Bell v BDO Spicers Manawatu Ltd

[2012] NZHC 1598

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2012-485-166 [2012] NZHC 1598

BETWEEN  ROBERT ARTHUR BELL Appellant

ANDBDO SPICERS MANAWATU LIMITED Respondent

Hearing:         18 May 2012

Counsel:         W Bevan for Appellant

A Darroch for Respondent

Judgment:      11 July 2012

In accordance with r 11.5, I direct the Registrar to endorse this judgment with the delivery time of 10:30am on the 11 July 2012.

JUDGMENT OF WILLIAMS J

Solicitors:

Kapimana Legal Services Ltd, Porirua

Duncan Cotterill, Wellington

ROBERT ARTHUR BELL V BDO SPICERS MANAWATU LIMITED HC WN CIV-2012-485-166 [11 July

2012]

Introduction

[1]      On 9 December 2011, Judge Tuohy in the District Court allowed a claim for recovery of debt by BDO Spicers Manawatu Ltd (BDO) against Mr Bell.  The Judge found Mr Bell was liable to pay the sums owing, plus interest at 2 per cent per month and solicitor-client costs, both of these pursuant to BDO’s contract for services with Mr Bell.

[2]      Mr Bell now appeals against the result, quantum and the costs awarded.

Facts

[3]      The  background  to  Mr  Bell  engaging  BDO  was  a  relationship  property dispute between Mr Bell and his former partner, Ms Williams.   While they were together, the couple had lived at Marainanga, a farming station in the Wairarapa. After their separation, the parties agreed that Mr Bell could continue to live on the station until it was sold.  In the meantime, Ms Williams brought a claim under the Property  (Relationships)  Act  1976  in  respect  of  the  property.    Her  claim  also involved a company, Ruahine Club Ltd.

[4]      As it happened, the station was not sold until 1 February 2008.   By then, Ms Williams’ claim had still not been resolved. This is when BDO came in.  Mr Bell engaged BDO to provide expert accounting evidence for an upcoming hearing in the Family Court in relation to these relationship property issues.

[5]      Mr  Bell’s  first  contact  with  BDO  was  on  19  June  2008.    He  met  with Mr Hopping, an Associate with the firm. They discussed the terms on which Mr Bell would engage BDO.

[6]      The next day, Mr Hopping sent a letter of engagement to Mr Bell on behalf of BDO.  The letter had been informed by their discussions the previous day and set out precisely what Mr Bell had asked the firm to do.  It provided:

This letter is to confirm our understanding of the terms and objectives of our special accounting services engagement and the nature and limitations of the services that we will provide.

You have requested that we:

Compile detailed accounting records relating to the operations of

Marainanga  Station,  Akitio  over  the  period  11  April  2006  to

1 February  2008.    This  will  include  preparing  a  detailed  stock reconciliation.

Present  the  information  in  a  form  that  is  suitable  for  becoming evidence in your anticipated matrimonial litigation.

[7]      The letter also included an appendix of terms and conditions.    I set out clauses 1 and 16 in full.  They were relevant to the scope of Mr Bell’s agreement with BDO and are very important to the issues in this proceeding. They provided:

1.      Terms of Appointment

The engagement letter and these terms (“the Agreement”) contain our understanding of your requirements and the terms of this agreement and conditions of our appointment to provide taxation and business services to you.   These terms form part of and must be read in conjunction with our attached letter of engagement dated 20 June 2008.  If there is any conflict between these terms and the engagement letter, these terms will prevail. This Agreement records the services we will provide you.  If you require any additional services, we must agree in writing to provide those services in a further letter of engagement (which will specify the scope of the further appointment).

16.     Entirety of Terms of Engagement

This agreement:

(a)       constitutes the entire understanding and agreement of the parties relating to the matters dealt within it.

(b)      supersedes and extinguishes all prior agreements, statements, representations   and   understandings   whether   verbal   or   written between us relating to the matters dealt with in this engagement letter, and may be varied at any time by mutual agreement in writing.

[8]      BDO then set about performing the work described in the bullets at para [6]

above.  It invoiced Mr Bell at the end of each month.

