statements on Advaro’s behalf. Thus, at least on the face of the MRA, the limited purposes of Intagr8’s agency conceivably could extend to marketing the MRA as part of the Arrangement.
20 At [19]-[20] above.
21 Fair Trading Act 1986, s 9. While misrepresentation “generally” is required – see Bonz Group (Pty) Ltd v Cooke (1996) 7 TCLR 206 (CA) at 210; and Neumegen v Neumegen [1998] 3 NZLR 310 (CA) at 317 – s 9 may admit of broader activity for the reasons set out at [64]-[65] below; in Carter Holt Harvey Ltd v Cottonsoft Ltd (2004) 8 NZBLC 101,588 (CA) at [42]; and in Debra Wilson The Fair Trading Act Handbook (Lexis Nexis, Wellington, 2018) at [4.55]-[4.64]. (I note the comments in Premium Real Estate Ltd v Stevens [2008] NZCA 82, [2009] 1 NZLR 148 at [54] appear limited to “expression of opinions”.)
[58] I expect that conclusion is more illustrative of the notorious shortcomings of the HCR 10.15 procedure,22 than determinative of Advaro’s lack of defence to the plaintiffs’ Fair Trading Act claim. The conclusion is directly the result of the pleadings: for example, there is no pleading Intagr8 marketed the Arrangement on Advaro’s behalf. Instead Intagr8’s alleged agency for Advaro is pleaded as a particular of Intagr8’s misleading and deceptive conduct – that is, Intagr8’s representation of its agency is misleading and deceptive. Meanwhile, the pleading is Intagr8 representatives provided the Explanation as Advaro’s agent. And the conclusion is complicated by the fact Fair Trading Act relief may extend to collateral arrangements, as the MRA may be.23
[59]I therefore answer Issue 8 with a “Maybe”.
Issue 9: does the MRA override the FTA?
[60] As with the previous issue, any question of misleading and deceptive conduct also does not require asking, if the MRA’s terms prevent the plaintiffs from relying on the Explanation. That is Issue 9 for my determination.
[61] Section 5C of the Fair Trading Act 1996, headed “No contracting out: general rule”, renders unenforceable “[a] provision of an agreement that has the effect of overriding a provision of this Act (whether directly or indirectly)”.
[62] As illustrated by the MRA’s acknowledgment “2)”,24 and clauses 3.2(d), 3.3(b) and 26,25 the MRA includes provisions that may have effect to override s 9’s prohibition,26 which s 5C thus would render unenforceable. But s 5D allows an exception from s 5C for parties in trade, such as the plaintiffs and Advaro here:
5D No contracting out: exception for parties in trade
(1)Despite section 5C(1) and (2), if the requirements of subsection (3) are satisfied, parties to an agreement may include a provision in their agreement that will, or may (whether directly or indirectly), allow those parties to engage in conduct, or to make representations, that
22 Andrew Beck and others McGechan on Procedure (looseleaf ed, Brookers) at [HR10.15.06(2)].
23 Fair Trading Act 1986, ss 43(3) and (4).
24 At [19] above.
25 At [21] above.
26 At [57] above.
would otherwise contravene section 9, 12A, 13, or 14(1); and in that case,—
(a)the provision is enforceable; and
(b)no proceedings may be brought by any party to the agreement for an order under section 43 in relation to such a contravention of section 9, 12A, 13, or 14(1).
(2)A provision of the kind referred to in subsection (1) includes, for example,—
(a)a clause commonly known as an entire agreement clause:
(b)a clause that acknowledges that a party to the agreement does not rely on the representations or other conduct of another party to the agreement, whether during negotiations prior to the agreement being entered into, or at any subsequent time.
(3)The requirements referred to in subsection (1) are that—
(a)the agreement is in writing; and
(b)the goods, services, or interest in land are both supplied and acquired in trade; and
(c)all parties to the agreement—
(i)are in trade; and
(ii)agree to contract out of section 9, 12A, 13, or 14(1); and
(d)it is fair and reasonable that the parties are bound by the provision in the agreement.
