Memelink v Grindlay
[2014] NZHC 2009
•22 August 2014
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2013-485-9708 [2014] NZHC 2009
UNDER the Law of Contract, the Contractual
Remedies Act 1979 and the Defamation
Act 1992IN THE MATTER OF
a breach of contract and defamatory statements
BETWEEN
HARRY MEMELINK Plaintiff
AND
MALCOLM GRINDLAY First defendant
ROBYN GRINDLAY Second defendant
Hearing: 11 July 2014
Further submissions 18 and 23 July 2014
Appearances:
A J Pietras for the plaintiff
P Davidson for the defendantsJudgment:
22 August 2014
JUDGMENT OF CLIFFORD J
Introduction
[1] The plaintiff, Harry Memelink, is suing the first and second defendants, Malcolm and Robyn Grindlay, for breach of contract and defamation. It is the first of those causes of action that is relevant here.
[2] On 19 February 2014 Mr Memelink entered judgment by default against the
Grindlays in the sum of $185,000 for monies owing under the contract, interest on that amount at 6.5 per cent per annum thereafter until payment, and $5,970 for costs.
MEMELINK v GRINDLAY [2014] NZHC 2009 [22 August 2014]
[3] The Grindlays now apply to have that default judgment set aside.
Background
[4] Mr Memelink operated a scrap recycling business (the Business) through a company D M Recyclink Ltd (Recyclink). In April 2013 the Grindlays agreed to buy the Business by purchasing the shares in Recyclink and entering into a lease of premises owned by Mr Memelink, or a company owned by him, out of which Mr Memelink had operated the Business.
[5] The contract for the purchase of the shares in Recyclink recorded in a very simple agreement (the Share Contract) that:
(a) The purchase price for the shares was $200,000.
(b) The Grindlays were to pay a deposit of $20,000 on the settlement date
– 12 April 2013. Sixty per cent of the shares would then be transferred to them.
(c) The Grindlays would pay monthly instalments of $5,000 with the first two instalments (May and June presumably) satisfied by the payment of the deposit.
(d)The Grindlays would pay the final instalment of the outstanding balance of the purchase price by 12 April 2014, at which point the balance of the shares would be transferred to them.
[6] The Share Contract settled. The Grindlays in fact paid a deposit of $15,000, and took over the Business.
[7] Difficulties between the Grindlays and Mr Memelink arose. In November
2013 the Grindlays delivered a letter to Mr Memelink’s premises cancelling the Share Contract, and the lease. Shortly after Mr Memelink commenced these proceedings.
[8] Mr Memelink filed his statement of claim on 27 November 2013 and served it on Mr and Mrs Grindlay on 27 and 28 November 2013 respectively. As relevant, Mr Memelink pleaded that the Share Contract provided that:
(a) the plaintiff sells his 500 shares in DM Recyclink to the first and second defendants for the sum of $200,000 (the purchase price);
(b) settlement date for the sale is 12 April 2013;
(c) the first and second defendants must pay the plaintiff a deposit of
20,000;
(d) the first and second defendants must make payments towards the purchase price at a rate of $5,000 per month, but the first two payments are to be taken as part of the 20,000 deposit;
(e) the plaintiff would transfer 60% of his shares in DM Recyclink to the first and second defendants on the first and second defendants paying 10,000 of the purchase price, and, at such time, the first defendant is to be appointed as a director in DM Recyclink.
…
(i) interest on the purchase price must be paid to the plaintiff by the first and second defendants at a rate of 6.5% per annum;
(j) the full purchase price must be paid by 12 April 2014;
(k) the plaintiff must transfer the remaining 40% of his shares to the first and second defendants when the full amount of the purchase price is paid.
[9] On the basis that the Grindlays had not paid instalments as required and had wrongfully and without proper justification sought or purported to cancel the Share Contract, Mr Memelink claimed for:
A. A declaration that the agreement of 12 April 2013 was not validly cancelled by the first and second defendants and remains in force.
B. Payment to the plaintiff of 7 x $5,000 monthly payments for the period
May – November 2013.
C. Payment to the plaintiff of any further of the 5,000 monthly payments that have accrued by the time of Judgment for the period December to April 2014.
D. Payment to the plaintiff of any unpaid balance of the purchase price of
$200,000 as at the time of judgment.
E. Interest on any unpaid or late paid amounts mentioned at B, C and D calculated at a rate of 6.5% per annum or such other interest rate approved by the court.
