APN New Zealand Ltd v Scott HC Auckland CIV 2009-404-8544

[2010] NZHC 1253

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-008544

BETWEEN  APN NEW ZEALAND LTD First Plaintiff

ANDAPN PRINT NZ LTD Second Plaintiff

ANDGREGORY ALLAN SCOTT First Defendant

ANDJASON CONRAD HALL Second Defendant

Hearing:         4 June 2010

Appearances: T C Goatley for Plaintiffs

P D Sills for First Defendant

Judgment:      1 July 2010 at 3:00 pm

JUDGMENT OF ASSOCIATE JUDGE BELL

This judgment was delivered by me on 1 July 2010 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar

Date: ………………….

Solicitors/Counsel:

Bell Gully, PO Box 4199, Auckland

Carson Fox Legal, PO Box 37403, Auckland

P D Sills, PO Box 414, Kumeu

APN NEW ZEALAND LTD AND ANOR V G A SCOTT AND ANOR HC AK CIV-2009-404-008544  1 July

2010

[1]      In  this  application  for  summary judgment,  the  first  defendant,  Mr  Scott, raises a single defence – that he was induced to sign the guarantee on which the plaintiffs rely as a result of economic duress.   Whether the first defendant has an arguable defence of economic duress turns on one question – whether the pressure applied by the plaintiffs was legitimate.

[2]      On 21 March 2009, the defendants signed written deeds of guarantee for payment of debts Retail Media Ltd owed the plaintiffs.  The consideration for the guarantees was the plaintiffs’ promises not to make demand or otherwise enforce the terms of the deeds before 5:00 pm Friday, 27 March 2009.  Later, Retail Media Ltd went into receivership, and it is now in liquidation.  After Retail Media Ltd went into receivership, the plaintiffs made demand under the guarantees.   The first plaintiff claims   $145,200   and   the   second   plaintiff   claims   $1,270,903.28,   a   total   of

$1,416,103.28.

[3]      The second defendant has signed an admission of claim, and judgment has been entered against him.

[4]      The first defendant says that he and the second defendant were forced to sign the guarantees because the plaintiffs threatened that unless they signed, the plaintiffs would not print the run set for the coming weekend.  The first defendant says that this threat left the defendants with no practical alternative but to sign, because otherwise the failure to print that weekend would force Retail Media Ltd under.

[5]      The first and second plaintiffs are publishers and printers.  The defendants are directors of Retail Media Ltd.  Its business was producing advertising materials for retail  chains.    It  relied  heavily on  printers  to  produce  the  advertising  materials provided to its customers.  Mr Scott says that when it dealt with the plaintiffs it was the fourth or fifth largest consumer of printing services in the country.

[6]      Retail Media Ltd began using the first plaintiff for advertising services and the second plaintiff for printing in 2006.  When it began dealing with the plaintiffs, it signed an application for a credit account. That form has a guarantee to be given by directors of a company, but in this case, the guarantee was struck out. The plaintiffs

began dealing with Retail Media Ltd without obtaining a guarantee from the defendants. The plaintiffs rely on the terms in the application, in particular these:

2.        Payment is strictly in accordance with the applicable APN terms of trade.

3.Any credit provided by APN will, unless specifically agreed to the contrary in writing by APN, be on these credit terms which may be varied  by  APN  from time  to  time.  APN  may  grant  to,  deny  or withdraw credit from, me/us at any time at its discretion.

4.I/We must pay the amount shown in any invoices on or before the due date stipulated in the invoice (“Due Date”).

7.If any invoice remains unpaid after the Due Date, APN may also: (a) Without  notice  refuse  to  publish  any  further  advertisements  for and/or make any further supply to me/us and suspend or cancel any or all of my/our orders until payment is received.

12.Supply by APN is conditional upon APN being satisfied with the assessment of my/our credit at all times. If APN is not satisfied with my/our credit it may discontinue supply without providing further notice to me/us. At that time, the terms of trade expressly excluded any guarantees given by the defendants.