(4)If, in any case, a court is required to decide what is fair and reasonable for the purposes of subsection (3)(d), the court must take account of all the circumstances of the agreement, including—
(a)the subject matter of the agreement; and
(b)the value of the goods, services, or interest in land; and
(c)the respective bargaining power of the parties, including—
(i)the extent to which a party was able to negotiate the terms of the agreement; and
(ii)whether a party was required to either accept or reject the agreement on the terms and conditions presented by the other party; and
(d)whether the party seeking to rely on the effectiveness of a provision of the kind referred to in subsection (1) knew that a representation made in connection with the agreement would,
but for that provision, have breached section 12A, 13, or 14(1); and
(e)whether all or any of the parties received advice from, or were represented by, a lawyer, either at the time of the negotiations leading to the agreement or at any other relevant time.
(5)To avoid doubt, nothing in this section—
(a)prevents the Commission from bringing proceedings for an offence under this Act (including an offence under section 12A, 13, or 14(1)) against a party to the agreement referred to in subsection (1):
(b)limits the application of subpart 3 of Part 2 of the Contract and Commercial Law Act 2017.
[63] There is a question as to whether the MRA’s acknowledgment and clauses referred to at [62] above are provisions that “allow” the parties to engage in conduct otherwise in contravention of s 9 (as is only relevant here).
[64] As I already have said, the statutory prohibition is of engagement in “conduct that is misleading or deceptive or is likely to mislead or deceive”. The Act distinguishes between contravening ‘conduct’ and contravening ‘representations’. The latter specifically are the subject of ss 12A, 13, and 14(1); not s 9. The distinction is emphasised by s 5D(4)(d), which applies only to representations and not to conduct. Those representations are respectively of “unsubstantiated representations” and “false or misleading representations”. Nonetheless, a representation may still constitute conduct (although conduct’s omission from subpara (d) is less explicable).
[65] The MRA’s relevant provisions are about ‘representations’ made by Advaro (or Intagr8). The pleaded conduct is broader than representations alone, but extends to ‘marketing’, particularised as Intagr8’s agency, its provision of the Explanation, and its failure to advise of Advaro’s and Intagr8’s separate corporate identities, or of the renters’ obligation to pay rental “even if Intagr8 failed to provide the Credit or the Services”.
[66] Section 5D(2)’s ‘examples’ are not definitive: it is not necessarily the case “a clause commonly known as an entire agreement clause” is one which allows parties to engage in otherwise contravening conduct; that will depend on the content of the
clause itself. The MRA’s ‘whole agreement’ clause, which may be “commonly known as an entire agreement clause”, says nothing at all about allowing misleading or deceptive conduct.
[67] It seems necessary to construe the clause as having that effect, rather than s 5D(2)(a) achieves that effect by incorporation. If s 5D(2)(a) had effect to render the MRA’s ‘whole agreement’ clause as allowing the parties’ s 9 contravention, s 5D(3)(c)(ii) would still require the parties to have agreed to contract out of s 9. Properly interpreted, subpara (ii) illustrates a provision ‘allowing’ conduct otherwise in contravention of s 9 – if not explicit as to the parties’ agreement to contracting out, or that agreement is not elsewhere evidenced – must establish that agreement by implication.
[68] A provision allowing particular conduct, without more, is not necessarily the parties’ agreement to contracting out, merely because the conduct would otherwise be in contravention of the Act. Parties are not to be taken to have agreed to contract out of s 9 simply because conduct allowed by the contract is misleading and deceptive; that would leave subpara (ii) with nothing to do.
[69] On the evidence before me, I cannot construe the MRA’s relevant provisions as the parties’ agreement to contract out of s 9, and the provisions say nothing at all about allowing misleading or deceptive conduct.
[70] However, there is, again, a mismatch between the pleading and articulation of the ‘common issue’. The issue is expressed by reference to the ‘Explanation’, while the s 9 allegation relates to ‘marketing’ (the MRA, or the Arrangement). The Explanation, as defined, clearly is a representation.27 The MRA’s relevant provisions as clearly – at least, indirectly may – allow the parties to make representations that otherwise would contravene the Fair Trading Act. To the extent the Explanation is a representation constituting misleading and deceptive conduct under s 9, the MRA’s relevant provisions allow it. At least to that extent, the provisions establish the parties’ agreement to contract out of s 9.
27 At [51] above.
[71] But – even if the MRA’s provisions expressly allowed misleading and deceptive conduct, and the parties agreed to contract out of s 9 to that extent – I am still required to determine if it is “fair and reasonable” the parties are bound by that allowance. I cannot take account of s 5D(4)’s mandatory considerations – which include “the respective bargaining power of the parties”, and their individual positions as to legal advice – on the present ‘common issues’ basis.
