National Plant and Equipment Pty Limited v P Mundy Heavy Equipment Limited
[2020] NZHC 1201
•3 June 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2443
[2020] NZHC 1201
BETWEEN NATIONAL PLANT AND EQUIPMENT PTY LIMITED
Plaintiff
AND
P MUNDY HEAVY EQUIPMENT LIMITED
First Defendant
PAUL JAMES MUNDY
Second Defendant
Hearing: 20 May 2020 Appearances:
Daniel Kalderimis and Daniel Street for the Plaintiff Des A Wood for the Defendants
Judgment:
3 June 2020
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 3 June 2020 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Chapman Tripp (D Kalderimis/D Street), Wellington and Auckland, for the Plaintiff Craig Griffin & Lord (C N Lord), Auckland, for the Defendants
Copy for:
D A Wood, Auckland, for the First Defendant
NATIONAL PLANT AND EQUIPMENT PTY LIMITED v P MUNDY HEAVY EQUIPMENT LIMITED [2020] NZHC 1201 [3 June 2020]
[1] National Plant and Equipment Pty Ltd seeks recovery of USD 1.32m it paid P Mundy Heavy Equipment Ltd on 27 September 2019. It sues for money had and received and for breach of trust. It also sues Mundy Heavy Equipment’s director, Mr Paul Mundy, for knowing assistance in misapplying some of the money paid to his company. It has applied for summary judgment on all its causes of action. I find for it on all of them.
[2] National Plant, an Australian company, provides heavy earthmoving equipment for mining and civil construction sectors in Australia. It has a fleet of over
250 units, including excavators, dump trucks, bulldozers, graders, loaders, compacters, water trucks, service trucks and loaders. Customers include some of Australia’s major mining companies. Mr Mark Ackroyd is the company’s managing director and chief executive officer.
[3] Mundy Heavy Equipment, a New Zealand company, carries on business sourcing heavy equipment for prospective purchasers from around the world. Mr Paul Mundy is the sole shareholder and director of the company.
[4] U&M Mineração e Construção S/A.is a Brazilian mining company. Mr Mundy says that his company had an exclusivity arrangement with U&M under which he could market and sell its trucks and equipment.
Facts – general
[5] In 2019, U&M had six surplus dump trucks it wished to sell. These are large 240 tonne vehicles used in mining. U&M asked Mr Mundy to obtain purchasers for the dump trucks. National Plant was one of the potential purchasers Mr Mundy contacted. National Plant was interested in buying the dump trucks with a view to hiring them out to one of its mining customers, Rio Tinto. Before it could go ahead with its purchase, it needed the go-ahead from Rio Tinto. From June to September 2019 there were negotiations towards an agreement for National Plant to buy the six dump trucks. The executive who fronted the negotiations for U&M was Ms Luciana
Neves. Mr Ackroyd represented National Plant. Negotiations were by email and telephone. Mr Mundy acted as a go-between in the negotiations. Fabick Equipment, a Wisconsin entity based in Milwaukee, which carries on a similar business to Mundy Heavy Equipment also played a part but for this case its role is peripheral. A representative of National Plant went to Brazil to inspect the trucks. National Plant sent non-binding letters of intention to buy the trucks. On 18 September 2019 National Plant sent Mundy Heavy Equipment a purchase order for the dump trucks for USD 13.2m. The next day Mundy Heavy Equipment sent an invoice to National Plant for the dump trucks. Ten per cent of the price was payable immediately and was non- refundable, 40 per cent when the trucks were disassembled on site and the balance when they were delivered to a port in Brazil. National Plant did not pay the ten per cent immediately. U&M had other interested purchasers. After giving National Plant a short time to pay, on 25 September it said that it would offer the dump trucks to others. That was for 20 days. If the trucks did not sell, they would come back on the market on 15 October. National Plant wanted to show U&M that it was still genuine in wanting to buy the dump trucks. It now had finance arranged. It paid the ten per cent, USD 1.32m, to Mundy Heavy Equipment, which held the money in a US dollar account. In the meantime U&M sold the dump trucks. National Plant asked Mundy Heavy Equipment to repay the USD 1.32m. It did not do so. It transferred USD 450,000 into a NZD account, converting to NZD 700,825.42. It cleared its overdraft of $95,354.62 and paid other expenses. It used NZD 103,712.26 of the money it transferred into its operating account. On 5 November Jagose J made an order preserving the funds held by Mundy Heavy Equipment.