15.I/We agree that APN shall not be obliged to exercise any of its rights conferred by these credit terms and the exercise or non-exercise of these rights shall not affect, impair, prejudice or otherwise detract from any securities or other documents held now or in the future by APN to secure any indebtedness which may be the subject of a set off under these credit terms of any rights, privileges, or directions available to APN under general law or otherwise.   I/We may be liable for all costs incurred by APN in the event of non-payment or delay in payment for the recovery of any amount owed by me/us (including costs between solicitor and client).

[7]      Mr Scott disputes that the matters set out in the application were terms of the contract between the plaintiffs and Retail Media Ltd.  He says that the plaintiffs told them they were just a formality, and they were superseded by other credit terms.  He refers to favourable credit terms (60 days for payment and rebates) he negotiated. He also refers to another form setting out terms of trade.

[8]      The application was signed.   It was clearly intended to have contractual effect: that is shown by the deletion of the guarantee. Mr Scott did not argue non est factum.

[9]      Retail Media did negotiate extended times for payment, but that did not displace the terms in the application which the plaintiff relies on. A document titled “Exclusive Print Partnership Contract for Retail Media” has a provision for payment terms which are:

... subject to you satisfying APN Print credit terms as set out on the credit application form.

[10]      The APN conditions of sale that Mr Scott included in his evidence included condition 25, which said in part:

The Company shall not be obliged to complete any order where payment for any previous order is overdue.

[11]     The  same  conditions  also  provided  for  payment  of  solicitor-client  costs incurred in debt recovery.

[12]     For this summary judgment application it is clear that the plaintiffs retained a contractual right not to carry out further orders if past work had not been paid for.

[13]    In 2008, APN Print entered into a deed with Retail Media Ltd and the defendants. Under that deed:

a)       Retail Media Ltd acknowledged its undisputed indebtedness to APN Print for $336,563.91;

b)Retail Media Ltd acknowledged that named amounts of trading debt would become due;

c)       The defendants guaranteed payment by Retail Media Ltd of the debt recorded in the deed, but not other debt that might become due later; and

d)       Retail Media Ltd undertook to repay the debt by instalments.

[14]     APN Print says that payments were made under that deed, but there is still a sum of $50,549.95 unpaid.  Mr Scott takes issue with that.  Neither party included

detailed evidence to address that issue.   For this summary judgment that issue is unresolved. APN Print has not shown that Mr Scott has no defence to a claim for

$50,549.95  under  the  2008  deed.    Instead,  Ms  Goatley  made  it  clear  that  the plaintiffs were relying on the later deeds signed in 2009, not the 2008 deed.

[15]     For Mr Scott, the relevance of the 2008 deed is that there were negotiations about the terms of the deed.  The deed had a payment programme, and APN Print did not give any ultimatum to force the signing of the deed.  It is how he would have wished matters to have been handled in 2009.

[16]     In early 2009, Retail Media Ltd was still in serious financial difficulty.   It owed large sums to creditors.  Mr Scott calls them the “big five”.  APN Print was one of the five.  Retail Media was presenting debt payment proposals to its creditors, but was having difficulty gaining acceptance from all of them.  It was also receiving advice from Deloittes, accountants.

[17]     In early February 2009, Retail Media Ltd’s accounts with the plaintiffs had run high, and the plaintiffs were expressing concern about the levels of indebtedness. In response to an email from Mr Gallop (General Manager Operations with Retail Media) to the plaintiffs, Mr Eustace, the plaintiffs’ finance director, noted in an email dated 20 February 2009 that the plaintiffs would support a proposed payment plan, subject to the directors of Retail Media Ltd giving personal guarantees and there being an agreement with appropriate supporting documentation.  The plaintiffs rely on this email to indicate that, at least from 20 February 2009, the plaintiffs were looking to the directors for fresh guarantees.

[18]     In early March 2009, arrangements were being put in place for Retail Media Ltd to pay the plaintiffs for all future work by cash in advance.  The plaintiffs were doing Retail Media’s printing jobs fortnightly over a weekend.

