Berry v Petroleum Logistics Limited
[2018] NZHC 2765
•26 October 2018
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2018-419-115
[2018] NZHC 2765
UNDER The District Courts Act 1947 IN THE MATTER
of an appeal and a cross-appeal against a decision of the District Court at Hamilton
BETWEEN
PETER LESLIE BERRY and GLENDA JOYCE BERRY sued as THE PL & GJ
BERRY PARTNERSHIP trading as ACME FASTENERS
Appellants
AND
PETROLEUM LOGISTICS LIMITED
Respondent
Hearing: 24 October 2018 Appearances:
D J G Cox for Appellants T Stevens for Respondent
Judgment:
26 October 2018
JUDGMENT OF LANG J
[on appeal against entry of summary judgment]
This judgment was delivered by me on 26 October 2018 at 10.30 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
BERRY v PETROLEUM LOGISTICS LTD [2018] NZHC 2765 [26 October 2018]
[1] The appellants in this proceeding, Mr and Mrs Berry, operate a fuel retailing business in the Whitianga area through the PL and GJ Berry Partnership. Their business trades under the name Acme Fasteners.
[2] Between December 2012 and May 2017 Mr and Mrs Berry purchased petrol, diesel fuel and oil products from the respondent, Petroleum Logistics Limited (PL). By May 2017 PL considered Mr and Mrs Berry owed them the sum of $76,354.89 under this arrangement. PL sought summary judgment against Mr and Mrs Berry in the District Court to recover this sum. In a decision delivered on 29 March 2018 Judge Spear entered summary judgment against Mr and Mrs Berry and in favour of PL for the sum of $71,352.18.1
[3] Mr and Mrs Berry appeal against the Judge’s decision. PL cross-appeals, claiming the Judge wrongly dealt with its claim for interest on the judgment sum.
Background
[4] The contractual arrangement between the parties is contained in two documents. The first is a credit account application signed by Mr Berry on behalf of the partnership on 14 December 2012. That document has no relevance for present purposes. The second document is a Reseller Agreement signed by Mr Berry on behalf of the partnership on 22 June 2012. This set out the terms on which the parties were to trade with each other.
[5] Between 2012 and May 2017 PL invoiced Mr and Mrs Berry on a regular basis for fuel supplied to them. The supply occurred in two ways. First, PL supplied bulk fuel directly to Mr and Mrs Berry. Mr and Mrs Berry then on-sold the fuel to retail customers, many of whom operated fishing and charter vessels. Secondly, PL provided Mr and Mrs Berry with fuel cards for distribution to their retail customers. These persons could use the cards to obtain discounts when purchasing fuel from pumps at the wharf, at a BP truck stop and at a Mobil service station situated in the car park of a New World supermarket. PL would charge Mr and Mrs Berry at a discounted rate for the fuel supplied to customers using fuel cards.
1 Petroleum Logistics Ltd v Berry [2018] NZDC 6002.
[6] Not surprisingly, the price that PL charged for fuel changed every few days because of factors such as fluctuations in the price of oil and the exchange rate. PL advised Mr and Mrs Berry of these changes in messages that it sent out every three or four days. PL invoiced Mr and Mrs Berry on the last day of each month for fuel supplied during that month. Payment was initially required by the 20th day of the following month, but this was subsequently varied by agreement to permit Mr and Mrs Berry to pay the invoices by the 30th day of the following month.
[7] With one exception, Mr and Mrs Berry kept payments up to date until October 2016. The exception related to a historical dispute in relation to an invoice for the sum of $7,002.71. By the time of the hearing PL had passed a credit in favour of Mr and Mrs Berry in the sum of $2,000 in an endeavour to resolve the dispute. The Judge considered, however, that this issue could not be resolved by way of summary judgment. This explains why PL obtained summary judgment for approximately
$5,000 less than it originally sought. That issue is not relevant for the purposes of the present appeal.
[8] From October 2016 Mr and Mrs Berry began falling behind in making payments due under invoices rendered by PL. This ultimately led PL to deactivate the fuel cards in May 2017 and to seek summary judgment against Mr and Mrs Berry in the District Court.
A The appeal The principal issue
[9] The principal issue in dispute before Judge Spear, and on the appeal, relates to the manner in which PL has calculated the amounts it charged Mr and Mrs Berry. Mr and Mrs Berry say PL has overcharged them by more than $140,000. They sought to defend the application for summary judgment on that basis, and also counterclaimed for overpayments made in the past.
