Infinity Investment Group Holdings Limited v Simpatico Advertising Limited
[2015] NZHC 2657
•28 October 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2015-409-000443 [2015] NZHC 2657
BETWEEN INFINITY INVESTMENT GROUP
HOLDINGS LIMITED Appellant
AND
SIMPATICO ADVERTISING LIMITED Respondent
Hearing: 17 September 2015 Appearances:
D M Lester for Appellant
W J Hamilton for RespondentJudgment:
28 October 2015
JUDGMENT OF GENDALL J
Introduction
[1] This is an appeal against a decision of His Honour Judge MacAskill in the
District Court delivered on 24 June 2015.1
[2] In that decision, Judge MacAskill found the appellant, Infinity Investment Group Holdings Limited (Infinity), contractually liable to the respondent, Simpatico Advertising Limited (Simpatico), for advertising services rendered by Simpatico in respect of a major land development project known as Pegasus Town Development. The total sum said to be owed was $81,480.68 (including GST). It is this decision
that Infinity now appeals.
1 Simpatico Advertising Ltd v Infinity Investment Group Holdings Ltd [2015] NZDC 11509 [District Court Decision].
Background
[3] Infinity, founded by the late Mr Bob Robertson (Mr Robertson), is a development company which has led developments throughout the South Island. Simpatico is an advertising and communications agency.2
[4] The relationship between the two entities commenced informally in February
2011 and does not appear to have been formalised until May 2011. On 3 May 2011 a meeting was held between representatives of Infinity and Simpatico. The meeting related to the Pegasus Town Development and how Simpatico could assist with advertising strategies. This included discussions as to a television commercial, online print and radio advertising. No written agreement was entered into between the parties at this point in time. Simpatico however, began providing services relating to the Pegasus Town Development project from this point onward.
[5] Although no difficulties arose initially, the present dispute does date back to the initial engagement. A fundamental issue here is who it was that Simpatico actually contracted with. Simpatico claims that it contracted with and provided services to Infinity, whereas Infinity claims that Simpatico contracted with and provided services to a distinct and separate company, Pegasus Town Limited (Pegasus), from the outset. Pegasus is one of Infinity’s subsidiary companies.
[6] It was not until 7 June 2011, almost one month after the 3 May meeting that, at the behest of Mr Roberston of Infinity, a Services Agreement (the Services Agreement) was sent to Ms Hetty Van Hale (Ms Van Hale), communications manager for Infinity. It was Ms Marian Johnson (Ms Johnson), a managing partner of Simpatico who had prepared and sent this document. However, the Services Agreement was not signed at this point. A number of emails were then exchanged between the parties and alterations were made to the draft. It was not until 4 July
2011 that the amended Services Agreement was actually signed. Critically, prior to signing, the party named as “The Client” in the Services Agreement was changed from “Infinity Investment Group” to “Pegasus Town Limited” utilising tracked
changes to highlight the alteration.
2 At the time the relationship commenced, Simpatico was known as Urlwin, McDonald and
Clients, however, it will be referred to as Simpatico throughout for ease of clarity.
[7] These changes were clearly accepted by Simpatico because, on 30 June 2011, the Services Agreement was returned to Infinity for it to be signed with the changes having been entered. On 4 July 2011, the final Services Agreement was signed by Mr Robertson on behalf of Pegasus and returned to Simpatico. The written agreement was complete from this time.
[8] One pivotal clause in the Services Agreement, which remained unchanged throughout the negotiations, was cl 20 which provided:
20. Complete Agreement
This document represents the entire Agreement between the Client and the Agency (and therefore supersedes any previous Agreement or arrangements) and no variation of any of its terms shall be valid unless made in writing and signed by both parties.
[9] The 7 June 2011 email from Ms Johnson of Simpatico to Ms Van Hale of Infinity attaching Simpatico’s standard draft Services Agreement also required a letter from Infinity authorising Simpatico to contract with media companies on its behalf. Ms Johnson included a suggested letter. However, Ms Van Hale did not adopt the suggested form of authority letter in its entirety, specifically altering it to make the authorisation “on behalf of Pegasus Town Ltd”.
[10] Later, in January 2012, Ms Johnson from Simpatico again emailed Ms Van Hale requiring a trade credit application to be completed and returned. Simpatico said it required the application to be filled out because of the way they invoiced. Simpatico paid for certain advertisements, particularly television advertisements, up front and would invoice the client to reimburse the costs paid. The trade credit application was also required in order for Simpatico to place trade credit insurance for the client. Perhaps to confuse matters further, the trade credit application was ultimately filled out in the name of Infinity.