F. The costs of and incidental to this proceeding.
[10] No statement of defence having been filed, on 19 February 2014
Mr Memelink entered his judgment by default.
[11] The Grindlays filed an application to set aside that judgment on 17 March
2014. They did so on the basis they had a reasonable excuse as to why they had not filed a statement of defence (their solicitor’s oversight) and an arguable defence (breaches of the Share Contract by Mr Memelink) so that, in all the circumstances, there would be a miscarriage of justice if the judgment Mr Memelink obtained by default was not set aside.
A preliminary – but decisive – issue
The issue
[12] The Grindlay’s application was set down for hearing before me on 11 July
2014. Having reviewed the file, on 10 July 2014 I issued a minute questioning whether, in terms of the commentary in McGechan on Procedure which notes “[j]udgment must be entered strictly in terms of the statement of claim”,1
Mr Memelink’s default judgment had been entered into on that basis. In that minute
I noted that:
[3] Mr Memelink’s statement of claim (clause 5(d)) pleads that the
contract relied on:
(a) provided for an initial deposit of $20,000 (of which $15,000 was paid) and thereafter instalments at the rate of $5,000 per month; and
(b) that the full purchase price was to be paid by 12 April 2014. [4] By way of relief, Mr Memelink sought orders for payment of the
instalments due for the period May – November (the month proceedings
were issued) and further monthly instalments that had accrued by the time of judgment.
1 Andrew Beck and others McGechan on Procedure (looseleaf ed, Brookers) at [HR15.7.05].
[5] Judgment by default was entered on 19 February 2014 for $185,000, the full amount owing under the contract once the deposit is accounted for.
[6] In terms of the contract as pleaded, the full purchase price would appear not to be payable until 12 April 2014 and, as at 19 February 2014, outstanding instalments (May to February) of $50,000 would appear to have been outstanding.
[13] Mr Pietras, for Mr Memelink, and Ms Davidson, for the Grindlays, responded to that minute with written memoranda of their own – obviously prepared at short notice – and oral submissions at the hearing on 11 July 2014.
[14] The Grindlays, not surprisingly, adopted the view I had tentatively expressed. Mr Pietras, for Mr Memelink, argued that the point could not now be raised, as it had not been raised by the Grindlays and, moreover, judgment had been entered strictly in terms of the statement of claim: the Grindlays having cancelled the contract, the total amount unpaid under the contract was due to Mr Memelink and that was the amount in respect of which the default judgment was entered.
[15] Mr Pietras’ written and oral submissions did not persuade me that the issue I had raised was not a live one, and potentially fatal to Mr Memelink’s default judgment. I therefore provided both Mr Memelink and the Grindlays with the opportunity to make further submissions.
The parties’ further submissions
[16] Mr Pietras submitted that the Grindlays’ letter of November 2013, in which the Grindlays made it plain they had no intention of paying any of the unpaid Share Contract amount by April 2014, constituted a waiver by the Grindlays of the right to rely on the extended terms of payment provided by the Share Contract. That “waiver and walk-out” made it proper for Mr Memelink to obtain default judgment for the full amount payable, not only up until February 2014, but also after that time – up until and including the April 2014 date. In support, Mr Pietras referred to the case of
New Zealand Railways Corporation v Fletcher Development and Construction Ltd.2
2 New Zealand Railways Corporation v Fletcher Development and Construction Ltd (1990) 1 NZ Conv C 190,464 (CA) at 190,467.
[17] Alternatively, Mr Pietras argued that, notwithstanding Mr Memelink’s pleading to enforce the contract, the contract had in fact been cancelled and the matter should be treated in terms of the decision of the Court of Appeal in Chatfield v Jones.3 There the Court held that a refusal to complete a contract was an act of repudiation. In that case, on repudiation, the vendors had the right to affirm the Share Contract and sue for specific performance, or at their election to cancel the
Share Contract and seek damages. Likewise, Mr Memelink’s statement of claim of claim was, in these circumstances, to be construed as a claim for damages. The statement of claim therefore evinced or notified his cancellation of the repudiated Share Contract and his claim was for damages.
[18] On either basis, Mr Memelink was entitled to the full unpaid contract amount.
