MJN McNaughton Limited v Thode HC Auckland CIV-2011-404-001590
[2011] NZHC 1340
•21 October 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-001590
BETWEEN MJN MCNAUGHTON LIMITED Appellant
ANDRICHARD JAMES THODE Respondent
Hearing: 19 July 2011
Counsel: S J Ropati for the Appellant
G P Blanchard for the Respondent
Judgment: 21 October 2011
INTERIM JUDGMENT OF DUFFY J
This judgment was delivered by Justice Duffy on 21 October 2011 at 1.00 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Counsel: G P Blanchard P O Box 1235 Shortland Street Auckland 1140 for the
Respondent
Solicitor: S J Ropati P O Box 90232 Victoria Street West Auckland 1142 for the Appellant
Copy To: Macky Roberton Limited (M A Roberton) P O Box 37622 (DX CP31503) Parnell Auckland 1151
MJN MCNAUGHTON LTD v THODE HC AK CIV-2011-404-001590 21 October 2011
[1] This is an appeal from a decision of the District Court dismissing the appellant’s claim to enforce a guarantee against the respondent. The appeal is opposed.
[2] The appellant, MJN McNaughton Limited, is a manufacturer and supplier of timber joinery. The respondent, Mr Thode, was a director of Nikau Living Limited (Nikau), which built houses prior to being placed in liquidation.
[3] The appellant contends that it supplied timber joinery to Nikau for a house that Nikau was constructing at 98 Victoria Avenue, Remuera, and that it is now entitled to recover the price of the joinery (being $30,177.01) plus associated costs and interest under a guarantee executed by the respondent on 20 August 2006.
[4] The respondent denies that Nikau entered into a contract with the appellant for the supply of the timber joinery for this project, and therefore maintains that there is no debt to be recovered under the guarantee.
[5] The District Court found that the appellant had failed to prove there was a binding contract between it and Nikau.
[6] The issues for this Court to determine are whether the District Court’s finding is correct and, if not, whether the contract between the appellant and Nikau created a debt that was recoverable under the guarantee.
[7] The principles for how this Court should approach an appeal from the District Court are well settled: see Austin Nichols and Co Inc v Stichting Lodestar [2007] NZSC 103; [2008] 2 NZLR 141.
[8] Whilst the arguments of the parties covered the merits of their respective positions, they also addressed how the claim was presented in the District Court. The appellant contends that its presentation was sufficient in terms of the new procedural rules adopted by that Court, whereas the respondent contends that the allegations the appellant was required to make and the evidence to prove those allegations was wanting; hence, the claim should fail on this ground as well.
[9] The parties’ arguments raise two questions. The first is merit-based and questions whether there was enough before the District Court to prove the claim. The second, which depends on a finding in the appellant’s favour on the first question, focuses on the form of the appellant’s case in the District Court and questions whether was it presented in a sufficiently clear way to meet the requirements of the new procedural rules.
[10] The appeal also raises other issues that were not addressed by the parties. This may be because their focus was on whether or not a contract had formed and so they did not go further and consider what were the consequences of a breach of that contract, and how these might affect recovery against the respondent under the guarantee. To allow the parties the opportunity to address these issues, I propose to issue an interim judgment making findings on the issues argued before me and to grant leave for them to file additional submissions on the outstanding issues.
Merits-based analysis
[11] At [37] of the judgment, the District Court found that there was no concluded contract for the appellant to supply timber joinery to Nikau. The reasons for reaching this finding are set out at [38]-[47] of the judgment.
[12] In short, the appellant’s case is that, as had occurred in the past, Nikau consulted with it during the drafting of plans for joinery for the building at Victoria Avenue; the appellant quoted for the job of manufacturing the joinery; later it was contacted by Nikau’s foreman (Mr Mickell) to come on site and measure up for the joinery; then it manufactured the joinery and delivered it to the building site, where the joinery remained until Nikau and later the new owner of the project refused to pay for it.