[11] Initially, the television campaign for the Pegasus Town Development proceeded with no issues and invoices presented by Simpatico were paid by Pegasus in a timely manner. However, on 16 August 2012 Pegasus was placed into receivership. Simpatico cancelled as much of the remaining advertising campaign as possible at the request of Ms Van Hale. Invoices issued by Simpatico for the period
of August 2012 were not paid however, and Pegasus was ultimately placed into liquidation on 12 February 2015.
[12] In the District Court proceeding, Simpatico argued that it was Infinity that was liable for these outstanding invoices, not Pegasus. By making the application for trade credit, it said that Infinity became bound as the contracting party. Infinity, on the other hand, disagreed stating that it had at all times been acting as an agent for Pegasus. This disagreement provided the background for the District Court action.
Decision of Judge MacAskill
[13] In his decision in the District Court, Judge MacAskill found that at the initial
3 May 2011 meeting it was not made known to Simpatico that it was contracting with Pegasus and not Infinity, nor that Infinity was acting as an agent on behalf of Pegasus.3 Nor did the authority letter of 8 June 2011 properly identify Pegasus as the contracting party, concluding that the significance of the change from “on our behalf” to “on behalf of Pegasus Town Ltd” eluded Ms Johnson of Simpatico.4
Judge MacAskill also rejected as improbable Ms Van Hale’s evidence that she called
Ms Johnson at Simpatico to explain the change to the letter.
[14] The Judge concluded that the authority letter “must be interpreted as appointing Simpatico to act as Infinity’s agent”.5 It failed to put Simpatico on notice that Infinity was acting as an agent for Pegasus.
[15] Judge MacAskill also found that the Services Agreement had prima facie legal effect as at 4 July 2011 and was a contract binding Simpatico and Pegasus. Infinity was not a party to this agreement. Because of this, he found that cl 20 (noted at [8] above) only applied to the parties to the Services Agreement, and did not affect any existing contract between Simpatico and Infinity arising out of previous
dealings.6
3 District Court Decision, above n 1, at [25].
4 At [31].
5 At [41].
6 At [49].
[16] Crucially, the Judge concluded that there were two contracts in existence; the express contract in writing between Simpatico and Pegasus (the Services Agreement) on the one hand, and an oral contract which came into effect at the time of the initial engagement and continued via Infinity’s conduct, on the other. Judge MacAskill made a finding of concurrent liability between Pegasus and Infinity:
[83] Infinity’s initial instructions of May 2011 made it contractually liable, as did Infinity’s authority letter of 8 June 2011, because at those times Infinity contracted without excluding its own (“personal”) liability. The written services agreement of 4 July 2011 created a contract between Simpatico and Pegasus but, considered against the background of the previous dealings, it did not exclude Infinity’s concurrent liability to Simpatico for the fees and costs incurred. In my judgment, Infinity incurred concurrent liability for the debt incurred by it for Pegasus as it did not effectively exclude its own liability. It did not make clear to Simpatico that it was incurring liability only as agent for Pegasus. Then it applied to S[i]mpatico for credit in its own name and by doing so it affirmed its concurrent liability for the services provided.
[84] As there was concurrent liability, Simpatico is entitled to recover from Pegasus or Infinity. If Infinity pays Simpatico, it is entitled to recover from Pegasus under its contract of agency.
Submissions
Submissions for Infinity
[17] Infinity appeals upon grounds that:
(a) the decision is wrong both in fact and law;
(b)Judge MacAskill failed to apply or refer to the entire agreement clause in the parties’ Services Agreement;
(c) the effect of the entire agreement clause in the Services Agreement is to render any previous arrangements, representations or otherwise to be no longer applicable; and
(d)Judge MacAskill’s decision is therefore entirely inconsistent with the written contract the parties entered.
[18] Infinity submits that in the District Court the Judge made the following errors in the approach he took:
(a) Inconsistency with pleadings – the case was not pleaded on the basis that Infinity was liable for not disclosing it was acting as an agent in the course of reaching an oral agreement in May 2011. Had it been, the evidence would have focused on that initial meeting.
(b)Second contract is redundant – if Infinity was liable for not disclosing it was acting as an agent in the course of reaching the oral agreement, this would make the written contract redundant as Simpatico would have needed to provide the services sued for under the oral agreement and not the written one.