[72]I therefore also answer Issue 9: “Maybe”.
Issues 10 and 11: are guarantees unenforceable after cancellation?
[73] The final common issues relate to guarantees given under the MRA. Guarantors:
… jointly and severally guarantee[d] the due payment by the Renter to Advaro of all amounts that become owing by the Renter to Advaro on any account and the due performance of all other obligations of the Renter to Advaro (in each case including, without limitation, under the [MRA]).
Their liability was “that of a principal debtor” and the guarantee was:
… a continuing guarantee and remains enforceable against us even if an event occurs which would otherwise have the effect of releasing us from this Guarantee or diminishing or affecting our liability in any way.
As a “separate and additional covenant”, guarantors also:
… jointly and severally agree[d] to indemnify Advaro and keep Advaro indemnified against all losses and expenses suffered or incurred by Advaro as the result of any breaches of the [MRA] by the Renter or as a result of any provision of the [MRA] being unenforceable for any reason whatsoever.
[74] The common issue is whether the guarantees “cease to have any legal effect as a consequence of the plaintiffs being entitled to cancel the [MRA], subject to them having validly exercised that right”. The relevant pleading is, by reason of particular facts, the MRA “has been validly cancelled, frustrated or is voidable”. The present common issues relate only to the first circumstance: in other words, if the MRA was validly cancelled, do the guarantees cease to have any legal effect?
[75] I asked Mr Fraundorfer what was meant by ‘cessation’ and ‘legal effect’. He said it meant “after cancellation” of the MRA. In other words, if the MRA validly was
cancelled, were guarantors nonetheless liable for ‘due payment’ and other ‘due performance’? The question cannot be answered in those terms, because “to the extent that the contract remains unperformed at the time of the cancellation, no party is obliged or entitled to perform it further”.28 Thus nothing thereafter is ‘due’. That is not to say the guarantees have no legal effect after the MRA’s cancellation; the guarantees are simply contracts collateral to the MRA, to secure performance of obligations under it. Even after the MRA’s cancellation, Advaro may rely on the guarantees to obtain payment of amounts owing to that point. Thus the guarantees continue to have legal effect after the MRA’s cancellation.
[76] The real issue appears to be the guarantors’ separate indemnity, on which Advaro relies for its counterclaim. I understood Mr Fraundorfer to argue Advaro’s indemnified ‘losses’ do not encompass rental payments for the balance of the MRA’s original term, and – even if they did – such losses are not the result of any provision of the MRA being unenforceable. Be that as it may, the interpretation does not mean the indemnity ‘ceases to have any legal effect’. It continues to have effect in its terms. Mr Fraundorfer acknowledges as much in proposing the indemnity is only for consequential damages on any barrier to enforcement.
[77] I am not asked to determine if Advaro’s counterclaim qualifies as losses recoverable under the indemnity, and do not do so. I answer Issues 10 and 11: “No”.
Result
[78] For clarity, I repeat the agreed common issues requiring answer, and my determination of them:
Issue
Answer
1.
Whether as a result of the Factual Matrix there is a “Tripartite Agreement” between Advaro, Intagr8 and each plaintiff as pleaded at [63].
No
28 Contract and Commercial Law Act 2017, s 42(1)(a).
Issue Answer
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
10.
Whether the Guarantees cease to have any legal effect as a consequence of the plaintiffs being entitled to cancel the Master Rental Agreement, subject to them having validly exercised that right.
No
11.
Whether the Rent Plus Guarantees cease to have any legal effect as a consequence of the plaintiffs being entitled to cancel the Master Rental Agreement, subject to them having validly exercised that
right.
No
Amendment issue
[79] Before trial, the plaintiffs sought leave further to amend their second amended statement of claim to provide, as part of the Factual Matrix, particulars of the allegation “[t]he Plaintiffs were approached by representatives of Intagr8 … who marketed the Arrangement”. Mr McLellan accepted, despite the ‘otherwise deny’ formulation of Advaro’s defence, that allegation essentially was admitted.
