Daman Packaging (NZ) Limited v Blue River Dairy LP

[2024] NZHC 378

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1617

[2024] NZHC 378

BETWEEN

DAMAN PACKAGING (NZ) LIMITED

Plaintiff

AND

BLUE RIVER DAIRY LP

Defendant

Hearing:

22 February 2024

Counsel:

K Sun for the Plaintiff

A D G Hitchcock for the Defendant

Judgment:

29 February 2024

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 29 February 2024 at 12 midday, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors/Counsel:

Capstone Law Limited, Auckland AWS Legal, Auckland

DAMAN PACKAGING (NZ) LTD v BLUE RIVER DAIRY LP [2024] NZHC 378 [29 February 2024]

Introduction

[1]    The plaintiff, Daman Packaging (NZ) Ltd (Daman), manufactures and supplies tin cans. In 2021, Daman introduced technology to form tin cans in the shape of animals, suitable for use for infant milk formula. The defendant, Blue River Dairy LP (BRD), produces infant milk formula.

[2]    In 2021, Daman and BRD began to explore establishing a substantial business relationship. BRD requires approximately 50,000 cans per day and was interested in adopting a shaped can for some of its products. Daman anticipated being able to supply a significant volume of cans. The parties contemplated a contractual arrangement which would involve Daman supplying a minimum of 15 million cans over a three-year period.

[3]    On 28 June 2021, BRD placed order 15091 with Daman for 55,800 standard cans, as a trial order. On 23 July 2021, the parties executed a Heads of Agreement (HoA) recording the basis on which they proposed to do business. The HoA included terms dealing with:

(a)BRD’s approval of Daman’s capability to meet BRD’s requirements for the supply of cans; and

(b)the parties agreement to negotiate in good faith to develop and enter into a formal supply contract.

[4]    A formal supply contract did not eventuate. Nonetheless, the parties began to do business. Order 15091 was fulfilled in part. BRD placed various other orders for standard and shaped cans in 2021 and early 2022. In August 2022, BRD cancelled four of those orders, 16372, 16797, 16852 and 18642, and the unfulfilled part of 15091.

[5]    In this proceeding, Daman claims that there has been no lawful cancellation of the outstanding part of order 15091 and orders 16372, 16797, 16852 and 18642, claiming damages from BRD for breach of contract. Daman has applied for summary judgment.

[6]    BRD maintains that its cancellation of the orders was lawful. BRD says that Daman breached the contract because Daman was unable to supply the quantity and quality of cans required by BRD, causing BRD to suffer various losses. BRD claims a set-off for those losses.

[7]    The claims between the parties raise numerous issues of fact and law. However, the application for summary judgment can be determined by considering whether it is arguable that Daman was in breach of its obligations to supply cans on time, entitling BRD to cancel the orders because the parties expressly or impliedly agreed that the performance of those obligations on time was essential to BRD.

Summary judgment principles

[8]    The Court may give judgment against a defendant if satisfied that the defendant has no defence to a cause of action in the statement of claim.

[9]    The leading authority on  applications  for  summary  judgment  is  Krukziener v Hanover Finance Ltd.1 The Court of Appeal set out the following principles:2

(a)The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried. The Court must be left without any real doubt or uncertainty.

(b)The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated.

(c)The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is not consistent with undisputed contemporary

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.

2 At [26].

documents or other statements by the same deponent, or is inherently improbable. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it.

[10]   The defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the notice of opposition.3

[11]   If the defendant fails to provide an evidential foundation for a defence, then the plaintiff’s verification of the statement of claim stands unchallenged and ought to be accepted, unless it is patently wrong.4

The trading relationship

[12]   The HoA records that Daman’s parent company in China had developed the tooling and equipment to manufacture shaped cans, and Daman was to arrange for the tooling and equipment to be transferred to its factory in New Zealand by 25 January 2022.

[13]   Before the new technology arrived, BRD placed order 15091. An email from Daman to BRD on 2 August 2021 confirms that it was a trial order. The written purchase order does not include any standard form contractual terms. The purchase order records a “Req Date” of 1 September 2021, being the date by which supply was required.