[13] Two years earlier, Nikau had entered into a written agreement which comprised an “application for monthly or other credit” and “terms and conditions of trade” with the appellant. This document set out the terms on which the appellant supplied joinery to its customers (the terms of trade agreement). The terms of trade agreement also included a guarantee of payment from the respondent for goods
supplied to Nikau. The appellant contends that the terms of trade agreement form part of any future supply contract between the appellant and its customers, including Nikau. The appellant relies upon the guarantee in the terms of trade agreement to recover the sum it seeks from the respondent.
[14] The respondent’s case was that Nikau had never contracted with the appellant for the Victoria Avenue project. In this regard, the respondent said that as director of Nikau, he had authority to bind Nikau contractually, but had not done so. The appellant’s argument in response was that Mr Mickell, whom the appellant believed to be an employee of Nikau, had bound Nikau to the contract. The respondent gave unchallenged evidence that Mr Mickell was an independent contractor whom Nikau had hired as its foreman. The respondent denied that Mr Mickell had authority to bind Nikau.
[15] To prove its claim against the respondent, the appellant had to establish:
(a) The existence of an agreement to manufacture and supply timber joinery for the project at Victoria Avenue (this required proof of how the contract arose, including whether Mr Mickell had authority to bind Nikau contractually);
(b)Performance by the appellant, namely by manufacturing and delivering the timber joinery to Nikau;
(c) Breach by Nikau, namely by its refusal to pay for the joinery; (d) The remedy it could have obtained from Nikau; and
(e) That the guarantee the appellant relied upon permitted recovery of the remedy Nikau was obliged to pay the appellant.
[16] From the information contained in the notice of claim and information capsules, plus evidence led at the hearing, it is clear to me that the claim alleged that there was a contract between the appellant and Nikau, which was partly oral, partly in writing, and partly implied from a course of conduct. A claim based on such
agreement is well recognised in law, and a specimen of such a claim can be seen from Bullen and Leake and Jacobs (ed) Precedents of Pleadings (12 ed, Sweet & Maxwell Ltd, UK, 2009).
[17] There was no doubt that the appellant had supplied timber joinery that complied with the plans and specifications prepared by Nikau’s draughtsman. There was unchallenged independent expert evidence to prove that this joinery was up to standard. Thus, there was no basis for the respondent to reject the supplied goods. The appellant had performed its part of the alleged contract.
[18] The District Court’s conclusion that there was no contract between the appellant and Nikau was based on nothing more than that Court finding the appellant’s evidence did not go far enough to prove the formation of a contract. The District Court made no finding that the appellant’s evidence was unreliable or false. Indeed, partway through the course of the evidence, the District Court expressed the view that it believed the evidence of Dennis McNaughton, who was a director of the appellant.
[19] Unlike the District Court, I consider that there was enough undisputed evidence from which a court could infer the formation of a contract.
[20] First, there was evidence to show that in August 2006, the respondent had executed the terms of trade agreement on behalf of Nikau and in his personal capacity as guarantor of Nikau’s obligations. The document provided that its terms were to be incorporated into any supply of goods by the appellant to the signatory.
[21] Secondly, there was evidence of the appellant’s involvement at the design stage with Nikau’s architect and draughtsman responsible for preparing the technical drawings for the joinery.
[22] Thirdly, there was the fact of the appellant having possession of the joinery plans and quoting for manufacturing the joinery. There was evidence that Nikau received the quote. Mr Lamb, the purchaser of the project from Nikau, gave
evidence that confirmed the quote was in a folder with other material of Nikau’s that
was associated with the project.
[23] Fourthly, the course of conduct of Nikau and the appellant followed much the same pattern as when joinery was supplied for an earlier project. The appellant led no evidence to prove that Mr Mickell had actual authority to bind Nikau. However, there was sufficient evidence from the appellant to prove that Mr Mickell had apparent or ostensible authority to bind Nikau.