[6] On those facts, which are not in dispute, National Plant says that it can recover the USD 1.32m in restitution as money had and received. It also says that Mundy Heavy Equipment held the funds under a trust that failed. Mr Mundy is alleged to have dishonestly assisted a breach of trust in moving the funds into the NZ dollar account and using them for Mundy Heavy Equipment’s operating expenses.
[7] There was no disagreement as to the principles applied on plaintiffs’ applications for summary judgment. The Court of Appeal restated them in Krukziener v Hanover Finance Ltd.1 They do not need to be repeated.
The role of Mundy Heavy Equipment
[8] At the outset Mundy Heavy Equipment acted as agent for U&M in marketing the dump trucks. In an email of 2 January 2019 to Mr Ackroyd, Mr Mundy advised:
I have been offered direct from the owners 6 Komatsu 830Es, all are 2014 with between 4,500 hrs to 3,500 hrs approx …
On 5 June 2019, he emailed Mr Ackroyd saying that the trucks have just come back to the market:
I have been told from the owner I have authority to sell them.
In an email of 29 July 2019, Mr Jack Fabick of Fabick Equipment emailed Mr Ackroyd:
I asked the owner about payment terms, enclosed is their response …
On 6 August 2019, Mr Mundy emailed Mr Ackroyd:
Re the 830Es you have been working on buying from Jack Fabick. Jack and I are working together on this as I have sole rights to sell the trucks on behalf of the owner. …
[9] There is no evidence that Mundy Heavy Equipment Ltd was to buy the dump trucks from U&M and on-sell them to National Plant. Nor is there any evidence that National Plant appointed Mundy Heavy Equipment Ltd as its agent to purchase the trucks.
[10] National Plant sent a letter of intent on 13 September 2019 addressed to U&M. At Mr Mundy’s request, it was amended to be addressed to Mundy Heavy Equipment. Similarly, National Plant’s payment order of 18 September 2019 was addressed to Mundy Heavy Equipment instead of U&M. But that does not change the fact that
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26]-[27].
Mundy Heavy Equipment was acting as agent on behalf of its principal, U&M. Under the contract that was negotiated, ownership of the dump trucks was to pass from U&M to National Plant. While Mundy Heavy Equipment had played a part in bringing about that agreement, it was not a party to it, but merely agent for U&M.
[11] Mundy Heavy Equipment was still U&M’s agent when National Plant paid it the USD 1.32m in September, but when the restitution claim is considered it will be seen that the agency goes to the reason why the payment was made, but not to the capacity in which it received the money from National Plant.
The facts around negotiating the agreement with U&M and its cancellation
[12] The negotiations leading up to the agreement with U&M give context for what happened afterwards. U&M was keen to sell and had interest from others besides National Plant. On the other hand National Plant did not want to commit itself to any purchase unless it had a commitment from Rio Tinto that it would use the dump trucks. It took time to get clearance from Rio Tinto. U&M did not consider that National Plant moved promptly enough in making an offer for the dump trucks.
[13] On 8 August 2019, Mr Mundy emailed Mr Ackroyd asking about a decision whether National Plant wanted to buy. On 24 August 2019, Ms Neves emailed Mr Mundy that they would hold the trucks but U&M must receive a purchase order by Wednesday 28 August and a 10 per cent payment by the end of the next week. On 30 August, Ms Neves emailed Mr Mundy that U&M was “expecting a payment order by tomorrow” as they have another buyer pushing to buy with immediate payment:
I am sorry but we have been delaying this for four weeks now and we cannot hold it any more.
In his response, Mr Mundy assured her that they were close to a deal.
[14] On 13 September 2019, Mr Mundy emailed Mr Ackroyd that U&M had accepted National Plant’s offer. He asked for a letter of intent and purchase order to be sent.
[15] The contract was made on 18/19 September 2019 with National Plant’s purchase order and Mundy Heavy Equipment’s invoice. Ten per cent of the purchase price, USD 1.32m, was payable immediately to Mundy Heavy Equipment’s bank account. It was “non-refundable.”
[16] On 23 September 2019 Mr Ackroyd emailed Ms Neves, confirming his company’s purchase of the dump trucks and that they had approval from their mining company, but said that they were:
Unable to transact the deposit today as we had a few holdups with our financing arrangements, which will be resolved in the coming days, just a small delay our end and our intentions are to transact as soon as possible, apologies for the slow progress, we ask for your patience in this matter.
[17] In response, on 24 September, Ms Neves emailed that U&M had committed with another buyer and:
If the 10% is not on U&M account by Wednesday, that means you transfer the funds today to Paul and he transfers back to U&M we cannot back up on our commitment with this other buyer.
