Brian Roberts (1998) Limited v BASF New Zealand Limited
[2020] NZHC 537
•17 March 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2059
[2020] NZHC 537
UNDER the Companies Act 1993 BETWEEN
BRIAN ROBERTS (1998) LIMITED
Applicant
AND
BASF NEW ZEALAND LIMITED
Respondent
Hearing: 2 March 2020 Appearances:
P J Napier and A M Ryder for applicant
M A Powell and R A Morris for respondent
Judgment:
17 March 2020
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
This judgment was delivered by me on 17 March 2020 at 4.00 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Introduction
[1] The applicant, Brian Roberts (1998) Ltd (BRL), applies for an order pursuant to s 290 of the Companies Act 1993 setting aside a statutory demand dated 9 September 2019 and served on 10 September 2019 by the respondent, BASF New Zealand Ltd.
BRIAN ROBERTS (1998) LIMITED v BASF NEW ZEALAND LIMITED [2020] NZHC 537 [17 March 2020]
[2] The case raises the usual issue of whether BRL has established that there is a genuine dispute to be tried as to whether it is indebted to BASF. Counsel’s submissions were polarised, with Mr Napier submitting that there is “clearly a genuine dispute” and Mr Powell submitting that “there is no genuinely arguable defence to (the) claim and BRL’s application should be dismissed”.
Background
[3] BASF is the New Zealand branch of a multi-national company that manufactures and supplies paint and related products, primarily to the automotive industry. BRL is a Pukekohe based panel and paint shop.
[4] In the years leading up to mid-2016, BASF and BRL had a casual arrangement whereby BASF sold and BRL purchased paint on an as-required basis. On 4 August 2016 the parties entered into a formal written agreement. It will be necessary to return to the terms of this contract. But for now, it is only necessary to say that the contract contemplated BASF’s supplying BRL with a specific line of paint for a fixed term of five years.
[5] The contract came to an end after about 18 months in April 2018. It is common ground that this was at BRL’s behest, though there is no contemporaneous evidence as to the basis for or terms of BRL’s cancellation.
[6] The contract having come to an end, BASF sought to enforce clauses which provided in effect that if that occurred as a result of a breach by BRL then BASF would be entitled to recover pre-determined damages the amount of which would depend on the timing. If the contract was breached in year 1 then damages were set at a certain level. The question of damages reduced year-on-year so that if were terminated in year 5 they were set at a much lower amount. It is expressly said in the contract that those damages were intended to reflect the value of BASF’s lost opportunity and the depreciated value of equipment supplied by it.
[7] Both parties approached the case on the basis that BRL purported to terminate the contract on the ground that the product was not of merchantable quality; that this was a contract for the sale of goods and that s 139 of the Contract and Commercial
Law Act 2017 applied so as to import into the contract a warranty as to the merchantable quality of the goods.
[8] BASF repatriated its equipment and unused paint and allowed BRL a credit in respect of these.1 In the end, BASF calculated that it was owed $60,556.00 and on 18 February 2019 BASF’s Mr Mark Spiterji emailed BRL’s Managing Director, Mr Anthony Wijdeven, claiming this amount less a credit for the stock returned of
$9,290.65. When BASF received no response it put the matter in the hands of debt collectors and those debt collectors ultimately emailed Mr Wijdeven on 17 April 2019 demanding payment. The affidavit evidence before the Court includes a covering email dated 17 April 2019 in which the debt collectors refer to the company’s “24-hour demand letter” which they say was attached. This was not attached to the copy before the Court, but the contents can readily be imagined. Mr Wijdeven replied the next day, 18 April 2019, denying any liability. I will return to the terms of his email.
[9] The debt collectors having got nowhere BASF instructed its solicitors and they wrote to BRL on 26 July 2019 making a further demand. When that elicited nothing,
BASF served its statutory demand dated 9 September 2019.2
[10] BRL’s originating application is dated 24 September 2019. It is supported by affidavits sworn by Mr Wijdeven, the company’s director, Mr Tino Smuts, its Paint Shop Manager and a Mr Murray Young who says that he lives in Hamilton and runs a panel and paint shop.
