Moffitt Dairy Limited v Hazlett Limited
[2020] NZHC 2060
•14 August 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2020-409-219
[2020] NZHC 2060
UNDER the Companies Act 1993 BETWEEN
MOFFITT DAIRY LIMITED
Applicant
AND
HAZLETT LIMITED
Respondent
Hearing: 11 August 2020 Appearances:
G J Ryan and K M Anderson for Applicant S P Rennie for Respondent
Judgment:
14 August 2020
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 14 August 2020 at 12.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 14 August 2020
MOFFITT DAIRY LIMITED v HAZLETT LIMITED [2020] NZHC 2060 [14 August 2020]
[1] Moffitt Dairy Limited (MDL), operates a dairy farm near Temuka, South Canterbury. MDL opened a credit account with Hazlett Limited (Hazlett), a supplier of agricultural products, in January 2018.
[2] In November 2019, MDL purchased 152 bags of Brigadier Fodder Beet seed (the Seed) from Hazlett at a cost of $60,306 (including GST). MDL bought the Seed in order to sow 150 hectares of its farmland to grow supplementary feed for its herd.
[3] MDL says it had grown the same type of fodder beet seed for about 10 years which, on its irrigated land, had produced 20 – 30 tonnes of dry matter per hectare. MDL’s evidence is, unless the yield is about 22 tonnes per hectare, it is cheaper for it to buy supplementary feed.
[4] MDL has not paid for the Seed it planted in October 2019 as it says the Seed was defective as it only yielded about 12 tonnes per hectare.
[5] MDL’s evidence is it became clear early on that the Seed had a low strike rate. Twelve tonnes per hectare was the best it could achieve despite re-sowing its land with the remainder of the Seed it had purchased. In order to complete the re-sowing, MDL purchased further fodder beet seed (the new seed) from a third party and MDL says the new seed performed satisfactorily. Thus, MDL puts the responsibility for the partially failed crop down to the quality of the Seed it was supplied with by Hazlett.
[6] On 7 May 2020, Hazlett issued a statutory demand for $136,373.70 made up of the cost of the Seed, a further $73,456.95 described as “chemicals” in emails prior to the demand, and $2,610.75 for “dairy 1 shed consumables”. The invoices for the chemicals and the dairy shed consumables are not produced. Emails record
$33,920.73 fell due on 20 January 2020, indicating orders made by MDL to Hazlett in December 2019, after it was aware that there were issues with the Seed.
[7] MDL has applied to set aside the statutory demand issued by Hazlett. MDL says the supply by Hazlett of sub-standard Seed has cost Hazlett substantially more than the amount claimed by Hazlett.
[8] Hazlett’s counsel, in submissions filed for the hearing, accepted, albeit reluctantly, that MDL had established an arguable case for a set-off or counterclaim but says the arguable set-off or counterclaim does not provide an excuse for MDL not paying the invoices because the Terms of Trade between the parties contain a no set-off clause.
[9]Accordingly, whether the demand should be set aside turns on legal argument.
The Terms of Trade
[10]The following provisions of the Terms of Trade are relevant:
3.2The Customer shall make payment to HRL in full without deduction, set-off or counterclaim.
…
8.3The Customer acknowledges that:
(a)the Customer is in trade, the Livestock, Rural Supplies or Equipment are both supplied and acquired in trade, the Customer agrees to contract out of the provisions of the Fair Trading Act 1986 (including ss 9, 12A, 13 or 14(1)) to the maximum extent permitted by law, and this clause is fair and reasonable such that the relevant provisions of the Fair Trading Act 1986 do not apply (except that those provisions shall apply where they cannot be lawfully excluded); and
(b)to the maximum extent permitted by law, any warranties or conditions imposed upon HRL by the Sale of Goods Act 1908, and any other enactment, regulations or by-laws are excluded.
8.4HRL shall not be liable for any loss or damage of any kind whatsoever including loss of profits or consequential loss whether suffered or incurred by the Customer or another person whether in contract or tort or otherwise and irrespective of whether such loss or damage arises directly or indirectly from any defect in the Livestock, Equipment or Rural Supplies or any error or misdescription relating to the same.
