McKeown Group Ltd v Russell HC Auckland CIV 2008-476-530
[2010] NZHC 1492
•19 August 2010
IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY
CIV-2008-476-000530
UNDER the Fair Trading Act 1986
BETWEEN MCKEOWN GROUP LIMITED Plaintiff
ANDJENNIFER JANE RUSSELL Defendant
Hearing: 26-28 July 2010
Appearances: L A Andersen for Plaintiff
Q J Hix for Respondent
Judgment: 19 August 2010
RESERVED JUDGMENT OF HON. JUSTICE FRENCH
Introduction
[1] The plaintiff, McKeown Group Limited, is owed money by PDSA Limited. The defendant, Mrs Russell, was a 50 per cent shareholder and sole director of PDSA. McKeowns contends that Mrs Russell verbally agreed to assume personal liability for PDSA’s debt. It says further that at the time she made various promises to pay the debt, she did so without any intention of paying and was therefore guilty of misleading and deceptive conduct in breach of s 9 of the Fair Trading Act 1986. McKeowns seeks to recover losses it says it has suffered as a consequence of relying on her assurances.
[2] For her part, Mrs Russell denies making promises in the terms alleged and says that in any event the claim is statute barred.
MCKEOWN GROUP LIMITED V RUSSELL HC TIM CIV-2008-476-000530 19 August 2010
a) Did Mrs Russell make the promises alleged?
b) What were her intentions at the time she made the promises?
c) Did her conduct have the capacity to mislead and deceive?
d)Is there a causal link between Mrs Russell’s conduct and the loss or damage suffered by McKeowns?
e) What is the measure of damages?
f) Should there be any discount for contributory conduct?
g) Does the fact the promises were not in writing, and so not enforceable under the Contracts Enforcement Act 1956, preclude the application of the Fair Trading Act?
h)When did time start to run for the purpose of the three-year limitation period?
Factual Background
[4] McKeowns is a wholesale supplier and distributor of motor spirits and associated products.
[5] Mrs Russell’s company, PDSA, owned a service station at Fairlie. [6] In 2002 PDSA changed suppliers from Shell to McKeowns.
[7] There was some dispute in the evidence as to how well PDSA had traded when it was supplied by Shell. However, it was common ground that by at least 31
March 2004 PDSA was insolvent.
[8] McKeowns was PDSA’s biggest creditor, and by November 2004 the debt owing to McKeowns for supply of fuel and associated products amounted to
$180,000.
[9] In November 2004, McKeowns’ administration manager, Mr Colin Hamilton, held discussions with Mrs Russell about the debt. Mr Hamilton testified he told Mrs Russell that McKeowns was not prepared to continue supply unless the arrears were paid in full. Mrs Russell wanted supply to continue, but Mr Hamilton told her he had concerns about PDSA’s ability to pay and that McKeowns was not prepared to continue to supply any further product unless some satisfactory arrangement was put in place to ensure payment.
[10] According to Mr Hamilton’s evidence, Mrs Russell assured him that she would pay the full amount of the arrears and would do so from the sale of her Lincoln house which was on the market. Mr Hamilton stated that in reliance on these assurances, McKeowns continued to supply product to PDSA.
[11] Mr Hamilton further testified that Mrs Russell repeated these promises on a weekly basis, because he would raise the issue of the debt every time fuel was delivered: “Each time she would ask that the fuel be supplied and tell me that when her house sold in Lincoln she would pay the debt owing by PDSA.”
[12] At some stage an arrangement was put in place that PDSA would pay for current fuel dumps on delivery, with (according to Mr Hamilton) Mrs Russell paying the arrears when the house sale came through. The cash on delivery arrangement commenced at the end of March 2005. By that time PDSA owed McKeowns
$212,511.64.
[13] In mid-June 2005, Mrs Russell left on an extended overseas holiday.
[14] Prior to her departure, she met with Mr Hamilton. According to his evidence, she told him the Lincoln sale was imminent and confirmed that the debt would be cleared from the proceeds.
[16] After her return, she met with Mr Hamilton and Mr McKeown, the plaintiff’s managing director. The date of this meeting assumes some importance for limitation purposes. McKeowns says it took place on 8 November 2005, whereas Mrs Russell says it was 12 October 2005.
[17] According to McKeowns’ version of the meeting, Mrs Russell told them the Lincoln house had now sold but the sale proceeds were not available to pay the money owing to McKeowns. She said the house was in the name of a family trust and the proceeds had gone to the trust and to pay for a mortgage on a Fairlie property. Mrs Russell promised to explore other options including mortgaging her own home and to come back to them with exactly what was going to happen.