(c) Inconsistency with the objective meaning of the evidence – the evidence shows that there was only one contract entered into (the written Services Agreement) and in entering into that contract Infinity made it clear beyond doubt that it was acting on behalf of Pegasus.
Submissions for Simpatico
[19] In response, Simpatico contends that:
(a) the case is concerned with, and should be treated as, a course of dealings case during which the parties acted as if they were in a contractual relationship and during which their contractual obligations may have changed;
(b) Infinity was contractually liable because:
(i) the initial engagement was by Infinity, not Pegasus;
(ii) the authority letter supplied by Infinity appointed Simpatico to
act as Infinity’s agent;
(iii) Infinity contracted without excluding its own liability; and
(iv) Infinity affirmed its liability by agreeing to be bound by
Simpatico’s Terms of Trade;
(c) Infinity would otherwise be contractually liable because in January
2012 it explicitly agreed in writing to be bound by the Terms of Trade;
(d)even if it were to be found that Simpatico was in a contractual relationship with Pegasus and not Infinity, Infinity would be estopped from denying liability to Simpatico.
Discussion
The initial contract
[20] Because of the way relations between the parties commenced, when a formalised contractual relationship began is not entirely clear. Although the written Services Agreement was signed by Pegasus on 4 July 2011, Simpatico began providing its services before this point.
[21] The first point in time at which a contract is said to have been founded was after the 3 May 2011 meeting. Ms Johnson of Simpatico, in her affidavit, described that meeting as follows:
6The purpose of the meeting was to discuss how Simpatico might be able to assist Infinity with its Pegasus Town development. Bob Robertson was interested in starting with a three month trial engagement, and for Garry and I to come back to Infinity with recommendations for advertising strategies and budgets. The work to be done included the preparation of a television commercial, online print and radio advertising and placing television advertising. We were also to redo a promotional DVD that had been prepared by Pegasus.
7The work that arose out of that meeting was for us to produce a final and pared down production and media budget for the work. Mr Robertson advised that the overall spend for the initial months was to be $190,000.
Ms Van Hale from Infinity admits that at this point, after the meeting, Simpatico was engaged to provide services. It seems clear that at this point in time there was an agreement for work to be undertaken.
[22] All of this was prior to the written Services Agreement being in place. On this aspect, I agree with Judge MacAskill that at this point in time, where services were being provided and invoices sent, an oral contract was clearly in place. The question that then arises is who were the parties to this contract?
Pleadings point
[23] Before considering any issues relating to agency and the question whether Pegasus may have been an undisclosed principal at this point, it is necessary to consider Infinity’s submission in the District Court that Simpatico did not plead that Infinity was liable on the basis of not disclosing its agency.
[24] Recently the Court of Appeal, in Tower Insurance Ltd v Domenico Trustee Ltd, emphasised the importance of pleadings when it came to hearing argument and making findings.7 The court held:
[64] Where it is desired to make a substantial departure from the pleadings, it is the duty of the Judge and counsel on both sides to see that a proper application is made for leave to amend the pleadings. The proposed amendment should ordinarily be put in writing so that counsel on the other side may consider it and apply for an adjournment if the nature of the amendment is one which involves the calling of further evidence.
[25] The Court of Appeal also cited the case of J Leavey & Co Ltd v George H Hirst & Co Ltd where Lord Greene MR said:8
I have said more than once in this court that where it is desired to make a substantial departure from the pleadings it is the duty of the judge and counsel on both sides to see that a proper application is made for leave to amend the pleadings. The proposed amendment should be put in writing, so that counsel on the other side can consider it and apply for an adjournment if the nature of the amendment is one which involves his calling further evidence with which he was not prepared. I hope I shall not be thought pedantic on the matter of pleadings. It will be seen at once what grave possibilities of injustice there are if pleadings are brushed aside at the trial,
7 Tower Insurance Ltd v Domenico Trustee Ltd [2015] NZCA 372.
8 J Leavey & Co Ltd v George H Hirst & Co Ltd [1944] KB 24 (CA) at 27.
new issues raised which have never been pleaded, and evidence called bearing on those issues with regard to which there has been no discovery and which the other side have no opportunity of meeting by other evidence.
[26] In the present case, I must express reservations about whether the agency point was properly pleaded. However, given my findings below it is unnecessary to make a final ruling on this point.