8.5In the event that HRL is liable to the Customer in any manner arising out of the provision of Livestock, Equipment or Rural
Supplies, the liability of HRL shall not exceed the price paid by the Customer for the same.
[11] There is a further provision providing that the Consumer Guarantees Act 1993 does not apply, which is accepted by MDL.
[12] The definition of “rural supplies” in the Terms of Trade is wide enough to cover the Seed.
[13] MDL’s counsel sought to develop an argument that charted a course through the battery of clauses designed to protect Hazlett.
[14] The submission starts from the proposition that the Seed was defective. Given Hazlett concedes, for present purposes, that MDL has an arguable case for a set-off or counterclaim, it follows it is reasonably arguable that the Seed was sub-standard.
[15] MDL’s counsel relies on s 9 of the Fair Trading Act 1986 (FTA). Mr Ryan, counsel for MDL, submits:
…. that a supplier of goods in these circumstances impliedly represents that the goods it supplies are reasonably fit for the purpose for which they are obtained.
[16] Mr Ryan refers to Gault on Commercial Law which draws an analogy with s 8 of the Consumer Guarantees Act which provides a guarantee that consumer “goods are reasonably fit for any particular purpose for which the supplier represents that they are or will be fit” for (s 8(1)(b)).1
[17]Mr Ryan relies on the following passage from Gault on Commercial Law:2
The second limb of this guarantee [s 8(1)(b)] extends the concept of fitness for the consumer’s purpose to include any purpose for which the supplier represents the goods will be fit. A breach of the second limb will also be a breach of at least ss 9 and 10 of the Fair Trading Act 1986, as it amounts to misleading or deceptive conduct in trade …
1 Gault on Commercial Law (online looseleaf ed, Thomson Reuters).
2 At [CG8.02].
[18] Mr Ryan also refers to s 138 of the Contract and Commercial Law Act 2017 (the CCLA) which provides an implied condition that goods are reasonably fit for purpose. Section 138 provides:
138 Implied condition that goods are reasonably fit for purpose
(1)This section applies if—
(a)the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgement; and
(b)the goods are of a description that it is in the course of the seller’s business to supply (whether or not the seller is the manufacturer).
(2)There is an implied condition in the contract of sale that the goods are reasonably fit for the purpose referred to in subsection (1)(a).
(3)However, in the case of a contract of sale for a specified article under its patent or other trade name, there is no implied condition that the article is fit for any particular purpose.
[19] I do not consider s 138 of the CCLA can apply as cl 8.3(b) of the Terms of Trade set out at [10] above excludes such conditions.
[20]MDL also relies on s 139 of the CCLA which provides:
139 Implied condition that goods are of merchantable quality
(1)There is an implied condition in a contract of sale that the goods are of merchantable quality if the goods are bought by description from a seller who deals in goods of that description (whether or not the seller is the manufacturer).
(2)However, if the buyer has examined the goods, there is no implied condition with respect to defects that the examination ought to have revealed.
[21] However, again, this provision is excluded by the Terms of Trade. Section 197 of the CCLA provides:
197 Exclusion of implied terms and conditions
If any right, duty, or liability would arise under a contract of sale by implication of law, it may be negatived or varied by—
(a)express agreement; or
(b)the course of dealing between the parties; or
(c)usage, if the usage is such as to bind both parties to the contract.
[22] Mr Ryan has, in this context, referred to ss 50 and 52 of the CCLA which provide:
Statement, promise, or undertaking during negotiations
(1)This section applies if a contract, or any other document, contains a provision purporting to prevent a court from inquiring into or determining the question of—
(a)whether a statement, promise, or undertaking was made or given, either in words or by conduct, in connection with or in the course of negotiations leading to the making of the contract; or
(b)whether, if it was so made or given, it constituted a representation or a term of the contract; or
(c)whether, if it was a representation, it was relied on.
(2)The court is not, in any proceeding in relation to the contract, prevented by the provision from inquiring into and determining any question referred to in subsection (1) unless the court considers that it is fair and reasonable that the provision should be conclusive between the parties, having regard to the matters specified in subsection (3).
