Gill Construction Co Limited v Ivan Weavers Tyre Centre Limited HC Blenheim CIV-2003-406-026
[2005] NZHC 1731
•26 April 2005
IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY
CIV-2003-406-026
BETWEEN GILL CONSTRUCTION CO LIMITED
Plaintiff
ANDIVAN WEAVERS TYRE CENTRE LIMITED
First Defendant
ANDIVAN CYRIL WEAVER AND SUZANNE ESTELLE WEAVER
Second Defendant
Hearing: 4 March 2005 Appearances: D.J. Clark for Plaintiff
R.M. Crotty for Defendants Judgment: 26 April 2005 at 2.30pm
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
Introduction
[1]This is an application by the defendants to strike out the plaintiff’s claims.
[2]The application is opposed by the plaintiff.
[3] Although the plaintiff has filed an application for an order for particular discovery, and the defendants have filed applications for orders for the plaintiff to answer interrogatories, those applications were not argued before me and they were deferred pending the outcome of the strike out application.
GILL CONSTRUCTION CO LIMITED V IVAN WEAVERS TYRE CENTRE LIMITED And Anor HC BLE CIV-2003-406-026 26 April 2005
Background Facts
[4] From the mid 1980’s until July 2001 the first defendant was the sole supplier of new tyres and refurbished tyres to the plaintiff which operated a transport business.
[5] During the period 1990 to 2001 the total amount invoiced by the first defendant to the plaintiff for tyres amounted to $2,533,563.00.
[6] Apparently, after invoicing the plaintiff, the first defendant then warehoused the tyres for the plaintiff until the plaintiff actually required them for use.
[7] In its Statement of Claim the plaintiff says that it paid to the first defendant this $2,533,563.00, but the tyres actually supplied by the first defendant were substantially less than the amounts invoiced. The difference, according to the plaintiff, is represented by the sum of $975,956.00.
[8] That allegation is denied by the defendants. In addition, the defendants contend that at regular intervals tyres were ordered from the first defendant and used by people associated with the plaintiff, including staff and family. These tyres, it is claimed, were used for a number of purposes, including for farm vehicles on a farm operated by a company associated with the plaintiff.
[9]Further, the first defendant counterclaims against the plaintiff for the sum of
$15,210.30, which it says is due and owing to it for invoices rendered in June and July 2001 which remain unpaid.
[10] The causes of action put forward by the plaintiff in its Statement of Claim are breach of contract, deceit, breach of the Fair Trading Act, breach of bailment terms, and breach of fiduciary duty. These claims are made against the first defendant company and in part against the second defendants as owners/directors.
[11] Broadly speaking, the claims in this proceeding are that the defendants were dishonest or fraudulent.
[12] The present litigation has a reasonably lengthy history, the initial Statement of Claim being filed by the plaintiff in October 2002. Matters involving discovery and interrogatories have taken place from time to time, and forensic accountants have been engaged to prepare reports in an endeavour to particularise an assessment of the damages claimed by the plaintiffs.
Counsel’s Arguments and My Decision
[13] This strike out application is brought pursuant to Rule 186 High Court Rules which provides:
Without prejudice to the inherent jurisdiction of the Court in that regard, where a pleading –
(a) Discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; or
(b) Is likely to cause prejudice, embarrassment, or delay in the proceeding; or
(c) Is otherwise an abuse of the process of the Court, the Court may at any stage of the proceeding, on such terms as it thinks fit, order that the whole or any part of the pleading be struck out.
[14] As a strike out application, this application is to proceed on the assumption that the facts pleaded in the Statement of Claim are true, and that to strike out the proceedings the Court must be satisfied the causes of action are so untenable that they could not succeed – Attorney-General v Prince and Gardiner [1998] 1NZLR 262.
[15] In addition, Attorney-General v Prince and Gardiner made clear that the strike out jurisdiction is one to be exercised sparingly and only in a clear case where the Court is satisfied it has the requisite material – Gartside v Sheffield Young and Ellis [1983] NZLR 37, 45 and Electricity Corporation Limited v Geotherm Energy Ltd [1992] 2NZLR 641. The fact, however, that applications to strike out raise difficult questions of law, and require extensive argument – does not exclude jurisdiction – see Gartside v Sheffield Young and Ellis.
[16] To succeed, the defendant must show that the cause of action is so clearly untenable that it cannot possibly succeed – see R Lucas & Son (Nelson Mail) Limited v O’Brien [1978] 2NZLR 289 and Takaro Properties Limited v Rowling [1987] 2NZLR 314.
[17] The amended application to strike out the plaintiff’s claim, from the defendants puts forward the following stated grounds:
(a) The plaintiff has failed to comply with the order dated 4 November 2003 to provide particulars in paragraph 8 of the Statement of Claim.
