Carl Yung Gems Limited v Leading Design Jewellery Limited HC Auckland

[2011] NZHC 2096

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2007-404-2545

BETWEEN  CARL YUNG GEMS LIMITED Plaintiff

ANDLEADING DESIGN JEWELLERY LIMITED

First Defendant

ANDGARY DENE CAMERON Second Defendant

ANDTIMOTHY ROBERT HYDE-SMITH Fourth Defendant

ANDANTHONY EDWARD FAED MACMILLAN

Fifth Defendant

Hearing:         27 June - 1 July 2011

Appearances: RO Parmenter for Plaintiff

GD Cameron (Second Defendant) by leave for First Defendant

GD Cameron in person TR Hyde-Smith in person AEF MacMillan in person

Judgment:      6 December 2011

JUDGMENT OF TOOGOOD J

This judgment was delivered by me on 6 December 2011 at 1:00 pm

Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:

R Parmenter, Barrister, Auckland:  [email protected]

I MacDonald, Daniel Overton & Goulding, Auckland:  [email protected]
K Muston, Barrister, Auckland:  [email protected]

PJ Castle, Castle Brown, Auckland:  [email protected]

Copy:
GD Cameron:  [email protected]

AEF MacMillan:  [email protected]

CARL YUNG GEMS LIMITED V LEADING DESIGN JEWELLERY LIMITED HC AK CIV-2007-404-2545 [6 December 2011]

Table of Contents  Paragraph

Number

Introduction  [1] Background facts  [4] The plaintiff’s claim  [21] The defences  [27] The pleadings  [36] Difficulties in respect of the evidence  [42] The issues  [46] What were the terms of the May 2003 arrangements?  [47] What were the terms of the October 2003 arrangement?  [53]

Did the October 2003 arrangements create a joint venture?                [71]

What were the terms of the arrangements entered into in

September 2006?

[81]

Counterclaim under the Fair Trading Act 1986  [99]

The claims under the personal guarantees  [103]

Mr   Hyde-Smith’s   defence  to   the  claim  under  his

personal guarantee

[108]

Orders  [118]

Introduction

[1]      The  plaintiff,  Carl  Yung  Gems  Limited  (“CY  Gems”),  is  a  wholesale jewellery supplier.  It is owned by Carl Yung and his wife, Priscilla Yu.  Mr Yung is the sole  director,  but  Ms Yu  is  fully involved  in running the business  with  her husband.   CY Gems sues the first defendant, Leading Design Jewellery Limited (“Leading Design”) a jewellery design and manufacturing company, under agreements for the supply of precious and semi-precious stones, and finished jewellery products.

[2]      The claim is focused on sums alleged to be due under a supply agreement dated May 2003, and subsequent variations of the arrangements in October 2003 and September 2006.   The second, fourth and fifth defendants (collectively, “the shareholder defendants”) are or were shareholders in, and employees and directors of, the first defendant.  They are sued in their alleged capacities as co-guarantors of Leading Design’s indebtedness to CY Gems.

[3]      The defendants counterclaim and seek a set-off for breaches of obligations they say were owed by CY Gems to Leading Design as a joint venturer.  CY Gems denies the allegation of a joint venture.

Background facts

[4]      The business relationship between CY Gems and Leading Design appears to have begun around 1996.  CY Gems was a major supplier of diamonds and coloured semi-precious stones.   Leading Design carried on business as a jewellery designer and manufacturer from its own factory in Onehunga.

[5]      Leading Design would design items of personal jewellery such as rings and brooches by producing a master pattern from which samples would be created. The settings for the jewellery would then be cast from a mould based on designs which had  been  approved  by  the  retail  customers  such  as  the Australian  operation  of Michael Hill Jeweller Limited (“Michael Hill”), with whom Leading Design had a

bulk supply agreement.   Most, if not all, of the castings were manufactured, to Leading Design’s specifications, by Regal Casting Limited (“Regal”).  As a major supplier to Leading Design, Regal had a debenture over Leading Design’s assets.

[6]      In May 2003, CY Gems was advised by its lawyers to update its contracts. The company proffered to the proprietors of Leading Design a document, intended to replace the existing arrangements, which comprised a credit application setting out the terms of trade and provision for the giving of personal guarantees by the shareholders and directors.  The terms and conditions of sale are in a standard form. All that  was  required  of  Leading Design  was  for the relevant  particulars to  be handwritten into the first page of the credit application, and for the document to be signed on behalf of the company and executed by the individual guarantors.

[7]      The first sentence of the printed document, under the names of the directors of the company reads:

I/We (full name), hereby apply to open a monthly credit account with Carl

Yung Gems Limited.

[8]      By a handwritten amendment, the first defendant, Mr Cameron, on behalf of Leading Design, inserted “six-” before the word “monthly”, purportedly changing the account to a six-monthly credit account.  He made a corresponding amendment to the first sentence in clause 3.1 of the printed form, so that it reads:

The invoiced price of the goods is to be paid in full by the 30th  of the

6 months following the date of delivery of the goods.

There is a dispute between the plaintiff’s witnesses and the shareholder defendants as to the circumstances in which these amendments were made.  Mr Yung and Ms Yu deny having noticed, much less agreed to, the alterations to the printed form.

[9]      The parties operated under the May 2003 arrangements until October 2003.

[10]   It is agreed that in October 2003, Leading Design owed CY Gems approximately $622,000 (referred to by the parties as “the core debt”) and that revised arrangements were then entered into.  The principal commercial purpose was to allow Leading Design to continue to trade in a manner which would ensure the

timely payment to CY Gems for products which it continued to supply and which would also enable it to repay the core debt over time.

[11]     By October 2003, Leading Design not only owed $622,000 to CY Gems for the  purchase  of  diamonds  and  coloured  stone  gems,  but  also  owed  Regal  a substantial amount of money for the provision of castings.   An arrangement was entered into by Regal and Leading Design for a structured repayment of the debt which totalled approximately $1.3 million.

[12]     Under the October 2003  arrangements,  CY Gems  agreed  to  manufacture jewellery in its factory in China, to Leading Design’s specifications.  On this basis, Leading Design would cease to become a manufacturer and would no longer require castings to be supplied by Regal except for sampling.   CY Gems would produce finished product in China and would invoice Leading Design for the product on the basis that Leading Design’s 20% mark-up would be used both to repay part of the core debt owed to CY Gems and to enable Leading Design to repay its debt to Regal.