The matters are all the circumstances of the case, including—
(a)the subject matter and value of the transaction; and
(b)the respective bargaining strengths of the parties; and
(c)whether any party was represented or advised by a lawyer at the time of the negotiations or at any other relevant time.
…
52 Contracts for sale of goods
Despite sections 197 and 201(2), sections 50 and 51 apply to contracts for the sale of goods.
[23] Mr Ryan submitted that s 50 of the CCLA is available to permit the court to find it was arguable cl 8.3(b) of the Terms of Trade did not exclude the warranties in ss 138 and 139 of the CCLA. I do not see s 50 applying here. Section 50 permits the court to determine whether it is fair and reasonable that an entire agreement/no reliance
clause, should be conclusive between the parties. Section 50 does not permit the court to find that a term of a contract excluding warranties is ineffective.
[24] Accordingly, I am satisfied that the conditions implied by ss 138 and 139 of the CCLA were excluded by the agreement. However, Mr Ryan submits that notwithstanding the clause excluding all such warranties in the Terms of Trade, Hazlett should be taken to have impliedly represented that the Seed it supplied was reasonably fit for purpose.
[25] The difficulty Mr Ryan’s submission faces is that MDL accepts there were no pre-contractual statements by Hazlett about the Seed. In the affidavit in support of the application, Mr Moffitt says “[i]n the case of the Seeds in question, they were delivered to the farm without prior discussion.” Mr Ryan is forced to submit an implied representation as to the quality of the Seed.
[26] Ultimately, the issue under s 9 of the FTA is whether Hazlett’s conduct was misleading. Not only was Hazlett silent as to the Seed, it contracted on the basis that all warranties about the Seed were excluded to the fullest extent possible.
[27] MDL does not submit that Hazlett had a duty to speak, so as to make silence a misrepresentation.3 Such is not surprising when the evidence is that Hazlett was essentially a retailer of the Seed it sourced from a third party. MDL does not suggest that Hazlett had knowledge that the Seed was sub-standard.
[28] Gault on Commercial Law under the head “False assumptions” sub-heading “Silence” says:4
In Matthews v B Bullock & Co Ltd HC Wanganui, CP19/93, 19 December 1997, the plaintiffs, who owned a plant nursery, alleged that the defendants had engaged in misleading and deceptive conduct by supplying sawdust alleged to be contaminated, and that the defendants were liable even in the absence of knowledge that the sawdust was toxic. Gallen J, held that the agreement for the provision of the sawdust was not entered into because of any representations, conduct or promotion by the defendant, and that the Fair Trading Act was misconceived.
3 “Engaging in conduct” includes omitting to do an act: Fair Trading Act 1986, s 2(2). Conduct not misleading or deceptive may become so by an omission to inform arising out of altered circumstances: Janus Nominees Ltd v Fairhall [2009] 3 NZLR 757.
4 Gault on Commercial Law, above n1, at [FT9.23(1)].
[29] The case is almost a direct parallel to the present situation. In Mathews, the vendor was held to be liable under the Sale of Goods Act and appealed. The appeal was dismissed with no adverse comment on the approach taken to the FTA cause of action in the High Court.5
[30] Here, the claim of breach of the FTA is based on the fact that the Seed was supplied and no more. Elias J (as she then was) in Des Forges v Wright, warned that s 9 “is not to be turned into a general warranty by a vendor of the expectations of the purchaser”.6 That is what MDL seems to do here. Hazlett sold the Seed on terms that excluded all warranties. Those terms had been in place since January 2018. Despite the exclusion of fitness for purpose warranty being intended by Hazlett and agreed to by MDL, Mr Ryan’s submission is that Hazlett should be taken to have impliedly represented that the Seed was fit for purpose – the very thing Hazlett and MDL agreed was not the case. This would be to find an implied representation inconsistent with the written agreement.
[31] I find that MDL has not established an arguable cause of action under s 9 of the FTA as it does not point to any conduct by Hazlett that was likely to mislead or deceive. There is force in Mr Rennie’s submission that Hazlett was, to MDL’s knowledge, a conduit for the Seed which it sourced from a third party. There is no suggestion Hazlett could or should have been aware of the issue with the Seed so as to make this sale out of the ordinary. There was no change of circumstances of which Hazlett was aware from prior transactions that may have made silence misleading.