[19] In her submissions for the Grindlays, Ms Davidson argued that Mr Memelink’s judgment by default had not been strictly in terms of the statement of claim. In Mr Memelink’s statement of claim he had sought to enforce the contract. Mr Memelink pleaded that the Grindlays’ cancellation was ineffective. He sued for monies owing under the Share Contract as at the judgment date. Mr Memelink could not now say, in light of that pleading, that the Share Contract had been cancelled. In terms of the requirement that judgment be entered strictly in terms of the pleadings, the Grindlays referred to the decision of Blair J in
Natrass v Rail Tractors Ltd to the following effect:4
Any judgment by default must strictly follow the pleadings: Smith v Buchan5; and where, as in the present case, the appellant claims to be entitled to have the judgment set aside ex debito justitiae, the allegations in the statement of claim of claim cannot be contradicted.
[20] Moreover, and if the Share Contract had been cancelled, Ms Davidson argued that Mr Memelink had misunderstood the effect of that cancellation: if cancelled, obligations that have accrued up to the date of cancellation remain unaffected but, thereafter, no party is obliged to perform the contract further. The claim becomes
one for damages for breach of contract. Relief after cancellation is not a liquidated
3 Chatfield v Jones [1990] 3 NZLR 285 (CA).
4 Natrass v Rail Tractors, Ltd [1928] NZLR 620 (CA) at 626.
5 Smith v Buchan (1888) 59 LT 710 (Ch).
claim, but requires an assessment of those damages. Here, Mr Memelink retains 40 per cent of the shares that were to have been sold under the Share Contract. In any action for damages, account would need to be taken of that fact, and – no doubt – of other matters as well.
Analysis
[21] Having considered those submissions further, and the matter generally, I am satisfied that Mr Memelink’s default judgment was not entered strictly in terms of his pleading. I consider that is a defect at law and that it would therefore be wrong for me to uphold Mr Memelink’s default judgment, notwithstanding the fact that the Grindlays did not actually raise that issue. I have therefore concluded that I must set aside Mr Memelink’s default judgment.
[22] I now set out my reasons for that conclusion.
[23] There is a long line of authority for the principle that a default judgment that was not obtained on the express basis of the statement of claim is irregularly obtained,6 and as such can be set aside.7 In Richmond v Heskett Holdings Ltd,
Penlington J held that:8
… the plaintiffs obtained a judgment in circumstances in which they went beyond their pleadings and that being so, I am bound to hold that the judgment was obtained irregularly with the consequence that the defendant is entitled to have it set aside ex debito justitiae.
[24] The existence of a miscarriage of justice is inherent in an irregularly obtained judgment and, accordingly, unless the irregularity is minor, the setting aside of the
judgment is the appropriate outcome. 9
6 See Smith v Buchan, above n 5; Natrass v Rail Tractors Ltd, above n 4; Necchi Societa Per Azioni v Robert and Hoskins Ltd HC Hamilton A18/85, 15 May 1987; Richmond v Heskett Holdings Ltd (1995) 8 PRNZ 527; ANZ Banking Group (New Zealand) Ltd v Ord (2000) 14
PRNZ 31(HC).
7 Arnott v Artisan Holdings Ltd (1998) 12 PRNZ 205 (HC); Broadbank Corp Ltd v Alexander
(1986) 1 PRNZ 117 (HC); O'Shannessy v Dasun Hair Designers Ltd [1980] 2 NZLR 652 (HC); Baker v State Insurance Office General Manager HC Wellington CP282/88, 31 August 1988; and ANZ Banking Group (New Zealand) Limited v Ord and Ors HC AK CP676/98 26 January
2000; Mehta v Grimshaw HC Auckland CIV-2007-404-4855, 10 March 2008.
8 Richmond v Heskett Holdings Ltd, above n 1.
9 Pulmax v Orix New Zealand Ltd HC Auckland CIV-2007-404-4469, 29 February 2008 at [20];
Mehta v Grimshaw, above n 2, at [23].
[25] As set out above,10 Mr Memelink’s statement of claim asserted that the Grindlays’ cancellation of the Share Contract was ineffective. Mr Memelink did not accept the Grindlays’ cancellation (as he could have). Rather he sought to enforce payment of monies due to him under the Share Contract as at the date of judgment.
[26] I am satisfied that the Grindlays’ letter of 12 November 2013 constituted
repudiation of the Share Contract. The Grindlays wrote:
Further to our letter dated 10.10.2013, we are now CANCELLING both the contract and the lease of the Seaview Road premises and require a full refund of the 20K that has been paid to you.