Undisclosed agency
[27] It is apparent that, from the beginning, Infinity was acting as an agent for Pegasus. The general rule of contractual agency was expressed by Wright J in Montgomerie v United Kingdom Mutual Steamship Association as follows:9
There is no doubt whatever as to the general rule as regards an agent, that where a person contracts as agent for a principal the contract is the contract of the principal, and not that of the agent; and, prima facie, at common law the only person who may sue is the principal, and the only person who can be sued is the principal.
[28] However, there are exceptions to this rule. Under the doctrine of undisclosed principal, if an agent concludes a contract in his or her own name without disclosing that he or she is a mere representative, either the agent or the principal can be liable.10 Nor is it enough to simply identify the principal. As was said in H. J. Lyons
& Sando Limited v Houlson, the agent has to bring home to the third party the existence of the agency:11
But what must be borne in mind is that in order to escape personal liability the agent must do more than disclose the identity of the principal, he must make it clear that he is contracting on the principal’s behalf and not on his own … The prima facie position is that when a man orders work to be done he impliedly undertakes to pay for it, and if he desires to avoid the liability so undertaken by setting up that he was acting purely as agent for another person, he must have made that position clear to the other contracting party.
A question here is whether Infinity notified Simpatico that it was acting as an agent for Pegasus in May 2011.
9 Montgomerie v United Kingdom Steamship Association [1891] 1 QB 370 (QB) at 371.
10 Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 (PC); Farmers Co-operative
Organisation Society of New Zealand Ltd v Flynn (1991) 5 NZCLC 67,293 (HC).
11 H. J. Lyons & Sando Limited v Houlson [1963] SASR 29 (SASC) at 31.
[29] On 5 May 2011, Ms Johnson from Simpatico sent an email to Mr Robertson and Ms Van Hale with a report attached summarising the 3 May 2011 meeting noted at [4] above. Ms Johnson stated that Simpatico would immediately get a team together and make a start on the work that had been discussed. The subject line of the email said “Contact report meeting 3 May Infinity/UMC”. Mr Robertson replied to the email the following day. He thanked Ms Johnson for the report but he did not correct her “mistake” in the subject line. Mr Robertson also signed off using his email signature as “Managing Director” of Infinity. Ms Van Hale also, in her communications with Ms Johnson, utilised her signature as “Communications Manager for Infinity”.
[30] Up to the point the written Services Agreement contract was entered into there is little to suggest that Pegasus was in fact the one contracting. On the evidence provided, it seems to me that up to that point Pegasus was an undisclosed principal of Infinity as agent. For that reason, in my view it is clear that Infinity is liable under the initial oral contract.
8 June 2011 authority letter
[31] The first real suggestion that Pegasus was the contracting party it seems did not occur until around 7 June 2011. This happened when Ms Van Hale replied to a request from Ms Johnson of Simpatico for an authority letter. On 7 June 2011
Ms Johnson had sent an email to Ms Van Hale requesting this authority letter be completed to allow Simpatico to enter into contracts on behalf of Infinity. This was an essential part of the arrangement. Ms Johnson provided a suggested letter form in her email which stated:
This is to advise that Infinity Group has appointed [Simpatico] to help manage advertising requirements for our Pegasus Town development. This includes planning, negotiating, & buying media advertising time and space on our behalf.
[32] On 8 June 2011, Ms Van Hale replied by email stating: “Letter authorising you to contract media on behalf of Pegasus Town Ltd is attached”. The attached letter itself said:
This is to confirm that Infinity Investment Group has appointed [Simpatico] to help manage the advertising requirements for our Pegasus Town development.
This includes planning, negotiating, & buying media advertising time and space on behalf of Pegasus Town Ltd.
Significantly, part of the phrasing in the second sentence in the earlier request had
been changed from “on our [Infinity’s] behalf” to “on behalf of Pegasus Town Ltd”.
[33] In addition, Ms Van Hale claimed that she had called Ms Johnson to explain the significance of the change. Ms Johnson, however, denied ever having such a conversation with Ms Van Hale. Judge MacAskill had the benefit of hearing both witnesses and concluded it was unlikely that such a phone call ever took place. I see no reason to depart from His Honour’s finding on this point.