[9]      Over  the  next  few  months,  BDO  produced  several  pieces  of  work  for Mr Bell.  First, on 5 August 2008, Mr Hopping sent a report to Mr Bell’s solicitor, Mr Macfarlane.   The report covered the accounting records of both Ruahine Club

Ltd and Marainanga Station.   It was comprehensive, containing 17 pages and 51 attachments.  It was quickly transformed into an affidavit and Mr Hopping filed this affidavit in support of Mr Bell in his litigation on 8 August 2008.

[10]     Second, on 5 September 2008, Mr Hopping prepared a rebuttal affidavit for the litigation.   It responded to affidavits provided in support of Ms Williams, and focussed on stock reconciliation on the Marainanga property.

[11]     On 15 September, the litigation was settled without the need for a contested hearing.    The  terms  of  the  settlement  were  recorded  in  a  consent  order.    One particular clause of the order is relevant.  Clause 7 provided:

Heather [Ms Williams] will treat as income such amount within the said

$1.75 million by way of bailment and rental fees payable by Bob [Mr Bell], being $200,000 in total.

[12]     What happened next is disputed.   Before the District Court in the current proceeding for debt  recovery, Mr Hopping gave evidence that, shortly after the settlement,  he  had  a  meeting  with  Mr  Bell.   At  the  meeting,  they discussed  a potential tax issue arising from the consent order.   It was Mr Bell’s understanding that, under the settlement, he was regarded as having owned the Marainanga farm stock from the outset.  But clause 7 seemed to imply the stock was bailed to, rather than owned by, him.  Mr Hopping explained that Mr Bell was concerned about the implications of this on his tax losses and that, consequently, he agreed Mr Hopping would investigate the issue and advise.

[13]     Mr Bell did not give evidence before the District Court, although he did cross-examine Mr Hopping.  He did not seek leave to adduce any further evidence before me.  Accordingly, the only evidence of these events is Mr Hopping’s.  In the absence of a competing narrative, it is therefore Mr Hopping’s rendition of the facts that must prevail.

[14]     Consequently, Mr Hopping prepared two sets of draft financial statements for Mr Bell’s farming arrangements for the period 30 June 2007 to 30 June 2008.  One set was prepared on the basis Mr Bell owned the farm stock; the other, on the basis it

was bailed to him.   Mr Hopping sent these statements to Mr Bell by letter dated

29 October 2008.

[15]     Up until this point, Mr Bell had paid the first three of his invoices (June, July, and August) on time and in full. After receiving the September invoice, however, he made no further payments.  In fact, after Mr Hopping’s letter of 29 October 2008, Mr Bell had no further correspondence with BDO at all.   Mr Hopping sent two follow-up letters (dated 18 November 2008 and 19 February 2009) but received no response.

[16]     BDO’s last two invoices (those for September and October 2008) remained

unpaid. The amounts (as initially charged) were as follows:

Invoice No.        Date  Amount

12721                 30 September 2008        $7,794.00

13001                 31 October 2008            $5,859.01

[17]     Invoice 12721 was for:

Receiving from solicitor affidavits for both MCI accountants and  Heather Williams.   Considering content then as instructed by Magnus Macfarlane preparing a rebuttal affidavit to meet court deadline of 5 September 2008 with special emphasis in rebuttal on cattle reconciliation.  Preparation of records to take to Napier for Family Court hearing (requirement to attend subsequently cancelled upon settlement.

Assistance and advice given over RWT issues arising out of settlement, receiving settlement documentation and considering content along with discussions with solicitor and Mr Bell.

Commencement   of   work   relating   to   preparation   of   financial statements for year ended 30 June 2008 and 30 June 2008 along with incidental correspondence and discussions.

[18]     Invoice 13001 was for:

Completion of two draft financial statements for farm covering both the 2007 and 2008 financial years completed using bailed stock and excluding bailed stock for comparison.  Includes also

covering letter to draw out the points relating to the settlement agreement and possible contentious areas.

Advisingon the tax implications of GST regarding the possible purchase of Wellington building.