[10] The Reseller Agreement contained the following provision dealing with the issue of pricing:
5.1.0 Pricing Incentive
The price to the Reseller will be the applicable wholesale price as per Petroleum Logistics book price determined by MOPS (Mean of platts Singapore).
[11] In addition, the Reseller Agreement contained a schedule in the following terms:
Schedule 2. Pricing
The price to the Reseller will be, [sic] the applicable wholesale price as determined by MOPS for bulk fuel delivery, and Discount for being card reseller as follows
Product form [sic] Service station Rebate $ /litre
Automotive Diesel Fuel
0.055
Unleaded Petrol (ULP)
0.055
Product form [sic] Truck Stop Rebate $ /litre
Automotive Diesel Fuel
0.10
[12] The legal effect of Schedule 2 is uncertain because there is no reference to Schedule 2 in the body of the Reseller Agreement. It appears, however, that PL applied the discounts referred to in Schedule 2 when charging Mr and Mrs Berry for fuel supplied to their customers using the fuel cards provided by PL.
[13] Clause 5.1.0 refers to “MOPS (Mean of platts Singapore)”. Those outside the fuel industry are unlikely to know what this means. In an affidavit sworn in opposition to the application for summary judgment, Mr Berry explained the meaning of this term as follows:
14.The Reseller Agreement provided at clause 5.1.0 “Pricing Incentive. The price to the Reseller will be, the applicable wholesale price as per Petroleum Logistics book price determined by MOPS (Mean of Platts Singapore).” MOPS is the average of a set of Singapore based oil product price assessments published by Platts, which is a global energy, petrochemicals, metals and agriculture information provider. The Platts assessment process determines the value of physical commodities 15 to 30 days forward for many oil products loading in
Singapore. MOPS is the acronym that stands for the Mean of Platts Singapore, and typically refers to any contract mechanism that derives its value by referencing the average of a set of Singapore-based oil price assessments published by Platts. The timeframe can be over a week, a month, or any agreed period of time. In this Reseller Agreement, the price for the petroleum products payable by the Reseller for the duration of the five year period of the Agreement was to be “determined by MOPS”.
[14] Mr Cox argues on Mr and Mrs Berry’s behalf, as he did in the District Court, that cl 5.1.0 required PL to provide fuel to Mr and Mrs Berry at the prices set from time to time using the assessments published by the Platts organisation (the MOPS price). The Judge rejected this argument in the following passage of his decision:2
[31] The defendant contends that the plaintiff has charged it incorrectly throughout the entirety of the contract. The defendant argues that the price chargeable to it for both the bulk fuel and the retail fuel supplies is the MOPS price. In this respect, Mr Cox argued that the price incentive clause 5.1.0 can only be construed to mean that the plaintiff’s “Petroleum Logistics book price” must be the MOPS price as determined from time to time. That is, the “applicable wholesale price” was the MOPS price.
[32] While I accept that the [Reseller Agreement] is not as clear as it could be on this issue, I am unable to agree with Mr Cox in that respect. I do not consider, even having regard just to the wording of clause 5.1.0, that the applicable wholesale price must be the MOPS price. If that was so then the words, “as per Petroleum Logistics book Price” would be entirely redundant. Furthermore, not only does it offend commercial sense for a NZ supplier to be bound in this way by an overseas rate, it is also quite different to the understanding on which the parties entered into this contract and how they conducted themselves during the course of the contract. I am in no doubt that the MOPS rate is simply an index rate against which the plaintiff’s wholesale rate is set.
[33] Mr Kumar [from PL] explained that the MOPS price was the basis for the calculation of its wholesale price that took account of the plaintiff’s expenses and its required margin. If it charged just the MOPS price, it would lose money on each transaction with the defendant.
[34] During the pre-contractual discussions, Mr Kumar emailed Mr Berry on 23 May 2012. That email dealt primarily with the bulk fuel supplies and the benefits of being the plaintiff’s bulk fuel “Reseller” in this district. Mr Kumar then went on to advise of another benefit in these terms
Our resellers also get benefits of BP fuel cards at discount rates off pump price, this you could pass to your customers, and gain their volume for vehicles as well.