[11] Mr Wijdeven says little about BRL’s business. He gives no indication of its size, such as the number of staff or its annual turnover for example. He explains that prior to mid-2016 BRL purchased a line of solvent-based paint from BASF on a casual basis. He says that the company did not experience any difficulties with this product. He says that in mid-2016 he decided to formalise the company’s arrangements with BASF. Mr Wijdeven’s description of events indicates that his understanding at the
1 There is an ancillary issue on which nothing turns as to whether or not BASF was obliged to allow BRL a further credit in respect of partially used paint product, but neither counsel sought to pursue that point with any force in the course of argument.
2 Between the date of the original calculation of BASF’s claim and the service of the statutory demand the amount claimed was reduced to $49,843.56 as a result of further credits allowed by BASF, but nothing turns on this.
time was that BASF was “transitioning from solvent-based paint to water-based paint” and that that is why, when the contract was finalised, it was for the supply of a new line of water-based paint. Mr Wijdeven then goes on to describe difficulties which he says BRL had from the outset with this water-based paint. He says that he observed his staff “struggling with the new product”. Initially, he says, he assumed that any difficulties were referable to this being a new product and accepted that it would take time for his staff to get used to using it. He says, however, that matters didn’t improve and his staff began to express frustration and that “paint jobs were taking twice as long to complete”. He says that he made contact with BASF, though he doesn’t identify with whom he made contact or when, and expressed his concerns. He says that BASF “were adamant that it was my staff who were the issue”.
[12] Mr Wijdeven describes in general terms the nature of the difficulties that his staff were reporting to him. I would summarise these as being difficulty matching paint and efficiently applying the product so that jobs were taking much longer than would normally be expected and often having to be re-done. Mr Wijdeven says that these problems worsened over time and that BRL:
… found that most of BRL’s paint jobs were resulting in losses to the business. Ordinarily, about 60–70 per cent of the retail price of a paint job would be made up of the cost of the products and equipment used to perform the job. The remaining 20–30 per cent would constitute wages and profit. However, because we had to re-do the majority of paint jobs due to the quality of the paint, we found that these jobs were in fact costing the business money. This was because we had to use additional paint and man hours to repaint the vehicles, which proved very costly.
[13]Then, on the basis of that description of events, Mr Wijdeven says that:
Over time, it became apparent that the new formula was utterly defective and BRL felt it had no choice but to terminate the Agreement with BASF.
[14] Mr Wijdeven says that since terminating the agreement BRL has been purchasing water-based paint from a different supplier and that no difficulties have been experienced with this paint.
[15] As to the consequences for BRL, Mr Wijdeven says that these have been significant and that the company is struggling financially as a result.
[16] Mr Wijdeven also says that his understanding is that BRL is not the only business to have experienced issues with BASF’s water-based paint and continues:
In the Hamilton area alone, BASF were supplying seven paint stores in 2016-2017. I understand that number has decreased to two stores since the introduction of its water-based formula.
[17]He gives no indication for the basis for that understanding on his part.
[18] Surprisingly, given Mr Wijdeven’s evidence as to contact between the parties, the only material exhibits to his affidavit are the contract between the parties and an email dated 18 February 2019 (some 10 months after termination) in which BASF’s National Sales Manager, Mr Mark Spiteri calculates the amount payable to BASF by BRL for early termination.
[19] Mr Smuts sets out in his affidavit to give more detail as to the nature of the problems which the company encountered using BASF’s water-based paint.
[20] Mr Smuts says that he has extensive experience as a car painter “which includes painting with the BASF NZ Ltd Glasurit solvent and water-based systems.” He gives no detail as to his qualifications, over what period of time the experience he claims has been accumulated, or the nature of that experience.
[21] He then describes his role as BRL’s Paint Shop Manager which is to oversee all painting.
[22] Mr Smuts then turns to the issues which BRL experienced with BASF’s water- based product. His narrative description begins:
We immediately encountered difficulties with the application of the water-based paints.
[23] He fleshes out these difficulties referring to persistent difficulties matching paint colours and with paint application and finish. Like Mr Wijdeven, at the conclusion of his evidence, Mr Smuts compares unfavourably BRL’s experience with BASF’s water-based products with the product acquired from the new supplier since the termination of the contract. Mr Smuts’ concluding paragraph is in these terms:
In my view, the BASF products were such poor quality that they should not have been used for panel beating. The financial impact the defective BASF system had on BRL was significant. The business was losing money on paint jobs as a result of the poor quality of the paint.