[34] Judge MacAskill found also that [t]he expression “on behalf of” does not necessarily mean that one party is acting as an agent for the other. Its meaning depends upon the context, including the nature of the communication. The Judge then went on to say at [39] – [40] that:12
f) In the authority letter, the use of the expression “on behalf of” conveys that the work specified would be done by UMC (Simpatico) for Pegasus Town Ltd or, perhaps, that Infinity was managing the advertising requirements for Pegasus Town Limited, but not that Infinity had appointed Simpatico in its capacity as agent for Pegasus Town Limited.
g) I do not attribute any significance to the change of wording to “Pegasus Town Ltd” or to the reference to Pegasus Town Limited in Ms van Hale’s return email.
h) Infinity’s status as “agent” is not expressly mentioned.
[40] In summary, in signing this letter – certainly by the first paragraph – Ms van Hale expressly adopted the description of the Pegasus development as Infinity’s development. That affects the meaning of the reference to Pegasus Town Limited in the second paragraph.
[41] I conclude, therefore, that the authority letter must be interpreted as appointing Simpatico to act as Infinity’s agent. It did not put Simpatico on notice that, in appointing it to carry out the functions specified, Infinity was acting as agent for Pegasus. Nor is there anything in the letter to indicate that Infinity did not accept liability to reimburse Simpatico for the media
12 District Court decision, above n 1 at [39] – [40].
charges. I reach this conclusion taking into account the context in which the letter was written and my examination of the words used.
[35] Although the changes made to the authority letter may appear to clarify that Pegasus is in fact the principal and Infinity is only the agent, as I see the position, it is important to examine the changes in the surrounding context.
[36] The authority letter was printed on Infinity letterhead. Although it might be argued that this was because Infinity was acting as an agent for Pegasus, in the context where it had not previously been expressly indicated that Infinity was merely an agent, this would be likely to have had the effect of diminishing or hiding the significance of the changes which had been made to the wording.
[37] Without something more at this point, such as an express mention of the agency, merely relying on the implication flowing from the changed wording in the letter, as I see it, might be said to be insufficient to alter Simpatico’s view of what the true arrangement between the parties was. The agency arrangement was yet to be fully brought home to Simpatico.
[38] Therefore, even after the authority letter was returned to Simpatico, it seems to me that there is a reasonable argument that Infinity could be considered still to be liable at that point as an agent of an undisclosed principal.
The agency agreement
[39] In that same June 2011 email from Ms Johnson that dealt with the authority letter however, a draft of the Services Agreement that Mr Robertson requested at the initial meeting was attached. Ms Van Hale then replied to the email setting out changes to be made to the Services Agreement.
[40] On 20 June 2011 Ms Johnson replied with the revised Services Agreement. All changes at this time were accepted save for a point on insurance. Clarification was also provided at this point on how fees were to be calculated. It is clear that a written agreement was still being negotiated.
[41] On 23 June 2011 Ms Van Hale replied to Ms Johnson with a number of final changes to the Services Agreement. Crucial changes were made where the named party under the contract was altered from “Infinity Investment Group” to “Pegasus Town Limited”. These alterations were made using track changes, as follows:
Agreement For Services Provided by UMC to
Infinity InvestmentGroupPegasus Town Limited.
1. Introduction
This Agreement sets out the terms and conditions upon which
Infinity Investment GroupPegasus Town Ltd, The Client, has appointed UMC, the Agency, as its preferred advertising agency to handle advertising of the Pegasus Brand.
The Services Agreement was also amended so that Mr Robertson was to sign on behalf of Pegasus Town Ltd as opposed to Infinity Investment Group.
[42] The changes were accepted by Ms Johnson for Simpatico and a copy was sent to Ms Van Hale to be signed. A signed copy was returned to Ms Johnson on
4 July 2011.
[43] As I have noted above, Judge MacAskill found that this Services Agreement contract did not put an end to the oral contract between Infinity and Simpatico. The Judge held that, as Infinity was not a party to the Services Agreement, the complete agreement clause set out at [8] above did not apply to it. Instead, he said that Infinity had done nothing here to extinguish its own personal liability, so it continued to run concurrently with the written contract between Simpatico and Pegasus.
[44] This is where, with respect, I depart from the reasoning of Judge MacAskill. Although Infinity was not a party to the written Services Agreement, Infinity had effectively negotiated the new agreement on behalf of Pegasus, including the entire agreement clause.
[45] In the context where on the one hand, there was a prior oral contract between Pegasus and Simpatico borne out of circumstances in which Pegasus was an undisclosed principal (under which Infinity was liable), and on the other, it now being made clear to Simpatico that Pegasus was the contracting principal in the
written Services Agreement, arguably this would be enough to bring an end to Infinity’s liability. Simpatico was aware before signing the Services Agreement that Pegasus was the named party. Simpatico did not need to sign or accept the Services Agreement contract if it did not want to or, alternatively, it could have gone further and insisted on Infinity providing a guarantee under the contract. Simpatico neither refused to sign nor sought a guarantee.