We have been patient and did the best we could to help but at this time that’s all we can commit.
In an email of the same date to Mr Ackroyd, Mr Mundy emphasised the importance of paying on that day:
I’ve tried to call you, believe me if we don’t get a payment working today U&M will invite there customer that is waiting to inspect the trucks. If that happens, we will be out until they have completed there due diligence, they may decide to purchase or not, but we will be out. I’ve been in this situation with U&M before, they are very loyal to there clients. Whether you choose to believe me or not it’s up to you, from my phone call this morning with Luciana I believe her in what she is saying.
[18] Mr Ackroyd’s email later that day indicated that payment would not be made that day but:
Our intention is to proceed with the purchase however we have a few minor holdups which are being resolved this week.
In a further reply, Mr Mundy indicated:
From my talks with U&M we are finished today. Unless something happens with U&M overnight, our deal is no longer viable unfortunately, …
In a further email that day, Mr Ackroyd said:
We will have the deposit paid this week...
and confirmed their intention to go ahead with the purchase.
In response, Mr Mundy said:
Mark, you missing the point. U&M told me on the phone this morning that we are out tomorrow if no money is moving…As Luciana Neves said no payment moving today, deals off.
Mr Mundy also emailed Mr Ackroyd on 24 September, advising that he was happy for National Plant to pay the deposit directly to U&M:
But it must be done today.
[19] National Plant did not pay. On 25 September 2019 Ms Neves emailed Mr Ackroyd:
We are sorry but we have agreed with another client to release the trucks for them today and they already booked their flights for inspection. With that being said, we cannot hold the trucks for National.
We have given them a period of 20 days so on October 15th if we do not close the deal by this date we can release the trucks back.
In response to an email from Mr Mundy on the same day asking to reinstate, she emailed:
We have been very transparent with you at all times. It is not up to my decision. It’s the board decision. I have hold it as much as I could, asking them many times for extra days.
The payment of USD 1.32m to Mundy Heavy Equipment
[20] By 27 September 2019, National Plant was in a position to send the USD 1.32m. By then U&M was arranging for others interested to inspect the trucks. Before sending the money to New Zealand, Mr Ackroyd emailed Mr Mundy:
We are ready pay the 10% deposit immediately for the purchase of the 6 x 830E Dump Trucks.
Do we transfer to U&M or to you. Call me to discuss urgently.
[21]In response, Mr Mundy emailed:
Mark, can you please send me a copy of the transfer receipts so I can attach it to my email to Luciana.
[22]Mr Mundy advised Ms Neves of the payment in an email:
Mark has now transferred to my account the deposit for the 830E trucks as per his email this week. I have instructed my bank to transfer the funds to your bank account as per your invoice as soon as they hit my account. I hope you can understand my position in this. I have been trying my hardest with U&M to complete this deal.
I hope you except this even though a little late.
[23]Ms Neves replied on 28 September:
As per our Whatsapp conversation, please do not transfer any fund to U&M until we have a position from the buyer that is currently inspecting the trucks.
That could happen from next Monday till 15 days later, thank you for your understanding.
[24]On 28 September Mr Mundy emailed Mr Ackroyd:
U&M have their clients inspecting the 830Es today. They have 18 days from today before the trucks will be released back to us.
[25] What I have set out above is based on documents over which there is no contest. There is also evidence of a telephone conversation between Mr Ackroyd and Mr Mundy about this time. Mr Ackroyd says that the conversation was on 25 September 2019. He asked Mr Mundy whether they should make the payment “to show U&M we are good for the dollars”, and he says that Mr Mundy replied:
Yes, we should I will ring LN2 and transfer the deposit to them once I have it. Also show them your remittance advice, that way they may proceed to sell you the trucks.
2 That is, Ms Luciana Neves, U&M’s executive.
[26]On the other hand, Mr Mundy says that the telephone conversation was on
27 September 2019. According to Mr Mundy Mr Ackroyd asked that the deposit be repaid if it was not accepted. Mr Ackroyd wanted him to agree that it would be refunded but Mr Mundy did not reply to Mr Ackroyd on that point. In his reply affidavit, Mr Ackroyd confirms that part of Mr Mundy’s evidence.
[27] Mr Mundy’s fiancée, Ms Oliver, says that the conversation was in a car and she heard it on the Bluetooth speaker system. She recalls Mr Ackroyd telling Mr Mundy that he had everything sorted out at his end and was ready to pay the deposit. When asked whether it should be paid to U&M or to Mr Mundy she says:
Mr Mundy replied that it would be paid to him and he would then present the offer.
