Colbart Limited v Eastpack Limited
[2012] NZHC 2175
•23 August 2012
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
CIV 2011-463-000828 [2012] NZHC 2175
BETWEEN COLBART LIMITED Plaintiff
ANDEASTPACK LIMITED First Defendant
ANDEASTPACK KIWIFRUIT OPERATIONS LIMITED
Second Defendant
ANDRIVERLOCK ORCHARD PACK AND COOLSTORE LIMITED
Third Defendant
Hearing: 23 August 2012
Appearances: D Llewell and W J Revell for the Plaintiff
A A Hopkinson for the First and Second Defendants
J H Olphert for the Third Defendant
Judgment: 23 August 2012
ORAL JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
Solicitors/Counsel:
W Revell, Dowthwaite Law, Rotorua – [email protected]
A A Hopkinson, CooneyLeesMorgan, Tauranga – [email protected]
J Olphert, Olphert & Associates, Rotorua – [email protected]
COLBART LIMITED V EASTPACK LIMITED HC ROT CIV 2011-463-000828 [23 August 2012]
[1] The defendants have applied for security for costs. They believe the plaintiff
(Colbart) will be unable to pay costs if it is unsuccessful in its proceeding.
[2] These applications will focus upon a consideration of the merits of the Colbart’s claims. Colbart does not accept it would be unable to meet security if ordered. Colbart says the defendants have fallen short of proof that it would be unable to meet a costs award.
The proceeding
The claim
[3] The claim is about the purchase of kiwifruit rootstock for planting in the Te Kaha area. Colbart pleads that on or about 4 July 2011 it entered into a contract by which the first defendant (Eastpack) and or the second defendant (EKO) would sell 1,800 items of kiwifruit vine rootstock (the Eastpack-EKO plants) and Colbart would pay $8.50 plus GST plus freight for each of those.
[4] On or about 16 August 2011 Colbart says it and the third defendant (Riverlock) entered into an agreement by which Riverlock would supply 2,000 items of kiwifruit vine rootstock (the Riverlock plants) to it at a cost of $7.00 plus GST for each item.
[5] As to the Eastpack – EKO contract Colbart claims that a Ms MacDonald of those companies contacted Mr Campbell of Colbart with an offer to sell the Eastpack-EKO plants; that Mr Campbell inspected those plants on or about 3 July
2011 and afterwards telephoned Ms MacDonald to ask for a price; that on 4 July
2011 Ms MacDonald sent a txt message to Mr Campbell to say the price of those plants was $8.50 plus GST and freight per plant; and that same day that Mr Campbell spoke with Ms MacDonald by telephone to say he was happy with that price and he requested an invoice to be sent.
[6] Mr Campbell says that he and another pruned and sprayed the plants to ready them for transportation, and on 20 July 2011 Colbart paid the amount due under the
contract, less the freight component which was then unknown. Earlier on 20 July
2011 Mr Campbell said he enquired of Ms MacDonald to whom he should pay the amount and that Ms MacDonald told him to pay the money to EKO.
[7] Mr Campbell said that subsequently Eastpack/EKO subsequently advised it was their intention not to perform the contract. Instead they tried to facilitate the sale of rootstock from an alternative source.
[8] Regarding the Riverlock contract, Mr Campbell says he spoke by telephone to Mr Brown of Riverlock on 9 August 2011. During that conversation he says Mr Brown informed him that Riverlock had 5,000 items of rootstock available and suggested Mr Campbell arrange an inspection. That same afternoon Mr Campbell inspected the 5,000 items and then discussed the transaction with Riverlock’s Mr Hargreaves. Mr Campbell indicated if the price was close to the price of the Eastpack-EKO plants he would purchase the Riverlock plants. He said further that he informed Mr Hargreaves he needed three weeks to prepare Colbart’s orchards to take the Riverlock plants and on 16 August 2011 Mr Hargreaves informed Mr Campbell that the price for the Riverlock plants was $7.00 plus GST each. Mr Campbell says an agreement was reached to purchase the Riverlock plants at that price.
[9] On 30 August 2011 Mr Campbell says he spoke to Mr Hargreaves by telephone and advised Colbart would uplift the Riverlock plants the following morning. At that time he says Mr Hargreaves advised him that Riverlock would no longer be willing to supply those plants. Instead and later Mr Brown advised Mr Campbell he would try to facilitate the sale of rootstock from an alternative source. Although Colbart investigated that source and undertook additional works in order to receive the rootstock it became clear the alternative rootstock would not be suitable.