[14]   The parties agree that formula must be canned soon after production to avoid contamination. BRD says that it made Daman well aware that timely supply of cans to BRD was essential if BRD was to can formula before contamination, and to meet BRD’s commitments to its customers.

[15]   Daman says that this was reflected in a two-stage order process agreed by the parties. The first stage was BRD placing a written purchase order. The second stage was BRD providing confirmation to Daman that BRD was ready to receive the cans,

3      Middleditch v New Zealand Hotel Investments Ltd (1992) 5 PRNZ 392 (CA) at 394.

4      Australian Guarantee Corp (NZ) Ltd v McBeth [1992] 3 NZLR 54 (CA) at 58–59.

so that cans did not sit empty pending BRD’s production of formula, increasing the risk of contamination. Daman would then commence production of the cans. There  is no documentary evidence to support the existence of stage two of this order process, which is denied by BRD.

[16]   Daman had not supplied any cans under 15091 at the time that the parties executed the HoA on 23 July 2021. The HoA provided for:

(a)BRD’s approval, described as “validation”, of Daman’s capability to meet BRD’s requirements. Validation would occur when Daman produced evidence satisfactory to BRD of the New Zealand factory producing 400,000 cans which complied with BRD’s specifications, and not less than 50,000 complying cans per day for more than four consecutive days.

(b)The parties would negotiate and agree on delivery terms to be recorded in a supply contract.

(c)Daman would supply cans to BRD on an ex-works basis for the trial and validation process.

(d)Where Daman produced orders late, requiring trucking to meet BRD’s production schedule, Daman would arrange the trucks at Daman’s cost.

[17]   The HoA did not include any other terms regarding the timing of supply or essentiality of the timing of supply.

[18]   The HoA was not implemented strictly according to its terms. The trading relationship evolved ad hoc.

[19]   BRD says that it was agreed that Daman would supply half of 15091 to begin with. On 9 December 2021, three months after the required date stated on the purchase order, Daman supplied a quarter of 15091. There is no evidence of communications between the parties about this part supply.

[20]   Daman says that it could have supplied the balance of the order but did not do so because it never received confirmation from BRD that BRD was ready to accept the supply, to satisfy stage two of the order process. BRD denies that there was any such requirement.

[21]   As is to be expected, there was email communication between the parties throughout their relationship. Much of that communication is not in evidence. Daman cannot point to any email which includes a request by Daman for BRD to confirm that BRD was ready to accept the balance of 15091.

[22]   BRD says that it rejected the part supply of 15091, because the cans were unusable due to a failure of the shipping packaging around the cans and the resulting risk of contamination.

[23]   Despite any dissatisfaction that BRD may have had with the delivered product, on 24 December 2021 BRD placed order 16372 for approximately 600,000 standard and shaped cans. The required date was 15 April 2022. The instructions recorded on the purchase order included:

Forming of first 50,000 trial cans must be evaluated and specs updated by both parties before proceeding to form those Mualps cans. Container loading process must be improved before further shipping.  The required date was  15 April 2022.

[24]   This instruction is consistent with BRD’s evidence that it was dissatisfied with the cans received earlier in December 2021.

[25]   On 9 March 2022, BRD placed order 16797 for approximately 50,000 standard cans. The required dates for some of the cans was 9 June 2022, and for others 23 June 2022. There were no special instructions recorded on the purchase order.

[26]   On 16 March 2022, BRD placed order 16852 for approximately 90,000 shaped cans. The required date was 23 June 2022. No special instructions were included on the purchase order.

[27]   Other orders were placed by BRD, which were fulfilled by Daman and paid for by BRD. There is no evidence regarding the details of these successful orders, which would inform the Court on any terms of trade that developed by conduct.

[28]   On 2 May 2022, BRD emailed Daman, noting concern about ongoing delays with supply. BRD requested that Daman stop production of some of the cans ordered, because BRD had changed a recipe and could no longer use those cans. Daman responded on 4 May 2022, providing information regarding pending deliveries of tin plate to Daman for Daman’s production of cans. The email exchange makes no mention of any second stage in the order process.