(b) The pleadings disclose no reasonable causes of action against the defendants.
(c) The causes of action alleging dishonesty or fraud should be struck out as
(i)an abuse of the process of the Court;
(ii)likely to cause prejudice, embarrassment or delay in the proceeding.
Non-compliance with order to provide particulars
[18] So far as the first ground noted in paragraph [17](a) above is concerned, counsel for the plaintiff contends that the further particulars of paragraph 8 of the Statement of Claim have in fact been provided in compliance with the order of November 2003. He argues that this was done when the plaintiff amended the pleadings with its amended Statement of Claim dated 25 August 2004. According to the plaintiff, this, when coupled with the extensive forensic accountant’s report commissioned by the plaintiff and made available to the defendants with respect to the new claim of $975,956.00, confirms that there is no substance to this allegation by the defendants.
[19] Taking these matters into account, and bearing in mind the regular reminders from the authorities that the strike out jurisdiction is one to be exercised sparingly, and only in clear cases, I have no hesitation in rejecting this ground for strike out put forward by the defendants.
Pleadings disclose no reasonable cause of action
[20] I turn now to the second ground in paragraph [17](b) above, which is that the pleadings disclose no reasonable causes of action against the defendants.
[21]The causes of action in the plaintiff’s amended Statement of Claim are:
(1) Breach of Contract
This is an allegation that the first defendant obtained payment for tyres not actually supplied by them. Once this is established by evidence, the plaintiff maintains that in the circumstances here, a breach of contract necessarily follows.
(2) Deceit
The plaintiff contends that the deliberate invoicing for tyres not supplied to the plaintiff must constitute deceit in terms of the elements required for this tort. As Todd, “The Law of Torts in New Zealand”, 3rd ed, Brookers, at para 15.2 notes, those elements are:
(a) a representation of fact
(b) knowledge that the representation is false
(c) an intention that the representation be relied upon
(d) actual reliance
(e) the suffering of loss
(3) Breach of the Fair Trading Act
The plaintiff’s position is that there can be little doubt that if deceit is established against the defendants, then there is also a breach of the provisions of the Fair Trading Act.
(4) Bailment
The plaintiff alleges that storage of tyres by the first defendant on behalf of the plaintiff creates a bailment - Watson v Dolmark Industries Limited [1992] 3 NZLR 311. The plaintiff’s position is that the first defendant is in breach of this bailment, as tyres said to be stored have not been accounted for.
(5) Breach of Fiduciary Duty
The plaintiff’s argument here is that both the contract and the creation of a bailment gave rise to a fiduciary relationship between the first and second defendants on the one hand and the plaintiff on the other, and this has been breached in this instance.
(6) Claims against directors
The second defendants are the directors of the first defendant company. The plaintiff’s position is that intentional torts (including deceit) may give rise to personal liability on the part of the directors, as well as liability on the part of the company. The plaintiff maintains that this is also true of a breach of fiduciary duty –Trevor Ivory v Anderson [1992] 2 NZLR 517 at page 524.
[22] Here, counsel for the plaintiff contends that this is not a normal situation of a supply and contemporaneous fitting of tyres to the plaintiff’s vehicles by the first defendant, with payment on delivery or 20th of the month following. The plaintiff says the first defendant maintained a warehouse in which it specifically stored selected tyres previously paid for by the plaintiff, and that these were available when
work was subsequently required on the plaintiff’s fleet. The plaintiff maintains that it placed blind trust in the defendants, and the requirement that they would hold tyres in storage for the plaintiff. The plaintiff’s position is that this trust was manifestly breached.
[23] In addition to the plaintiff’s causes of action based in breach of contract and bailment, a major plank in its Statement of Claim rests on allegations of deceit or fraud on the part of the defendants here.
[24] The defendants’ position is that broadly speaking, it is not permissible to make an allegation of fraud and then fish for evidence of that allegation by way of interrogatories or discovery, which it is alleged the plaintiff is doing here.
[25] The defendants contend that the fraud or deceit alleged here is not fully particularised, and unless this occurs and it raises reasonable prospects of success, a strike out application should succeed on the basis that the proceeding is otherwise an abuse of the process of the Court – Belmont Finance Corpn v Williams Furniture Ltd [1979] Ch 250 and Paper Reclaim Ltd v Aotearoa International Ltd (HC AK, CIV 2004-404-4728, 6 December 2004, Randerson J).
[26] I turn now to consider the defendants’ response to each of the plaintiff’s causes of action.
(1) Contract against the first defendant
[27] The essential allegation from the plaintiff made in paragraph 7 of the amended Statement of Claim is that the tyres actually supplied by the first defendant to the plaintiff between 1990 and 2001 are substantially less than the amount actually invoiced.
[28] The defendants’ position is that there is no explanation as to how or why this may have occurred, and the only information supplied in the Statement of Claim is that the deficiency amounts to $975,956.00.