[80] The proposed particulars, said to be informed by late discovery from Advaro, were:
(a)Intagr8 told potential customers that they could use their telephone spend to obtain office equipment;
(b)Intagr8 told potential customers that they would receive new equipment without any capital expenditure; and
(c)Intagr8 told potential customers that they would receive call credits to offset the cost of the new equipment.
In oral submissions in support of the application, Mr Conder extended the proposed amendment to include at the end of the principal allegation “according to a common strategy”.
[81] The ‘common strategy’ took on particular emphasis for this stage-one trial of common issues. Without the extension, the pleading appeared to be of Intagr8’s individual contacts with prospective customers (including the plaintiffs), and therefore immaterial to the hearing before me. Mr Conder was explicit the proposed amendments were about Advaro’s and Intagr8’s collective knowledge about the marketing, that being “the true controversy before the Court” – the proposed amendments were “to take these particulars and turn them into a common issue”.
[82]I dismissed the application on the first day of trial, with reasons to follow.29
[83] The plaintiffs require leave to amend, because HCR 7.7(1) prohibits amendment “after the close of pleadings date without the leave of a Judge”. It is common ground leave requires an applicant to cross the “three formidable hurdles” of establishing leave is in the interests of justice, will not significantly prejudice other parties, or cause significant delay.30 Those are weighed against the principle “parties should have every opportunity to ensure that the real controversy goes to trial so as to secure the just determination of the proceeding”.31
[84] It is significant the parties’ agreement on common issue 1 was only achieved by omission of the ‘Explanation’ from the ‘Factual Matrix’.32 Inclusion of the ‘Explanation’ meant determination of the Tripartite Agreement may vary between plaintiffs, depending on what was explained to each. Marketing ‘according to a common strategy’ is not effective to avoid that result, as ‘common’ here means
29 Minute, 15 October 2018.
30 Elders Pastoral v Marr (1987) 2 PRNZ 383 (CA) at 385.
31 Shanton Apparel Ltd v Thornton Hall Manufacturing Ltd [1989] 3 NZLR 304 (CA) at 309.
32 About Image, above note 1, at [24]-[25].
common only to Advaro and Intagr8. Thus the effect of the amendment would be to remove common issue 1 from my determination. Ultimately Mr Conder accepted any alleged common understanding as between Advaro and Intagr8 as to the latter’s marketing to the plaintiffs “could be argued in the context of the existing pleading”.
[85] All that was in the context of the application being heard on the first day for the subsequent stage-one ‘common issues’ trial, in which the contended ‘tripartite agreement’ was a predominant issue for determination, but the proposed amendment would be to remove the ‘real controversy’ from my determination. I accordingly considered leave to amend was not in the interests of justice, tended significantly to prejudice Advaro if held to its current effective admission, and would have caused significant delay in permitting Advaro to respond.
[86]For those reasons, I dismissed the plaintiffs’ application for leave to amend.
Admission issues
[87] Advaro objected to admission of a number of documents in the common bundle, and to most of the plaintiffs’ four proposed witness statements, on grounds of relevance. I recorded at the time:33
This proceeding has been set down for split hearing, this first stage being to determine issues common to all plaintiffs. The defendants object to admissibility of certain of the plaintiffs’ witness briefs, and documents within the bundle, as irrelevant to any matter I am to decide at this stage of the proceeding.
[88] Evidence is ‘relevant’ “if it has a tendency to prove or disprove anything that is of consequence to the determination of the proceeding”.34
—Hall evidence
[89] Advaro objects to a paragraph in Mr Hall’s written statement, explaining what was discussed at sales meetings with prospective customers, on grounds such is of inadmissible pre-contractual statements.
33 Minute (No 2), 15 October 2018.
34 Evidence Act 2006, s 7(3).
[90] Paragraph 5 of Mr Hall’s written statement goes well beyond any contextual narrative of the fact of sales meetings (which is addressed in his preceding paragraphs) to seek to explain the prospective contract’s effect, at least from Intagra8’s perspective. As such, the paragraph falls squarely within the rule excluding evidence of contracting parties’ subjective intentions,35 and so is inadmissible.
—Williams evidence
[91] Jennifer Patrice Williams’ written statement explains her experience working as a telephone salesperson for Intagr8 for one month, terminated by Intagr8’s liquidation. Advaro objects to the whole of her evidence as irrelevant; alternatively, to paragraphs 8 to 10 as falling foul of the exclusionary rule.