[19]     On Thursday, 12 March, the plaintiffs were in touch with Retail Media Ltd to arrange  a  meeting  on  16  March  at  11:00  am.    Those  required  to  attend  were Mr Eustace and Mr Simpkins for the plaintiffs, Mr Crawford of Deloittes and Mr Scott.  Mr Scott says:

It transpired that the meeting on 16 March 2009 was not to discuss our cashflow projects we had been providing. Rather, it was for APN to express that for further support to come from them, they required the execution of personal guarantees.  These were, we were told, to be along the lines of the previous guarantee put in place in 2008 (which we believe had been extinguished).

[20]     On 17 March 2009, Mr Eustace sent Mr Scott personal guarantee documents said to be in a form signed by the defendants in 2008, but excluding a repayment plan.   There were two deeds, one in favour of the first plaintiff and the other in favour of the second plaintiff.  The other parties to the deeds were Retail Media Ltd and the first and second defendants.   The deeds included these provisions: the company and directors acknowledged indebtedness and did not dispute the sums; the directors guaranteed payment by Retail Media Ltd.  There are other provisions typically found in a guarantee, including a provision for payment of the creditors’ costs.  No consideration was recorded.

[21]     On 18 March 2009, Mr Eustace sent a further email to Mr Scott.   It said, amongst other things:

APN requires that the personal guarantees be signed in their current form before we progress our discussions any further and before we undertake the print job that is scheduled for this weekend.  Accordingly, and in order for this weekend’s print job to be accepted, we require receipt of the executed personal guarantees ( the originals to be couriered to me personally) by 5 pm tomorrow, Thursday, 19 March.

If the guarantees are provided as required then APN will print this weekend on the express basis that Retail Media makes payment in advance, such payment to be received in APN’s nominated account and cleared funds by

5 pm tomorrow, Thursday, 19 March.  I note your concern about signing the  guarantees.    However,  it  would  not  be  in  APN’s  interests  to  make

demand under the guarantees while we are discussing a payment plan with you.  Without prejudice to APN’s rights under the personal guarantees, we

intend to progress discussion of a proposed repayment plan as quickly as possible.  If we are able to reach agreement then the arrangement would be modified so that APN would agree not to make demand or enforce the

guarantees on condition that the terms of the revised payment plan were being adhered to.

[22]     The email then requested information for a further meeting which was to be on Friday, 20 March at 10:00 am.

[23]     Mr Crawford sent an email to Mr Eustace late on 18 March.  His email says, in part:

In  relation  to  the  personal  guarantees  needing  to  be  signed  by  5pm tomorrow, we would have to be recommending that Greg and Jason sort [sic] legal advice prior to signing and it appears very unreasonable to seek the documents prior to agreement of the repayment proposal.  If the repayment proposal is not agreed you could act under the personal guarantees.  We are all working on proposals that will see all creditors repaid in full and a sound refinanced business.

[24]     The email then goes on to record steps being taken by the defendants to sell trust assets and inject trust equity into the business, and other steps being taken to maintain the company:

If Greg and Jason’s legal advice is not to sign the personal guarantee we take from your email that print would not occur.

We strongly believe that if the print does not occur this weekend and the company closed its doors then all creditors will be exposed to substantial losses.  We would ask that if Greg and Jason acknowledge that the proceeds from the sale of trust assets and refinancing of houses are injected into the company you would take out the need for personal guarantees.

[25]     Mr Eustace’s response early on Thursday, 19 March was:

APN’s position is not unreasonable.  We have already said that it would not be in APN’s interests to make further demand under the guarantees while discussing a payment plan.   Further, your clients have previously signed personal guarantees in substantially the same form as have now been prepared.  Your clients were provided with the guarantees on Tuesday and we would have thought that it was straightforward to receive legal advice within the timeframe specified.

Accordingly APN’s position is as per my previous email.   We require provision  of  the  guarantees  by  5  pm  today  otherwise  printing  will  not proceed this weekend.

We are happy to meet to discuss the payment plan at 2 pm on Tuesday, 24

March at APN’s offices as you have suggested.