[18] Then followed further discussions, culminating in a meeting held on 21
December 2005 with lawyers also in attendance. Agreement was reached that McKeowns would purchase PDSA’s assets, which it did in January 2006 for the sum of $29,311.
[19] On 16 January 2006, McKeowns took over the operation of the garage.
[20] In August 2007, McKeowns issued proceedings in the District Court against both PDSA and Mrs Russell for recovery of the outstanding debt. The claims pleaded against Mrs Russell were founded on allegations of reckless trading and the giving of an indemnity, but made no reference to the Fair Trading Act.
[21] The District Court proceedings were subsequently discontinued in June 2008. It appears the reason for discontinuing was the realisation that an oral contract would not be enforceable by virtue of s 2(2) of the Contracts Enforcement Act.
[22] McKeowns then issued the current proceedings under the Fair Trading Act on
21 October 2008 against Mrs Russell alone.
[23] The claim as it now stands is for the sum of $161,155.95.
[24] This is said to represent the outstanding balance owing in respect of product supplied to PDSA in 2005 namely $215,405.95 less the value of the plant ($29,311) and the stock ($24,939), which McKeowns subsequently acquired when it took over the garage.
[25] I turn now to consider each of the issues.
Did Mrs Russell make the promises in the terms alleged and what were her intentions at the time she made those promises?
[26] Section 9 of the Fair Trading Act states:
9 Misleading and deceptive conduct generally
No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
[27] It was common ground that Mrs Russell was a person in trade for the purposes of s 9.
[28] It was also common ground that a claim under s 9 must be based on an actionable misrepresentation, i.e. a statement of present or existing fact that is false.
[29] Counsel further agreed that a promise to pay is not as such a representation, because it is a statement of future intent as opposed to a statement of present or existing fact. The mere fact the promise is subsequently broken does not therefore constitute an actionable misrepresentation, unless at the time the promise was made the promisor had no intention of making the promise good. In those circumstances, the making of the promise is capable of constituting an actionable misrepresentation because it entails a false implied statement of existing fact, the promisor impliedly misrepresenting the existing state of their mind.
[25] There may be occasions when, on the evidence in a particular case, it is clear that a person in trade never intended to deliver on the promise (see, for example, Gunton v Aviation Classics Limited [2004] 3 NZLR 836 at [236]-[246]). In such circumstances, liability for misleading conduct arises because the innocent party is able to show that the promisor did not, at the time of making the promise, have any intention to deliver on it: James v Australia and New Zealand Banking Group (1986) 64 ALR 347 at 372. The circumstances where a plaintiff is able to prove that will be rare. The
important point to be stressed is that the mere fact that representations as to future conduct do not come to pass does not of itself make them misleading or deceptive.
(Muollo v Creative Engineering Design Ltd (2006) 8 NZBLC 101,675 (CA))
[30] As I have already mentioned, in this case Mrs Russell denied giving any assurances at all in the terms alleged, let alone making them without the intention to deliver.
[31] However, in so far as there was a conflict in the evidence between Mrs Russell and Mr Hamilton, I prefer the evidence of Mr Hamilton. He impressed as a credible and reliable witness who was concerned to be accurate. His evidence made sense.
[32] Regrettably, I did not find Mrs Russell either credible or reliable. Even allowing for understandable lapses of memory and inaccuracies due to the passage of time, aspects of her evidence were contradictory and at times implausible.
[33] In particular, there were some very significant discrepancies between her evidence-in-chief and her evidence under cross-examination.
[34] In her brief of evidence, Mrs Russell’s version of events was that prior to her departure overseas there had only ever been the one discussion with Mr Hamilton about the possibility of her personally making payment on account of the PDSA debt. The crucial discussion, she said, took place in June 2005 immediately prior to her departure overseas and was in the context of a meeting about how best to save the garage. She stated that as part of the discussion she mentioned the Lincoln home to Mr Hamilton and said that if it sold for what she hoped to get, then she might have about $40,000 or so which she could pay towards the money owing by PDSA.
[35] Mrs Russell’s brief of evidence went on to state that when she returned from overseas the property at Lincoln had sold and that she had received about $40,000 from the sale. Of that $40,000, she put $5,000 into PDSA for payment towards the McKeowns debt, and the balance she loaned to her daughter. She said that although she had intended to pay all of the $40,000 to McKeowns, her daughter had contacted
her while she was overseas in urgent need of financial assistance. Mrs Russell stated she was distressed at having to renege on her promise to McKeowns, which she had fully intended to honour at the time, but family came first. Mrs Russell also denied ever raising the possibility of mortgaging her Fairlie home to pay the debt.