[29]   On 2 July 2022, BRD emailed Daman about various matters. The email refers to a draft supply contract which was under negotiation, which is not in evidence. The email records BRD’s view that Daman had been behind schedule since the start of supply, and that the first six weeks of production was below the amount required to meet the minimum volumes in the HoA. The email proposed a re-negotiation of the validation process, noting the need for Daman to increase capacity. The email appears to be one in a chain negotiating the supply contract, however no other emails in the chain are in evidence.

[30]On 6 July 2022, Daman emailed BRD, stating:

We are watching the production status this week. With sufficient data and we can forecast a production growth model and timeline for achieving BRD requirement.

[31]    On 22 July 2022, Daman supplied shaped cans to BRD under a purchase order that is not in issue, 16357. BRD says that the required date for supply of those cans was between 4 March and 4 April 2022. The cans were accepted. The thrust of BRD’s evidence is that Daman was never able to keep up with the level of BRD’s orders, and only managed to fulfil some orders.

[32]   By 23 August 2022, Daman had not supplied any cans to BRD under 16372, 16797 and 16852. Daman says that they had not done so because BRD did not provide stage two confirmation that Daman should begin production.

[33]   On 23 August 2022, BRD sent Daman a lengthy email raising issues and forwarding a draft supply contract to replace the HoA. BRD referred to problems with the supply of cans, which it asserted were causing it significant loss and damage. It is unnecessary to traverse the contents of that email in detail, suffice to say that BRD made it clear that it considered that Daman had failed to meet the expected rate of production.

[34]   BRD’s email included notice of cancellation of 15091, 16372, 16797 and 16852. BRD did not cancel other orders in respect of cans shaped as sheep, which BRD says was due to a commercial imperative that it keep supplying its formula in that shaped can.

[35]   There is no evidence of Daman’s response to the proposed new supply contract. Neither is there any evidence of Daman protesting the position taken by BRD in its email of 23 August 2022 regarding delays in supply of cans. There is little or no evidence of what transpired between the parties in the months following BRD’s email of 23 August 2022.

[36]   On 5 October 2022, BRD emailed Daman enquiring whether Daman could assist with an order of around 850,000 cans. BRD proposed that Daman deliver blank tin plate to another contractor engaged by BRD for printing, with Daman to then form the cans.

[37]   It appears that  this  proposal  was  acceptable to  Daman in  principle.  On  11 November 2022, BRD placed order 18642 for approximately 350,000 cans shaped as sheep. Of that order, approximately 165,000 cans are not in dispute; the cans were supplied and paid for.

[38]   In respect of the approximately 180,000 cans that are in dispute, the purchase order stated that those cans were to be delivered to BRD’s contractor, NCI. The required date for delivery was 4 January 2023, subject to the following instruction written on the purchase order:

Note that the Required Date is essential for this order. If the order is not completed within 14 days of the required date, Blue River reserves the right to cancel the incomplete part of the order.

[39]Two issues arose with this order:

(a)In accordance with the written instruction on the purchase order, the last date for  delivery  of  the  blank  plate  to  NCI  was  effectively  18 January 2023. Daman endeavoured to deliver the blank plate on the afternoon of 18 January 2023, but NCI’s warehouse did not accept deliveries after 2 pm in the afternoon. Daman could not deliver the tin plate.

(b)Daman was unable to procure a product known as side-stripe required to complete formation of the cans after printing of the tin plate by NCI.

[40]   From 12 January to 18 January 2023, the parties exchanged emails regarding 18642. It is not necessary to set out the contents of those emails in detail. The email exchanges include unequivocable advice from BRD that it would need to make alternative arrangements for supply if Daman was unable to source the side-stripe to complete the cans. On 18 January 2023, BRD cancelled order 18642.

[41]   On 16 March 2023, BRD sent a letter to Daman setting out its view of the history of the relationship between the parties, together with a summary of its alleged losses and a proposal for a full and final settlement. BRD advised Daman that it was engaging an alternative can manufacturer. The parties did not reach a settlement.