[46] It is artificial, in my view, to say that the written Services Agreement contract did not then bring an end to any oral arrangement that had previously been in place between these parties. It reflected the reality that from July 2011 Pegasus had always been the party to the contract, not Infinity. The written contract had the effect of terminating Infinity’s liability under the doctrine of undisclosed principal. The principal was now disclosed. By this analysis, in my judgment, the better view here is that there were never two concurrent contracts. The written contract was freely negotiated, it expressed the intention of both Simpatico and Pegasus, and it clarified a point which it might be said they had failed earlier to make clear.
[47] To summarise, I have reached the view that Infinity would have been liable to Simpatico for the period 3 May 2011 to 4 July 2011 on the basis of it being an agent for the undisclosed principal, Pegasus. It is my understanding, however, that all invoices from this period have been paid. From 4 July 2011 it was clear to all parties that the contractual relationship was between Pegasus and Simpatico. Indeed, in its submission Simpatico states that the five invoices in contest in this proceeding were issued in August 2012, and these were issued well after the written Services Agreement contract came into force. Infinity was from that point no more than an agent known to Simpatico.
[48] The effect of this conclusion is that the entire agreement clause (clause 20) in the Services Agreement operated to supplant the earlier oral agreement between Pegasus and Simpatico, for which Infinity (up until execution on 4 July 2011) was an agent for an undisclosed principal.
The credit authorisation letter
[49] In 2012 a decision was made to place television advertising. As I have noted above, because television advertising is much more expensive than other forms of advertising, and television networks require the advertisements to be pre-paid by the advertising agency that is placing them, Simpatico’s practice was to pay up front for the advertisements and to issue an invoice to the client concerned to reimburse the cost. A trade credit application was therefore required by Simpatico. This was also required in order for Simpatico to place trade credit insurance for the client. This protected Simpatico against non-payment by the client of any costs incurred by Simpatico.
[50] The terms of trade on the reverse of the trade credit application provide:
1. PRICES AND PAYMENT
i. Goods and Services Tax will be charged in addition to any stated price.
ii. Payment in full must be made by the 20th of the month following the date of invoice.
iii. The customer may not offset any payments owing to Simpatico against any payments owed by Simpatico to the customer or any claims which the customer may have against Simpatico.
iv. The customer will be liable to pay all of Simpatico’s expenses (including collection and solicitors costs) incurred in attempting to obtain a remedy for the customer’s failure to comply with these Terms of Trade.
v. In accepting any payment from the customer, Simpatico will not be bound by any condition or qualifications of terms which the customer attaches to such payments. Any payments expressed to be in full and final settlement will only be accepted by Simpatico as such if Simpatico communicates its specific acceptance in writing to the customer of those terms, otherwise any payment will only be accepted as part payment of the total debt due to Simpatico.
vi. The customer must notify Simpatico in writing by letter or fax on any change of ownership or business structure of the customer, otherwise the customer will remain liable for all debts incurred by any other person trading on the customer’s account with Simpatico. Simpatico is not required to verify or check that any person using the customer’s account with Simpatico has the customer’s authority to do so.
[51] On 10 January 2012 Ms Johnson of Simpatico sent the form to Ms Van Hale, stating:
I’m also forwarding to you a credit references form which I hope you can forward to your accounts department on our behalf. My FD will need this sooner rather than later so – if you could ask your accounts guys to revert back to me with the completed form that would be great.
[52] Ms Van Hale forwarded the form onto a colleague, Ms Elena Torlei, asking her to forward it onto the relevant person to complete. She had altered the subject line to “Pegasus Town Ltd credit application”. It appears that the form was filled out in the name of Pegasus and returned to Ms Johnson. However, Ms Johnson then contacted Ms Torlei requesting the credit application be completed in the name of Infinity, not Pegasus. Ms Torlei complied, sending the credit application back to Ms Johnson, completed in the name of Infinity Investment Group Holdings Ltd and it was signed by Mr Derrick Wales, the company accountant.