[13]     The precise nature of the October 2003 arrangements, including the pricing, invoicing and payment arrangements, and the extent to which CY Gems and Leading Design adhered to the agreed terms, are disputed.   Part of the dispute relates to a claim on behalf of Leading Design and the guarantor defendants that CY Gems understood that priority would be given to paying off Leading Design’s debt to Regal, so as to remove the threat of Regal acting to protect its interest by appointing a receiver under the terms of its debenture.

[14]     Leading Design and the shareholder defendants also claim that, in the period after which it began supplying finished product, CY Gems overcharged by supplying underweight product and by overcharging for the gold component in the supplied product, the price for which was intended to be related to the world fine gold price which fluctuated from time to time.

[15]     Although  Leading  Design  had  substantial  contracts  with  other  retailers, Michael Hill was its principal customer.  Because of the part of the market in which Michael Hill  generally operated, and because of the large volumes of jewellery

products supplied, price was extremely sensitive and Michael Hill was in a highly influential position in terms of Leading Design’s turnover, cash flow and profit margin.

[16]     By about July 2006, over three years after the arrangement for CY Gems to supply finished product  were first  put  in  place,  the core debt  which  CY Gems claimed was owed by Leading Design had increased to over $1 million.  It seems that by this stage, the debt to Regal had been fully repaid, in part because Mr Cameron contributed his share of the proceeds of sale of his former matrimonial home to meeting the debt and, in part, because of the application of capital received from the sale of Leading Design’s factory premises.

[17]     Nevertheless, CY Gems was concerned about the level of indebtedness and a new arrangement was made in September 2006 whereby CY Gems would supply its finished product directly to Leading Design’s customers and invoice them directly. Customers would pay the invoiced amounts, in US dollars, to a US bank account in the  name  of  Carl Yung  Gems  Limited.    The  payments  would  include  Leading Design’s mark-up.   From the proceeds of each payment, CY Gems would take its invoiced price plus its half-share of Leading Design’s 20% profit margin and pay the balance to Leading Design.

[18]     This  arrangement  worked  for  a  short  period  only.    In  December  2006, Leading Design instructed Michael Hill not to make payments directly to CY Gems but instead to make the payments to  Leading Design  as it had done under the previous arrangements.

[19]     At that point, both the commercial and the personal relationships between the plaintiff’s principals   and the shareholder defendants broke down completely, with the parties disputing the cause and amount of Leading Design’s high level of indebtedness to CY Gems.  Leading Design ceased ordering product and CY Gems ceased supplying it.

[20]     A payment of US$50,000 was made in respect of the debt claimed by CY Gems  for  past  supplies,  in  order  to  procure  a  meeting  between  the  parties  on

6 February 2007, but no resolution of the dispute was achieved  and the supply agreement was cancelled by CY Gems on 2 May 2007.

The plaintiff ’s claim

[21]     The plaintiff’s claim relies, first, on the terms and conditions which were set out in the three-page document dated 7 May 2003.  The terms are partly printed and partly  hand-written,   and   the  document   is   in   two   parts;   one  titled   “Credit Application”,  and  the  other  headed  “Personal  Guarantee”  which  contains  the personal  guarantees  given  by  the  shareholder  directors.     Both  sections  were completed and signed by the guarantors at the same time.  As noted above at [8], there is a dispute about hand-written amendments to some of the terms in the document.

[22]     For that part of the dispute which concerns the arrangements entered into in October 2003, the plaintiff alleges that the key operative terms of the arrangements entered into October 2003 were those agreed orally at a meeting between Mr Yung and the shareholder/directors of Leading Design at the Onehunga premises.   The defendants refer in part to a typed but unsigned document purporting to be a supply agreement.

[23]     The plaintiff alleges that its consideration for the revised arrangements was a combination of its agreement not to sue for the debt which it says was owing under the May 2003 supply agreement  and its predecessor, and  its promise to supply finished product on the revised terms and conditions as to price, costs (including freight), and method of payment.

[24]     For the indebtedness  said to have arisen  after August 2006, the plaintiff asserts that a further oral variation of the supply arrangements was agreed, also at the Onehunga premises, by Mr Yung for the plaintiff, and Messrs Cameron and MacMillan on behalf of the defendants.

[25]     The plaintiff says that, at the time the contract was cancelled in May 2007,

Leading    Design’s    indebtedness    to    it    amounted    to    NZ$154,764.26    and

US$709,253.02, plus interest on both amounts at a rate of 2% per month on the outstanding balances.   Interest is said to have totalled NZ$145,478.40 and US$666,697.84 at 28 February 2011, with additional interest claimed at the contract rate until payment of the principal debts.

[26]     So far as the claims against the three remaining defendants under the personal guarantees are concerned, it is alleged that, in the May 2003 document, each of the defendants personally guaranteed to CY Gems the due and functional payment of all moneys and obligations owed or to become owing by Leading Design to CY Gems, and undertook to make payment of all sums within seven days of receiving notice of default on the part of Leading Design.  The plaintiff says that notice of demand was given on 2 May 2007 and that none of the guarantors have made payment of any sums in discharge of the amounts due.

The defences

[27]     Although the defendants appear to dispute the terms of the arrangements which applied up until late 2003, they admit that by the time of the arrangements entered  into  in  October  2003  Leading  Design  owed  CY  Gems  approximately

$622,000.   They allege that the arrangements entered into then comprised “an exclusive manufacturing and supply agreement in the nature of a joint venture”.  It is said that the terms of the arrangement were partly oral and partly in writing.  They refer, as to the written terms, to a printed document which is undated except as to the hand-written notation “18 Sept” above the printed words “DATED DAY OF 2003”. This  document  is  headed  “SUPPLY AGREEMENT  BETWEEN  CARL YUNG GEMS LIMITED (“CYGL”) AND LEADING DESIGN JEWELLERY LIMITED (“LDJL”)”.

[28]     I will turn to the precise terms of the October 2003 agreement pleaded by the defendants in due course, but it is clear that there is a significant disagreement between the parties as to the way in which the price to be charged by CY Gems for finished product would be calculated.   The defendants allege that the price was effectively that calculated by reference to the price agreed to by Leading Design’s customer.  It is alleged there was a further limitation that Leading Design would not

be required to make any payment out of its alleged 20% profit margin on each transaction if the gross sales in a particular month did not exceed $250,000, or if it did not otherwise have sufficient funds to meet its overheads and liabilities for that month (apart from its indebtedness to CY Gems).

[29]     In the statement of defence filed in answer to the plaintiff’s initial pleading, the defendants also alleged that CY Gems would give Leading Design reasonable notice of any changes in the price of diamonds, other stones, and gold. They claimed it was agreed that the plaintiff would manufacture all jewellery and deliver it strictly in accordance with the specifications of Leading Design’s retail customers.