2 Petroleum Logistics Ltd v Berry, above n 1.
We will give you discount of 5.5 pl (sic) from service station and 10cpl from truck stops, you could pass your customers 3-4 cents and keep the balance as your margin
[35] I consider that this puts beyond question any uncertainty over the construction of the contract as to the price to be charged to the defendant for the supplies of fuel whether bulk or retail supplies. It as Mr Kumar states in his evidence. There is one rate for the bulk fuel supplies being the plaintiff’s wholesale book price based on the MOPS as an index adjusted by the plaintiff’s expenses and margin and advised on almost a daily basis to the defendant. There is another rate for the fuel supplied through the retail fuel cards and that is a discount to the already discounted rate for the fuel supplied to the retail card holder thus establishing the defendant’s margin.
[36] If the defendant was to be charged the MOPS rate for the retail fuel supplies, this would mean that the plaintiff would not only forego any expenses and a margin for the supply of this fuel, it would leave it entirely vulnerable to any swing in the pump prices. That does not make commercial sense and I cannot accept that any company in the business conducted by the plaintiff would be so foolhardy as to contemplate such an arrangement.
[37] …
[38] Both the system for bulk and retail fuel, as explained by Mr Kumar, is entirely consistent with the dealings between the parties or perhaps more exactly as to how the plaintiff invoiced the defendant over almost five years.
[15] I agree with the Judge’s conclusion on this point, and essentially for the reasons he gave at [32]. The wording used in cl 5.1.0 demonstrates that Mr Cox’s argument cannot be correct. The clause provides that the price payable by Mr and Mrs Berry was to be the applicable wholesale price. The balance of the clause indicates in very broad terms how the wholesale price is to be calculated. If the argument for Mr and Mrs Berry was correct, there would be no need for the clause to refer to the wholesale price or the Petroleum Logistics book price. Instead, the clause would read:
The price to the Reseller will be the price determined by MOPS (Mean of Platts Singapore).
[16] Secondly, the clause must be interpreted in context and bearing in mind the specialist knowledge possessed by both parties regarding procedures used to establish prices in the fuel industry.3 Both parties would have known the MOPS price relates
3 See Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19]-[20]; Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60]- [61]; Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as Hansen-Tangen) [1976] 1 WLR 989 (HL) at 995-996 .
to average prices for any given period in relation to fuel loaded in Singapore. It does not include costs incurred by a fuel importer and distributor past that point.
[17] Both parties must also have known PL would incur costs in shipping fuel to New Zealand, unloading and storing it on arrival and then transporting it to the customer. The wholesale price would obviously take account of those costs, and also provide a margin for PL’s profit. In other words, both parties must have known the MOPS price would not be the price PL would charge Mr and Mrs Berry. If that were the case PL would suffer a loss on every transaction. This cannot have been the intention of either party.
[18] The courts are reluctant to interpret a contract in such a way that it produces a commercially absurd result.4 Like the Judge, I consider the interpretation for which Mr Cox contends would produce such a result.
[19] I therefore see no need to resort to pre-contractual negotiations or post- contractual communications and conduct to assist in the interpretation of the clause. The plain words of cl 5.1.0 enable the Court to ascertain the intention of the parties when they signed the Resellers Agreement. That said, however, I see nothing in the evidence relating to those discussions that contradicts the manner in which I interpret cl 5.1.0.
[20] This effectively disposes of the principal argument advanced in support of the appeal.
Other issues
[21] Mr Cox did not seek to argue, directly at least, that PL had charged an excessive margin for the fuel Mr and Mrs Berry acquired from it. Any such suggestion would, however, be countered by the fact that Mr Berry deposes he would expect the MOPS price to be 13 to 14 cents lower than the price charged by large-scale fuel wholesalers in New Zealand. He also says he has analysed the MOPS prices applicable during the period the partnership dealt with PL. This reveals that on average PL has charged five
4 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 3, at [89]-[93].
cents more per litre than the applicable MOPS prices. This appears to be a very small margin to cover the costs PL would incur in importing and distributing the fuel, let alone any margin for profit. Furthermore, on Mr Berry’s evidence the margin is significantly less than that apparently charged by other fuel importers in New Zealand.
[22] Mr Cox was ultimately driven to argue that the Court should not accept Mr Kumar’s assertion that PL has charged Mr and Mrs Berry in accordance with the wholesale prices determined using cl 5.1.0 of the Resellers Agreement. Instead, he submits PL should now be required to reconstruct each and every one of its invoices in order to prove the charges were invoiced in accordance with the clause.