She understood that. She recalls Mr Ackroyd saying:
I trust that you will return the money if there really is another buyer.
but she says that Mr Mundy did not respond to that.
[28] The three of them give different accounts. Normally in a summary judgment application caution is required in relying on alleged oral statements. Working out what was said is usually better left to an ordinary hearing with witnesses giving oral evidence and being cross-examined. But in this case all agree that Mr Ackroyd did raise the question of repayment if the dump trucks did not come back on the market and that Mr Mundy did not respond to that. As there is no disagreement among them on that point, I accept it. National Plant paid Mundy Heavy Equipment after that conversation.
The applicable law
[29] The National Plant claim relies on its agreement to buy the dump trucks having been terminated by U&M on 25 September 2019. To see whether it was terminated, it is necessary to apply the rules of law governing the agreement. It was between a Brazilian seller and a Queensland buyer and involved delivery to a port in Brazil for shipping to Australia. While a New Zealand company played a part in bringing about
the contract, New Zealand law does not govern the agreement. It is not, however, necessary to apply any choice of law rules because the law is the same, whether Brazilian or Queensland law. Both Australia and Brazil are parties to the United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980.3 The convention applies to contracts for the sale of goods between parties whose places of business are in different states when the rules of private international law lead to the application of the law of a contracting state.4 Whether the proper law of the contract is Queensland law or Brazilian law, the convention applies.5 The agreement does not come within any of the exceptions under Article 2 of the Convention. Accordingly, the rules under the convention decide whether the contract was terminated. As New Zealand is also a party to the convention, the result would be the same if New Zealand law were applied.6
[30] National Plant’s first cause of action against Mundy Heavy Equipment is in restitution. In a restitutionary money claim arising out of a cross-border transfer of an asset or money, the law of the place of enrichment applies. The authorities, such as they are, were referred to in MacMillan Inc v Bishopsgate Investment plc (No.3).7 In this case, New Zealand is the place of enrichment and New Zealand law applies.
[31] National Plant also says that Mundy Heavy Equipment held funds on trust for it. Any trust arose in New Zealand either when Mundy Heavy Equipment received the USD 1.32m from National Plant or some time later. New Zealand is the proper law of the trust and any claim under trust law is decided under New Zealand law.
[32] Mr Mundy is sued for assisting in the breach of trust. That claim, though a matter of trust law, has a delictual aspect as Mr Mundy is not alleged to be a trustee, but is said to be liable as an accessory to a breach of trust. The facts giving rise to the
3 For Queensland, see the Sale of Goods (Vienna Convention) Act 1986 (Qld).
4 United Nations Convention on Contracts for the International Sale of Goods 1489 UNTS 59 (opened for signature 11 April 1980, entered into force 1 January 1988) art1(1)(d).
5 For what it is worth, the proper law of the contract appears to be Brazil’s. The seller was Brazilian. The dump trucks were in Brazil. Delivery was to a port in Brazil. Those factors outweigh others, namely that the buyer was Australian and part of the purchase price was payable in New Zealand.
6 Contract and Commercial Law Act 2017, ss 204 and 205, 4th schedule.
7 MacMillan Inc v Bishopsgate Investment plc (No.3) [1996] 1 WLR 387 (CA) at 397.
claim all occurred in New Zealand and relate to a New Zealand trust which held funds in New Zealand. New Zealand law applies.
The status of the U&M agreement to sell the dump trucks to National Plant after 25 September 2019
[33] There is no dispute that U&M agreed to sell the dump trucks to National Plant on 18-19 September for USD 13.2m and that National Plant did not pay ten per cent of the price on time. For its case National Plant says that the agreement had come to an end before it paid the USD 1.32m on 28 September. Whether that is so is decided under the UN Convention on Contracts for the International Sale of Goods.
[34] Under Art 53 of the convention, the buyer must pay the price of the goods and take delivery of them, as required by the contract and the convention. The convention gives the seller remedies if the buyer fails to perform its obligations, including failure to pay.8 Under Art 63(1), the seller may fix an additional period of reasonable length for the buyer to perform its obligations (sometimes called a grace period or Nachfrist). If time is extended, (unless the buyer says that it will not perform in the extended period) the seller may not during that period resort to any remedy for breach of contract.9 While not identical, a Nachfrist may be compared with the steps under a common law contract to make time of the essence.