[36] If this version of events were true, then Mrs Russell would not be liable under the Fair Trading Act because at the time she gave her one and only assurance she was fully intending to honour it, had the means to honour it and only failed to do so because of some unforeseen intervening event.
[37] The brief of evidence was clearly intended to give the impression that the Lincoln house had sold while Mrs Russell was overseas. Indeed, she herself confirmed that was the impression it was intended to convey.
[38] However, under cross-examination, a very different picture emerged.
[39] First, it transpired that the June 2005 discussion was not the first time Mrs Russell had mentioned the sale of the Lincoln house to Mr Hamilton. She admitted that in November 2004 she may have assured him that McKeowns would be paid and may have mentioned her house property at Lincoln. She also admitted that in subsequent conversations when the topic of the arrears came up, she would tell Mr Hamilton where she was at with the sale of the Lincoln house. Mrs Russell further claimed that although she never specified any sum to McKeowns, it was her belief there would be sufficient money from the sale of the Lincoln house to pay PDSA’s debt in full, and that she would have used it for that purpose.
[40] Secondly, it transpired that contrary to what was in her brief of evidence and contrary to what she told McKeowns at the time, the Lincoln house had actually sold before she had left for overseas. When Mrs Russell was shown a settlement statement sent to her by her solicitor, she was forced to admit that as at 31 May 2005 she knew the Lincoln house had been sold and that the net sale proceeds (excluding the deposit) were $49,625.86 and that this sum had been deposited in her bank account before she left for overseas.
[41] Mrs Russell then appeared at one point to suggest that her conversation with McKeowns may have taken place before she received the settlement statement, and hence before she knew the house was sold. However, this version of events involved her informing McKeowns that she hoped to receive $40,000 from the sale at a time when, according to her other evidence, she believed there would be enough from the sale to meet the debt in full. In another part of her evidence Mrs Russell also claimed it was during a telephone conversation, not at a meeting, that she mentioned the $40,000 figure to Mr Hamilton. However, this was at odds with her brief of evidence in which she specifically claimed to remember travelling down to Oamaru for the meeting.
[42] When asked to explain why she had not immediately transferred the
$49,625.86 from her bank account to McKeowns before going overseas, she said she left that for the staff to do while she was away.
[43] However, it later emerged that while Mrs Russell had given her staff the authority to operate the bank account in question, her actual instructions were to only use the money in an emergency.
[44] Mrs Russell had also represented in her brief that she had put $5000 into PDSA so it could pay that to McKeowns on account of the debt. However, the truth was that it was the staff who had made that payment, without her knowledge and under pressure from McKeowns.
[45] I am satisfied on the evidence that Mrs Russell did make the assurances alleged and did so on numerous other occasions between November 2004 and early June 2005. By her own admission, as at November 2004 she knew her company was insolvent, she knew that McKeowns were very concerned about the debt and knew they were insisting on a satisfactory arrangement being put in place before the supply could continue. She wanted to keep trading. The only reason there would have been a discussion about the Lincoln house in November 2004 was to establish that she had the means to make payment of the debt. While Mrs Russell denied mentioning any specific sum, she admitted she knew the amount of the PDSA debt, admitted she would have said the debt would be paid and also admitted she never
told Mr Hamilton it would be less than full payment. In those circumstances, I am satisfied that even if she did not mention a specific figure, she intended to convey and did convey the impression that there would be sufficient from the house sale to meet the debt in full and that she would pay it to McKeowns.
[46] The fact that supply did continue is also, of course, in itself a telling piece of evidence.
[47] I accept Mr Hamilton’s testimony that if he had been told Mrs Russell was only prepared to provide $40,000, he would never have continued supply.
[48] In itself the fact that Mrs Russell made these promises and then resiled from them does not necessarily mean that at the time she gave the assurances she never intended to honour them. As the Court of Appeal points out in Muollo at [24], there is always the possibility that the decision to resile from the promise was a decision made subsequently.
[49] However, I am satisfied that this is one of those rare cases where a plaintiff is able to prove a dishonest intention at the time the promise was made.
[50] I am satisfied that at the time Mrs Hamilton gave these assurances about personally paying the debt in full from the sale proceeds, she impliedly represented that she intended to make good her promise, but in fact had no such intention. I am also satisfied she knew all along there would or was likely to be insufficient monies from the Lincoln house sale.
