BASF New Zealand Limited v Brian Roberts (1998) Limited
[2020] NZCA 634
•8 December 2020 at 3.30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA201/2020 [2020] NZCA 634 |
| BETWEEN | BASF NEW ZEALAND LIMITED |
| AND | BRIAN ROBERTS (1998) LIMITED |
| Hearing: | 9 November 2020 |
Court: | Courtney, Woolford and Mander JJ |
Counsel: | T B Fitzgerald and B J Dominikovich for Appellant |
Judgment: | 8 December 2020 at 3.30 pm |
JUDGMENT OF THE COURT
The appeal is dismissed.
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REASONS OF THE COURT
(Given by Woolford J)
On 17 March 2020, Associate Judge Johnston set aside a statutory demand issued by BASF New Zealand Ltd (BASF) against Brian Roberts (1998) Ltd (BRL).[1] BASF now appeals against the Associate Judge’s decision.[2]
[1]Brian Roberts (1998) Ltd v BASF New Zealand Ltd [2020] NZHC 537 [High Court judgment].
[2]BASF applied for leave to amend its notice of appeal to include a fresh ground of appeal relating to an exclusion clause in its general terms and conditions, but did not seek to advance that at the hearing of the appeal.
BASF is a specialist supplier of automotive paint and associated products. BRL is a panel beating business. The statutory demand relates to an alleged debt that BRL owes BASF in respect of the termination of a fixed-term exclusive supply arrangement for automotive paint and associated colour-matching and other equipment.
BRL disputes that it is obliged to comply with a statutory demand. It says it was entitled to terminate the agreement without paying the associated termination fee because the products supplied by BASF during the 18-month tenure of the agreement were not of merchantable quality.
The essential issue in the appeal is whether it was open to the Associate Judge to find that there was a substantial dispute about the statutory demand or an apparent counterclaim. It is for BASF to persuade us there is an error. If so, it will be entitled to a fresh assessment in terms of Austin, Nichols & Co Inc v Stichting Lodestar.[3]
Facts
[3]Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
BASF and BRL entered into a “Supply and Provision of Paint and Other Equipment Agreement” on or about 4 August 2016. The agreement provided for BASF to be the exclusive supplier of automotive paint and associated products to BRL for a period of five years. The parties agreed an annual minimum purchase requirement of $132,000 (excluding GST) and the supply of certain associated goods and equipment by BASF to BRL at no cost.
Clause 5 of the agreement provided that sales of BASF products were to be on the basis of BASF’s “General Terms and Conditions of Sale”. Clause 5 further provided that if a particular product did not “suit the requirements of [BRL], BASF reserves the right to discuss this with the [BRL] to ensure a satisfactory outcome for both parties”. The agreement did not provide for any other dispute mechanism or process for dealing with complaints.
Clause 7 of the agreement provided that if BRL breached the agreement or failed to fulfil the annual minimum purchase requirement, BASF was entitled to terminate the agreement by 14 days’ written notice and to demand the payment of an agreed amount, depending upon the remaining term of the agreement. If cancellation took place in Year 2, the payment required was $60,556.
Clause 6 of the agreement concerned price and referred specifically to the price for Glasurit paint products. Glasurit is BASF’s premium paint product offering. According to BASF, the Glasurit paint range is used extensively throughout New Zealand and accounts for about 15 per cent of automotive paints supplied in New Zealand.
BRL ordered and used the Glasurit paint products for over 18 months — from August 2016 to April 2018. It paid for each order. BASF says that BRL did not raise any performance issues with the paint during that time.
Although there is no contemporaneous documentary record of BRL’s repudiation or BASF’s recession or termination, it is common ground that BRL repudiated (or terminated) the agreement in April 2018, that BASF treated the repudiation as wrongful and that both parties treated the agreement as having been terminated from that point. There was no dispute that the termination was in Year 2 of the agreement, such that if BRL was not entitled to terminate the agreement, then its termination would be a repudiation of the agreement or an anticipatory breach of the exclusivity commitment or minimum supply obligation, in which case BASF was entitled to the Year 2 termination payment of $60,556.