[27] The letter went on to advise that they would return the keys to the building, together with its current stock, tools and vehicles, on Monday 17 November 2013.
[28] The Contractual Remedies Act 1979 provides, in s 7(2), as follows:
Subject to this Act, a party to a contract may cancel it if, by words or conduct, another party repudiates the contract by making it clear that he does not intend to perform his obligations under it or, as the case may be, to complete such performance.
[29] In the face of the Grindlays’ clear repudiation, Mr Memelink could have therefore, but did not, cancel the contract. Rather he sought to enforce it. He cannot now claim that his statement of claim had a different effect. Moreover, the Grindlays’ letter cannot, as Mr Pietras attempted to argue, be interpreted as a waiver rather than a repudiation: such an interpretation is contrary to the express terms of that letter.
[30] In seeking to enforce the Share Contract, Mr Memelink pleaded its terms. Under the Share Contract, the Grindlays were not required to pay the balance of amounts owing until 12 April 2014. As I indicated in my minute of 10 July 2014, when judgment was entered on 19 February 2014 there was some $50,000 outstanding by way of missed instalments and, potentially, a further $5,000 in terms of the shortfall of the deposit. The judgment entered was not, therefore, strictly in
terms of the pleading, or the Share Contract.
10 See [9].
[31] Even if Mr Memelink had cancelled the Share Contract, and again as was submitted for the Grindlays, the consequences would not have been an entitlement to the outstanding nominal purchase price. Section 9 of the Contractual Remedies Act provides a range of powers for the Court to grant relief where a contract is cancelled. A right to apply for such relief clearly does not give rise to entitlement to the payment of a liquidated sum. Section 10, subject to ss 4 to 6, of the Contractual Remedies Act preserves a right to apply for damages. But, again, an application for damages for breach of contract is not, in the circumstances of this contract, the demand for a liquidated sum. In the circumstances in which the Grindlays cancelled the Share Contract, there would clearly need to be inquiry as to damages.
[32] Neither of the cases that Mr Pietras cited assist Mr Memelink.
[33] In New Zealand Railways Corporation v Fletcher Development and Construction Ltd11 the parties had entered into an agreement for the sale and purchase of land which included a condition that the Railways Corporation would provide Fletcher with a separate title to the land on or before 31 March 1989. If that condition was not timeously fulfilled, at any time before fulfilment or waiver of the condition the contract could be cancelled. A separate title was not provided to Fletcher on time and Fletcher cancelled the contract and obtained summary judgment for the sum it had paid under the contract. The Railways Corporation appealed
against the summary judgment arguing, on the issue of waiver, that Fletcher’s actions were inconsistent with its insistence on strict compliance with time limits and to constituted a waiver of that condition. The argument was not upheld and the case is not authority for Mr Memelink’s, quite different, proposition that a party who purports to cancel a contract has, in effect, waived their right to insist that a judgment by default is entered strictly in terms of the plaintiff’s statement of claim.
[34] Chatfield v Jones involved vendors of shares suing for the payment of a purchase price, as here payable by instalments. There, however, the full amount of the purchase price had fallen due before the proceedings were issued. The question was whether the vendor could sue both for specific performance and for damages,
particularly where it had on-sold the shares to a third party before issuing
11 New Zealand Railways Corporation v Fletcher Development and Construction Ltd, above n 2.
proceedings. The Court of Appeal held that the vendors could issue proceedings claiming specific performance or, in the alternative, damages for loss of bargain. Election would need to be made at trial. But that finding does not help Mr Memelink. The full amount of the purchase price was not due when he entered his judgment by default, and in any action for damages – as the Grindlays submitted
– an inquiry would be required. The claim would not be for a liquidated amount equal to the outstanding balance of the purchase price, for which the default judgment was entered.
Conclusion
[35] On that basis the judgment by default Mr Memelink entered on 19 February
2014 is set aside.
[36] Given the circumstances in which this decisive preliminary issue was raised, I order that costs lie where they fall.
[37] The Grindlays may now file a statement of defence within the time period provided by the High Court Rules.
[38] I observe that this case and the associated lease dispute would appear well suited to mediation. I urge that option on the parties.
“Clifford J”
Solicitors:
A J Pietras & Co Ltd for plaintiff.
Jefferies Raizis, Wellington for defendants.
2
0
0