[29] The defendants note that the plaintiff is not disputing the counterclaim invoices issued by the defendant for June and July 2001, invoices which the defendants say total $15,210.30 plus interest.
[30] The defendants note that this claim, which goes back to 1990, has been made by the plaintiff after at least some twelve years of successful trading between the plaintiff and the defendants.
[31] Further, the defendants say the plaintiff has made no attempt to deal with the issues raised in the Statement of Defence as to the ordering and use of tyres by people associated with the plaintiff, including staff and family members.
[32] As a result, the defendants contend that there can be nothing in this first cause of action alleging breach of contract.
[33] In response, counsel for the plaintiff points to an affidavit of Mr A.C. Gill, sworn 25 February 2005, in opposition to the defendant’s application, containing as an exhibit a Damages Assessment Report from a forensic accountant Grant Thornton dated August 2004. Although strike out applications generally proceed on the assumption that the facts pleaded in the Statement of Claim are true, Attorney- General v McVeagh [1995] 1 NZLR 558 at page 566 notes that:
The Court is entitled to receive affidavit evidence on a striking out application, and will do so in a proper case.
[34] That said, at page 16 in the section titled “conclusion”, the Grant Thornton Report states:
Based on the review of Gill’s financial statements and comparing them with applicable industry benchmarking data, we have estimated excess tyre expenditure of $1,117,849.00.
And
We have also reviewed the invoices issued to Weaver for tyres purchased from their suppliers and invoices issued by Weaver to their customers, focussing our enquiry on specific tyre types. We have noted an apparent discrepancy between those invoices, indicating that Weaver sold more tyres than they purchased, despite no significant decline in stock levels…From the invoices that we have been able to review, we have calculated a discrepancy of $975,956.00…
And
In our opinion, it is more likely than not that Gill have been over-invoiced for tyres by Weaver and we estimate the value of that overcharging as being in the range of $976,000.00 to $1,018,000.00.
[35] The defendants take issue with these conclusions. They obviously cannot be resolved at this point without further testing and evidence being required. It is clear from Attorney-General v McVeagh that on a strike out application, the Court is not to attempt to resolve genuinely disputed issues of fact.
[36] Bearing these matters in mind, and notwithstanding that on reflection there may prove to be some deficiency in the plaintiff’s pleadings which will require attention, I am of the view that with respect to the breach of contract cause of action, in terms of the established strike-out test the Court cannot be satisfied that this cause of action is so untenable that it could not succeed. Given that the strike out jurisdiction is one to be exercised sparingly, I am satisfied that it must be refused here. The Court needs the requisite material before it and to test that material to be able to properly determine the issues between the parties. If the evidence does disclose that the first defendant has obtained payment for tyres which were not actually supplied, then on its face a breach of contract has occurred.
[37] The defendants’ strike out application fails with respect to this cause of action.
(2) Deceit against the first defendant
[38] Essentially this is an allegation by the plaintiff of fraud or dishonesty on the part of the defendants, in that each invoice in question was issued “in the knowledge that it was false”. The allegation is made in respect of invoices over a period of twelve years, and the defendants again note that no evidence has been provided to the Court of any previous complaint having been made by the plaintiff.
[39] The defendants also point to the principle that it is not permissible to make an allegation of fraud and then subsequently to fish for evidence to support that allegation.
[40] Whilst there may be something in these contentions put forward by the defendant, given the comments in the Grant Thornton Report, which I have noted at paragraph [34] above, I am satisfied that the dishonesty allegations to the effect that the first defendant with the assistance and instrumentality of the second defendant invoiced and received payment for tyres that were not actually supplied, and that this was done intentionally can be seen as sufficiently specific and require further exploration. That said, and reminding myself that the matter before me is a strike out application, in my view, the plaintiff here should not be barred from pursuing this cause of action against the first defendant.
[41] I find, therefore, that this cause of action in deceit cannot be said to be so untenable that it could not possibly succeed. The defendant’s strike out application relating to this aspect must also fail.
(3) Fair Trading Act Claim against the First Defendant
[42] This cause of action is based upon allegations that the first defendants’ conduct involves dishonesty and is therefore misleading or deceptive in terms of the Fair Trading Act. The first defendant’s objection is that this requires some credible factual foundation, which it says is not present here.
[43] For the reasons I have noted in paragraph [40] above with respect to the deceit cause of action, I reject this suggestion from the defendants.
[44] Although there may be some time limitation problem with respect to this Fair Trading Act cause of action, in my view, again in terms of the established tests for strike out applications, it cannot be said that it is so untenable that it could not possibly succeed.
[45]The defendants’ application with respect to this cause of action also fails.