[51] In drawing these adverse inferences, I rely in particular on the incontrovertible evidence of the lies she told Mr Hamilton and on her conduct in failing to pay the money from the Lincoln house before going overseas. She falsely told Mr Hamilton the house had not been sold when she knew it had been sold, and then she later lied to him about who owned the house and what had happened to the sale proceeds. Then there was evidence of her overdrawing her shareholder’s capital account at a time she knew PDSA was insolvent. That was hardly the action of a person who genuinely intended to pay a company debt out of her own personal
funds. Of some significance, too, is the fact that Mrs Russell concealed the giving of any assurances from her solicitor. Although one of the main reasons for consulting him in November 2005 was because of McKeowns’ demands for payment, she did not tell him until May 2007 that she had verbally guaranteed payment of $40,000. The solicitor admitted to being “surprised” she had not told him this before.
[52] I also found Mrs Russell’s claims about not knowing how little would be realised from the house sale to be implausible. When questioned about the sale proceeds, her answers appeared vague and evasive. She claimed, for example, not to have known until receiving the solicitor’s settlement statement that the bank was going to insist on having its mortgage repaid and also claimed not to remember why an additional $50,000 appeared to have been paid to the bank over and above the amount owing under its mortgage. When asked whether the explanation could be that she and/or the other shareholder had personally guaranteed the bank’s overdraft facility for PDSA, she claimed to be unsure whether the bank had required a guarantee. I consider it most unlikely in the circumstances that Mrs Russell would not have known, or at least not made some enquiries prior to receiving the solicitor’s final statement at the end of May 2005. Even if I am wrong and Mrs Russell had not made any enquiries, that failure in itself points toward her having no intention to honour her assurances to McKeowns. A person who was genuinely assuring another they would be able to repay a debt from the sale of a house would make some effort to ascertain that there would be sufficient funds available.
[53] In coming to these conclusions, I have not overlooked the point made by Mr Hix about delay. There was evidence from Mrs Russell’s lawyer and accountant that the misrepresentation allegations now being made against Mrs Russell were never raised at any of the meetings they attended in late-2005 with McKeowns (although this was disputed by Messrs Hamilton and McKeown). Nor is there any specific reference to alleged misrepresentations in any of the correspondence until May 2007. Mr Hix submitted that the belated raising of the allegation points to the assurances never having been made in the first place or of not having the importance now being placed on them.
[54] I accept the absence of any specific reference to the allegations is a relevant factor and it is something I have taken into account. However, any inference to be drawn from it is far outweighed by the cogency of other evidence. It also needs to be borne in mind that no notes of the meetings were produced and even Mrs Russell’s lawyer accepted that the logical inference of what McKeowns were requiring at the meetings and in their correspondence was for Mrs Russell to pay the debt. Significantly, the accountant said he recalled discussion in December 2005 about the possibility of Mrs Russell settling the McKeowns debt from a house sale, while as I have already mentioned, Mrs Russell’s lawyer also testified that Mrs Russell herself had told him in May 2007 that she had verbally guaranteed payment of $40,000 to McKeowns.
[55] As for the delay between January 2006 and May 2007, Mr McKeown explained that this was due to inaction on the part of McKeowns’ solicitors.
Did Mrs Russell’s conduct have the capacity to mislead or deceive?
[56] In order to establish a breach of s 9, McKeowns must prove that Mrs
Russell’s conduct was likely to mislead or deceive.
[57] As explained by the Supreme Court in Red Eagle Corporation Ltd v Ellis [2010] 2 NZLR 492, this requires an assessment of the circumstances in which the conduct occurred and the person or persons likely to be affected by it. The test to be applied is an objective one, namely whether a reasonable person in McKeowns’ situation – that is, with the characteristics known to Mrs Russell or of which Mrs Russell was aware – would likely have been misled or deceived.
[58] Fairlie is a small community, and at the time of the events in issue McKeowns was a relatively small family business that embodied (as Mr Andersen put it) values of personal relationships and trusting customers. Its policy was not to ask for written guarantees. Further, Mrs Russell was a person of standing in the Fairlie community. She had served three terms on the Fairlie Community Board and had been involved in a variety of community projects and activities. In cross- examination she accepted that in a small community it was important that people
could trust the words of others and that she had held herself out as a person whose word could be trusted.
[59] In those circumstances, the representation did in my view have the capacity to mislead or deceive. Someone in McKeowns’ position could reasonably place trust in Mrs Russell’s current intention to keep her word.