[10] Colbart calculates it has lost two years revenue totalling $657,775.
The defences
[11] Eastpack/EKO denies any contract for sale was made with Colbart; and says that in late June or early July 2011 Ms MacDonald had a discussion with Mr Campbell about the possibility of EKO supplying plants to him. They acknowledge Mr Campbell enquired about the price but deny that having been done in the context of any inspection of the plants. It is agreed Ms MacDonald sent a text message referring to the price of the rootstock but denies any telephone conversation requesting that an invoice be sent to Colbart.
[12] Eastpack/EKO says that on 7 July 2011 EKO’s Mr Steel and Ms MacDonald met with Mr Campbell and informed him EKO would not sell the plants to him because:
(a) EKO could not verify the plants were free of the Psa disease and for this reason EKO would destroy the plants; and
(b)The Te Kaha growers within the local Kiwifruit Vine Health Action Group objected to any rootstock from outside the Te Kaha area being planted in the Te Kaha area.
[13] EKO says no invoice was ever raised or issued.
[14] Eastpack/EKO says if Mr Campbell pruned and sprayed the plants they did not know of it and anyway by that time Mr Campbell was aware EKO would not sell the plants to him; that they acknowledge on 20 July 2011 another entity of Mr Campbell’s attempted to pay for the plants by depositing funds into EKO’s bank account which funds were immediately returned. They deny agreeing to facilitate the sale of rootstock or for that purpose recommending contact with Riverlock. It appears instead that such advice may have been given by a person who was acting in his capacity as the Kiwifruit Vine Health Regional Coordinator for Opotiki.
[15] Eastpack/EKO says Colbart could have obtained other rootstock had it
chosen to; that the plaintiff’s calculation of losses refers to the planting of 3,800
plants in total whereas Colbart claims it purchased rootstock from Riverlock (2,000 plants) to replace the rootstock it had earlier sought from Eastpack/EKO.
[16] Eastpack/EKO says that if there was a contract that such was frustrated by the Psa crisis and other parties were discharged from performing any obligations under that contract.
[17] Riverlock says it agreed to supply plants to the Opotiki Kiwifruit Vine Health Action Group Committee subject to the clear and express condition that there would be no supply of plants to the Te Kaha area if the growers in that area did not agree to any such supply into that area.
[18] Riverlock says it never had 5,000 plants for sale, it having already supplied
1,820 plants to two other orchards earlier. It denies that its Mr Brown spoke with Mr Campbell on 9 August 2011. It says there was no binding or enforceable contract. It says on 30 August 2011 a meeting took place at Te Kaha between Riverlock’s Mr Brown and Mr Campbell and the Te Kaha growers at which meeting the growers refused to agree to the transport to Te Kaha of kiwifruit plants from outside the Te Kaha area. Riverlock denies suggesting there was alternative rootstock available from elsewhere. It says however that Colbart could have obtained Kiwifruit plants from other suppliers but failed to do so or chose not to do so.
[19] Riverlock adopts the position advanced by Eastpack/EKO that Colbart’s calculation of losses is based on a total supply of 3,800 plants whereas those from Riverlock allegedly were purchased in substitution for those not supplied by Eastpack/EKO.
Principles
[20] Rule 5.45 enables the Court to order security to be paid if the Court has reason to believe a plaintiff will be unable to pay costs if it is unsuccessful in its proceeding. A Judge is to give consideration to what he or she thinks is just in the circumstances.
[21] The discretion of the Judge is not to be fettered by constructing “principles”
from the facts of previous cases. [1]
[1] A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747.
[22] The Judge is to exercise his/her discretion whilst balancing the interests of the plaintiff in being able to pursue its claim, against the interest of the defendant who is to be protected against being drawn into unjustified litigation at considerable expense. [2]
[2] Krishnayya v Forest Owner Marketing Services Ltd, Gendall AJ, unreported, 17 August 2011, CIV
2011-441-17, Napier High Court.