[30]     The defendants further plead that the joint venture agreement on which they rely included implied terms:

(a)      that CY Gems and Leading Design “would co-operate with each other and act reasonably and in good faith in furthering the purpose of the agreement”; and

(b)      that  CY Gems  “would  not  take  steps  to  undermine  or  injure  the

relationship between ... [Leading Design] and its retail customers”.

[31]     The defendants allege that Leading Design was not obliged to repay any portion of its indebtedness to CY Gems except in accordance with the agreed debt repayment terms.

[32]     In  June  2007,  the  first,  fourth  and  fifth  defendants  filed  a  statement  of defence which included particularised allegations that CY Gems acted in breach of the joint venture agreement, as follows:

(a)       From time to time:

(i)       CYG exceeded the specified and agreed price it charged LDJ

for 9 carat gold jewellery;

(ii)      CYG  delivered  jewellery  to  LDJ  at  weights  below  the weights specified and agreed;

(iii)      CYG exceeded the specified and agreed price for coloured gem stones;

(iv)     CYG  increased  prices  for  jewellery  without  giving  LDJ

reasonable notice;

(v)       CYG exceed [sic] prices agreed and specified for products weighing under 2 grams;

(vi)      CYG charged LDJ for jewellery based on the average weight of product rather than at the agreed and specified price;

(vii)     CYG failed to delivery [sic] jewellery at the agreed times;

(b)       In July 2006 CYG exceeded the price agreed with LDJ in relation to an order from Michael Hill Jewellery (Australia) Pty Ltd for 3500 pieces of jewellery;

(c)       In September 2006 CYG unreasonably and contrary to its obligation to cooperate and/or to act in good faith compelled LJD to instruct Michael Hill Jewellery (Australia) Pty Ltd to make payments for jewellery orders directly to CYG instead of LDJ thereby depriving LDJ of the funds to which to which [sic] it was entitled under the agreement;

(d)       CYG refused to co-operate or to act reasonably or in good faith to resolve issues or problems that arose under the joint venture, and in particular:

(i)        CYG failed or refused to weight [sic] wax moulds before manufacturing jewellery;

(ii)      CYG failed to disclose to LDJ weight variations; (iii)        CYG based its pricing on average weight;

(iv)     CYG failed to give reasonable notice of changes in price;

(v)       CYG  refused  to  participate  in  discussions  with  LDJ  to resolve issues and/or to participate in any discussions with LDJ in good faith;

(vi)     CYG communicated directly with Michael Hill Jeweller (Australia) Ltd and disclosed information injurious to the relationship between LDJ and Michael Hill Jeweller (Australia) Pty Ltd

(e)       In or about February 2007 CYG refused to manufacture and deliver any   more   jewellery   orders   placed   by   Michael   Hill   Jeweller (Australia) Pty Ltd;

(f)       On  or about  2 May 2007 CYG gave  notice cancelling the joint venture agreement.

Particulars

(The  extent  of  the  overcharging  and  the  extent  of  the  loss  and damage suffered by LDJ as a consequence of the actions of CYG will be fully particularised after discovery)

(g)      by reason of the foregoing LDJ has a set off and/or counterclaim against CYG which exceeds the amount of CYG’s claim herein.

[33]     While the defendants admitted signing a document on 7 May 2003, they appear to deny, at least so far as the pleading is concerned, that it amounted to a guarantee.

[34]     The first defendant also counterclaimed alleging that the breaches of the joint venture agreement by CY Gems caused substantial loss and damage including:

(a)       A full share of Leading Design’s 20% profit margin on orders placed

during the term of the joint venture;

(b)A reduction in the volume of orders from Michael Hill in respect of its core range of products during the term of the joint venture; and

(c)       The total loss of Leading Design’s business in February 2007.

[35]     The first defendant also alleges that CY Gems was guilty of misleading and deceptive conduct within the meaning of s 9 of the Fair Trading Act, causing loss and damage.  It says that the conduct was intentional, calculated to take advantage of Leading Design’s vulnerable position, and in contumelious disregard of CY Gems’s contractual and other legal obligations.  It seeks compensation under s 43 of the Fair Trading  Act;  general  damages  of  $50,000;  aggravated  damages  of  $50,000; exemplary damages of $100,000, and interest.

The pleadings

[36]     The pleadings are not wholly complete.  In response to the original statement of claim filed on 9 May 2007, the first, second, fourth and fifth defendants filed a statement of defence and counterclaim dated 25 June 2007.  At that stage they were

represented by solicitors and counsel, Mr M J Fisher.  The plaintiff filed a defence to the counterclaim on 16 November 2007.

[37]     On 16 March 2011, the plaintiff filed an amended statement of claim.  The amended  claim  did  not  add  to  the  substance  of  the  plaintiff’s  allegations  but addressed more particularly the variations to the arrangements agreed in May 2003 which arose in August 2003 and November 2007.  Since 19 May 2011, the second and fifth defendants have acted in person and Mr Cameron, the second defendant, has taken on the responsibility for representing the interests of Leading Design. Mr Fisher continued to act for Mr Hyde-Smith and a statement of defence to the amended statement of claim was filed on his behalf on 3 June 2011.

[38]     There has been no formal defence filed on behalf of the first, second and fifth defendants in answer to the amended statement of claim.  I do not think any party is prejudiced by that omission.  To the extent that it is necessary to do so in order to identify the issues for determination, I have assumed that the other defendants have adopted the position taken by Mr Hyde-Smith in defence of the amended claim. That was the basis on which the case was argued before me, and it would create no unfairness to the plaintiff if the pleadings were amended accordingly, or deemed to have been so amended.

[39]     Mr Hyde-Smith raises a discrete defence to the claim against him under the guarantee on the basis that he ceased to be a director and employee, he says at the instigation of CY Gems, in September 2005.  He alleges that the guarantee entered into by him on 7 May 2003 was discharged by:

(a)       The variation to the principal agreement made between CY Gems and

Leading Design on or about October 2003; or

(b)The agreement of CY Gems in September 2005 to release him from further liability if he left Leading Design’s business as a director and employee; or

(c)       The variation to the principal agreement made between CY Gems and

Leading Design in August 2006.

[40]     The plaintiff’s position in relation to Mr Hyde-Smith is that no formal step was ever taken to release him from the guarantee and he remains bound by it in respect of all liability incurred by Leading Design.

[41]     The plaintiff’s  response  to  the counterclaim  is that  no joint venture was entered into and that the variations to the May 2003 arrangement merely altered the agreement as to supply or product and stones.  It denies the allegations under the Fair Trading Act.