[35]Art 64 gives a seller the right to avoid the contract in two cases:
(a)if the buyer’s failure to perform its obligations amounts to a fundamental breach of contract;10 or
(b)if the buyer does not within the time extended under Art 63(1) pay the price or take delivery or declare that he will do so within the extended time.11
[36]As to fundamental breach Art 25 provides:
8 Art 61(1)(a).
9 Art 63(2).
10 Art. 64(1)(a).
11 Art 64(1)(b).
A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have seen such a result.
[37] Art 26 says that a declaration of avoidance of a contract is effective only if made by notice to the other party. There are no formal requirements for giving notice. It can be given in writing, orally, electronically or impliedly such as by conduct, but it must be clear and definite. No particular words are required.12
[38]Art 81 deals with the effects of avoidance:
(1) Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due. Avoidance does not affect any provision of the contract for the settlement of disputes or any other provision of the contract giving the rights and obligations of the parties consequent upon the avoidance of the contract.
(2) A party who has performed the contact either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently.
According to commentators, the consequences are that the parties are released from their original obligations, they regain their freedom to dispose of the goods, they are usually required to restore what has been supplied or paid under the contract and the party in breach is liable for damages.13 That is different from the common law where cancellation of a contract for breach operates prospectively only. While further performance cannot be enforced, rights that have already accrued under the contract may be.14 Under the convention however parties are restored to their positions at the outset, save that the party in breach is also liable in damages.
[39] National Plant breached the agreement when it did not pay ten per cent of the price immediately. When Ms Neves said in her email of 25 September that U&M had agreed to release the dump trucks to their other client and that it could not hold them
12 Commentary on the UN Convention on the International Sale of Goods Schlechtriem and Schwenzer. 4th ed (Oxford University Press, 2016) at 463-4.
13 Commentary on the UN Convention on the International Sale of Goods Schlechtriem and Schwenzer. 4th ed (Oxford University Press, 2016) at 462.
14 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, Garratt v Ikeda [2002] 1 NZLR 577 (CA) at [7] and [10] and Contract and Commercial Law Act 2017, s 42.
for National Plant, she showed that U&M no longer considered itself bound to sell the trucks to National Plant. That gave notice of avoidance to National Plant. The question is whether U&M was entitled to give that notice.
[40] For summary judgment purposes I am wary of finding a fundamental breach under Art 25 by National Plant. To a common law mind the obligation to pay a deposit is considered essential and a failure to pay a deposit on time is ground to terminate a contract.15 But it may be a mistake to use that thinking to say that there was a fundamental breach under Art 25. According to the commentators, mere delay in payment is a fundamental breach only in exceptional circumstances.16 While ten per cent of the price was payable immediately, it is not clear that any delay would give an automatic right to avoid the contract. An argument could be made that U&M was looking for a real commitment to the purchase from National Plant and it wanted certainty because it had other interested buyers, but I am not sure that that warrants giving an immediate notice of avoidance.
[41] Instead the alternative ground under Art 64(1)(b) is available. U&M gave notice on 24 September that it required the 10 per cent to be paid by 25 September. As the payment was to be immediate, National Plant was already late in paying and U&M needed certainty because of its other interested purchasers, its relatively short deadline for payment was reasonable under Art 63(1). U&M was accordingly entitled to call the contract off. That was avoidance under the convention.
[42] The effect of the avoidance was that both parties were to be restored to their original positions and neither could require further performance from the other. U&M could not sue for the unpaid 10 per cent of the purchase price. It was free to sell the dump trucks to other purchasers. National Plant could not require U&M to deliver the dump trucks under the agreement of 18-19 September. At the time both National Plant and Mundy Heavy Equipment accepted that the agreement was over.
15 See the discussion in Don McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at 7.06(b).
16 Ingeborg Schwenzer, Schlechtriem and Schwenzer: Commentary on the UN Convention on the International Sale of Goods (4th ed, Oxford University Press, 2016) at 456.
The claim for money had and received
[43] When National Plant and Equipment paid the USD 1.32m to Mundy Heavy Equipment, it knew that it no longer had a contract with U&M Mining to buy the dump trucks, but still paid to show that it was serious in its intention to buy the dump trucks, if they became available for purchase. After U&M sold the trucks, it asked Mundy Heavy Equipment to repay. It says that it is entitled to it in restitution as money had and received.