[32] In my view, there is not an arguable case for the implied representation relied on by MDL. Mr Ryan relied on the history of dealings between MDL and Mr Scannell who, when he became an employee of Hazlett, was the reason MDL started to buy seed from Hazlett. But calling in aid that history means the parties’ dealings must be seen in context which includes the Terms of Trade that govern their dealings.
5 B Bullock & Co Ltd v R L Matthews CA 265/98, 18 December 1998.
6 Des Forges v Wright [1996] 2 NZLR 758 (HC) at 764.
Was abatement available?
[33] Hazlett having, in my view, responsibly acknowledged an arguable case for a set-off then relies on the no set-off clause and the well-known authority of Browns Real Estate Ltd v Grand Lakes Properties Ltd.7
[34] As outlined at [6], the amount claimed in the statutory demand includes the sale price of the Seed. Mr Ryan did not argue that MDL was entitled to an abatement of the sale price of the arguably defective Seed, but it was something I raised in the hearing and so I only refer to it briefly.
[35] Could MDL say it is arguable that it does not have to pay for the Seed because Hazlett accepts that it is reasonably arguable that the Seed was defective? This would not be MDL raising a set-off or counterclaim.
[36] In some cases, the law recognises that a creditor’s claim may abate because of breaches of contract. The classic example is the buyer’s remedy for breach of warranty under a sale of goods.8
[37] What is the basis upon which an abatement could be sought? It cannot be based on a pre-contractual misrepresentation – there were none. Nor on a breach of warranty
– all were excluded. What MDL was left with, here, was a contract of caveat emptor. Abatement of price is not a cause of action in itself, it is the consequence of a buyer being able to establish a breach of contract by the vendor. Here, MDL cannot point to a breach of contract and therefore, had abatement been claimed, I would have held it was not available.
[38] Mr Ryan’s final submission relied on Herbert Construction Company Ltd v Carter Holt Harvey Ltd.9 Associate Judge Bell said the court in Browns Real Estate v Grand Lakes Properties Ltd,10 was not laying down a black-letter law, instead, indicating how the court should exercise its discretion in
7 Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425.
8 Crown Finance Ltd v Cronin [2018] NZHC 1289 at 40.
9 Herbert Construction Company Ltd v Carter Holt Harvey Ltd [2013] NZHC 780.
10 Browns Real Estate v Grand Lakes Properties Ltd, above n 7.
the general run of cases where there were contractual no set-off cases.11 Associate Judge Bell said:12
Because the matter lies within the court’s discretion, cases may arise where a counterclaim may still run, notwithstanding the no set-off provision. A typical case for the court not to exercise its discretion in favour of the counterclaim is where the creditor is owed an undisputed debt, but the company asserts a claim for unliquidated damages based on some matter that is not directly connected to the debt the subject of the demand.
[39] Ultimately, in that case, the Judge exercised his discretion in favour of the applicant and set aside the statutory demand. However, the Judge held that the contract had not excluded the implied condition as to merchantable quality which, at that time, arose under the Sale of Goods Act 1908. Having found the goods supplied were not of merchantable quality, the Judge had to consider the effect of the no set-off provision in the contract. That led his Honour to discuss Browns Real Estate in the terms I have already indicated.
[40] Here, because MDL cannot point to a breach of contract or a claim under the FTA, the issue of whether to exercise the discretion to set aside the statutory demand under s 290(4) of the Companies Act 1993 does not arise.
Outcome
[41] Mr Ryan said everything that could be said in support of the application, but I have been unable to accept his submissions. It follows that the application to set aside the statutory demand is dismissed.
Costs
[42] I did not hear from the parties on costs, but I see no reason why they should not follow the event on a 2B basis. If no memoranda as to costs is filed within five
11 At [51].
12 At [52] footnotes omitted.
working days of the release of this judgment, then that will be the order as to costs with disbursements as fixed by the Registrar.
Associate Judge Lester
Solicitors:
White Fox & Jones, Christchurch Rhodes & Co, Christchurch
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