[24] In relation to this it would surprise me if Mr Smuts, as the Paint Shop Manager, was privy to details of the company’s financial performance, and I infer that in making that final observation he is passing on views from others.
[25] The final affidavit sworn in support of BRL’s application is that of Mr Murray Young who it will be recalled says that he is the owner and operator of a panel and paint business. Essentially, he says that his business too for a time purchased BASF water-based product and that these “were poor quality, and particularly hard to work with. While using the BASF water-based products we struggled with colour matching the paint to vehicles using the BASF Spectro System. We were constantly re-doing paint jobs because of the issues we experienced with the colour matching and how this impacted the overall application of the product.
[26]Mr Young concludes:
I consider the BASF water-based products were defective. If I had known of the issues with the products prior to entering into the agreement with BASF, I would never have purchased them.
[27] BASF filed a notice of opposition to BRL’s application on 8 October 2019. This is supported by affidavit evidence from the company’s credit manager, Mr Ian Yeoell, and technical sales representative, Mr Mark Frankton.
[28] Mr Yeoell explains that BASF is a German-based concern that is involved in various different business sectors, including in the manufacture and supply of painting systems and paint to the automotive industry. He says that the company supplies approximately 20 per cent of the New Zealand automotive market.
[29] Mr Yeoell turns then to the 1 August 2016 contract between BASF and BRL. It is unnecessary to reiterate his summary of this. However, he carefully articulates the explanation for the liquidated damages provisions to which I have already referred, explaining the BASF was obliged, under the contract, to supply BRL with plant,
equipment and product to the value of approximately $132,000 (exclusive of GST) and the damages schedule was calculated to reflect the depreciation losses the company would incur on early termination. No doubt this evidence is directed at meeting any argument that the liquidated damages constituted a penalty. However, no such contention is advanced in this case.
[30] Mr Yeoell then refers to Mr Wijdeven’s evidence that BASF was transitioning from solvent-based to water-based paint at the time of the contract and says that this is incorrect. He says that at the time that the parties entered into contract BRL was looking to “upgrade” its business and that that is why the parties moved to what Mr Yeoell says is BASF’s premium product, that is to say the Glasurit water-based paint range. He emphasises that this was not a new product line with which one might expect teething problems. He says that BASF developed and has been supplying the Gasurity water-based paint system since the early 1990s, including for use by manufacturers of “high-end European cars” and that it is a product that has been approved by various European manufacturers (such as Jaguar Land Rover). He adds that 75 per cent of the paint systems and paint products supplied by BASF in this country are the Glasurit water-based system so that, bearing in mind his estimate that Glasurit has approximately 20 per cent of the New Zealand market, that is 15 per cent of the New Zealand market. Mr Yeoell acknowledges that with chemical products such as paint it is not unheard of for there to be difficulties experienced with particular batches. Here is how he puts it:
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. Application problems are also common with paint products, especially when the person making the application is new to the product. Again, BASF tries to assist with this when it can.
[31] In this evidence, Mr Yeoell is not acknowledging that the paint supplied by BASF to BRL was defective, but he does acknowledge that there is a possibility that there were issues with batches and that BRL might be expected to have difficulties in the initial stages of using a new product.
[32] Mr Yeoell then turns to the particular complaints made in this case which he says “are not credible”.
[33]He summarises and addresses these complaints in the following terms:
(a)There is a problem inherent in the Glasurit formula or equipment that means it is not fit for purpose. This cannot possibly be right. As I have said, the product has been used extensively around the country (and other countries) for years. It accounts for 15 per cent of the entire New Zealand market. It accounts for a very large part of our business. None of this would be possible if the product was defective as described in the affidavits.
(b)The defendant used the product for 18 months. The affidavit suggests that the jobs that should have taken 10 minutes instead routinely took 5 hours, that jobs had to be re-done, and that painting jobs became unprofitable. At the same time, they say they only made one complaint (details of which are unclear), and continued to use the products for more than a year and a half.