[44] National Plant submitted that there was a restitutionary “failure of basis”. There is convenient statement of this principle in Pure Elite Holdings Ltd v Bodco Ltd:17
Such claims are known as “failure of basis” claims. They are based on the principle that, where one party has conferred a benefit on another, that other party’s right to retain the benefit is conditional, and if the condition is not fulfilled, the recipient must return the benefit. They are a well recognised ground for the remedy of restitution. They can arise where a party has conferred a benefit on another in anticipation of a contract that never eventuates. Such claims can also be brought where the benefit has been conferred in the expectation of an event which fails to occur. Such claims are based not in contract, but on the principle of restitution – the premise underlying the right of restitution being that the entire basis of the arrangement which led to the payment being conferred by one party upon another has failed. The claimant’s intention was to confer the benefit, but it was in effect conditional on the occurrence of an event.
(Emphasis added)
The Privy Council’s decision in Goss v Chilcott18 is an example where funds were advanced on loan to be secured by a mortgage but amendments to the mortgage, made without authority, discharged the borrowers from liability. They were nevertheless held liable in restitution.
[45] While the general principle is sound, for this case there is assistance from a line of cases on “holding deposits.” There is a useful explanation in McMorland’s Sale of Land.19 While the text is about agreements for the sale and purchase of land, this part also applies to holding deposits for other contracts:
17 Pure Elite Holdings Ltd v Bodco Ltd [2019] NZHC 2191 at [188].
18 Goss v Chilcott [1996] 3 NZLR 385 (PC).
19 Don McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011) at 7.06(b).
In some circumstances a would-be purchaser, perhaps anxious to secure the property, may pay a “holding deposit” before the contract is made. If the sum is paid to the real estate agent, during the pre-contract period, the sum continues to be the property of the would-be purchaser, the prospective vendor has no entitlement to it, the agent must not pay the sum to the vendor before the contract is made without the consent of the purchaser, and the would-be purchaser can demand repayment form the agent, the sum then become money had and received to the use of the would-be purchaser. If the agent does not have authority from the vendor to receive the pre-contract deposit, a purchaser claiming repayment during the pre-contract period has no claim against the vendor, but only against the agent. The vendor is not liable for any failure by the agent to account to the would-be purchaser. On the other hand, if the would-be purchaser pays the sum direct to the vendor, and a contract does not eventuate, the purchaser’s claim for its return is obviously against the vendor personally but, unless the purchaser has taken care that the terms of the original payment to the vendor impress the sum with a trust, the sum is merely a debt owed by the vendor to the would-be purchaser, and in the event of the purchaser being in financial difficulties, the purchaser is merely an unsecured creditor like any other.
[46] In Richards v Hill, land agents were ordered to pay back to a prospective purchaser a deposit paid before there was a binding agreement between the purchaser and the vendor of the property. Salmond J said:20
…the defendants had no right so to part with the deposit. It was held by them for and on account of the plaintiff until and unless a complete contract was effected between her and the vendor. No such contract was ever effected, and the defendants must account for the deposit accordingly to the plaintiff.
[47] In Chillingworth v Escher, negotiations were “subject to contract.” The purchasers paid the deposit to the land agent. The negotiations did not result in a finally concluded contract. The purchasers asked the land agent to refund the deposit they had paid. They were held entitled to the money. Sargant LJ said:21
I look on the whole payment as being sufficiently explained as being an anticipatory payment intended only to fulfil the ordinary purpose of a deposit if and when the contemplated agreement should be arrived at.
The case illustrates that the purchasers can ask for their money back at any time before there is a contract with the vendor and do not need to justify the return of their money.
20 Richards v Hill [1920] 39 NZLR 724 at 728. Approved in Sorrell v Finch [1977] AC 728 (HL) at 744.
21 Chillingworth v Esche [1924] 1 Ch D 97 (CA) at 115.
[48] In Sorrell v Finch,22 potential purchasers paid a deposit to a land agent, who disappeared without accounting for the money. There was no concluded contract between the would-be purchasers and the vendor. The plaintiffs who had paid the deposit to the land agent were unsuccessful in their claim against the vendor. The vendor was not liable for the agent’s misappropriation. The agent did not have the vendor’s authority to receive any payments on account of the purchase price until there was a concluded contract between the vendor and the purchasers.
[49] The difference between that line of cases and this one is that National Plant already had a contract with U&M, whereas in the others a contract was only in prospect. But that difference does not matter. The agreement with U&M had come to an end. National Plant’s payment to Mundy Heavy Equipment was the same as in the holding deposit cases. Even though it no longer had a contract with U&M, it wanted to show that it was genuine in wanting to buy the dump trucks. National Plant did not have to wait to see if the dump trucks sold. Even though it may have made good sense to leave the money with Mundy Heavy Equipment, at law it could ask for the money back at any time.