[60] Mr Hix argued that the characteristics of McKeowns included the fact that Mr Hamilton had past experience as a banking officer and would therefore have appreciated the importance of obtaining a guarantee and not relying simply on a debtor’s say-so. Mr Hamilton’s evidence was in fact to the effect that his personal preference would have been to obtain a written guarantee, but on this he was overruled by Mr McKeown.
[61] On the other hand, Mr Hamilton also said that unlike him, Mr McKeown had had previous dealings with Mrs Russell. Mr Hamilton also stated that Mrs Russell was very personable, that her word was “a substantial thing to hang your hat on” and that there was no reason to disbelieve her. He confirmed that the company ethos was to take people at their word and that its ethos was different from the banking system, which he had come from, where everything was put in writing.
[62] In my judgment, Mr Hamilton’s banking experience and personal views are not part of the characteristics of McKeowns for this purpose, and even if they were, the breach still had the capacity to mislead or deceive someone with Mr Hamilton’s background given the context.
Section 43 – causation and the measure of damages
[63] Having found that there was a breach of s 9, I now turn to consider whether the requirements of s 43 are satisfied, and in particular whether McKeowns has proved it suffered loss or damage as a result of Mrs Russell’s misrepresentations.
[64] Section 43 provides:
43 Other orders
(1)Where, in any proceedings under this Part of this Act, or on the application of any person, the Court finds that a person, whether or not that person is a party to the proceedings, has suffered, or is likely to suffer, loss or damage by conduct of any other person that constitutes or would constitute—
(a)A contravention of any of the provisions of Parts 1 to 4 of this Act;
…
(2)For the purposes of subsection (1) of this section, the Court may make the following orders—
…
(d)An order directing the person who engaged in the conduct, referred to in subsection (1) of this section to pay to the person who suffered the loss or damage the amount of the loss or damage:
[65] In applying s 43, I must first determine whether McKeowns was actually misled or deceived by Mrs Russell’s conduct and secondly whether her conduct in breach of s 9 was an operating cause of McKeowns’ loss or damage.
[66] The evidence clearly established that McKeowns was actually misled and deceived. Otherwise, it would never have continued to supply product from November 2004 onwards, without obtaining security.
[67] The second issue – whether Mrs Russell’s conduct was an operating cause of McKeowns’ loss or damage – is more difficult because it is necessary first to identify the nature of the recoverable loss.
[68] It is well established that the measure of damages under the Fair Trading Act is the tort reliance measure. The object of damages in tort is of course to place the plaintiff in the position it would have been in but for the commission of the tort. It follows that it is necessary for me to determine what McKeowns would have done had they not relied on the representation. How would McKeowns have reacted had they been told Mrs Russell had no intention of keeping her promise?
[69] Clearly, either one of two things would have happened.
[70] Either McKeowns would have stopped supplying product in November
2004, in which case they would still have been saddled with a debt in the vicinity of
$180,000. The evidence also established that in November 2004 there would have been little or no prospect of recovering the $180,000. On that scenario, the loss is therefore the difference between the amount of the debt at November 2004 and the amount of debt at December 2005, namely $35,405 ($215,405.95 minus $180,000).
[71] Alternatively, McKeowns would have obtained security, and then continued supply. On that basis, the loss is the absence of appropriate security and that is the loss in respect of which causation must be established.
[72] If the loss is the absence of effective security, then that can only be seen as having been caused by Mrs Russell’s breach of s 9 if it is more likely than not that, but for her breach, the security would have been obtained.
[73] Another approach would be to say that the reliance has deprived McKeowns of the opportunity of obtaining a written guarantee and their loss should be assessed in terms of loss of chance principles, with appropriate discounts being made for contingencies such as the possibility that Mrs Russell might have taken professional advice and been advised against giving any security.
[74] Under cross-examination, Mrs Russell however testified that in 2004 she would have been prepared to put money in PDSA if that was the only way to keep it trading, and that she believed at the time it would be able to trade its way out of its then difficulties.
[75] Given that evidence, and given that she had another house property in addition to the one at Lincoln, I am satisfied on the balance of probabilities that if McKeowns had insisted on security from her personally to enable supply to continue, then Mrs Russell would have provided it and it would have been adequate security to cover all of the PDSA debt.
[76] The amount of the loss is therefore the amount of the unrecovered debt still owing by PDSA. I am satisfied there is a clear causal nexus between that loss and Mrs Russell’s breach of s 9.