Difficulties in respect of the evidence

[42]     Although the parties produced an agreed bundle of documents comprising

1,000  pages,  the  record-keeping  of  the  parties  was  less  than  meticulous.    In particular, in relation to the respective propositions advanced as to the terms of the arrangements from time to time, both parties referred to and relied upon alleged oral agreements which were not always, or even often, reflected in the terms of the documents.  To the extent that the documents themselves are relied upon as forming the basis of contractual arrangements, they were often not signed or authenticated.

[43]     The defendants’ case in relation to alleged breaches by the plaintiff of its obligations to adhere to pricing arrangements and design and quality specifications was largely unsupported by documentary evidence, except in the most general terms. A further  difficulty  arises  from  the  fact  that  a  great  number  of  the  documents contained in the agreed bundle were never referred to during the hearing, much less explained, and it is not entirely clear what significance, if any, can be attached to them.

[44]     I acknowledge Mr Cameron’s point that, having regard to the fact that the defendants were unrepresented during the crucial period of final preparation for trial, inadequacies in the presentation by the defendants resulted from their not understanding clearly how their case should be proved.  Mr Cameron did not seek an

adjournment or any indulgences but merely wished to point out the defendants’ difficulties.  I indicated to him that I am obliged to decide the case on the basis of the material put before the Court.

[45]     Given that the defendants were not represented by counsel at the hearing, I am  grateful  to  Mr  Parmenter  for  the  co-operative  approach  which  he  adopted, without in any way compromising his obligations to the plaintiff, in ensuring that the defendants were not unduly disadvantaged by the absence of legal representation and had a fair opportunity to present their case.

The issues

[46]     The issues to be decided are these:

(a)       What were the terms of the May 2003 arrangements?

(b)      What were the terms of the October 2003 arrangements?

(c)      Did the October 2003 arrangements create a joint venture between CY Gems and Leading Design?

(d)      If a joint venture was created, what obligations did CY Gems owe to

Leading Design, and did CY Gems breach any such obligations?

(e)       What were the terms of the arrangements entered into in September

2006?

(f)      Does the first defendant have a set-off against the plaintiff on the basis of a breach of obligations under any joint venture arrangement or under the Fair Trading Act and, if so, in what amount?

(g)Are any of the defendants indebted to CY Gems and, if so, in what amount?

(h)Was   Mr   Hyde-Smith   released   from   his   obligations   under   the guarantee and, if so, when?

What were the terms of the May 2003 arrangements?

[47]     I  am  not  persuaded  that  the  printed  terms  and  conditions  in  the  credit application dated 7 May 2003 were amended, by agreement, to a six-monthly credit account with payment to be deferred for six months following date of delivery.  The handwritten amendments upon which the defendant relies were made and initialled by Mr Cameron but no other party.

[48]     It appears that a blank printed form had been handed to the defendants for completion  and  that  one  of  the  defendants  completed  by  hand  the  particulars required  by  the  form,  and  the  defendants  and  Mrs Cameron  then  signed  as guarantors.    Mr Cameron  signed  on  behalf  of  the  company.    The  completed document was then returned to the plaintiff.  In evidence, both Mr Yung and Ms Yu denied having noticed the handwritten amendments purporting to extend the credit terms.

[49]     The  amendments  would  not  immediately  be  obvious  to  someone  not expecting to see them and the suggestion that Ms Yu received the completed and signed document and simply filed it away is, at the very least, plausible.  Further, Mr Cameron’s evidence was that the extension to a six-month credit period was agreed in October 2003 when discussions took place about the high level of debt. That recollection is inconsistent with the 7 May 2003 date on the credit application.

[50]     Mrs Yu particularly impressed me as being a firm-willed and commercially astute business person.  Against a background of Leading Design’s indebtedness to CY Gems, I consider it to be highly unlikely that she would have agreed to vary the usual “20th-of-the-month” terms of trade in a manner which would allow Leading Design to trade on terms which would have meant that CY Gems was effectively acting as an unsecured banker, offering interest-free advances for six months.

[51]     Furthermore, there was no evidence that the parties acted in such a way as to indicate that a six-month credit period had been agreed, and I do not accept that the handwritten amendments formed part of the agreed arrangements.

[52]     I find that the terms of the May 2003 arrangements, therefore, were those set out in the printed form, supplemented by the handwritten insertions, except for the amendments on the first and second pages (page 002 and page 003 of the agreed bundle) purporting to create a six-month credit period.

What were the terms of the October 2003 arrangement?

[53]     The defendants’ case as to the agreement entered into in October 2003, when it was acknowledged that a “core debt” of $622,000 was owed by Leading Design to CY Gems,  is  that,  in  order  to  deal  in  a  practical  way  with  the  high  level  of indebtedness  both  to  CY Gems  and  to  Regal,  priority  was  to  be  given  to  the repayment of the Regal debt.

[54]     Although this was disputed by Mr Yung and Ms Yu, it does not seem to me to be relevant to the question of what, if anything, remains owing by the defendants to CY Gems.

[55]     Ms Yu’s evidence was that the high level of debt which had accrued by October 2003 resulted in a meeting at Leading Design’s office.   She said it was proposed by Mr Yung that a competitive price would be charged by CY Gems for manufacturing stone-set and plain jewellery in China.  This would enable Leading Design to compete more effectively than it had in the past with competitors who were also importing jewellery from overseas where the manufacturers enjoyed lower costs.

[56]     Ms Yu said that Mr Yung proposed the prices to be charged for product would be based on NZ$12 per gram of finished product plus stones (both precious and semi-precious) and NZ$10 per gram of finished product for plain gold jewellery.  It was  said  that  the  price  would  include  the  cost  of  fine  gold;  gold  loss  while processing the gold from the raw material into rings etc; the labour cost involved in

making the jewellery (moulding, casting, sanding and polishing which accounted for the extra $2 per gram for finished stone-set jewellery); and the cost of setting the stones no matter how many stones were included in the design.   In addition, the prices would reflect the cost of the stones; seven percent duty; freight costs; and CY Gems’ margin.

[57]     Ms Yu said the defendants were told that a stricter regime for payment would be  insisted  upon.    Although  she  considered  that  the  terms  of  the  May 2003 arrangements included  payment by the 20th  of the month following the date of delivery of the goods, in accordance with the printed credit application, those terms had not been strictly enforced and that had contributed to the significant increase in the core debt.   She said that Mr Yung told Leading Design that CY Gems would

require post-dated cheques  to  be delivered  to  them  at  the time each  order was delivered to Leading Design, with payment scheduled for about 21 days after that. This would allow 14 days for Michael Hill Jeweller to pay Leading Design and a further five days for that payment to clear.