[50] In evidence Mr Mundy relied on the contract providing that the ten per cent was “non-refundable”. But that does not justify his company not returning the money. National Plant did not make the payment under the original agreement because that agreement was now at an end and U&M could not require National Plant to pay any of the purchase price. That obligation had been discharged when U&M avoided the agreement. U&M did not assert any claim for damages. Moreover, it declined when Mundy Heavy Equipment offered to send the money on to it. Mundy Heavy Equipment was accountable to National Plant for the money, not to U&M. When National Plant paid, there was no agreement between National Plant and U&M and Mundy Heavy Equipment did not receive the payment on behalf of U&M.
[51] Mr Mundy says that his company is entitled to charge commission on sales of equipment that it has negotiated. He alleges that the commission in this case is payable by National Plant and claims USD 450,000, the amount transferred to his company’s
22 Sorrell v Finch [1977] AC 728 (HL).
general operating account. National Plant did not, however, appoint him to act as its agent on the purchase of the dump trucks from U&M. Mundy Heavy Equipment was U&M’s agent on the sale of the dump trucks. If there is any commission payable, Mundy Heavy Equipment should look to its principal. No doubt brokers in the position of Mundy Heavy Equipment are able to take their commissions from payments made by purchasers. If the sale had gone ahead, Mundy Heavy Equipment would have taken its commission out of the first payment of the purchase price, but that does not mean that the buyer was responsible for paying commission on the sale.
[52] National Plant has shown to the summary judgment standard that Mundy Heavy Equipment was required to repay the USD 1.32m when National Plant asked for it. It has also shown that Mundy Heavy Equipment cannot resist that demand by relying on the terms of the original agreement with U&M or by claiming commission. It is accordingly entitled to recover judgment for the USD 1.32m plus interest. The judgment is in United States currency, following Miliangos v George Frank (Textiles) Ltd.23
The claim for breach of trust
[53] For its cause of action for breach of trust, National Plant says that it transferred the USD 1.32m to Mundy Heavy Equipment Ltd as a sign of good faith and to show its intention to buy the dump trucks from U&M if the trucks were not sold to the other interested purchasers. Mundy Heavy Equipment could only deal with the funds in accordance with its instructions. When the purpose of the payment failed, the funds should have been returned to it. This is a resulting trust claim. The money was paid to Mundy Heavy Equipment for a particular purpose and, when that purpose failed, Mundy Heavy Equipment held the funds on trust for National Plant.
[54]In Twinsectra v Yardley Lord Millett said:24
A Quistclose trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often inquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question. But that is not
23 Miliangos v George Frank (Textiles) Ltd [1976] AC 443 (HL).
24 Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 AC 164 at [73]-[74].
enough to create a trust; once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cash flow. Commercial life would be impossible if this were not the case.
The question in every case is whether the parties intended the money to be at the free disposal of the recipient; In Re Goldcorp Exchange Ltd25 [1995] 1 AC 74, 100 per Lord Mustill. His freedom to dispose of the money is necessarily excluded by an arrangement that the money should be used exclusively for the stated purpose…
[55] The payment of a holding deposit to an agent before there is a binding contract may give rise to a resulting trust. There is guidance in a New South Wales decision, McManus RE Pty Ltd v Ward.26 That case did not involve an agent. A potential purchaser paid the vendor $75,000 as a holding deposit before they made an agreement. Palmer J held that there was no trust, because the vendor could spend the money as he wished. Palmer J distinguished cases where the funds were held by an agent or stakeholder, to be held for a particular purpose benefiting someone else.27 He said:28
In cases where no express or clearly implicit intention to create a trust is shown, such as where the parties give no actual thought to the matter, whether or not there was an intention that the subject matter be kept separate from the other general monies of the recipient, is often decisive of the question whether the recipient is a trustee or merely a debtor. …
[56] In this case, Mundy Heavy Equipment had the payment by National Plant deposited into a US dollar account at its bank. The account was separate from its New Zealand currency general operating account. Mr Mundy’s email of 28 September 2019 to Ms Nevin, offering to forward the money on to U&M, shows his recognition that his company was not holding the funds in its own right to dispose of as it wished, but was holding it for a third party, in the same way as an agent or stakeholder. That was so, even though he was mistaken in thinking that he had to account to U&M instead of National Plant. Mundy Heavy Equipment did hold the funds apart until it
25 In Re Goldcorp Exchange Ltd [1995] 1 AC 74 at 100 (per Lord Mustill).
26 McManus RE Pty Ltd v Ward [2009] NSWSC 440.
27 At [22].
28 At [25].
received news that U&M had sold the dump trucks and National Plant asked to be repaid. The funds were held on the basis that Mundy Heavy Equipment Ltd was not free to deal with the funds as it wished but was required to hold them on behalf of National Plant. The funds were to be available to pay U&M if the dump trucks came back on the market. It would be unthinkable for Mundy Heavy Equipment to spend those funds on its general operating expenses and to deplete the funds before the dump trucks might come back on the market. When that purpose failed, the funds were held separately and were not available for free disposal by Mundy Heavy Equipment. They were payable to National Plant under a resulting trust in its favour.