[53] Ms Van Hale claims that she had no knowledge of this, however, stating in her affidavit that:
…had I known I would have told Elena that this was not necessary as the defendant was not a client of the plaintiff. I suspect Elena simply did as Marian asked without really understanding why and had Derrick Wales, who worked in the same office as Elena, sign off on the form. Given she dealt with me almost exclusively, I do not understand why Marian would not have contacted me to make her request for a further form in the name of the defendant.
[54] Simpatico maintains that the signing of the form not only represented an affirmation of Infinity’s pre-existing contractual liability, but also represented a separate and explicit assumption of liability. On this point, Judge MacAskill held:
[85] If (contrary to my conclusion) Infinity effectively excluded its liability for debts incurred prior to the credit application, then in making the credit application it not only failed to exclude liability, concurrent with Pegasus, to Simpatico for the credit given but assumed liability.
[86] When it submitted the credit application to Simpatico, Infinity clearly and unequivocally incurred credit in its own name. The rejection by Simpatico of the application in the name of Pegasus puts the intention of the parties, objectively assessed, beyond argument. The contractual position is clear. Simpatico “invited” Infinity to apply for credit, to “treat”. In submitting the credit application in its name, Infinity made a classic contractual “offer”. In granting credit, S[i]mpatico responded with a classic
“acceptance”. Simpatico’s erroneous subjective belief that it had already
contracted with Infinity is irrelevant.
[55] With respect, however, I consider there to be also a gap in Judge MacAskill’s logic here. Although the signing of the credit application had the effect of creating potential liability for Infinity, from the wording of the trade credit application itself it did not link the liability to the contract between Pegasus and Simpatico. It is one thing to create a credit account for which Infinity is liable, it is another thing for Infinity to actually use it as “the customer”.
[56] It must be remembered that at this point in time, the only contract in existence was the written Services Agreement between Pegasus and Simpatico. Services were provided under the Services Agreement and, as I understand the position, there had been a trade credit application returned by Pegasus. Despite what Simpatico might have thought the situation was, it was made quite clear in the Services Agreement contract just who the services were being provided to. That was to Pegasus and with the delays in payment of the accounts, credit was also being extended to Pegasus.
[57] By signing and returning its trade credit application form, Infinity created the ability to incur credit for which it would be liable. It might be reasonably argued, however, that no credit was ever provided to Infinity. Instead, services continued to be provided to Pegasus under the written Services Agreement contract and, given no guarantee had been provided by Infinity, it was Pegasus alone that was liable for these services.
[58] For that reason, I am satisfied the better view here is that the trade credit application did not alter the situation. Pegasus was solely liable for the services of Simpatico from the point of the written Services Agreement contract onwards. I do not consider there to be a tenable argument that Infinity was concurrently liable. The written Services Agreement, along with the background of all the negotiations between the parties, in my view, make it clear that the only relevant contract in fact here was that between Pegasus and Simpatico.
Estoppel argument
[59] Lastly, Simpatico argued on this appeal that, if it is determined there is a basis for the District Court decision to be overturned, the matter should be referred back to that Court for consideration of the estoppel cause of action. On this question, Judge MacAskill reserved his decision, given his findings in relation to contractual liability. In doing so, he said at [101] of his judgment:
[101] I reserve the question whether Simpatico is entitled to judgment on this [estoppel] cause of action because I did not hear argument from counsel about whether, in the circumstances of this case, estoppel can found a cause of action.
[60] As to this estoppel argument, in its amended statement of claim before the District Court, Simpatico had argued that, if Infinity was not contractually liable, it was liable under the doctrine of estoppel on the basis that:
10.1It unequivocally represented that it was the entity contracting with the plaintiff by, among other things;
10.1.1 Instructing the plaintiff to carry out preliminary work in May
2011;
10.1.2 Writing to the plaintiff on 8 June 2011 confirming the
plaintiff’s appointment;
10.1.3 Accepting and organising payment of all invoices issued to it by the plaintiff between June 2011 and July 2012; and
10.1.4 Executing the plaintiff’s trade credit application document on 16 January 2012 following the plaintiff’s rejection of an identical document signed by Pegasus Town Limited.
[61] It was pleaded that, in reliance on the above representations, Simpatico placed advertisements in Infinity’s name, incurred costs on its behalf and placed trade credit insurance in its name. As a result, Simpatico says it suffered detriment by way of out of pocket expenses it incurred in placing media advertising, unpaid agency fees, the cost of placing trade credit insurance cover, and because of the damage caused to it by its failure to place trade credit insurance in the name of Pegasus.