[34] Focussing on the point that the evidence in support of BRL’s originating application only referred to one complaint. Mr Yeoell says that he does not know why BRL elected to terminate the contract but that if the company was having ongoing difficulties with using the paint for any reason, and if — which he doubts — there were any difficulties with the paint supplied to them, then they need only have raised those issues with BASF and the company would have done everything it could to assist.
[35] Mr Yeoell then goes on to address the descriptions of the difficulties BRL was having as set out in Mr Wijdeven’s and Mr Smut’s affidavit evidence. He says that he can find no record and has no recollection of Mr Wijdeven’s complaint and can say little about it. He adds that to his knowledge BASF provided training to all relevant BRL staff during September and October 2017.
[36] He goes on to say that he has searched through BASF’s records to see if there is any record of complaints and can find none and that he has also spoken to BASF New Zealand staff and that those enquiries indicated that the company’s technical sales representative, Mr Mark Frampton, had arranged to supply a replacement Spectro paint matching machine at one point.
[37] As to Mr Young’s evidence, all Mr Yeoell feels able to say is that if, as his research has indicated, Mr Young’s business is Supreme Panel and Paint Ltd in Hamilton, BASF has no record of any complaints received from that business.
[38] Mr Frampton’s evidence is that he had been employed by BASF as its technical sales representative since 14 August 2017 and that a major component of the role is providing support to customers who have issues using the company’s products. He says in this regard that he worked with BRL.
[39] Mr Frampton says that despite assertions made by Mr Wijdeven to the effect that BRL had ongoing issues of a serious nature, to the best of his knowledge BRL only contacted BASF on two occasions during the 18-month period. Mr Frampton’s evidence is that in September 2017 when BRL’s store manager, Mr Shane Fletcher, asked for assistance because his staff were having issues using the new Glasurit water-based paint. He says that Mr Fletcher did not suggest that there were any inherent issues with the product, simply that BRL’s staff needed training. He says that when this request was made he and one of his colleagues, a Brad Hanson, arranged for BRL’s painters to attend BASF’s training centre and be given comprehensive training alongside BASF’s own staff. Mr Frampton adds that he attended some of the training sessions and that it was “clear that the issues that BRL was encountering were a result of user error, not any issue with the product”. Then, in December 2017 BRL asked for a replacement paint matching machine. The machine originally supplied to the company was replaced and he says that BASF heard nothing more in relation to that. That being so, Mr Frampton expresses surprise in relation to Mr Smut’s evidence that the paint matching machine did not work.
[40] Turning to Mr Smut’s evidence relating to paint matching difficulties, Mr Frampton says that Mr Smut’s evidence ignores altogether that even if BRL’s staff were having difficulties using the electronic paint matching system it was open to them to use what he refers to as the Prophy system which, as I understand it at least, simply means relying on the colour code. It is fair to add that Mr Frampton’ evidence is quite right to the extent that BRL’s witnesses did not mention this alternative paint matching process.
[41] Both Mr Wijdeven and Mr Smuts have replied. Indeed, Mr Wijdeven has filed two affidavits in reply. I do not propose to canvass this reply evidence in detail, but there are certain points to which reference should be made.
[42] In response to any suggestion that BRL did not raise these issues with BASF, Mr Wijdeven says that he personally raised his concerns shortly after the commencement of the contract, though again he offers no evidence as to the date of this complaint, to whom it was made and what it involved. Then he says that Mr Smuts was “constantly in touch with our BASF representative about the trouble we were having with the paint”. On the same point he is critical of BASF for not responding and for blaming his staff.
[43] In relation to the demands for payment made by BASF Mr Wijdeven exhibits to his first reply affidavit a copy of a document which probably should have been before the Court at an earlier point. This is an email dated 18 April 2019 which was Mr Wijdeven’s immediate response to BASF’s debt collector’s demand for payment. It is apparent from this document that when BASF demanded the payment of liquidated damages Mr Wijdeven immediately raised the issue of the quality of the product saying:
If you want a very long and public display of why we felt we had to change products so be it.
Your product that we were using prior to changing was poor at best. From colour matching, excessive blending required, unable to repair until fully dry, then having to start again, redo’s & the list goes on.
Any assistance asked for was not forth coming which left us very little choice to remain viable going forward, but to get a product that works.
Happy to talk to someone in person over this issue.
The constant threats and bullying have only encouraged me to go public on the issues we had & are having.
