Alaron Products Limited v Hibiscus Solutions Limited
[2021] NZHC 1416
•11 June 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV2020-404-291
[2021] NZHC 1416
BETWEEN ALARON PRODUCTS LIMITED
Plaintiff/Respondent
AND
HIBISCUS SOLUTIONS LIMITED
Defendant/Applicant
Hearing: 11 June 2021 at 2:15pm Appearances:
T M Pasley for the Plaintiff/Respondent
L G Cox and W L Abrie for the Defendant/Applicant
Judgment:
11 June 2021
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Fee Langstone (P M Fee/T M Pasley), Auckland, for the Plaintiff/Respondent
Morgan Coakle (K S Deobhakta/L G Cox/W L Abrie), Auckland, for the Defendant/Applicant
ALARON PRODUCTS LIMITED v HIBISCUS SOLUTIONS LIMITED [2021] NZHC 1416 [11 June 2021]
[1] In this sale of goods case, the defendant applies for a separate hearing under r 10.15 of the High Court Rules 2016 to decide two questions. The case already has a fixture for seven days beginning 13 June 2022. The close of pleadings date is 15 March 2022.
[2] The two questions which the defendant wants determined separately before trial are:
(a)Does the defendant’s standard terms and conditions apply to the plaintiff’s orders and products set out in paragraphs 5 and 6 of the statement of claim dated 19 February 2020?
(b)If so, would the defendant’s liability for any of the first through to the fifth causes of action set out in the statement of claim be limited to a maximum of $8,327.50 (in the aggregate) by the limitation of liability clause pleaded in paragraph 42 of the defendant’s statement of defence of 30 April 2020?
To understand those questions, it is necessary to give some background.
[3] According to the statement of claim, the plaintiff carries on business manufacturing and supplying health products. It is based in Nelson. The defendant, based in Auckland, imports and supplies food ingredients. In September 2013, the defendant purchased the business of Hibiscus Agencies Ltd, which had been supplying the plaintiff since 2008. Hibiscus Solutions Ltd has supplied Alaron with raw materials, including vegetable powders, since September 2013.
[4] The plaintiff’s case is that the defendant regularly issued product statements. These are described as allergen statements, allergen ingredient statements and product data sheets for its vegetable powders. These statements declared that the products,
including carrot powder, were gluten-free. The plaintiff ordered carrot powder from the defendant from 2015 to 2017. The plaintiff says that the products were not, however, gluten-free. The gluten was up to 18,000 parts per million, whereas to qualify as non-gluten products the limit is 20 parts per million. It claims damages for being unable to supply uncontaminated products and puts its losses at $551,000. The prices charged for the carrot powder in the supplies on which Alaron is suing total
$8,327.50.
[5] Alaron’s causes of action are for breach of an implied term that the defendant’s products would be gluten-free, breaches of implied conditions under the Contract and Commercial Law Act 2017 for non-compliance with the description, not fit for purpose and not of merchantable quality. There is a cause of action in negligence: the defendant is alleged to have failed to exercise reasonable skill and care in supplying its products, to ensure that they were not contaminated with gluten. There is a claim for breaches of ss 9 and 10 of the Fair Trading Act 1986. While s 9 of the Fair Trading Act is familiar, s 10 needs to be noted:
10No person shall, in trade, engage in conduct that is liable to mislead the public as to the nature, manufacturing process, characteristics, suitability for a purpose, or quantity of goods.
[6] Hibiscus Solutions Ltd denies liability. It admits that it has supplied Alaron since 2013, and it admits giving Allergen statements. The statements were prepared by the manufacturer of the powders, Shangyu Wanshida Wheat Corporation. Some of the statements said that the powders did not contain gluten.
[7] More importantly, Hibiscus Solutions says that its supplies to the plaintiff were subject to its standard terms of contract. The terms of contract were annexed to a credit application which Alaron signed with Hibiscus Agencies Ltd in 2008. I understand that the credit application made a reference to the buyer agreeing to the standard terms and conditions. Alaron says in response that it was never actually made aware of those terms and conditions.
[8] Part of the case for Hibiscus Solutions Ltd is that when it took over the business of Hibiscus Agencies Ltd, the former owner stayed on and notified customers of the
change of ownership, but that it was business as usual. The defendant’s evidence is that the existing terms of business continued to apply, but with it as the seller.
[9] Hibiscus Solutions Ltd relies on two clauses in its terms. One is an exclusion clause and the other was a limitation clause. The exclusion clause says:
For goods not manufactured by the seller, the warranty shall be the current warranty provided by the manufacturer of the goods. The seller shall be under no liability whatsoever except for the express conditions as detailed and stipulated in the manufacturer’s warranty.
[10]The limitation clause says:
In the event of any breach of this contract by the seller the remedies of the buyer shall be limited to damages. Under no circumstances shall the liability of the seller exceed the price of the goods.
Hibiscus says that because of the limitation clause, if it should be found liable, its maximum liability will be $8,327.50. I understand from the plaintiff that there is no dispute as to that figure.
[11] The parties generally agreed on the approach taken on applications under r 10.15 for a separate hearing, although they disagreed on how those principles applied to this case.
[12] As Mr Pasley submitted, the starting point is that all issues should be determined in one hearing. That is because that is usually the most expeditious and efficient way of dealing with a proceeding. The burden is on the party seeking the hearing of a separate question to displace that presumption. That burden has been described as “not insignificant”.1 Judges have often warned that preliminary points are too often treacherous shortcuts and their price can often be delay, anxiety and expense.2
1 Haden v Attorney-General (2011) 22 PRNZ 1 (HC) at [46], citing Clear Communications Ltd v Telecom Corporation of NZ Ltd (1998) 12 PRNZ 333 (HC) at 335, and KPMG New Zealand v Gemmell HC Auckland CIV-2008-404-4288, 27 March 2009 at [20].