Discussion

[42]   Daman’s claim against BRD cannot be resolved on an application for summary judgment. As is evident from my summary of the trading relationship, the terms of the contract between the parties arise from the HoA, the written purchase orders, oral terms and the conduct of the parties. It is not possible to ascertain the terms of the contract without the context provided by a trial. Significant further evidence is required regarding the parties’ dealings.

[43]   There are numerous disputes of fact, including regarding alleged oral agreements, most notable in respect of BRD’s assertion of a two-stage order process.

[44]I will briefly elaborate in respect of each of the purchase orders in issue.

15091

[45]   Daman says that it did not complete the balance of 15901 because it did not receive stage two confirmation from BRD. BRD says that it was not required to give such a confirmation, and Daman was simply unable to fulfil the order due to production capacity constraints. Therefore, BRD argues that it was entitled to cancel the outstanding part of the order on 23 August 2022.

[46]   The evidence suggests that Daman and BRD, by their conduct or express agreement, agreed on an extension of the required date for supply of the balance of 15091, from the date of 1 September 2021 stated on the purchase order. It is not possible to determine the length of the agreed time extension on the state of the evidence.

[47]   It is not possible to determine whether cancellation was justified on the state of the evidence. For example, there is no evidence of the communications between the parties in respect of this order from December 2021, when the first 25% of the order was fulfilled, to 23 August 2022, when the outstanding part of the order was cancelled by BRD.

[48]   It is reasonably arguable that BRD failed to perform its obligation to supply by an agreed date, or within a reasonable period of time, so that BRD was entitled to cancel on 23 August 2022. Therefore, it is unnecessary to consider BRD’s alternative argument regarding the quality of the cans supplied in December 2021.

16372/16797/16852

[49]   Counsel for the parties agree that the sole issue is whether Daman’s delay in fulfilling these orders entitled BRD to cancel. Daman’s position is that there was no delay, because BRD failed to provide stage two confirmation that production could

commence. To determine whether BRD agreed to the two-stage ordering process, it will be necessary for the Court to consider:

(a)viva voce evidence; and

(b)a complete record of the relevant communications between the parties, currently lacking.

18642

[50]   Counsel for Daman submitted that Daman complied with the delivery date for the unprinted tin plate to NCI, even though NCI refused to accept delivery after 2 pm on the afternoon of the last day for delivery. However, there is no evidence of any communications between the parties regarding the time for delivery on 18 January 2023. I accept the submission of counsel for BRD that any implication of a term that delivery was to be by 5 pm on 18 January 2023 requires further evidence regarding the dealings between the parties and NCI, and the context provided by a trial.

[51]   More significantly, and irrespective of the delivery issue, it is arguable that BRD was entitled to cancel 18642 because Daman was unable to confirm that it possessed the side-stripe necessary to complete manufacture of the cans after printing by NCI.

Result and orders

[52]The plaintiff’s application for summary judgment is dismissed.

[53]   My preliminary view is that this is an appropriate case for an award of costs to the defendant, on a 2B basis, for steps involved in dealing with the interlocutory application for summary judgment, but not the commencement of the proceeding.

[54]   Although the merits of the plaintiff’s substantive claim are yet to be resolved, I consider that this is one of those applications for summary judgment that should not have been made.

[55]   I note that key evidence, including a full copy of the HoA and correspondence from BRD raising a dispute, was not disclosed by the plaintiff in its first round of affidavits. Even so, I do not accept counsel for BRD’s submission that this is a case for increased costs or indemnity costs.

[56]If the parties are unable to agree costs, then I direct:

(a)the defendant to file a memorandum seeking costs, of no more than four pages, by 15 March 2024;

(b)the plaintiff may file and serve a reply, of no more than four pages, by 22 March 2024;

(c)I will then determine costs on the papers.

[57]   I direct the parties to file a joint memorandum for case management review under r 7.3 of the High Court Rules 2016.

Associate Judge Brittain