[44] Finally, in his second reply affidavit Mr Wijdeven seeks to put further information before the Court as to BRL’s losses. This affidavit is one substantive paragraph long:
At paragraph 13 of my affidavit of 24 September 2019, I informed of the fact that Brian Roberts (1998) Ltd (“BRL”), lost significant money as a result of the defects in the paint supplied by BASF New Zealand (“BASF”).
For the avoidance of doubt, the money lost was far in excess of the sum sought in the respondent’s notice of demand. BRL lost hundreds of thousands of dollars as a result of the defective product supplied by BASF.
[45] Mr Smuts’ affidavit in reply responds to the broad assertion that BRL did not raise the concerns it had in relation to the paint with BASF. What Mr Smuts says is that contrary to the assertions of Mr Yeoell and Mr Frampton that contact between BRL and BASF as to the former’s concerns were limited, he, Mr Smuts, was in contact with BASF “on a weekly basis” for help and assistance in respect of the Glasurit paint. He says for the first time in the evidence I note, that the overwhelming majority of his contact was with a Mr Brad Hanson. I observe that Mr Hanson’s name has not previously been mentioned by BRL’s witnesses. In any event, Mr Smuts says that despite his having contacted Mr Hanson regularly he received little or no assistance from BASF and that eventually gave up.
Discussion
[46] Against that background, it is necessary for the Court to determine whether BRL can establish that there is a genuine dispute between the parties. Both Mr Napier and Mr Powell referred me to the standard cases in this area.3
[47]I would summarise the applicable principals in this way:
(a)It is for the applicant to establish that there is a genuine dispute as to the existence of debt between the parties — that the issue or issues involved are legitimately triable;
(b)It is important that the Court recognise that in making this determination it is exercising a summary jurisdiction and that if there is a genuine dispute that is a matter which is best resolved at trial where the Court will have the advantage of hearing witnesses and having their evidence properly tested;
(c)On the other hand, that does not mean that the Court should be prepared to accept that any unrealistic or fanciful defence put up in opposition should be accepted at face value. The Court is entitled to take a relatively robust approach to any such attempt.
3 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578; AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2016] NZAR 1338 (CA).
[48] Despite the polarised submissions of counsel as to the merits of the two cases, my view is that this case is a finely balanced one.
[49] On the one hand, BRL’s evidence is not especially strong. Its affidavit evidence tends to address matters in general terms without providing specific information as to the nature of the difficulties it says it had with BASF’s paint system and without explaining exactly what steps it took, nor who had responsibility within BRL for dealing with BASF in connection with the issue, when complaints were raised and the terms in which they were raised and the like. There is a distinct lack of contemporaneous material recording such complaints. Finally, it does seem from BASF’s evidence that its Glasurit paint system is a well established one with a significant share of the New Zealand market and that the extravagant assertions made by Mr Wijdeven and Mr Smuts that it was an inherently defective product seem improbable at best.
[50] As against those factors, as Mr Napier submitted, the owner and manager of a Pukekoe paint and panel shop is not likely to invest time and effort in generating correspondence with half an eye to having a contemporaneous record for Court proceedings, and when BASF’s debt collectors first raised the possibility of that company being entitled to substantial liquidated damages Mr Wijdeven’s first response and description of his view of matters is quite consistent with the position BRL takes in this application. It is fair to add also that between August 2016 and April 2018 it is obvious to me that Mr Wijdeven and Mr Smuts genuinely believed that for whatever reason the BASF Glasurit paint system was proving troublesome. Although I do 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.
[51] Although, as already said, this appears to me to be a finely balanced case, in the end, the view I have come to is that the ultimate issue, whether BASF’s Glasurit paint system as sold by that company to BRL was of merchantable quality is an issue that should be determined at trial.
Conclusion
[52]I make the order sought by BRL setting aside BASF’s statutory demand.
[53] I reserve costs, not having heard from counsel in relation to these. My preliminary view is that BRL as the successful party is entitled to its costs on a 2B basis. I expect that counsel will be able to resolve costs. But, if, for some reason, that is not possible they may submit memoranda in the usual way.
Associate Judge Johnston
Solicitors:
Keegan Alexander, Auckland for applicant Bell Gully, Auckland for respondent
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