Incidental   correspondence    with    the    solicitor,    Dannevirke accountant and Mr Bell.

[19]     BDO claimed against Mr Bell for the balances owing under these invoices, as well as interest at 2 per cent per month (pursuant to the letter of 20 June)1  and reasonable solicitor-client costs (pursuant to clause 11(c) of the appendix to the letter of 20 June).2

The District Court decision

[20]     Before Judge Tuohy, BDO conceded that it had actually overcharged Mr Bell on the two unpaid invoices.  It had applied a higher charge-out rate ($220/h) than had been stipulated in the letter of engagement ($190/h) and had failed to notify Mr Bell sufficiently  of  this.    Accordingly,  it  reduced  its  claim  under  Invoice  12721  to

$5,485.50 (a difference of $2,128.50).

[21]     Mr Bell defended the claim by arguing that none of the work described in the unpaid invoices fell within the terms of the letter of engagement.  He argued:

(a)      regarding work done prior to settlement (preparation of the rebuttal affidavit of 5 September), this was not fit for its purpose (to assist in the litigation);

(b)      regarding the work in relation to the draft financial statements of

29 October  2008,  these  were  just  a  belated  attempt  by  BDO  to produce work under the letter of 20 June 2008 when BDO knew such

1 Which states “... we reserve the right to charge interest at 2% per month on all unpaid amounts

(including any interest previously charged).”

2 Which states “You indemnify us, our directors, partners and employees against (a) any loss suffered or liability incurred by us, our partners and employees in connection with any breach of, or default under, this Agreement by you ... [and] (c) any reasonable costs or expenses, including legal costs and expenses (on a solicitor and own client basis) us, our partners and employees may incur in respect of such loss or liability.”

work would no longer be necessary, as the litigation had settled.   It was simply not useful.  For that reason, it was not justifiable under the letter of engagement.

[22]     He also argued that there could be no other legal basis (other than the letter of

20 June) for charging for the work described in the unpaid invoices.  This is because clauses 1 and 16 of the appendix to the letter made clear the letter was to be the sole source of any obligations on BDO to perform work or on Mr Bell to make payment.

[23]     Mr Bell also counter-claimed that BDO’s work was generally “excessive and/or unwarranted” and that BDO had breached ss 28 and 31 of the Consumer Guarantees Act 2003.   He sought $29,512.80 in damages for breach of both the contract and these guarantees.

[24]     On quantum, he argued that BDO’s overcharging also extended to an earlier invoice (which he had paid), Invoice 12485.  This, he submitted, warranted a further credit.

[25]     Judge Tuohy rejected almost all of these arguments and found in favour of

BDO.

[26]     The Judge found that the scope of the parties’ obligations toward each other

were not limited to the precise terms of the letter of 20 June.  His Honour said:3

There is nothing in [that] letter which prevented the parties to the contract expressly or implicitly modifying or adding to the areas of work which would be undertaken by the plaintiff pursuant to that letter of engagement. Nor was there anything in it preventing the parties entering into a separate engagement for different work either orally or in writing.

[27]     In any event, regarding liability for the work on the rebuttal affidavit, this was suitable for purpose under the letter and was justifiable on that basis.  While the pieces of work Mr Hopping produced were perhaps “more ... than encompassed within  the  description  contained  in  the  letter”,  what  Mr  Bell  received  was nonetheless “all requested during the course of the engagement” and, as a whole,

was properly characterisable as a stock reconciliation (as had been requested).4    It was also, the Judge said, clearly relevant to assisting Mr Bell in his litigation.5   This was shown by the fact Mr Bell incorporated it directly into affidavits and filed them with the Family Court.  This conclusion meant the “vast majority”, and “almost all” of moneys owing under Invoice 12721 could not be challenged.6

[28]     Regarding liability for work done on the draft financial statements, the Judge considered  there could  be several  potential  bases  for justifying that  work.    His Honour said:7

One possibility is that it was carried out pursuant to a separate oral contract made at that time.   Another possibility is that it [was] capable of falling within the rather broad language of the work envisaged by the letter of engagement [of 20 June]. A third possibility is that it amounted to an “extra” or variation of the contract evidenced by the letter, analogous to that often seen in building contracts.