[58]     Ms Yu said that, in addition to that arrangement for the payment for new orders, the cheques also had to include an amount to be applied against the core debt. She said that she had understood from Mr Cameron on an earlier occasion that Michael Hill allowed them a 20 percent mark-up on their cost of product so it was agreed, Ms Yu said, that Leading Design would add to the cheque in payment of each current order an amount which was 10 percent of the amount invoiced by CY Gems, that is, half of Leading Design’s margin.  She pointed out that that had to be the basis for managing the repayment of the core debt because CY Gems had no control over how much Leading Design invoiced its customers.

[59]     It was Ms Yu’s evidence that this proposal was greeted enthusiastically by Mr Cameron on behalf of Leading Design.  At another meeting a short time later, Leading Design produced a budget for the 2004 year which showed proposed sales of  $7 million,  and  they  were  confident  that  their  pricing  was  very  competitive against other suppliers to Michael Hill and that their turnover would double.

[60]     The bundle of documents includes examples of invoices showing that the arrangement described by Ms Yu was put into effect.

[61]     Ms Yu  said  that  the  price  structure  put  in  place  in  October 2003  was maintained until October 2005 when the gold price per gram was increased to $12.50 for stone-set jewellery and $10.50 for plain gold.   She referred to invoices demonstrating  that  these  prices  were  charged  in  the  invoices  rendered  from October 2005 and that CY Gems was paid on that basis by Leading Design.   The agreed bundle of documents contains a copy of a fax dated 14 October 2005 which notifies the price increases for nine carat, 10 carat and 18 carat gold in stone-set jewellery, and the increased price for nine carat plain gold.

[62]     The price of gold then increased further over the period 6 December 2005 to

14 February 2006,  as  indicated  by  faxes  addressed  to  Mr Cameron  and  sent  by

Ms Yu dated 6 December 2005, 9 December 2005, 10 January 2006, 3 February

2006, and 14 February 2006 respectively.  There was no evidence of any response by

Leading Design to any of those faxed notifications, let alone any objection to them.

[63]     Mr Cameron’s evidence on behalf of the defendants was that he considered the new pricing arrangements to be competitive in comparison to Leading Design’s high labour and other costs.  He said that it would be necessary, however, for CY Gems to give advance notice of price increases so that the increases could be passed on to customers and Leading Design’s agreed margin of 20 percent (in relation to products supplied to Michael Hill) maintained at all times.  Mr Cameron’s evidence- in-chief was that once the general terms of the arrangements  for the supply of finished product were agreed in principle, he instructed Leading Design’s solicitors, Castle Brown, to draft up a Supply Agreement, a copy of which he produced.  He said that Mr Yung looked at the document and confirmed his acceptance of items numbered 1 to 8 by expressly summarising the substance of each obligation and stating there would be no problem with it.

[64]     It is accepted, however, that the document was never signed by Mr Yung.  In fact, it appeared to be the case that the document upon which Mr Cameron relied had in fact been typed by him, rather than the company’s solicitors.   While Mr Yung

admits that there was a discussion about the terms of the new arrangements, he denies  having  agreed  to  the  detailed  terms  set  out  in  the  two-page  document proffered by Mr Cameron.  It is also clear that the terms of the document were not adopted by the parties in practice.

[65]     One of the conditions specified in the document was that invoices should be detailed by identifying the code of the item and the weight.  This was not always done.   For example, an invoice dated 22 January 2004, for product valued at over

$116,000 was approved and paid by Leading Design, notwithstanding the absence of any reference to the weight.  On other occasions, however, the weight of the product was shown on the invoices.

[66]     The defendants’ principal complaint was that they had ascertained in 2004 that CY Gems was invoicing Leading Design at rates above what they considered to be the agreed prices.   It appeared to them that pricing had been based on average weight.  When this issue was resolved, the defendants then noticed that although the plaintiff was invoicing in terms of the agreed price, the weight of product was less than that specified in the orders.  Mr Cameron spoke to Mr Yung who was adamant that the increased prices would remain.  This disadvantaged Leading Design, who had  agreed  to  supply Michael  Hill  at  fixed  prices,  so  that  the  increased  prices charged by CY Gems were eating into Leading Design’s margin.

[67]     The defendants’ concerns about pricing discrepancies continued through 2005 and into 2006.  Although there had been complaints from time to time, it seems that the pricing issue was never resolved to Leading Design’s satisfaction.

[68]     Mr Cameron’s base proposition was that, because Michael Hill was such a pivotal customer, the weight and the price of the goods to be supplied in respect of the Michael Hill contract had to be fixed in accordance with the price agreed with Michael Hill, and the margins for Leading Design and CY Gems determined by reference to that price.

[69]     I  have  no  doubt  that  Mr Cameron  endeavoured  to  secure  the  plaintiff’s

agreement and, more importantly, adherence to such an arrangement.  It may be that,

in general terms, Mr Yung indicated his assent to such an arrangement in discussions with Mr Cameron from time to time.  But the evidence falls well short of satisfying me that there was a binding agreement between CY Gems and Leading Design in such terms.  On the evidence, no clearly agreed terms were recorded in such a way as to create the necessary certainty of the details of the arrangement.

[70]     The evidence goes no further than establishing that orders were placed by Michael Hill and conveyed to CY Gems through Leading Design and that, when the goods were supplied, CY Gems invoiced Leading Design for them.  Leading Design could then either accept or reject the goods as supplied.   Invariably, it seems, the goods were accepted albeit on occasions under protest.   There was a significant passage  in  Mr Cameron’s  evidence  where  he  acknowledged  that,  although  he protested at the variations in price or weight which were inconsistent with his understanding of the arrangements, Leading Design had no choice commercially but to accept the goods and pass them on to Michael Hill.  In such circumstances, the invoices were usually paid, albeit under protest on some occasions.

Did the October 2003 arrangements create a joint venture?

[71]     The evidence also falls well short of satisfying me that there was any kind of joint venture arrangement into which it is necessary to imply terms in order to give the  contractual  arrangements  business  efficacy.    I  find  against  the  defendants’ pleaded case in that respect.  I am also not satisfied that the arrangements were such as to guarantee a 20 percent profit margin for Leading Design in respect of each order.

[72]     I find, however, that it was agreed between CY Gems and Leading Design that, in respect of each order invoiced after the new arrangements were put in place in October 2003, Leading Design would pay to CY Gems an additional amount, based on a formula whereby the company would pay half of what was understood to be a 20 percent margin in addition to the invoice price.  This additional payment was intended to be applied in reduction of the core debt of $622,000, by post-dated cheque.