[77] For reasons which are discussed later in this judgment, I consider that the loss was also caused by McKeowns’ own conduct in failing to take reasonable care to look after its own interests. However, it is clear from the authorities that provided the claimant’s own carelessness was not the sole cause and was only a contributory operative cause (as in this case), then the claim is still sustainable: see Red Eagle Corporation at [30] and its approval of the following quote in Henville v Walker (2001) 206 CLR 459 at 468:
The purpose of the legislation is not restricted to the protection of the careful or the astute. Negligence on the part of the victim of a contravention is not a bar to an action under [the Australian equivalent of s 43] unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage.
Quantum
[78] The claim is for $215,405.95, which represents the total amount of unpaid invoices for 2005.
[79] As I have mentioned, McKeowns accepts that a deduction should be made on account of the assets and the stock it received when it took over the garage.
[80] On McKeowns’ calculations, that reduces the claim to $161,155.95, an allowance of $29,311 being made for assets and $24,939 in respect of stock.
[81] Mr Hix submitted that further adjustment should be made to take account of the following:
i) Debts belonging to PDSA which have been collected by
McKeowns after the takeover.
ii)The difference between Mrs Russell’s estimate of the value of the plant ($43,000) and the valuation relied upon by McKeowns ($29,311), which Mrs Russell never accepted.
iii)The value of stock from the lube bay, which has never been valued but which McKeowns acquired.
[82] As regards the plant, the valuation on which McKeowns rely was a valuation undertaken by an independent registered valuer. His report was the only independent expert opinion, and in the circumstances I am not persuaded to depart from it.
[83] PDSA, and therefore Mrs Russell, is however entitled to a credit for money received from debtors and for the stock that has not been valued.
[84] Mr Andersen argued these would be ascertainable amounts and that there would be no injustice if they were ignored because Mrs Russell could take appropriate steps.
[85] I do not accept that submission, not least of all because the amount of the recovered debts is something peculiarly within the knowledge of McKeowns. There also needs to be some finality without the need for any more proceedings especially given the relatively modest amounts at stake.
[86] On the other hand, I do not consider it would be appropriate for me to engage in what could only be guess work given the paucity of evidence.
[87] In the circumstances, I have decided the most just way of dealing with the matter is to direct that McKeowns are to provide Mrs Russell with the relevant information in the hope that agreement can be reached on the amount but with leave reserved to either party to come back to the Court if required.
[88] Mr Hix also submitted that the amount of any damages awarded should be reduced on account of McKeowns’ contribution to the size of the losses suffered by PDSA, and hence its indebtedness.
[89] In support of that submission, Mr Hix emphasised the imbalance in bargaining power between the parties and identified the following conduct:
a) McKeowns’ change of brand from Mobil to Caltex, which resulted in
PDSA incurring significant costs.
b)Recommending to Mrs Russell that she discount her prices, which was to PDSA’s detriment but the benefit of McKeowns.
c) Requiring McKeown-branded product in the shop. d) The dumping of fuel.
e) Suggesting additional capital expenditure through raising the canopy. f) Failing to remove nearby competition in the form of a truck fuel stop.
[90] There is no doubt that under s 43 the Court has a wide discretion and is entitled to reduce an award of damages that would otherwise be payable on account of contributory conduct by a claimant: see Red Eagle Corporation at [30] reaffirming Goldsboro v Walker [1993] 1 NZLR 394 (CA).
[91] I am not persuaded, however, that any of the matters listed above amount to contributory conduct for the purposes of s 43.
[92] The evidence established that McKeowns had no choice but to change brands. It was a matter beyond their control, as was the continued operation of the nearby truck stop. McKeowns had no say as to how Mrs Russell ran her business. Ultimately, decisions, including pricing and the sale of other products, were hers to make as she herself accepted in cross-examination. I am also not persuaded that dumping of fuel, as explained by Mr Hamilton, was of any significance.
[93] Where, however, I consider Mr Hix is on stronger ground was in a further submission that like the claimant in Red Eagle Corporation, McKeowns had failed to take reasonable care to look after their own interests.
[94] The evidence established that the only check made by McKeowns was to undertake a title search of the Lincoln property to ascertain ownership. As Mr Hix points out, McKeowns allowed a large debt to remain in place and continue growing without any security. No checks were made as to levels of mortgage lending, no valuations obtained for the home and no documentation put in place to record any debt, guarantee or security.
[95] Even allowing for the company’s ethos, I consider it adopted too careless an attitude.
[96] As noted in Red Eagle, the exercise of the power to make an order for payment under s 43 is in the end a matter of doing justice to the parties in the circumstances of the particular case and in terms of the policy of the Act.
[97] I consider that in the circumstances McKeowns should bear responsibility for a percentage of the loss, which I fix at 50 per cent.
Limitation – is the claim out of time?