[26]     Mr Crawford replied to Mr Eustace’s email later in the morning of 19 March. Amongst other things, he said:

We have spoken with Greg Scott and it is agreed that they would support some form of guarantees.  However, we believe all parties need to sit down with their legal representatives and negotiate what is a fair and reasonable document.  APN needs to acknowledge that Greg and Jason are committing all of their resources to the restructuring of the company.   The personal

guarantee should take into account the likes of what occurs once the bulk of the restructuring is completed and at what point it is released, e.g. amount owing to APN at normal trading terms.

We appreciate that APN have a substantial unsecured debt with Retail Media at present and want a portion of this more secured but believe the security required takes into account the fact Retail Media spend with APN $320k approximately per month or approximately $3.8 m per year.   This must generate  APN  reasonable  margins  which  must  be  factored  into  your associated risks.

We would ask that APN print this weekend and that we meet on Tuesday to discuss all the material you require, agree the repayment plan then arrange for lawyers to prepare agreed personal guarantees.

[27]     Mr Eustace’s reply on 19 March, early in the afternoon, was short:

Thanks  for  the  email.    Our  position  remains  unchanged.    Unless  the guarantee is executed and provided by 5 pm today, printing this weekend will not go ahead.

[28]     Mr Crawford responded, asking whether APN  would accept an amended personal guarantee, the amendments to include release of the personal guarantee once the proceeds from the building and boat marine are introduced, and APN’s account is returned to normal agreed trading terms.

[29]     APN’s inhouse lawyer, Mr Elliot, replied:

The proposal is not acceptable by APN and our position is as per my email to Phil Ahern below.  Please note in order for printing to proceed APN must receive  by  5  pm  both  the  executed  guarantees  and  payment  for  the weekend’s print job as previously advised.

[30]     Phil Ahern is a partner at Morrison Kent, lawyers acting for Retail Media Ltd, who wrote to Mr Elliot on 19 March 2009.   In his letter, Mr Ahern put the directors’ case against giving immediate guarantees.

[31]     During  the  afternoon  of  19  March  2009,  Mr  Elliot  sent  revised  deeds containing the personal guarantees.  Mr Elliot pointed out that the only change was the introduction of a provision for consideration:

In consideration for the debtor entering into this deed and the guarantors giving the personal guarantee, the creditor agrees that it will take no steps to make demand or otherwise enforce the terms of this deed before 5 pm Friday, 27 March 2009.

[32]     Mr Elliot added:

For the avoidance of doubt, this is a APN’s final position.  If the attached deeds are not executed and provided to APN by 5 pm then printing will not proceed this weekend.

[33]     Mr Scott sent an email to Mr Eustace at 4:56 pm on 19 March.  He said:

I am extremely disappointed.

1.        We have confirmed our intention to pay this debt.

2.        We are committed to paying this debt.

3.We are prepared to enter into an agreed upon and appropriately constructed PG.

4.We  have  funds  available  for  the  printing  of  the  next  issue  of bestbuys.

I believe Phil Ahearn has responded to James, we will be unable to resolve this before 5 pm, may I suggest we take this up again in the morning.

[34]     In the end, the deeds were signed by Retail Media Ltd and the defendants. There is a dispute between Mr Scott and Mr Eustace about whether Mr Scott went to Retail Media Ltd and obtained the deeds or whether Mr Johnston, one of Retail Media Ltd’s staff, delivered them to APN.  I do not need to resolve that issue.  It is sufficient to record that APN received the signed deeds as they had requested.  They were also paid for the print run that weekend, and the print run went ahead. The plaintiffs did not make demand under the guarantees until after Retail Media Ltd had gone into receivership.

[35]     In McIntyre v Nemesis DBK Ltd [2009] NZCA 329, [2010] 1 NZLR 463 at

[20], the Court of Appeal said:

Duress involves two fundamental elements, as identified by Lord Scarman in Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366 at 400. First, there must be the exertion of illegitimate pressure on a victim. Secondly, the imposition of that pressure must have compelled the victim to enter the contract. These were the elements endorsed by the Privy Council in Attorney-General for England and Wales v R [2004] 2 NZLR 577 at [15], and by this Court in Haines v Carter [2001] 2 NZLR 167 at [108] and [112].