In or about November 2018, BASF issued a tax invoice for payment of $58,623.55 (including GST). That amount is the $60,556 owing in respect of termination in Year 2, less a credit for the unused goods that BASF uplifted from BRL. No payment was received.
BASF subsequently referred the matter to its debt collection agent. The solicitors for the debt collection agent issued a letter of demand for the amounts owed by BRL on 26 July 2019. No response was received to that letter. The statutory demand was issued on 9 September 2019. The amount demanded was $49,843, after a further credit note was issued by BASF for returned stock on 2 February 2019.
The Associate Judge’s decision
The Associate Judge considered the case to be finely balanced. On the one hand, BRL’s evidence was not especially strong. It had filed affidavits from BRL’s director, Mr A J Wijdeven, BRL’s paint shop manager, Mr T Smuts, and the owner of another panel and paint shop, Mr M Young. The Associate Judge noted that the affidavit evidence addressed matters in general terms without providing specific information as to the nature of the difficulties BRL says it had with BASF’s paint system and without explaining exactly what steps it took, nor who had responsibility within the BRL for dealing with BASF in connection with the issue when complaints were raised and the terms in which they were raised.
The Associate Judge also noted that there was a distinct lack of contemporaneous material recording such complaints. It also seemed from BASF’s evidence that its Glasurit paint system was a well-established one, with a significant share of the New Zealand market and the extravagant assertions made by Mr Wijdeven and Mr Smuts that it was an inherently defective product seemed improbable at best.[4]
[4]High Court judgment, above n 1, at [49].
The Associate Judge went on to say that against all those factors the owner and manager of a Pukekohe paint and panel shop was not likely to invest time and effort in generating correspondence with half an eye to having a contemporaneous record for court proceedings. Additionally, when BASF’s debt collectors first raised the possibility of BASF being entitled to substantial liquidated damages, Mr Wijdeven’s first response and description of his view of matters was quite consistent with the position BRL took on this application. The Associate Judge noted that it was fair to add that, between August 2016 and April 2018, it was obvious that Mr Wijdeven and Mr Smuts genuinely believed that, for whatever reason, the BASF Glasurit paint system was proving troublesome. Although he did not put a great deal of weight on this, there was also the supporting evidence of Mr Young, who says that in his Hamilton-based panel and paint shop he too experienced problems with BASF’s Glasurit paint system.[5]
[5]At [50].
The Associate Judge concluded that although the case was finely balanced, in the end, the view he had come to was that the ultimate issue, whether BASF’s Glasurit paint system as sold by BASF to BRL was of merchantable quality was an issue that should be determined at trial. He set aside BASF’s statutory demand.[6]
Appellant’s submissions
[6]At [51].
BASF submits that the statutory demand ought not to have been set aside. It submits that the evidence filed by BRL had not established even a substantial dispute that BASF breached an implied duty that the products supplied would be of merchantable quality. Even if BASF did breach the warranty (which it says is inarguable), that would not affect BRL’s obligation to pay the amount demanded in the statutory demand. At best, BASF says that it would establish a counterclaim. However, even if it had established a substantial dispute about breach, BRL has not established a substantial dispute that the breach caused a financial loss and certainly not one of an amount capable of offsetting the counter-claim.
BASF further submitted that the proposition that the Glasurit paint products are not of merchantable quality is inherently implausible because of the widespread use in the market. Furthermore, the evidence filed by BRL does not come close to overcoming that inherent implausibility because of BRL’s own use of the products over 18 months and the lack of detail or corroborating evidence in circumstances where BRL could otherwise have been expected to provide it.
BASF submits that it is common ground that BRL ordered, paid for, and used the Glasurit paint products for about 18 months. BASF says that this ought to be dispositive of a claim that the products were not of merchantable quality. BRL tries to address this by saying that it experienced problems with the product immediately and complained promptly. However, this evidence amounts to little more than an unsupportive assertion and does not establish a substantial dispute.
Discussion
Section 290(4) of the Companies Act 1993 enables a court to set aside a statutory demand if it is satisfied that:
(a)there is a substantial dispute whether or not the debt is owing; or
(b)the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount specified in the counterclaim is less than the prescribed amount; or
(c)the demand ought to be set aside on other grounds.