[29]     The  Judge  impliedly  rejected  the  suggestion   that   the  draft   financial statements  were  covered  under  the  language  of  the  original  letter  of  20 June, observing the letter contemplated “detailed accounting records relating to the operations of Marainanga Station” and that this brief could not possibly be taken to include draft financial statements, which have a separate and specific accounting meaning.8

[30] The Judge accepted, however, that there had been a formal variation to the letter of 20 June and the draft affidavits were justifiable under that. Judge Tuohy found as fact that Mr Bell and Mr Hopping had agreed to this variation at some point after settlement of the relationship property litigation on 15 September 2008. Mr Bell had specifically requested the work be done. This was supported by the evidence of Mr Hopping (explained at [13] above) and the letter of 29 October 2008, which recorded the work had been prepared “as discussed” and explained how the

work was warranted due to the unclear terms of the consent order.   Mr Bell was

4 At [17] – [18], [21] – [22].

5 At [22].
6 At [20], [23].

7 At [30].

therefore liable for the full amount of the unpaid invoices (less BDO’s conceded

overcharging).

[31]     Judge  Tuohy  did  accept  that  Mr  Bell  had  also  been  overcharged  on Invoice 12485 (the earlier invoice he had paid in full) and so applied a further credit of $910.80.

[32]     Otherwise, the Judge rejected Mr Bell’s submissions that BDO had, at any point, breached the Consumer Guarantees Act, or produced work that was excessive and  unnecessary.   There was  no  evidence to  support  any of these submissions. Mr Bell’s cross-claim was dismissed.

[33]     By  way  of  remedy,  Judge  Tuohy  awarded  $10,793.71  in  damages  (the amounts  owing  less  credits  for  overcharging),  plus  $11,554.59  in  interest  (at

2 per cent  per  month  until  the  date  of  judgment),  plus  $38,877.58  in  costs

(reasonable solicitor-client costs).

Submissions

[34]     Mr Bevan for Mr Bell now challenges Judge Tuohy’s decision in several

respects:

(a)      On liability, he submits the Judge was wrong in law to conclude the debts  were payable under a  valid  agreement  to  vary the letter  of engagement, concluded after the consent order of 15 September 2008. This variation, he submits, was not enforceable.  Clauses 1 and 16 of the letter of engagement prevented any variations to the initial letter, or separate agreements for work done, unless those agreements were recorded in writing.  Any post-settlement agreement was purely oral. No other written agreement had been executed.   Accordingly, since the draft financial statements could not fall within the scope of the initial letter of engagement of 20 June (as they were very late, produced well after settlement of the litigation and thus were not fit

for the purposes stipulated), there was no basis for BDO charging for that work.

(b)In  the  alternative,  Judge  Tuohy  was  wrong  to  conclude  that  an agreement for BDO to perform further work on the bailment- ownership issue had been concluded post-settlement.  This is because, at that time, the issue was already well known to BDO.  In particular, Mr Hopping’s  affidavit  of  8 August  2008  acknowledged  that  “the terms of bailment and lease of the property [had] not been decided on”.  It was therefore unlikely the parties would have made such an agreement at that late stage.

(c)      On quantum, Mr Bell submits that the discount applied for BDO’s overcharging    on    Invoice    12485    was    incorrectly    calculated. Judge Tuohy applied  a  credit  of $910.80.    Mr  Bevan  submits  the correct discount for that invoice should have been $2,214.00.

(d)      Mr Bell also submits that the interest provision in the letter of 20 June

2008 (set out at footnote 1 above) is so excessive and unreasonable as to be unenforceable as a penalty.

(e)      On costs, Mr Bell submits the clause 11 of the letter of engagement providing for reasonable solicitor-client costs was not engaged in this case.   This  is  because  there  was  really no  “dispute” sufficient  to engage the clause, because he had validly disputed the amounts owing under the invoices.