[36]     In Dimskal Shipping Co. S.A. v I.T.F.[1992] 2 AC 152 (HL) at 165, Lord Goff said that under economic duress the pressure must constitute a significant cause inducing the party to enter into the relevant contract. This has sometimes been termed a “but for” test – Huyton v Cremer [1999] 1 Lloyd’s Rep 620 at 636 per Mance J.

[37]     For this summary judgment application, Mr Scott has an arguable case on the causation aspects of the alleged duress:

a)       The threat not to do the print run on the weekend was significant. The threat was made when Retail Media Ltd could not have made alternative arrangements for printing, and also meeting its commitments to its customer. The consequences of not going ahead with the print run would have been serious for the company. Mr Scott says that not printing would guarantee that the company went into receivership. The plaintiffs did not submit otherwise.

b)        The directors took the threat seriously and were entitled to do so.

c)      The plaintiffs imposed on the directors a choice of unpalatable alternatives – not go ahead with the print run or sign the deeds.

d)The plaintiffs clearly appreciated the effect of the demands on the directors. They gave the directors limited time in which to deal with the  demands  to  sign  the  deeds,  in  particular,  not  enough  time  to arrange another printer to do the weekend print run.

e)       In the limited time available Retail Media Ltd and the directors tried to negotiate alternative arrangements. They asked professional advisers, accountants and lawyers, to intervene on their behalf, but without effect.

f)        The plaintiffs remained inflexible. They knew that the defendants did not have any practical alternative, but to meet their demands to sign

the deeds. Proposals for deferring the signing, and negotiating the terms of the guarantees were rejected. The nominal consideration, the forebearance to sue for a short time only, reflects their powerful bargaining position.

g)       Mr Scott’s email of 19 March 2009, where he said “I am extremely disappointed ...” is a muted protest.  It had to be muted because the defendants still had to negotiate payment proposals with the plaintiffs, and could not afford to get offside with the plaintiffs even after they had  signed  the  deeds.  The  nature  of  the  protest  is  a  sign  of  the pressure the plaintiffs had brought to bear.

[38]     In cases of economic duress, it is not necessary to show that the contracting party’s  will  is  overborne,  so  that  there is  an  absence of  consent.    Instead  it  is accepted that the contracting party has consented to enter into the contract, but has done so under coercion.  See Lord Scarman in Universe Tankships  at 400, cited by the Court of Appeal in McIntyre  at [66]:

The classic case of duress is, however, not the lack of will to submit but the victim’s intentional submission arising from the realisation that there is no other practical choice open to him.

[39]     In this case, the seriousness of the threat, the lack of reasonable alternatives, the ineffectiveness of intervention by professionals retained for Retail Media and the muted protest give Mr Scott an arguable case on causation.

[40]     The plaintiffs contested parts of Mr Scott’s evidence. However, the matters raised by the plaintiffs were not enough to show that the factual aspects of duress were not arguable.

[41]     But to establish that the defence is arguable, there is another limb of the defence – that the pressure exerted was illegitimate. In Barton v Armstrong [1976] AC 104, Lords Wilberforce and Simon said:

... in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act.  Absence of choice in this sense does not

negate consent in law: for this the pressure must be one of a kind which the law does not regard as legitimate.

In Attorney-General for England and Wales v R [2002] 2 NZLR 91 (CA) at

[62] Tipping J said:

Whether the pressure amounts to such compulsion of the will as to constitute duress in law, depends essentially on an assessment of two often-linked matters. The first is whether the pressure is regarded in law as illegitimate, and the second is whether the pressure brought about an absence of practical choice. Illegitimate pressure may amount to duress even if there is a practical choice, but the absence of practical choice may suggest the pressure is illegitimate.  Illegitimacy  of  pressure  can  sometimes  arise  from  conduct which is lawful in itself, albeit it will of course be easier to demonstrate illegitimacy of pressure if it derives from conduct which is unlawful in itself. The starting point must be that the law recognises people generally act under some degree of pressure in making decisions affecting their commercial and other  interests.  In  all duress  cases  the  Court  must consider whether the pressure  under  which  the  plaintiff  was  acting  should  be  regarded  as legitimate or illegitimate and, in that respect, the nature of any alternatives reasonably open to the plaintiff will be of major importance.