[73]     In the absence of reliable documentary evidence, I am not satisfied to the required standard that the parties agreed that in the event that Leading Design’s gross sales did not exceed $250,000 in a particular month, or if it did not otherwise have sufficient funds to meet its overheads and liabilities for that month, it would be entitled to withhold the additional payment.   I do not doubt that this kind of arrangement was proposed by Mr Cameron in response to increasing commercial pressure  and  continuing  financial  difficulties,  but  such  an  arrangement  was steadfastly denied by Mr Yung and Ms Yu.  No such arrangement appears in the draft Supply Agreement.   I am not in a position to conclude that the base arrangements were varied in that way.

[74]     In the end, I accept Mr Parmenter’s submission that the evidence goes no further than establishing that in October 2003, the Supply Agreement arrangements between the parties were varied as follows:

(a)      Finished products would be manufactured by CY Gems in China, with the result  that  the manufacturing business  carried out  by Leading Design in New Zealand would be closed down, resulting in a significant reduction in overheads.

(b)      Leading Design would continue to design product.

(c)       Orders  for  Leading  Design-designed  product  would  be  placed  by

Michael Hill with specific terms as to price and weight.

(d)CY Gems  would  supply  product  as  ordered  and  invoice  Leading Design on the basis of a price per gram of gold, plus added costs such as freight and margin.

(e)      That while continuing to pay the invoiced price 21 days after delivery, Leading Design would pay an additional sum in reduction of the core debt.

(f)       Payments  of  the  invoiced  amount,  plus  half  of  Leading  Design’s

20 percent  margin,  would  be  made  to  CY  Gems  by  post-dated cheques.

[75]     It would have been open, in my view, for Leading Design to reject any product supplied by CY Gems on the basis that the goods or the invoice accompanying the product did not adhere to agreed arrangements.   It would also have been open to Leading Design to terminate the arrangement and/or to take steps to recover from CY Gems such losses as it considered it had incurred as a result of breaches by CY Gems of the terms of trade.   Leading Design did not take any of those steps.

[76]     In  coming  to  these  views,  I  do  not  doubt  Mr Cameron’s  evidence  that Leading Design was placed in the difficult position of having to maintain the supply chain in order to continue to trade with Michael Hill, its leading customer, and keep its reduced business in place.  It made good commercial sense to do these things in order to meet, first, the debt to Regal and, second, to reduce the core debt owed to CY Gems.  But all that the evidence establishes is that CY Gems supplied goods at invoiced  prices;  the  goods  were  accepted by Leading Design  and  passed on  to Michael  Hill;  Michael  Hill  paid  Leading  Design  for the  goods  in  terms  of the arrangements between those two companies; and Leading Design paid or was due to CY Gems the amount invoiced by that company.

[77]     The  claim  brought  by  the  plaintiff  is  one  to  recover  a  debt,  and  the defendants' resistance to the claim rests on the proposition that because of pricing and weight discrepancies, a proper accounting would demonstrate that Leading Design is not, in fact, indebted to the plaintiff.

[78]     In reality, however, no such “proper accounting” was ever undertaken.  The complaints about the plaintiff’s invoicing on an average weight basis were responded to  in  argument  by  Mr Parmenter  who  referred  to  evidence  indicating  that  the “average weight” approach resulted on occasions in Leading Design being invoiced for sums less than would have been payable had the apparently agreed pricing and weight arrangements been adhered to.

[79]     I am left in the position that the defendants’ evidence goes no further than identifying that they may have arguable claims that not all of the invoices properly reflected the entitlement of CY Gems in terms of the trading arrangements.   The evidence does not go to the point of establishing to what extent, if any, the plaintiff’s claims are unjustified.

[80]     I   do   not   doubt   the   sincerity   of   Mr Cameron’s   complaints   about inconsistencies in the weight and price of the product supplied by CY Gems under the October 2003 arrangements.  However, the evidence does not go far enough to enable me to find that the defendants have made out a counterclaim based on alleged breaches by CY Gems.

What were the terms of the arrangements entered into in September 2006?

[81]     Mr Cameron said that in early July 2006, Leading Design received an order from  Michael  Hill  for  3,500  units  of  product  intended  to  meet  the  demand  it expected from its customers after a proposed television campaign, throughout Australia and New Zealand, which was scheduled for November 2006.  Because of the size of the order, Michael Hill required a discount on the usual price requiring Mr Cameron, he said, to agree with Mr Yung on deductions in labour for specific production tasks and to agree on colour stone cost, diamond price and carat weight, and the gold price of $617 an ounce.

[82]     Confirmation of the order was received by Leading Design on 19 July 2006, but when the order confirmation was faxed through to the plaintiff’s Auckland office, Mr Cameron was told by Mr Yung that he had had to purchase the gold at $627 per ounce.  This meant that Leading Design was then forced to reduce its margin on this transaction  from  10 percent  to  4 percent.    There  was  then  a  problem  with  late delivery, as a result of which Mr Cameron had discussions with both Mr Yung and Ms Yu. It was at that point, he said, that he was forced to agree to payment for the shipment being made directly to the plaintiff’s US bank account and that such an arrangement was to apply in respect of, not only, Michael Hill but also Leading Design’s other customers.

[83]     Faced with the prospect of a 20 percent penalty with would have resulted in a loss of over $25,000, Mr Cameron said he had no option but to agree to these terms.

[84]     It   is   common   ground   that   by  August 2006,   Leading   Design’s   aged indebtedness to CY Gems had increased to around $1 million.  That matters could have reached that point is indicative of inefficiencies by those responsible for the management and administration of both companies.  It appears that, notwithstanding differences  of  opinion  from  time  to  time,  the  parties  to  the  Supply Agreement considered it to be in their individual and mutual best interests to continue to trade. From the plaintiff’s point of view, its prospects of recovering the substantial debt owed to it were greater if Leading Design continued to trade, so long as additional payments were made on account of the accrued indebtedness.    Leading Design enjoyed the confidence of a major retailer, Michael Hill, and appeared to consider that   it   also   would   benefit   from   continuing   to   design   and   supply   product manufactured by CY Gems.

[85]     Faced with the reality that the debt had ballooned out, however, and under the pressure of meeting the requirements of the Michael Hill order, representatives of the plaintiff and  first  defendant  met  in August 2006  and  agreed  to  vary the supply contract so that finished product would be shipped directly by CY Gems to Michael Hill.  For its part, Michael Hill appears to have approved the arrangement so as to avoid difficulties which had occurred from time to time with late delivery of product.