[35]     In  response, Mr Darroch for BDO contends that Judge Tuohy’s decision

should be upheld.  He submits:

(a)      On  liability,  that  it  was  open  for  Judge  Tuohy  to  conclude  an enforceable  oral  agreement  had  been  reached  between  BDO  and Mr Bell  at  some  point  post-settlement,  for  BDO to  advise  on  the bailment  issue.    This  is  clear  from  the  uncontested  evidence  of

Mr Hopping, and from the language of the draft financial statements of 29 October 2008.  The fact that Mr Hopping had been aware of the possibility of that issue arising at an earlier date in no way detracted from that evidence.

(b)In the alternative, BDO’s work on the draft financial statements fell within the “broad wording” of the letter of engagement, so was also justifiable on that basis.

(c)      On quantum, while there was an error in calculating the appropriate discount for overcharging, this was actually in Mr Bell’s favour.  This is   because   Judge   Tuohy,   in   applying   a   further   discount   for Invoice 12485, had missed the fact that the aggregate discount BDO had already applied to Invoice 12721 accounted for overcharging for all relevant invoices (including Invoice 12485).

(d)On both interest and costs, both are justifiable on the terms of the letter  of  engagement.    Mr  Darroch  submits  the  interest  clause  is neither unreasonable nor punitive, and argues that Mr Bell’s non- payment  of  fees  duly  owing  constitutes  a  “dispute”  within  the meaning of clause 11 of the appendix to the letter.  Any suggestion there was no valid “dispute” because BDO had, in fact, overcharged Mr Bell was without merit because Mr Bell never resisted liability for the whole debt on this ground.  In fact, it was BDO that had raised and admitted the overcharges.

Discussion

Liability for Invoices 12721 and 13001

[36]     Whether  Mr  Bell  is  liable  to  pay  these  invoices  turns  on  whether  an enforceable legal obligation for him to do so can be identified.  The logical starting point is the letter of engagement of 20 June 2008.  Was the work done justifiable under that?

[37]     It is important to keep in mind what was actually done.  This is set out in the invoices themselves – see paras [18] and [19] above.  Invoice 12721 actually related to time on two different pieces of work: the rebuttal affidavit of 5 September, and the draft financial statements of 29 October.   Invoice 13001 related solely to the draft financial statements.

[38]     Regarding the work done on the rebuttal affidavit, I have read the affidavit itself and agree with Judge Tuohy.   It plainly fits within the terms of the letter of engagement.  It responded to issues about ownership of stock on Marainanga Station that had been raised by evidence in filed in support of Ms Williams’ claim.  Mr Bell used this work for exactly the purpose stipulated in the letter (as evidence).  Mr Bell is plainly liable to pay this sum, and must do so on the terms set out in the letter.

[39]     It is difficult to calculate precisely the amount owing for this particular work. Invoice 12721 does not separate out clearly all the charges for the rebuttal affidavit and the subsequent tax advice.  I would set the amount owing at 75 per cent of the sum  due  under  Invoice  12721  ($5,980.50).    I  have  arrived  at  this  figure  by calculating  the  sum  of  all  charges  pre-dating  settlement  ($5,634.50),  plus  a reasonable sum for disbursements and work done on the matter after settlement but

which was not clearly annotated as such.9

[40]     Regarding the work done on the draft financial statements (amounting to

$7,852.51), the question of liability under the letter of engagement is less obvious. On this point, I agree with Mr Bevan and disagree with Mr Darroch.  I do not think the work could be justified under the 20 June letter.   This is for the following reasons:

(a)      This is a contractual interpretation issue.   Specifically, could an instruction  to  “compile detailed accounting records  relating to  the operation of the Marainanga Station ... over the period 11 April 2006 to  1  February  2008  ...  [including]  preparing  a  detailed  stock

recommendation [and presenting that] information in a form that is

9 See, for example, the item annotated “organise records/documents we hold in prep for court”, charged 17 August 2009 but which seems to relate clearly to work done in preparing and filing the rebuttal affidavit.

suitable for becoming evidence in [the] anticipated matrimonial property   litigation”   extend   to   cover   the   work   BDO   actually performed, namely producing two sets of draft financial statements for the purpose of comparing tax liabilities depending on whether or not Mr Bell had owned stock on the property?