[92] Paragraphs 8 and 9 are certainly inadmissible for that reason. The balance of the written statement is to establish her role in securing prospective customers for a meeting with Intagr8’s salespeople. Nothing in that proves or disproves anything of consequence for determination of the issues before me. The evidence is inadmissible.
—Barker/Byrnes evidence
[93] The evidence of Nigel Peter Barker and Harvie Byrnes estimated the cost of hardware supplied to Intagr8’s customers. The cost of hardware is a known factor for each customer, on an individual basis. For this ‘common issues’ hearing the witnesses’ estimates were to illustrate the contended (non-)commerciality of the ‘Tripartite Agreement’, and the operation of Intagr8’s contended agency. The pleaded ‘Factual Matrix’ included allegations, on execution of each MRA, Advaro made a payment to Intagr8 in an amount “significantly more than the purchase price or market value of the equipment”. That is against the VRA’s obligation for Intagr8 to sell the equipment to Advaro at its cost price.36 The allegations are denied by Advaro, whose defence also records the amount “is irrelevant to any matter in issue”.
[94] I accept these witnesses’ evidence has a tendency to prove ‘the purchase price or market value of the equipment (the “amount”). As a component of the pleaded
35 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 5, at [20] and [27] per Tipping J.
36 At [16] above.
‘Factual Matrix’, I accept the amount is of (marginal) consequence to determination of the issues before me. On that basis, I admit Mr Barker’s and Mr Byrne’s evidence.
[95] But I have difficulty seeing how the amount otherwise is relevant background knowledge for my ascertainment of the meaning of the contract(s) between the parties. Private dealings between two of the parties to an alleged tripartite arrangement cannot affect the way in which the language of the larger arrangement should objectively be taken to have been understood by the parties collectively.37 Notably, the VRA is not pleaded to be a component of the ‘Tripartite Agreement’. If the pleading of the amount was struck out as irrelevant (as Advaro contends), evidence of the amount (actual or estimated) would not have been admissible on the issues for my determination.
—common bundle of documents
[96] Advaro also objects to inclusion of Advaro internal emails and Intagr8 internal manuals in the common bundle as being irrelevant to any issue for my determination. In oral submission, Mr McLellan withdrew Advaro’s objection on that same ground to transcripts of Intagr8’s follow-up calls with customers (and to a spreadsheet collating transactional information from other (relevant) documents in the bundle).
[97] Again, admissibility of the internal documentation turns on the relevance of contextual evidence known only to one party.38 To the extent it records its understanding of another’s position, it is hearsay, without any assurance of its reliability.39 It casts no objective light on the commercial context in which the contract is made. It does not illuminate the structure of the bargain. Plainly it cannot be known to and operating on all parties’ minds. Most significantly, it cannot affect what the parties should be taken to have intended by the words of the contract.40
[98] The irrelevance of these internal documents is illustrated by the use to which the internal emails were put by the plaintiffs, on my provisional admission of them. The documents were sought to be used to Advaro’s prejudice, as illustrative of the
37 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) per Lord Hoffman.
38 About Image Ltd v Advaro Ltd, above n 4, at [12]-[13].
39 Evidence Act 2006, ss 17 and 18.
40 At [9] above.
depth of its involvement in Intagr8’s affairs, and therefore its justifiable inclusion in the ‘Tripartite Agreement’. But that is to rationalise a contract between the three parties into existence, rather than to interpret such as already may exist.
[99] Neither are the internal documents relevant to issues of Intagr8’s alleged agency. Such can only be established by external representations by or for Advaro to customers.41
[100]Advaro’s objection is upheld.
Costs
[101] My preliminary view is Advaro, as the successful party, should be entitled to 2B costs and disbursements. If that is not accepted by the parties, costs are reserved for determination on short memoranda of no more than five pages – annexing a single- page table setting out any contended allowable steps, time allocation, and daily recovery rate – to be filed and served by:
(a)Advaro within ten working days of the date of this judgment;
(b)the plaintiffs within five working days of service of Advaro’s memorandum; and
(c)Advaro strictly in reply within five working days of service of the plaintiffs’ memorandum.
—Jagose J
41 Bishop Warden Property Holdings Ltd v Autumn Tree Ltd, above n 19, at [28]-[30].
2
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