The use of the word “satisfied” calls for the exercise of an evaluative judgment by the Court, and it is inapt to import notions of the burden or standard of proof.[7]
[7]Mega Project Holding Ltd v Orewa Developments Ltd [2020] NZCA 111 at [53].
It is not a high threshold. As stated by the High Court in Freemont Design and Construction Ltd v W Stevenson & Sons Ltd:[8]
[8] … A Court is not required to accept uncritically any or every disputed fact. However the Court will not reject even dubious affidavit evidence, even though there must be suspicion of good faith of the deponent if there is an essential core of complaint that support a defence. In essence, the inquiry is whether or not the assertion made passes the threshold of credibility.
[8]Freemont Design and Construction Ltd v W Stevenson & Sons Ltd HC Auckland CIV-2005-404-4807, 20 April 2006 (citations omitted).
The key question in this appeal is whether the Associate Judge was right to conclude that BRL had passed the threshold of credibility in asserting either a dispute as to whether the debt is owing or a counterclaim, set-off or cross-demand in a summary hearing in which the dispute itself was not to be tried. BRL was not required to prove it had a good defence, merely that it was arguable as a matter of law.
While the Associate Judge acknowledged that the case was finely balanced, we do not consider that he fell into error in reaching an evaluative judgment that the statutory demand should be set aside. BASF can still have its day in court, but it is unable to rely on the summary procedure of issuing a statutory demand. The statutory demand procedure is set out in the Companies Act under the heading “Company unable to pay its debts” in pt 16, “Liquidations”. There is no suggestion that BRL is unable to pay its debts. It just disputes it is indebted to BASF.
We have taken the following matters into account in making our assessment:
(a)The Associate Judge found that both BRL’s director and paint shop manager genuinely believed that “for whatever reason the BASF Glasurit paint system was proving troublesome”.[9]
(b)Detailed descriptions of the difficulties with the Glasurit paint products were given by both BRL’s director and paint shop manager. Although BASF said that the difficulties could be attributed to a lack of understanding of how to use the BASF equipment and products, it is evident there have been problems.
(c)When BRL’s director was first contacted by BASF’s debt collectors, his response was quite consistent with the position BRL took on the application.
(d)Although BASF’s evidence was that the Glasurit range of paint products have a 15 per cent market share in New Zealand and hence must be of merchantable quality, BASF’s credit manager, Mr I A Yeoell, stated in an affidavit, “Of course, as with any product (and perhaps especially paint), it is possible that issues can arise with particular batches. When that happens, the customer raises the issue with us and the issue is addressed”.
(e)There is undisputed evidence that, on at least two occasions, BRL requested assistance because staff were having issues with the Glasurit paint products. BASF responded, first, by organising training for BRL staff and, secondly, by replacing some of the equipment previously provided to BRL.
(f)BRL’s paint shop manager said, apart from the two occasions acknowledged by BASF, he was in contact with Mr B Hanson, from BASF, “on a weekly basis” for help and assistance, but did not receive it (this evidence was in a reply affidavit and BASF has not had the opportunity to respond).
(g)Evidence was provided in the form of an affidavit from another panel and paint shop owner, who stated that Glasurit paint products “were poor quality, and particularly hard to work with”. He said they were constantly redoing paint jobs because of issues they experienced with colour matching and the impact on the overall application of the product.
[9]High Court judgment, above n 1, at [50].
We do not need to determine whether the issue is properly characterised as a disputed debt or a counterclaim. Although BASF criticises the assertion by BRL that it has lost “hundreds of thousands of dollars” as a result of alleged defects in the BASF paint products as unsubstantiated because financial statements have not been provided, we are prepared to accept that figure in the context of all the affidavit evidence as sufficient for a summary procedure in which the essential core of a complaint must pass a threshold of credibility only.
Result
The appeal is dismissed. BASF may still issue proceedings against BRL to obtain the termination fee and our judgment is not to be seen as an indication of the outcome of such proceedings one way or the other.
Solicitors:
Bell Gully, Auckland for Appellant
Keegan Alexander, Auckland for Respondent
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