(b)I  do  not  think  it  could.    The  initial  instruction  contained  several limiting elements.  First, the work needed to relate to the operation of the station over the period 11 April 2006 to 1 February 2008, specifically.   The draft financial statements did not extend that far. Second, the work needed to be relevant to, and prepared in a form suitable for becoming evidence in, the upcoming litigation.  The draft statements, however, were prepared after the litigation had settled. The fact they were linked to the outcome of the settlement of the litigation is not a close enough connection to fit the strict terms of the letter.

(c)      I  also  accept  the  reasoning  of  Judge  Tuohy  at  para  [26]  of  his judgment, in which His Honour explained:

That letter [of 20 June] contemplated the provision of “detailed accounting records relating to the operation of Marainanga Station” not draft financial statements, let alone two alternative sets of them.   Financial statements have a well understood accounting meaning.   If it had been contemplated initially that the plaintiff would provide a set of financial statements for the relevant period, the letter would have said so in those terms.  (emphasis in original).

[41]     This means BDO can only charge for the draft financial statements if there is some other legal basis for doing so.

[42]     The parties agree that there was no new agreement in writing, either to vary the terms of the original letter, or to create a new agreement.  But there is evidence of

an oral agreement between the parties for BDO to provide further advice.10    The

10 See [12] and [13] above.

issue now is whether it was legally permissible for the parties to conclude a new agreement in this way.

[43]     Mr Bell relies on clauses 1 and 16 of the appendix to the letter of 20 June to support his argument that it was not. To recap, the relevant part of clause 1 provides:

If you require any additional services, we must agree in writing to provide those services in a further letter of engagement (which will specify the scope of the further appointment).

while clause 16 relevantly provides:

This agreement ... may be varied at any time by mutual agreement in writing. (emphasis added)

[44]     Those clauses provide the starting point.  According to clause 1, agreement for  “any  additional  services”  must  be  by  way  of  further  letter  of  engagement. Clause 16  makes  clear  that  if  the  parties  want  to  change  that  (or  any  other) contractual restriction, then that would also need an agreement in writing.   There being no such written agreement, it would seem at first blush at least that the parties were not permitted to vary their agreement orally.

[45]     But this is not the end of the road.  The concept of waiver is relevant.  Waiver (or  forbearance)  is  a  common  law  doctrine  that  applies  where  a  party  to  an agreement agrees not to insist upon performance of a condition or conditions in the contract.  In W J Alan & Co Ltd v El Nasr Export Co, Lord Denning explained the term in the following way:11

The principle of waiver is simply this:   If one party, by his conduct, leads another to believe that the strict rights arising under the contract will not be insisted upon, intending that the other should act on that belief, and he does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so: see Plasticmoda  Societa  per  Azioni  v  Davidsons  (Manchester)  Ltd  [1952]

1 Lloyd's Rep 527, 539. There may be no consideration moving from him who benefits by the waiver. There may be no detriment to him by acting on

it.  There may be nothing in writing.  Nevertheless, the one who waives his

strict rights cannot afterwards insist on them.  His strict rights are at any rate suspended so long as the waiver lasts.  He may on occasion be able to revert

to his strict legal rights for the future by giving reasonable notice in that

11 W J Alan & Co Ltd v El Nasr Export Co [1972] 2 QB 189 (CA), affirmed in Connor v Pukerau

Stores [1981] 1 NZLR 384 (CA) at 387 per Cooke P.

behalf, or otherwise making it plain by his conduct that he will thereafter insist upon them:  Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761. But there are cases where no withdrawal is possible. It may be too late to withdraw: or it cannot be done without injustice to the other party. In that event he is bound by his waiver. He will not be allowed to revert to his strict legal rights. He can only enforce them subject to the waiver he has made.