[24] Mr McNaughton’s evidence was that he and Mr Mickell had attended meetings with Nikau’s architect and draughtsman regarding the joinery. Later, Mr Mickell asked Mr McNaughton to come and check the plan measurements against the actual measurements on site, now that the building was partly complete and ready for the installation of the joinery. Mr McNaughton also said under cross- examination that Mr Mickell had done the same in relation to an earlier building project of Nikau’s for which the appellant had supplied joinery. There was no suggestion that on the earlier occasion Nikau had objected to Mr Mickell behaving in this way and rejected the joinery that was supplied. Indeed, the parties accepted that on the earlier occasion, Nikau had paid for the joinery supplied by the appellant. When it came to determining if a contract for supply was concluded for the Victoria Avenue project, this earlier experience supports the inference that Mr Mickell’s request for the appellant to check on-site measurements had Nikau’s approval and authorisation and was Nikau’s way of conveying to the appellant acceptance of its quote for the supply of joinery for this project. It is understandable that a manufacturer of custom-made goods such as timber joinery would check the site measurements against the plans before manufacturing the goods. It is most unlikely that such a manufacturer would waste time and money by sending someone to the site to check measurements simply to reassure the builder that the physical measurements of the spaces to be filled by the joinery matched the plan measurements. Such conduct would serve no purpose if the manufacturer doing the measurements was not also going to be responsible for the manufacture of the joinery. It is hard to imagine another joinery manufacturer being prepared to manufacture joinery on the strength of plan measurements, coupled with an
assurance that another competitor had already measured up and confirmed the accuracy of the plans or the need to adjust them where necessary.
[25] Following the site visit, the appellant manufactured the joinery and then delivered it to the site. The delivery was seen by Nikau’s project manager, Mr Griffin. There is no evidence that he queried its delivery or rejected the joinery on the grounds that Nikau had not contracted for it. Nikau’s silence at this time is consistent with it having contracted with the appellant for the supply of the joinery.
[26] The totality of the above evidence supports the inference that following the on-site measurements with Mr Mickell, the appellant had concluded an agreement for the sale of goods to be manufactured. The terms of trade agreement and the quote constitute the written part of the contract. The request to come on site to check physical measurements against the plan constitute the oral and course of conduct part of the contract. It can be implied from this that Nikau had accepted the appellant’s quote. Nikau’s retention of the joinery is consistent with it accepting delivery of the items it had purchased from the appellant. There was no initial rejection by Nikau on the ground it had not ordered the joinery. The respondent’s evidence was not enough, in my view, to undermine this inference. Nothing he said was inconsistent with a contract arising in the way that I have described. Thus, there was enough evidence before the District Court for it to find that a contract had been proved.
Presentation of the claim
[27] There remains the problem that the appellant’s pleading did not present the claim in the way in which I have outlined. This may have disadvantaged the respondent’s defence to the point where he has been denied procedural fairness by not being on notice of the case he had to meet.
[28] At this point, the outstanding issues on which I have not heard from the parties come into play. These concern the nature of the available remedy for breach of the contract. There is little point in determining the outcome of the appeal in terms of the inadequacies of the appellant’s pleading on the formation of a contract, if the breach the appellant relies on does not lead to a remedy which is covered by
the guarantee. No one addressed these issues, either before the District Court or on appeal. Neither party’s pleading (by this I mean all the documentation now filed as part of the notice of claim procedure) would have assisted in this regard. Everyone appears to have overlooked the difference between a claim permitting recovery of damages for breach of contract and a claim for recovery of the contract price, and the impact of that difference on the rights available to the appellant under the guarantee.
[29] In other words, this case raises legal issues that were always at risk of not being fully recognised if they were not organised in a legally coherent way. This is what a pleading by way of statement of claim is intended to achieve. The material facts necessary to establish the legal elements of a cause of action are pleaded with the necessary particularity to inform the parties of the basis of the claim. The available precedents (e.g. those in Bullen and Leake and Jacobs) demonstrate that a claim can be pleaded concisely.