(4) Bailment against First Defendant
[46] Here, the plaintiff alleges “warehousing” of the tyres in question occurred. It says that this resulted in the first defendant becoming a bailee and the plaintiff a bailor of those warehoused tyres under a bailment contract, which contract was then breached by the first defendant.
[47] The first defendant objects and says that there were no pleaded written or oral terms as to any bailment agreement, and therefore it is simply not credible to allege that the contract constituted a bailment. Further, the first defendant alleges that no particulars have been provided of the alleged tyre shortfall.
[48] I reject these contentions. The “warehousing” arrangement, it seems, was somewhat unusual. It clearly involved elements whereby over time, the first defendant stored and looked after tyres for the plaintiff. Whether this may have constituted a bailment agreement which the first defendant as bailee somehow breached, requires further consideration. In my view, there is nothing in the pleadings and the material before the Court to support the defendants’ position that this cause of action is so untenable that it could not succeed.
[49] The defendants’ strike out application with respect to this cause of action also fails.
(5) Breach of fiduciary duty against the First Defendant
[50] Here the plaintiff alleges that the first defendant owed a fiduciary duty to the plaintiff. The defendants in reply contend that it is not credible to suggest that circumstances can exist where a tyre supply company could owe a fiduciary duty to a customer. This is more so, according to the defendants, given that fiduciary duties are normally owed between people in relationships such as trustees and their beneficiaries.
[51] In response, the plaintiff notes that the creation of a bailment may also give rise to a fiduciary relationship between the bailor and the bailee – Watson v Dolmark
Industries Limited and Equity and Trusts in New Zealand – Butler – Brookers, para
14.3.8 at page 423.
[52] Here, the relationship between the plaintiff and the defendants was clearly a commercial one. Notwithstanding this, however, especially if the evidence when fully considered leads to the conclusion that a bailment arose between the parties here, then, as Butler’s Equity & Trusts in New Zealand (at paragraph 14.3.8) notes:
14.3.8 Bailor-bailee
A bailee stands in a fiduciary relationship with the bailor when the bailor entrusts to the bailee goods to be held or dealt with by him or her for the benefit of the bailor or for certain limited purposes stipulated by the bailor.
[53] On balance, therefore, I am satisfied that the defendants have not done sufficient here to establish that the plaintiff’s claim for breach of fiduciary duty could be seen to be so untenable that it could not possibly succeed. The defendants’ strike out application with respect to this aspect also fails.
(6) Deceit against the second defendants
[54] In this allegation, the plaintiff contends that the second defendants were “instrumental in the perpetration of the deceit”.
[55] The second defendants argue that again this is a fraud allegation with no credible foundation, and it should accordingly be struck out. Further, they maintain that the allegation, being against both Mr and Mrs Weaver as second defendants, is made without any specification as to whether they acted in concert or individually.
[56] Again, given my comments at paragraph [40] above and the involvement of Mr and Mrs Weaver as officers of and on behalf of the first defendant company, I am satisfied that at this point this cause of action could not be said to be so clearly untenable that it could not possibly succeed. The defendants’ strike out application with respect to this cause of action also fails.
(7) Fiduciary duty claim against the second defendants
[57] Again under this pleading, the plaintiff maintains that the second defendants were “instrumental in the perpetration of the first defendant’s breach of fiduciary duty”.
[58] For the reasons outlined in paragraphs [40] and [56] above, I am also satisfied that this cause of action should remain, given that the strike out jurisdiction is one to be exercised sparingly. It cannot be said that this cause of action is so clearly untenable that it could not possibly succeed.
(8) Exemplary Damages Claim
[59]In the plaintiff’s Statement of Claim it also seeks exemplary damages of
$100,000.00 with respect to certain of its complaints against all the defendants.
[60] The defendants contend that this exemplary damages claim requiring as it does a finding of outrageous or contumelious conduct, has no foundation in fact or pleading.
[61] There may well be something in this argument by the defendants. But, again this is a matter which should be determined at trial when the Court will have before it all the requisite material – Gartside v Sheffield Young & Ellis [1983] NZLR 37 at page 45.
[62] If the plaintiff succeeds in its claims of fraud, deceit and dishonesty against the defendants, then the exemplary damages claim will need further enquiry. At the present stage, this claim therefore can not be seen to be so clearly untenable that it could not possibly succeed.
Conclusion
[63] It will be apparent from what I have said above that I find that the defendants’ strike out application fails.
[64] The plaintiff is entitled to costs, which are awarded against the defendants upon a category 2B basis, together with disbursements, as fixed by the Registrar.
[65] As a next event, and to consider the discovery and interrogatories applications, the Registrar is directed to list this matter for call at the first available date.
Associate Judge D.I. Gendall
Delivered aton 26 April 2005
Solicitors:
Wisheart McNab & Partners, Blenheim for Plaintiff Dew & Company, Blenheim for Defendants
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