[98] Section 43(5) of the Fair Trading Act provides:
An application under subsection (1) may be made at any time within 3 years after the date on which the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered.
[99] In applying s 43(5), the Court must ask itself two questions:
i)When did McKeowns become aware it was more probable than not that loss had occurred?
ii)When would a reasonable person in McKeowns’ situation have known it was more probable than not that loss had occurred? (See Commerce Commission v Carter Holt Harvey Ltd [2010] 1 NZLR 379.)
[100] Mr Hix contended that the three-year limitation period started to run either when Mrs Russell went overseas (16 June 2005) or at the time of the first meeting after her return, that meeting according to her evidence being held on 12 October
2005.
[101] If time started to run at either of those dates, then the claim would be statute barred. The proceedings were not issued until 21 October 2008.
[102] Mr Andersen for McKeowns however contended that time did not start to run until the meeting of 21 December 2005 when Mrs Russell expressly disavowed any personal liability.
[103] Turning first to June 2005 when Mrs Russell was overseas.
[104] In evidence, Mr Hamilton said that after Mrs Russell had departed for overseas, he was concerned to learn she had departed without paying for all the current fuel dumps, as had been agreed, and that she had not informed her acting manager about the agreement. He testified (transcript, page 28-29):
a.… alarm bells were certainly ringing at that point when she left, they were ringing very very loudly.
q. in your brief, 2.9, “she previously…”
a.mm. also which set things going, we had this understanding she’d been paying for current fuel dumps, one happened just before she left and a chq turned up for $4000 and something as opposed to the whole previous fuel dump. When talking to Ms O'Neill she had no knowledge of that agreement or that you know, that that was going to happen and needless to say right at that point I knew we had some difficulties
q. fair to say becoming pretty clear you couldn't really place 100%
reliance on just Ms Russell’s word at that stage.
a.that’s correct, but we were unable to contact her while she was away urgently, I think that was because of her travel arrangements, we had an email we could use but we didn't get any fast answers from that.
[105] I have considered this testimony very carefully. In my view, what it amounts to is that McKeowns were aware at that point that loss was a possibility and indeed may well have occurred. In layman’s terms, it was on the cards that Mrs Russell was
stringing them along and they were not going to get paid. However, what is required following Carter Holt Harvey is knowledge (actual or constructive) that loss is more probable than not. My assessment of Mr Hamilton’s evidence is that his state of awareness, and hence that of the company, had not yet reached that threshold. Nor would that of a reasonable person.
[106] I agree however with Mr Hix that once McKeowns met with Mrs Russell on her return from overseas and learnt the Lincoln house was not apparently owned by her after all but by a trust and that the trust had taken all the money, then time did start to run.
[107] Any later time would be to require knowledge of near certainty of loss which was rejected as too high a threshold in Carter Holt Harvey.
[108] I am reinforced in that conclusion by reference to the fact that immediately after that first post-overseas meeting, McKeowns consulted their lawyers, presumably with a view to possibly taking legal action. Mr Hamilton also acknowledged in cross-examination that as a result of that meeting it was “becoming very clear to me that Ms Russell wasn’t quite as upright as we thought she was in her dealings…”.
[109] It then of course becomes crucial to determine whether that first post- overseas meeting took place on 12 October 2005 (as Mrs Russell contends) in which case the claim is statute barred, or whether it is 8 November 2005 (as Messrs Hamilton and McKeown contend) in which case the claim is inside the three-year limitation period.
[110] In support of her contention that the meeting took place on 12 October 2005, Mrs Russell produced a diary entry for 12 October 2005 which reads:
PDSA Cashbook
12pm
12.30 Oamaru
McKeown & Graham
2.15
4.30
Oamaru
Calld [sic] at Dorothy & Ron’s
[111] Mrs Russell also claimed that she went to see her accountant after the meeting with McKeowns. The accountant gave evidence and confirmed from his records that he had met with Mrs Russell on 1 November 2005.
[112] McKeowns have lost their records of the meeting due to a computer malfunction. Mr McKeown and Mr Hamilton’s date of 8 November 2005 is based on their reconstruction of events, in particular their recollection that they had considerable difficulty locating Mrs Russell after her return from overseas, with several weeks going by before she made contact and a date could be found that suited everyone.
[113] McKeowns point to the fact that in a letter dated 21 November 2005 Mrs Russell’s solicitor refers to “recent discussions” between the parties as well as “discussions last week”. The solicitor also testified that Mrs Russell only first consulted him about the matter on 18 November 2005.