[30] Parties working under the new procedural rules might find it helpful to use well-settled precedents of pleadings as a checklist for the information they need to include in their notices of claim and “information capsules”. The factual narrative of a dispute (and its verification) is only relevant to the extent that it fits within the necessary elements of a legal cause of action. Parties need, therefore, to remind themselves of the elements they need to prove to succeed with their claims. To not do so risks presenting the Court with a factual melange that describes a dispute but omits the necessary elements to prove the legal cause of action on which they rely.
Outstanding issues
[31] The joinery was delivered some time in March 2008, but Nikau did not pay for the joinery. It was stored on site in a garage and none of it was used in the building project. The appellant discussed with Mr Lamb, who was buying the Victoria Avenue property, the possibility of him purchasing the joinery, but the price he was prepared to pay was not acceptable to the appellant. The sale of the property was to settle in May 2008, but shortly before the settlement date, the appellant removed the joinery from the site. It remains with the appellant.
[32] It is helpful to put this case in its legal context, in order to conceptualise what occurred after the joinery was delivered and payment was refused. The contract involved a sale of goods; it is necessary, therefore, to consider whether the Sale of Goods Act 1908 applied. Here, the joinery was being manufactured by the appellant so there was an element of services as well as goods: see Butterworths Commercial
Law in New Zealand (3rd ed Butterworths Wellington 1996) at [10.5] on what
qualifies as “goods” under the Sale of Goods Act. The parties need to address whether the Sale of Goods Act applies, and, if so, to what extent. This is because the Contractual Remedies Act 1979 has limited effect on contracts for the sale of goods: see Moodie v Agricultural Ventures Ltd [1998] 3 NZLR 129 at 135. If the contract in this case was for the sale of goods, then the breach of contract is not affected by s 7 of the Contractual Remedies Act.
[33] Secondly, the parties need to address whether the breach of contract permitted the appellant to sue for the contract price, or for damages. Ability to sue for the contract price usually turns on whether ownership has passed to the buyer. Thus, the impact of the appellant’s recovery and retention of the joinery needs to be considered. The answer will turn on the terms of trade agreement (which I consider formed part of the contract) and whether they varied the position under the Sale of Goods Act, should that Act apply. In general, recovery and possession is inconsistent with ownership of the joinery passing to Nikau, though the terms of trade agreement may alter this. Regrettably, as the copy of that agreement filed in this Court was badly photocopied, the full meaning of those terms is not readily apparent to this Court.
[34] The remedy available to the appellant is highly relevant to the action on the guarantee against the respondent. The terms of the guarantee cover “payment of all accounts” incurred by Nikau with the appellant and, under the guarantee, the respondent accepts “responsibility for payment” of those accounts. It seems clear that the guarantee would have covered payment of the contract price for the supply of the joinery. But it is doubtful that the guarantee would also cover payment of any damages owing as a result of breach of contract. The parties need to address, therefore, whether payment of damages by Nikau is something that the respondent has guaranteed. If damages are the available remedy, rather than recovery of the
contract price, and if the guarantee does not cover damages owed by Nikau, the appellant will not be able to recover its loss from the respondent.
[35] In view of the outstanding issues requiring attention, the parties also have leave to revisit the question of whether, due to the state of the pleadings, this Court should exercise one of the following options:
(a) Determine the appeal pursuant to s 76(1)(a) of the District Courts Act
1947; or
(b) Refer the matter back to the District Court and direct the
District Court to do one of the available actions set out in s 76(1)(b).
[36] The appellant should file its submissions on the issues raised herein no later than 15 working days following receipt of this judgment. The respondent should file submissions in response no later than 15 working days from receipt of the appellant’s submissions. The appellant then has seven working days from receipt of the respondent’s submissions to file any submissions in reply.
Duffy J
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