[46]     Waiver  is  a  different  concept  from  variation  of  a  contract.   A variation requires all the elements necessary in the particular circumstances for formation of an enforceable contract (such as writing for variations to contracts for the sale of land).12   A waiver, however, can have legal consequences even if these elements are not present.13   The distinction is between arrangements that are “mere forbearance[s to perform existing contractual obligations]” and those which are “matters of contract”.14

[47]     Waiver is also distinct from the equitable doctrine of promissory estoppel, although the two doctrines share many of the same features.  As the learned authors of Law of Contract in New Zealand observe, both doctrines require a clear representation   by  words   or   conduct,   proof   the   plaintiff   has   relied   on   the representation and the absence of any retraction before reliance.15   The difference is that waiver focuses on the scope of the intention of the party (or parties) granting the

forbearance, whereas estoppel focuses on the conduct of that party and its effect on the other party.16     Still, in some recent cases, the doctrines have been argued as alternatives.17

[48]     In  my  judgement,  this  is  really  a  case  of  mutual  waiver.    By  agreeing following the settlement of 15 September 2008 that Mr Hopping would undertake additional work on the bailment-ownership issue, both Mr Bell and Mr Hopping

were, impliedly by their conduct, evincing a clear intention to waive the obligation

12 John Burrows, Jeremy Finn and Stephen Todd (eds) Law of Contract in New Zealand

(4 ed, LexisNexis NZ Ltd, Wellington, 2012) at [19.3.1].

13 Edwin Peel (ed) Treitel on The Law of Contract (13 ed, Sweet & Maxwell, London, 2011) at

[3-069].

14 Besseler Waechter Glover & Co v South Derwent Coal Co [1938] 1 KB 408 at 416 per Goddard J.

15 At [19.3.2].

16 Edwin Peel (ed) Treitel on The Law of Contract (13 ed, Sweet & Maxwell, London, 2011) at

[3-077].

17 See, for example, Hudson Bay Holdings Ltd v Waitakere Properties Ltd HC Auckland CIV-2009-

404-1134, 28 March 2011 and Minaret Resources Ltd v McLellan (2003) 5 NZCPR 161 (HC).

under clause 1 that any agreement for additional work needed to be in writing.  This was certainly the case on BDO’s part (the party for whose benefit clause 1 was surely inserted).   But it was also the case for Mr Bell.    On the only evidence available, it was Mr Bell who requested BDO to perform the work.   So, while clause 1 could have been invoked by either party at the time of the agreement, or within a reasonable time afterward, to require the other party to reduce the terms to writing, neither party did so.   Both acceded to proceeding on an oral basis in the demands no doubt, of the moment.

[49]     Mr Bell has subsequently withdrawn his waiver.  He now wants to insist on his rights under clauses 1 and 16.  But in this, he is far too late.  There is as I have said, no evidence he raised the issue at the time the parties agreed BDO would perform the extra work.  He did not reply at all to BDO’s requests for payment in the period after that work was performed and billed.   He ignored Mr Hopping’s subsequent correspondence.  He did not file his statement of defence to this action until nearly one year after BDO filed its statement of claim.  He is therefore bound by his waiver.

[50]     The result is that, having waived the right to rely on clauses 1 and 16, and in reliance on Mr Hopping’s (unchallenged) evidence, the parties entered into a valid, enforceable oral agreement after the consent order of 15 September 2008, for BDO to perform additional work.  This oral agreement was separate from, but on similar conditions to, the initial letter of engagement.

[51]     Mr Bell has not paid BDO anything for the work it completed under that contract.  He is liable to BDO accordingly.

[52]     To recap, Mr Bell is liable to pay all amounts owing under Invoices 12721 and  13001.    He  must  pay  75  per  cent  of  Invoice  12721  under  the  letter  of engagement, and the remaining portion, plus all charges recorded in Invoice 13001, under the separate oral agreement.

Quantum

[53]     Before addressing interest and costs, it is necessary to tie up the appropriate amount of Mr Bell’s discount for BDO’s (admitted) overcharging.   Both parties agree that BDO overcharged Mr Bell in relation to the two unpaid invoices as well as earlier Invoice 12485.  This occurred because BDO charged out Mr Hopping at $30 more per hour under those invoices than had been agreed.