[42]     In the Privy Council, Lord Hoffmann said at [16] in Attorney-General for

England and Wales v R [2004] 2 NZLR 577:

On the other hand, the fact that the threat is lawful does not necessarily make the pressure legitimate. As Lord Atkin said in Thorne v Motor Trade Association [1937] AC 797 at 806:

“The ordinary blackmailer normally threatens to do what he has a perfect right to do – namely, communicate some compromising conduct to a person whose knowledge is likely to affect the person threatened.  Often indeed he has not only the right but also the duty to make the disclosure, as of a felony, to the competent authorities. What he has to justify is not the threat, but the demand of money.”

[43]     This suggests that it is not appropriate to conclude that pressure is legitimate simply because the threat made is to do something lawful. It is the legitimacy of the pressure created by coupling the threat with a demand to enter into a contract that must be considered.

[44]     It also means that the law has moved on from the position stated by Wills J in

Allen v Flood [1898] AC 1 at 46:

Equally, any right given by contract may be exercised as against the giver by the person to whom it is granted, no matter how wicked, cruel, or mean the motive may be which determines the enforcement of the right. It is hardly

too much to say that some of the most cruel things that come under the notice of a judge are mere exercises of rights given by contract.

[45]     The plaintiffs cited CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER

714  (CA)  to  support  their  argument  for  legitimacy.  The  defendant  cited  Atlas Express Ltd v Kafco (Importers and Distributors)Ltd [1989] 1 All ER 641 (QB) as an example of a finding of illegitimate pressure. Neither case is directly on point. The bounds of legitimate pressure are still being established case by case. I consider this case on its own facts.

[46]     These factors are relevant to the legitimacy question:

a)       The plaintiffs had provided in their terms of trade for the right to refuse to do further work, while past work had not been paid for. Retail Media and the defendants knew at the outset that the plaintiffs might  apply pressure  by refusing to  do  more  printing jobs,  when accounts were outstanding.

b)There is no dispute about the sums claimed by the plaintiffs. The deeds signed on 19 March have terms recording the debts owed to the plaintiffs, and that the amounts are not disputed. Those debts are part of the plaintiffs’ claims under the guarantees. The first defendant did not submit that there was any dispute about the amounts in the deeds. The pressure was not applied to obtain payment for something that was not in fact due.

c)       The ability of a contractor providing services to refuse to do further work  when  past  work  has  not  been  paid  for  is  an  important commercial protection. Generally, so long as the contractor does not breach the contract, the law recognises and upholds that as a right. It is not an abuse of that right to ask for security for payment for past and ongoing work as a condition for doing further work.

[47]     Together  these  matters  show  that  the  plaintiffs’  pressure  to  make  the defendants sign the deeds on 19 March 2009 was legitimate as well as lawful.

Accordingly, the plaintiffs have established that the first defendant does not have an arguable defence.

[48]     While I have held that in this case the right to refuse to do further work did not amount to illegitimate pressure, there may be other cases where it might. I have in mind cases of necessity, where different considerations arise. The Port Caledonia and the Anna [1903] P 184 is an example of a contract entered into in necessity which was set aside as extortionate.

[49]     I make these orders:

a)        The  first  plaintiff  has  judgment  against  the  first  defendant  for

$145,200 and interest on that sum at 5% per annum from 15 August

2009 to date of judgment.

b)        The  second  plaintiff  has  judgment  against  the  first  defendant  for

$1,270,903.28  and  interest  on  that  sum  at  5%  per  annum  from

15 August 2009 to date of judgment.

c)        The first defendant will pay the plaintiffs’ costs and disbursements on a solicitor-client basis under clause 15 of the deeds.

d)       Leave is reserved to apply further in respect of costs.

R M Bell

Associate Judge