[86]     It is not disputed that the new arrangement was that CY Gems would deliver product directly to Leading Design’s customers and that Michael Hill, at least, would pay the amount invoiced to it by Leading Design directly to CY Gems.   CY Gems would retain the cost of its invoice to Michael Hill plus ten percent of the invoice cost to be applied against the accrued debt.  The balance would be paid to Leading Design.

[87]     The new arrangement was recorded in a document dated 12 September 2006, on Michael Hill letterhead, headed “Modification to the agreed trading terms.”  The product payment arrangements were that Leading Design would “as normal invoice all goods to Michael Hill Jeweller” with an acknowledgement that Leading Design

had requested that the payment of the goods be remitted to a joint USA bank account in the name of Carl Yung Gems Limited.

[88]   The document recorded that there would be no change to the current arrangement concerning quality control and goods returns so that all products to be returned for credit or replacement would be sent to Leading Design in Auckland.

[89]     The invoices sent to Michael Hill from that point had a dual heading, with Carl Yung Gems Limited and its contact details appearing on the top left of the invoice, and Leading Design’s details appearing on the right.  In Mr Cameron’s view, Michael Hill would not have accepted an invoice from CY Gems, with whom it had no contractual arrangement, and this led to the creation of the dual-headed invoice.

[90]     Mr Cameron suggested that this confirmed that the parties had at least by that point entered into a joint venture.   In my view, however, the new invoice design simply reflected the more direct involvement of CY Gems in the supply of product and the receipt of payment by Michael Hill Jeweller, as a further variation of the supply contract between CY Gems and Leading Design.

[91]     Continued difficulties with delayed delivery, and a suggestion that Mr Yung had misled Mr Cameron as to the price he had had to pay for gold, placed the personal relationships between the principals of the two companies under considerable strain.  Instead of shipping product directly to Michael Hill in Brisbane, CY Gems continued to ship the product to Leading Design in Auckland.  On at least three  occasions,  it  seems,  Leading  Design  was  forced  to  fly  representatives  of Leading Design to Brisbane to personally deliver the product so as to avoid late delivery  penalties.    This  created  cashflow  difficulties,  Mr Cameron  said,  since Michael  Hill  was  not  paying  for  product  until  10 days  after  delivery.    When Mr Cameron  sought  to  meet  with  Mr Yung  to  discuss  the  problems,  Mr Yung indicated that he would not be available to meet until his return from China at the end of January 2007. A meeting was arranged for 7 February 2007.

[92]     Mr Cameron said that he and his colleagues made a unilateral decision, in order to relieve the cashflow difficulties their company was experiencing, to direct

Michael Hill to revert to the original arrangement of paying Leading Design direct, rather than making payments into CY Gems’s US bank account.  The instruction to Michael Hill was given by Mr McMillan around 20 December 2006, and Leading Design received three payments from Michael Hill for a total sum of approximately

$210,000.  These funds were used to meet Leading Design’s overheads, including salaries and wages.   The balance was retained in Leading Design’s bank account. CY Gems was not paid on the invoices it had rendered.

[93]     There was a continued dispute between the representatives of the plaintiff and of the first defendant over the weight of products supplied and the pricing.  In late January, not having received payment direct from Michael Hill for product supplied under the September 2006 arrangements, Ms Yu contacted Michael Hill to ask when payment would be made on the invoices which had been rendered.   She was told that, by direction of Leading Design, the payments had been made directly to that company.

[94]     Prior to Ms Yu’s inquiry, all of the dealings with Michael Hill were conducted by Leading Design; Mr Yung and Ms Yu had been expressly directed not to contact Michael Hill representatives without the knowledge and agreement of Leading Design.  This fact, and the fact Mr Cameron felt that the first defendant was entitled to unilaterally alter the payment arrangements in late December 2006, imply the absence of a joint venture arrangement between CY Gems and Leading Design.  The parties simply agreed to amendments to the trading arrangements between the three companies.

[95]     As a result of the falling out, the parties agreed that the proposed meeting on

7 February 2007 between Mr Yung and Mr Cameron and others would take place, with Ms Yu also in attendance.  In order to persuade Mr Yung and Ms Yu to attend this meeting, it was necessary for Leading Design to pay the plaintiff US$50,000 as a goodwill gesture.   By that time, the last shipment of product had been made to Michael Hill Jeweller by CY Gems, on 17 January 2007.

[96]     As a result of the failure of the parties to reach any agreement as to how the debt and the trading impasse should be resolved, CY Gems cancelled the Supply

Agreement,  on  the  grounds  of  breach,  by  letter  from  its  solicitors  to  Leading Design’s solicitors dated 2 May 2007.  The plaintiff summarised the indebtedness at that time, by reference to invoices rendered and payments made, as NZ$154,764.26 and US$709,253.02.

[97]     Apart   from   making   the   general   complaints   about   overcharging,   the defendants did not seek to challenge those calculations.   The goods to which the invoices related having been received by or on behalf of Leading Design and passed on to their customers, there is no basis upon which I can find other than that the first defendant is indebted to the plaintiff in those sums.  For the sake of convenience, I quantify the debt stated in United States currency in the pleading as being NZ$909,772.95 as at the date of judgment.

[98]     The total indebtedness, in New Zealand dollars, is therefore $1,064,537.20.

Counterclaim under the Fair Trading Act 1986

[99]     The defendants plead that breaches of what was said to be the joint venture agreement by CY Gems amounted to misleading and deceptive conduct within the meaning of s 9 of the Fair Trading Act 1986.  In making that allegation they rely also on breaches of the duties which were said to be implied into the joint venture agreement.

[100]   Although it does not appear to be in dispute that the plaintiff and the first defendant were in trade, for the purposes of the Fair Trading Act 1986, there was no evidence upon which a claim under the Fair Trading Act  could be foundered and that part of the counterclaim is dismissed.

[101]   It was alleged by the defendants that the plaintiff’s alleged conduct was intentional, calculated to take advantage of Leading Design’s vulnerable position and in contumelious disregard of the plaintiff’s contractual and other legal obligations. Claims for aggravated and exemplary damages were made on that basis, but there is no evidential foundation for them.

[102]   The claims for aggravated damages and exemplary damages are dismissed.

The claims under the personal guarantees

[103]   I turn now to consider the claim against each of the defendants under the personal guarantees contained in the 7 May 2003 document.

[104]   Except  for  Mr Hyde-Smith,  the  defendants  gave  no  evidence  that  the obligations entered into by each of the individual defendants in May 2003 were cancelled or otherwise altered by the variations as to the trading arrangements which the parties entered into from time to time after that date.