2 Tilling v Whiteman [1980] AC 1 (HL) at 25.
[13] Mr Cox helpfully referred to the long list of factors in Turners & Growers Ltd v Zespri Group Ltd.3 While a large number of matters can come into consideration, K synthesised most of them into five questions in Haden v Attorney-General:4
1. Will there be difficult demarcation questions between those issues to be addressed at the first trial and those left for the second?
2. Will the separate question bring the proceedings to an end?
3. What potential time saving does the separate question offer?
4. How will appeals be dealt with?
5. Are there any other practical considerations tending one way or the other?
[14] Hibiscus Solutions Ltd accepts that the questions will involve factual issues as well as legal matters. But that is not fatal to deciding a separate question under r 10.15. Mr Cox explained that Hibiscus is likely to call only one witness. The evidence will be about the initial terms of contract between Hibiscus Agencies Ltd and Alaron, and how notice of the change in business but with a continuation of those terms was given to Alaron in 2013. On his submissions, the defendant’s evidence will be relatively confined, and the bulk of the hearing will require legal argument only. The matter could be dealt with in one day but out of caution he proposed that the case be given a fixture for two days.
[15] Hibiscus says that a separate hearing would establish two matters—first, whether the exclusion clause and the limitation clause were terms of the contract between Hibiscus Solutions Ltd and Alaron; and second, how the limitation clause applies. There would not be argument as to the effect of the exclusion clause. Mr Cox explained that the limitation clause is a blocking point on negotiations between the parties. If the limitation clause were upheld, there would be a prompt settlement because no one would go to trial on $8,000. Equally, if the limitation clause were not upheld, that would also be proper guidance to the parties in negotiating a settlement.
3 Turners and Growers Ltd v Zespri Group Ltd HC Auckland CIV 2009-404-4392, 5 May 2010 at [11].
4 Haden v Attorney-General (2011) 22 PRNZ 1 (HC) at [50].
[16] On reviewing the merits, Mr Cox said that the main risk for the defendant is contractual liability. He did not see liability for the non-contractual causes of action as realistic. That is, the claim in negligence and the claim for breach of the Fair Trading Act.
[17] In his submission there would be a clear demarcation between the matters in the separate hearing and the remaining matters.
[18] As to the Fair Trading Act, he pointed out to me that the provisions which prevent contracting out were enacted only after the alleged representations in this case.5 Those are s 5C, which bars any contracting-out, and the carve out under s 5D, which does allow some parties to a limited extent to contract-out. He accepted, however, that even under the law before those amendments to the Act, there were limited circumstances in which the courts upheld provisions where one party took the risk of representations turning out to be false.
[19] For his part, Mr Pasley submitted that there would be some overlap between the matters to be decided at the separate hearing, and the matters to be decided at trial. His submissions focused on the Fair Trading Act aspects. He pointed out that the courts would take into account issues of fairness and reasonableness, which would ago to whether to uphold clauses such as the limitation clause. I note the point, but it seems that the extent of overlap would be relatively insignificant.
[20] There is, however, in my view a risk that a separate hearing will not result in the clean answers that Hibiscus thinks will be available. The findings could be rather muddy. The court might find, for example, that the limitation clause may limit what can be recovered by way of contractual damages, but it may not apply to the non- contractual causes of action. That would still leave the matter open to go to trial on those causes of action.
[21] A factor here is whether a trial of the separate questions can be conveniently fitted in to leave time for the trial to begin on 13 June 2022. The Registrar has advised that there is hearing time available on 1 and 2 February 2022. Some allowance must
5 Under the Fair Trading Amendment Act 2013.
be made for judgment time. The close of pleadings date is 14 March 2022. The Judge would have to make sure that the decision is given by the close of pleadings date. I am by no means confident that a judge working at normal pace and subject to a normal workload would be able to get a judgment out in that time. A judgment given after the close of pleadings date will place constraints on the parties in preparing for trial in June 2022. That therefore poses risks. I am anxious that the fixture for 13 June 2022 be maintained. Finality is important. Finality can be achieved by maintaining fixture dates. A fixture will focus the parties on settlement and to that extent have the same effect as Mr Cox is aiming for. The timing of a preliminary hearing counts against ordering the hearing of the separate questions.
[22] There is also the question of appeals. There would be complications if either side wishes to appeal any decision made on the separate hearing. First, suppose that the findings on the separate hearings go the way of Hibiscus Solutions Ltd but Alaron decides that the judgment is worth taking on appeal. If there is no appeal, the case will go to trial with the limitation provisions upheld. Alaron would have to ask for the trial to be aborted while it pursues its appeal rights – and that would be counter- productive in terms of reaching finality. If the ruling on the limitation point goes the way of Alaron, and Hibiscus wishes to appeal, any appeal is likely to be held over to await the outcome of the trial. The court is unlikely to vacate the fixture simply because Hibiscus wishes to appeal the decisions on the separate questions hearing. There would not be any savings as a result of the preliminary hearing. The appeal factors count against the application.
[23] Weighing matters overall, there are difficulties. I am not confident that the clarity that Hibiscus is hoping for will necessarily follow on hearing the two questions. There is the complicating factor of time being too tight, particularly when account is taken of judgment time. The possibility of appeals could take away any advantages from the preliminary hearings. Overall the considerations count against ordering separate hearings under r 10.15. The advantage is not clear enough that the normal misgivings can be set aside. The application is accordingly dismissed.
…………………………………….
Associate Judge R M Bell
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