[23] I would only accede to that submission if I considered there were grounds to believe PL may have overcharged Mr and Mrs Berry for product supplied to them. On the evidence presently available, however, I cannot reach that conclusion. All the evidence is to the contrary. Furthermore, cl 5.1.0 gave PL a great deal of latitude in constructing its wholesale price. The only restrictions were that the price needed to take into account the MOPS price and PL’s own book price.5 The Resellers Agreement was silent as to other factors PL could build into the price. It is therefore difficult to see how Mr and Mrs Berry could now establish that PL constructed its prices in a manner not sanctioned by the agreement.
[24] Mr and Mrs Berry could have questioned the prices they were being charged at any time if they genuinely believed they were being overcharged. They did not raise pricing under the Resellers Agreement as an issue at any stage during their trading relationship with PL even though they must have had some idea of prices being charged by other suppliers in the fuel industry throughout that period. Mr Berry raised it as an issue for the first time in an affidavit filed in opposition to the application for summary judgment.
[25] Mr and Mrs Berry were prepared to raise other issues with PL when they felt they were not receiving a fair deal. This is demonstrated by the long running dispute
5 Mr Kumar explained in a clarifying affidavit that the book price is the price charged to a standard business customer whereas the wholesale price is that charged to a standard bulk business customer such as Mr and Mrs Berry.
about the claim for $7,002.71 referred to earlier in this judgment.6 On another occasion Mr and Mrs Berry complained to PL about the margins available on fuel supplied at the Mobil truck stop. This ultimately led to PL crediting Mr and Mrs Berry’s account with the sum of approximately $3,500. If Mr and Mrs Berry held genuine concerns about the prices they were being charged under the Resellers Agreement I have no doubt they would have raised it at a much earlier stage. The lack of earlier complaint therefore raises an issue as to whether the argument Mr and Mrs Berry now seek to raise is genuine.
[26] Furthermore, Mr Berry has not explained why the partnership began falling behind in its payments from October 2016. In addition, from September 2016 Mr and Mrs Berry began making payments in rounded amounts rather than in amounts corresponding to those charged in individual invoices. This may be an indication that the partnership was unable to pay the invoices in full.
[27] Mr Berry has also suggested in one of his later affidavits that the partnership should have received a discount on bulk fuel supplied to it. That suggestion is plainly incorrect because the wording used in Schedule 2 makes it clear that discounts were only to relate to fuel supplied to customers using the fuel cards. They do not apply to bulk fuel.
[28] Finally, Mr Berry maintains that PL has been inconsistent in explanations it has given regarding the manner in which it charged Mr and Mrs Berry for fuel. I see no basis for this allegation. It seems to me that the approach taken by PL has been consistent throughout, and that it has been forced to respond to arguments raised by the partnership on an incremental basis after the application for summary judgment was filed.
[29] I am therefore satisfied none of the issues Mr and Mrs Berry have raised amounts to an arguable defence to PL’s claim. The Judge was correct to enter summary judgment against them. The appeal is accordingly dismissed.
6 At [7].
B The cross-appeal
[30] The cross-appeal relates solely to the following order made by the Judge when entering summary judgment:7
[53] Summary judgment is accordingly entered for the plaintiff against the defendant as follows:
(a)In the sum of $71,352.18, being the amount of the outstanding account as at 30 August 2017, inclusive of contract interest to that date.
[31] Mr Cox agrees that the sum of $71,352.18 represented the amount outstanding by the partnership as at 30 August 2017 exclusive of interest. I therefore allow the cross-appeal and amend the order by replacing the word “inclusive” with “exclusive”.
[32] The issue of interest is yet to be determined in the District Court, so I pass no further comment on it.
Costs
[33] PL has succeeded on both the appeal and the cross-appeal. It would therefore ordinarily be entitled to costs on a category 2B basis, together with disbursements as fixed by the Registrar. I am aware, however, that PL is likely to claim indemnity costs in relation to the appeal based on the terms of the Reseller Agreement. It also proposes to advance the same argument in the District Court, where costs are yet to be determined. I therefore reserve costs at this stage.
[34] I have advised counsel I consider that any appeal against any order made in relation to costs in the District Court should be determined by me when I fix costs in relation to the present appeal.
Lang J
Solicitors:
Rennie Cox, Auckland
7 Petroleum Logistics Ltd v Berry, above n 1.
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