[105]   Nevertheless, it is necessary to consider the terms of the alleged guarantees entered into to see to what extent the individual defendants might be liable for the debt which I have found the first defendant to owe to the plaintiff at the date of the termination of the arrangements in May 2007.

[106]   The agreement said to amount to a personal guarantee given by each of the second,   fourth   and   fifth   defendants   is   succinct   and   reads   as   follows:

Personal Guarantee

TO:  CARL YUNG GEMS LIMITED I/WE (personal Name) THE DIRECTORS

of (Address)  LEADING DESIGN JEWELLERY LIMITED

In consideration of your supplying and at my request agreeing to supply materials  and  other  goods  and  services  and  to  make  advances  to (Company Name) LEADING DESIGN JEWELLERY LIMITED

(herein referred to as “the principal debtor”) (which you have done) DO HEREBY GUARANTEE to you the due and punctual payment therefore and the payment of all moneys and obligations now due or to become due by the principal debtor and agree to be answerable and liable to you therefore AND the following provisions shall be applicable to this guarantee:

1.         THIS guarantee is a continuing guarantee.

2.NO granting of credit extension of former credit or granting of time to the principal debtor and no waiver indulgence or neglect to sue on your part nor the release of any securities held by you nor the winding up or bankruptcy of the principal debtor shall affect my liability to you hereunder and as between you and me I

shall be deemed to be a principal debtor and shall be liable to you accordingly.

3.THIS guarantee shall continue in force notwithstanding that the principal debtor’s account with you may from time to time be in credit.

4.WITHIN seven (7) days from my receipt of notice in writing of any  default  on  the  part  of  the  principal  debtor  I  shall  make payment to you of all sums in respect of which such default has been made.

Dated at AUCKLAND this  7th   day of     MAY       2003

[107]   The document was signed by each of the directors.

Mr Hyde-Smith’s defence to the claim under his personal guarantee

[108]   In about September 2005, Leading Design’s business was restructured.   As part of the cost saving measures undertaken by Leading Design, it was agreed that Mr Hyde-Smith would cease to be an employee and director of the company.  It was his  evidence  that  the  discussions  about  the  restructuring  involved  Mr Yung  and Ms Yu and representatives of Regal and Michael Hill.  Mr Hyde-Smith said that it was agreed by all parties that the suggestion that the company would remove both its financial controller and one director from the corporate structure.  This was done on friendly and amicable terms.

[109]   On 16 September 2005, the solicitors for Leading Design wrote to Mr Hyde- Smith proposing the terms on which the company would accept his resignation as an employee; his retirement as a director; and the relinquishment of his shares in the company.   It was indicated that the move had been made necessary by the indebtedness  of the company to  its  principal  creditors:  Regal,  which  was  owed approximately $237,000, and CY Gems which was then said to be owed $400,000. It was said that as a result of those debts the company was insolvent but was able to continue trading with the support of the two major creditors.  Notwithstanding the powerless  financial  state  of  the  company,  Mr Hyde-Smith  was  offered  a  sum, payable in instalments, for his shares and other benefits including payment of his salary during a short run-off period.

[110]   Importantly from Mr Hyde-Smith’s point of view, the following statement appears at paragraph 2(e) of the letter:

Your liability for any debts of the company will be “frozen” from the date of your resignation and retirement.   Any increase in the liabilities of the company from that time will be borne by Dene [Cameron] and Tony [Macmillan] personally.

[111]   Mr Hyde-Smith said that he took that statement to mean that “all parties” were in agreement that he would leave Leading Design and that the repayments of the debts to Regal and CY Gems would continue in the same manner and that his exposure (under the guarantee) would continue to be reduced until these amounts were paid off.

[112]   Mr Hyde-Smith then analysed a number of the invoices issued by CY Gems after the date of his departure and claimed that, according to the invoices, the debt of

$400,000 which had been owing in September 2005 had been repaid, and that the invoices issued subsequently were new debts.   Mr Hyde-Smith also pointed to the further variations in the trading arrangements of which he said he had no knowledge.

[113]   I accept without hesitation that he took no part in the business, and was not consulted about the business, after the date of his resignation in September 2005.  It is  clear  Mr Hyde-Smith  had  expected  that  on  the  advice  of  Leading  Design’s solicitors that the company and the other directors would indemnify him from any liability incurred after his resignation.   Unfortunately, however, the evidence does not establish that CY Gems also agreed to vary the contract with him which was formed by the personal guarantee signed on 7 May 2003.

[114]   In  those  circumstances,  Mr Hyde-Smith  remains  personally  liable  to  the plaintiff for the unpaid debts of the first defendant, including the sum of the damages to be awarded against the company in this judgment.

[115]   The  terms  of  the  undertaking  given  by  the  defendants  are  clear:  the defendants assumed personal liability for debts owed by Leading Design to CY Gems in the event of any default in payment on the part of Leading Design. Consideration for these undertakings was provided by the plaintiff’s agreement to

abide by the terms of the credit application, and by the provision of product from time to time.   It follows that judgment must be entered against the shareholder defendants, leaving Mr Hyde-Smith to take what solace he can in the indemnity provided by Messrs Cameron and MacMillan.   I find, therefore, that each of the defendants is personally indebted to the plaintiff to the extent of Leading Design’s indebtedness  which  I  have  quantified  for  the  purposes  of  this  judgment  at

$NZ1,064,537.20.

[116]   This sum does not take account of any liability of Leading Design for interest in  default  of  prompt  payment.    The  total  amount  claimed  by  the  plaintiff  on

13 February 2007,  including interest,  was  $1,206.963.42.    Mr Parmenter made it clear during the hearing that, having regard to the impecuniosity of the defendants, the plaintiff would not pursue any claim for interest unless the defendants succeeded either in whole or in part in their counterclaim.

[117]   The defendants’ counterclaim having failed, therefore, it is unnecessary for me to calculate liability for interest at the date of judgment.   A claim for default interest would appear to be open to the plaintiff, however, on the basis of clause 3 of the  terms  and  conditions  of  supply  set  out  in  the  Credit  Application  dated

7 May 2003, and by clause 3.3 in particular.

Orders

[118]   For the reasons given, judgment is entered against the first, second, fourth and fifth defendants for the sum of $1,064,537.20.

[119]   In  the  circumstances,  the  plaintiffs  do  not  seek  interest  or  costs.    The plaintiff’s election not to pursue its claims for such relief was based on the pragmatic view that none of the defendants is likely to be in a place to meet the full amount of the judgment sum, let alone additional liability.

...................................................

Toogood J