[23] In this case Colbart does not claim it is impecunious. It says it will be able to meet any adverse award of costs. It challenges claims of its impecuniosity and says none such claim reliably exists and therefore that the Court has no reason to believe the plaintiff would be unable to meet an award of costs if unsuccessful at trial. Colbart says that reason to suspect – as opposed to reason to believe - impecuniosities do not satisfy the test contained in the words in r 5.45.
[24] The opposing submissions of counsel focus as well, as routinely in these kinds of applications they do, upon the merits of the opposing cases.
[25] There are two issues:
(a) Whether there is evidence from which the Court may reasonably infer the plaintiff will be unable to pay costs.
(b)Whether upon an assessment of the merits of the plaintiff’s claims there is reason for the Court to believe the plaintiff’s claim is likely to fail.
[26] As to the former the Court will usually order costs to be paid if it has “reason to believe” the plaintiff could not pay costs. As to the latter the Court may be influenced in its assessment of the level of costs if on balance the plaintiff’s claim
appears weak.
Considerations
[27] Ms Llewell’s submission is there is an absence of direct evidence of impecuniosity and that something more than silence by Colbart as to its financial position is required to establish a reason to believe. Therefore at best the defendants’ evidence provides a reason to suspect rather than a reason to believe.
[28] Ms Llewell submits the fact that the plaintiff does not own any real property does not tell the Court anything about its ability to pay costs. Further, that there is no evidence of instances of prior default by the plaintiff; nor does any claim that the plaintiff has not traded assist the Court.
[29] Colbart relies upon an affidavit from a Mr Thornton the Manager of a farming supply company. Mr Thornton says that his company has for the past two years supplied material to Colbart’s kiwifruit growing operation at a total cost of
$250,000 approximately; and that all invoices have been met in full.
[30] Ms Llewell submits the plaintiff is under no requirement to explain its financial position – in short, because Rule 5.45 does not require it to.
[31] Colbart’s position relies in large part upon the judgment of Thomas J in New
Zealand Kiwifruit Marketing Board v Maheatataka Coolpack Limited [3]
[3] (1993) 7 PRNZ 209 (CA).
[32] What that decision says is that the security for costs rule does not suggest that security for costs may be obtained simply because the other party has been silent as to its financial position. The decision emphasised there should be some evidentiary foundation or indication to support the belief that costs could not be satisfied.
[33] In that case the applicants adverted to a number of other matters as well which it was contended pointed to the plaintiff’s financial instability. The paid up capital of the company was only $12,000 and it had only recently been formed and as at that time could not show a “trading history”; that the land upon which the
plaintiff operated its coolstore was being leased and was not owned by the plaintiff. Similar factors prevail in the present case.
[34] In that case Thomas J referred to the authority of Quillian J in Concorde Enterprises Limited v Anthony Motors (Hutt) Limited (No.2) [1977] 1 NZLR 516. That was a claim for $2M involving a company with a nominal capital of $1,000. In that case Quillian J indicated a defendant could not be expected to produce anything very conclusive by way of proof of the plaintiff’s financial position because it had no access to the plaintiff’s books or accounts or other records, and could do no more than point to the surrounding circumstances. In that case security was ordered.
[35] As Thomas J noted it was a matter of individual assessment in the particular case; that in some circumstances a proper inference could provide reason to believe a plaintiff would be unable to pay costs if unsuccessful.
[36] The present position appears to be that there is no requirement of a plaintiff to furnish information as to means when challenged to do so. Rather, and as His Honour noted: [4]
The failure or omission to respond with the financial information is not therefore seen as necessarily being fatal. The question is always whether it is appropriate to draw an adverse inference against the plaintiff because of his or her silence as to their financial position. Whether it is appropriate is a question which can only be determined having regard to the material before the Court in each case.
[4] NZ Kiwifruit p.212.
[37] In this Court’s view there is good reason to believe that the plaintiff would be
unable to pay costs if it was not successful in trial.
[38] Colbart was incorporated on 30 June 2010 with a share capital of $100. It does not only own any real estate. The only evidence of trading history comes from the affidavit of Mr Thornton and that, with respect, is equivocal. It says its invoices were paid, but it doesn’t say Colbart paid them, as one might have expected if indeed Colbart did pay those invoices.
[39] Mr Campbell has deposed that Colbart gets its funding from him and that his funding of the company is recorded in the plaintiff’s accounts as a debt to him. A proper inference is that the plaintiff has no funds of its own and relies on Mr Campbell to cover all of its costs and is indebted to him.