[114] It is arguably unlikely that Mrs Russell would have waited from 12 October until 18 November before consulting her solicitor, especially given the general tenor of the evidence that after the first post-overseas meeting with McKeowns, both she and McKeowns regarded the matter as urgent and things moved very quickly. Mrs Russell also testified that the recent discussions mentioned in the lawyer’s letter were discussions that had taken place “straight after” the first post-overseas meeting with McKeowns, which could not be correct if that meeting had taken place back in October.
[115] A further complication is that Mrs Russell testified she went to see her accountant before the crucial meeting as well as after it. Thus, the independently verified fact that she saw her accountant on 1 November does not necessarily mean that the meeting with McKeowns had already taken place.
[116] The accountant was unable to recollect whether on 1 November 2005 Mrs Russell had mentioned having met with McKeowns. However, his only written record of the meeting (his timesheet) tends to suggest that the discussion on 1
November with Mrs Russell was about preparation of PDSA’s draft accounts. The entry in the timesheet reads:
look out records re 2004 a/cs, meet with jenny to estimate stock at 31/03/04 and provide her with information required to prepare draft of 2005 a/cs
[117] The first specific reference to McKeowns’ debt in the timesheet comes later, on 18 November.
[118] Mrs Russell’s diary does not have entries for any of the other meetings with McKeowns. At the hearing it also transpired that although she initially described the diary as a work diary, it was really a personal diary and that there was another work diary in existence. I asked for this other diary to be provided to the Court but it was not able to be located.
[119] As will be readily apparent, the evidence is inconclusive.
[120] The burden of proof on this issue however rests on Mrs Russell: see
Humphrey v Fairweather [1993] 3 NZLR 91; Carter Holt Harvey.
[121] Mrs Russell has failed to satisfy me on the balance of probabilities that the meeting took place on 12 October 2005, or indeed at any time prior to 21 October
2005 (being three years before the proceeding was filed). If anything, the weight of evidence suggests it was more likely to have been November.
[122] The limitation defence therefore fails.
Should McKeowns’ claim be unenforceable for public policy reasons?
[123] The Contracts Enforcement Act requires that personal guarantees must be in writing to be enforceable.
[124] Mr Hix argued that McKeowns’ claim under the Fair Trading Act, involving as it does an oral guarantee, was effectively a backdoor method of circumventing the Contracts Enforcement Act and should therefore not be allowed for reasons of public policy. Mr Hix was unable to cite any authority to support that proposition, but submitted it followed as a matter of principle.
[125] I disagree. McKeowns’ claim under the Fair Trading Act is not based on contract. It is based on misleading and deceptive conduct. Or to put it another way, the reason the claim is sustainable is not because Mrs Russell gave a guarantee per se, but because at the time she gave the oral guarantee, she did not have a present intention to make good her promise.
[126] In proving that a promisor did not intend to perform the promise or that the intention lacked adequate foundation, more will be required than simply proving non-fulfilment of the promise when the time for performance arrives. Of itself, evidence of breach is not enough: see Global Sportsman Pty Ltd & Anor v Mirror Newspapers Ltd & Anor (1984) 55 ALR 25. Allowing a claim under the Fair Trading Act will not therefore result in all oral guarantees becoming enforceable.
[127] I also disagree with another submission made by Mr Hix, namely that the primary purpose of the Fair Trading Act is consumer protection and therefore it should not be invoked to penalise Mrs Russell who, to all intents and purposes, was in relation to McKeowns a consumer. While the Act may originally have been conceived as a consumer relief measure, its application has extended well beyond that sphere: see Crump v Wala [1994] 2 NZLR 331 at 341. It is sufficient that Mrs Russell was in trade.
Outcome of hearing
[128] I find that McKeowns has established its claim under the Fair Trading Act and that the claim is not statute barred.
[129] I direct that within five working days, McKeowns are to supply Mrs Russell’s solicitors with:
(a) The information relating to debts owing to PDSA that McKeowns has recovered.
(b) McKeowns’ assessment of the value to be placed on the stock in the lube bay.
[130] There will be a conference call at 9 a.m. on 8 September 2010, at which after hearing from counsel I will fix the amount if required.
[131] I will then formally enter judgment in favour of McKeowns on the basis of the formula of 50% of $161,155.95 less a credit for the recovered debts and the unvalued stock.
[132] Although the statement of claim has not made any claim for Judicature Act interest, the Court has the power to award interest. Counsel will be given an opportunity to be heard on the issue of interest and also costs at the conference call.
Solicitors:
Aspinall Joel, Dunedin
(Counsel: L A Andersen, Dunedin) Quentin Hix Legal, Timaru
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