[54]     In the District Court, BDO conceded a discount of $2,128.50 (total) was appropriate.   Judge Tuohy decided to add another $910.80 to cover overcharging under Invoice 12845. The Judge did not explain how it calculated that figure.

[55]     Mr Bell now argues that the $910.80 credit applied in the District Court was not enough.   He submits a total of $2,214.00, covering overcharging on all three invoices, should have been applied.

[56]     This submission must fail.   It ignores the fact that the court had already accounted for overcharging in relation to the two disputed invoices by awarding BDO $5,845.80 (as opposed to $7,792, as initially charged) for Mr Bell’s failure to pay Invoice 12721 (the first disputed invoice).

Interest

[57]     Mr Bell further submits that the interest clause in the letter of engagement imposing interest of 2 per cent per month, compounding, was so excessive as to be unenforceable as a penalty.

[58]     It is clear that the courts will refuse to apply clauses in contracts that provide that a certain sum will be payable on breach, where that sum is not a genuine pre- estimate of loss to be suffered, but is really so excessive or unconscionable as to be a

penalty.18

18 John Burrows, Jeremy Finn and Stephen Todd (eds) Law of Contract in New Zealand

(4 ed, LexisNexis, Wellington, 2012) at [21.2.6(a)].

[59]     In Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd,19  the Court of Appeal affirmed the following statement of principle, taken from the joint judgment of Mason and Wilson JJ of the Australian High Court in AMEV-UDC Finance Ltd v Austin:20

... equity and the common law have long maintained a supervisory jurisdiction, not to rewrite contracts imprudently made, but to relieve against provisions which are so unconscionable or oppressive that their nature is penal rather than compensatory.   The test to be applied in drawing that distinction is one of degree and will depend on a number of circumstances, including (1) the degree of disproportion between the stipulated sum and the loss likely to be suffered by the plaintiff, a factor relevant to the oppressiveness of the term to the defendant, and (2) the nature of the relationship between the contracting parties, a factor relevant to the unconscionability of the plaintiff’s conduct in seeking to enforce the term. The courts should not, however, be too ready to find the requisite degree of disproportion lest they impinge on the parties’ freedom to settle for themselves the rights and liabilities following a breach of contract.

This statement has also been applied by the Judicial Committee of the Privy Council in  Philips  Hong  Kong  Ltd  v Attorney-General  of  Hong  Kong,21   in  which  their Lordships  observed  it  was  consistent  with  the  classic  speech  on  the  issue  by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd.22

[60]     I agree that the interest clause is excessive and penal in nature.  Two per cent per month, compounding, is well above what would be considered a reasonable rate of interest payable in these circumstances.

[61]     A fair  rate  of  interest  is  15  per  cent  per  annum.    The  respondent  will recalculate interest payable accordingly and file a memorandum setting out the corrected figures before the judgment given is certified for sealing.

Costs

[62]     BDO’s right to reasonable solicitor-client costs stems from clause 11(a) and

(c) in the appendix to the letter of engagement of 20 June.  Mr Bell submits that this

19 Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd [2004] 2 NZLR 614 (CA) at [57].

20 AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 193 – 194 per Mason and Wilson JJ.
21 Philips Hong Kong Ltd v Attorney-General of Hong Kong (1993) 61 BLR 49 (PC) at 57-58.

22 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 (HL) at 86 per

Lord Dunedin.

clause cannot apply because the triggering requirement of a “breach of or default under” the agreement (set out in para (a)) was not met.  This was because Mr Bell had valid grounds for disputing his invoice – so there was really no “breach” or “dispute” at all.

[63]     This argument must also fail.  As I have concluded, Mr Bell clearly breached the 20 June agreement, and the subsequent oral agreement on the same material terms.   Mr Bell’s defences to BDO’s claims had no merit  except in relation to interest.  The fact BDO conceded on the comparatively minor issue of overcharging cannot change that fact.

Conclusion

[64]     The  appeal  is  allowed  in  the  minor  respect  described  but  is  otherwise dismissed.

Williams J