[40] Mr Campbell has not offered to provide any undertaking in respect of costs that Colbart may incur in its proceedings. Of course he is not obliged to.
[41] Mr Campbell deposes that Colbart “is a company of substance” and that “it has a significant orchard development underway”.
[42] But, it was not Colbart, but another of Mr Campbell’s entities that provided the funds for the purchase of the rootstock.
[43] A reasonable inference is that Colbart relies upon Mr Campbell himself or through other entities of his to fund its operation. There is sufficient in this to assume that without that support Colbart would be unable to meet any adverse award of costs. Clearly it is within Mr Campbell’s means at any time to withdraw his funding of Colbart or to place Colbart into liquidation.
[44] This is an appropriate case for orders for the payment of security to the first and second defendants and, separately to the third defendants.
Merits
[45] These ought to be examined to the extent they reasonably can. In this case that is difficult. Much of the evidence about whether or not there were concluded contracts relies on what was said and by whom. To the extent there is evidence in writing it appears inconclusive.
[46] Ms Llewell submits that the merits of the substantive case clearly favour Colbart. The Court believes at best Colbart’s claims are equivocal, and much will depend on the Court’s assessment of Mr Campbell’s credibility.
[47] The background of the Psa disease is important. All parties, indeed even Mr Campbell acknowledges it was a factor affecting his ability to secure rootstock. Eastpack/EKO say that they advised Mr Campbell on 7 July and advised him they would not sell rootstock to him because they could not verify it was free of Psa disease.
[48] Mr Campbell does not respond to that claim. Instead he says the contract for supply was made three days earlier at which time he told Eastpack/EKO to send an invoice to Colbart. But he does not explain why on 20 July he attempted to pay the contract price despite his not having received the invoice he directed was to be sent to him.
[49] Because of the significant content about what was said and by whom at particular times it is too difficult to make a clear assessment of the merits at this time. In due course it is likely the Court will want to hear more from Mr Campbell in relation to his acknowledgement of being aware that the Te Kaha Growers Action Group would not accept that rootstock obtained from outside that area could be imported for growth within that area. Also he needs to explain why when initially he made his claim (albeit against another entity) he said he had paid a deposit on other plants when that was not the case – as he later admitted.
Quantum
[50] This is a matter for the Court’s discretion. Counsel for the defendants have estimated an award of $40,000 ought to be paid in respect of the first and second defendants (as to one sum) and for the third defendant. Mr Hopkinson estimates total costs of $50,500 would be payable according to scale 2B for a ten day hearing. Mr Olphert for the third defendant makes a similar calculation. Both counsel suggest actual costs will likely be much higher.
[51] Ms Llewell considers that to be too high. She cited examples of levels fixed in other cases. They can sometimes be helpful.
[52] In this case the plaintiff cannot afford to pay the costs except with the assistance of Mr Campbell or one of his entities. But, this presents no reason why the Court should not fix security in the sum as if the plaintiff was able to pay it. However in this case it is too soon to estimate the length of any trial that may be required and accordingly the Court proposes to set security to meet costs to and including the fixing of a trial setting down date.
[53] Until then it appears to the Court that extensive discovery will be required, and that further and better particulars may be requested, and that Interrogatories will likely issue. It is upon that assumption the Court orders security to be posted in the sum of $40,000 of which $20,000 is to be held on account on behalf of the first and second defendants, and $20,000 is to be held on account of the third defendant.
Orders
[54] The Court requires security in the sum of $40,000 to be paid into Court in cleared funds, to be held on interest bearing deposit until further order of the Court. Until this payment is made the plaintiff’s proceeding will be stayed.
[55] Leave is reserved to the defendants to make a further application for security for costs in connection with the trial hearing and preparation for trial.
[56] The plaintiff is to pay costs upon this application calculated on a 2B basis, together with disbursements to the third defendant and to the first and second defendants. The Court certifies for a half day hearing on the stay application.
[57] This proceeding is to be called in the Chambers List at Rotorua on
19 November 2012 at 12:15pm. If by then the plaintiff has not paid security the Court will consider whether the proceeding ought to be struck out. If instead the security has been paid before 26 October 2012, the Court expects before 19
November 2012, standard discovery is to have been completed in accordance with
the Rules protocols.
Associate Judge Christiansen
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