[62] Although Judge MacAskill declined to directly address this issue because he said he did not hear argument on it, in his judgment at [100] he did summarise the following conclusions:13
a)By submitting the credit application in its own name Infinity made a clear and unequivocal representation to Simpatico that it would be liable to Simpatico for any credit granted.
b)There was no such clear and unequivocal representation by Infinity’s conduct prior to the services agreement, whether by payment of the invoices, the instructions given to Simpatico by Ms van Hale, the use of imprecise language in the instructions, or omitting to inform Simpatico that Pegasus was the client party.
c)Simpatico relied on the credit application although it already believed that Infinity was the client party and despite the terms of the services agreement. Just as the services agreement did not exclude Infinity’s concurrent liability and did not preclude Infinity from assuming liability for the credit facility, it did not preclude Simpatico from relying on the application for credit as a representation that Infinity would be liable to Simpatico for any credit granted.
d)The cause of the detriment suffered by Simpatico in treating Infinity as liable under the credit agreement and in accruing the debt (irrecoverable from Pegasus) and in insuring the trade credit in the name of Infinity (and not in the name of Pegasus) was its reliance on the credit application by Infinity. It is not necessary that Infinity was aware that Simpatico intended to insure.
e)Infinity has benefited from the provision of credit by Simpatico to Pegasus and it would be unconscionable for Infinity to retain that benefit without paying the debt incurred.
[63] It is perhaps appropriate at this point to summarise my overall findings outlined earlier in this judgment which I now do:
(a) there was only one contract, not two as found by Judge MacAskill;
(b) there were only ever two parties to that contract; Pegasus and
Simpatico;
(c) from 3 May 2011 up until the signing of the written Services
Agreement on 4 July 2011 an oral contract was in place;
13 District Court Decision, above n 1, at [100].
(d)Infinity was liable under the oral contract by virtue of the doctrine of undisclosed principal;
(e) upon the signing of the Services Agreement contract, the fact that Pegasus was the contracting party became abundantly clear and cl 20 of the Services Agreement operated to supplant the prior oral agreement; and
(f) the trade credit application form only created the potential for credit to be extended to Infinity as a customer, and there was no contract here between Infinity and Simpatico under which services were ever provided.
[64] Turning now to the estoppel argument, without deciding this for reasons I will outline below, in my view it might be useful for me at this point to set out one or two preliminary thoughts I have on this which may assist.
[65] In doing this, I need to say that there may well be a possible argument here that the only misunderstanding that Simpatico could reasonably have been under was when the oral arrangement was in place and it believed that it was contracting with Infinity as principal. As I have noted above, I have already found that Infinity would have been liable for any unpaid invoices during this period under the doctrine of undisclosed principal. After the signing of the written Services Agreement, it seems to me likely that there could have been no misunderstanding as to whom the contracting parties were, or particularly, no misunderstanding that was induced by the conduct of Infinity. The parties were explicitly clarified by 4 July 2011 in the written Services Agreement.
[66] As to the trade credit application, although this may have had the effect of building upon a misunderstanding Simpatico says it was under, it is arguable that it was not a misunderstanding induced by Infinity. The misunderstanding, on one view, might be seen as one arising out of circumstances where Simpatico entered into the written Services Agreement with Pegasus which had an express clause to supersede any prior agreement. Arguably, on one view, any misunderstanding might
be seen as Simpatico’s alone, and one it must now live with. But that is not a matter that it is proper to decide here on this appeal, given that as I understand it, Infinity has made no real challenge or advanced argument on the conclusions reached by the District Court in relation to the elements of the estoppel cause of action I have outlined at [62] above. And, as Judge MacAskill in his decision, given his other findings, formally reserved the question whether Simpatico was entitled to judgment on the estoppel cause of action as he said he had not heard argument from counsel on this, it is appropriate that this matter is referred back to the District Court to consider this question.
Orders
[67] I make the following orders:
(a) Although this appeal does succeed in part, given my findings set out above and for the reasons I have outlined, I now refer this matter back to the District Court for further argument on, and consideration of, the estoppel issue.
(b)Costs are reserved. Ultimately if counsel are unable to agree the issue of costs between themselves then they may file memoranda on the issue sequentially. These are then to be referred to me and in the absence of either party indicating they wish to be heard on the matter I will decide the question of costs on this appeal based on the material then before the Court.
...................................................
Gendall J
Solicitors:
Dale Lester, Christchurch
Duncan & Cotterill, Christchurch
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