[57] When Mundy Heavy Equipment converted USD 450,000 into New Zealand currency, had those funds paid into its general operating account and used them for its own operating expenses, it breached the trust on which it held the funds. National Plant has established its claim for breach of trust.
[58] For relief, National Plant and Equipment seeks declarations that the funds were held on trust and that Mundy Heavy Equipment breached the trust. In addition, it seeks an order for equitable compensation. In particular, it seeks payment of New Zealand $103,712.26. That may not, however, be adequate equitable compensation. A beneficiary is entitled to have the trust fund restored. As the trust fund was in US currency, an order for equitable compensation should require Mundy Heavy Equipment Ltd to pay National Plant compensation in US currency (or, if in New Zealand currency, an amount equivalent to whatever is required to restore the trust fund to its US dollar value). In short, Mundy Heavy Equipment should carry the risk on any fluctuation in currencies between October 2019 and the date when compensation is made. This approach is consistent with the standard approach on enforcement of foreign money obligations.29
The claim against Mr Mundy for dishonest assistance
[59] Mr Mundy transferred USD 450,000 from his company’s foreign exchange account to its business bank account. He used the funds to clear the company’s
29 Miliangos v George Frank (Textiles) Ltd [1976] AC 443 (HL).
overdraft and to meet general operating expenses. The question is whether Mr Mundy is personally liable as well as his company.
[60] Mr Mundy cannot run an attribution argument to say that his actions are to be identified as those of his company. An authority against that is Royal Brunei Airlines v Tan.30 In that case, a company held funds on trust and should have held them in a separate account, but in breach of the trust the funds were paid into a general account and used for ordinary trading expenses. The managing director and principal shareholder was involved in the breach of trust. His office as director of the company did not exempt him from liability.
[61] In Sandman v McKay, the majority in the Supreme Court stated the test for liability for dishonest assistance:31
In dishonest assistance claims, New Zealand courts have followed the approach of the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan and Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd. The test for dishonesty is an objective one, judged against the background of what the defendant subjectively knew. If the defendant’s mental state would be described as dishonest by ordinary standards, it is irrelevant that the defendant does not consider his or her conduct to be dishonest and/or does not appreciate that, by ordinary standards, it would be regarded as dishonest.
A defendant is dishonest if he or she has actual knowledge that the transaction is one in which the defendant cannot honestly participate. Wilful blindness, which equates in equity with actual knowledge, also suffices. This arises where a defendant strongly suspects a breach of trust but makes a deliberate decision not to enquire in case the enquiry results in actual knowledge. It is “necessary that the strength of the suspicion … makes it dishonest to decide not to make an enquiry”.
(Citations and footnotes omitted)
[62] There is also helpful guidance from the United Kingdom Supreme Court’s decision in Ivey v Genting Casinos (UK) Ltd.32
… The test of dishonesty is as set out by Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan and by Lord Hoffmann in Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd … When dishonesty is in question, the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative)
30 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (PC).
31 Sandman v McKay [2019] NZSC 41, [2019] 1 NZLR 519 at [77]-[78].
32 Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67, [2018] AC 391 at [74].
going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.
(Citations omitted)
[63] I assess Mr Mundy’s knowledge and beliefs. I make these findings to the summary judgment standard, that is, there can be no reasonable argument about these matters. No useful purpose would be served by having a full trial to determine those facts. Mr Mundy knew:
(a)There had been an agreement between U&M and National Plant for the sale of the six dump trucks, but U&M had brought that contract to an end when National Plant did not pay the USD 1.32m within the deadline set by U&M.
(b)In the agreement between National Plant and Equipment and U&M, Mundy Heavy Equipment had acted as agent for U&M, not for National Plant.
(c)National Plant paid USD 1.32m to his company, after U&M had called the agreement off.
(d)National Plant paid the money to show its ability to perform and its sincerity in wanting to buy the dump trucks, in case they came on the market again.
(e)National Plant expected the money to be repaid to it if it could not buy the dump trucks (even though Mr Mundy had not expressly agreed to that).
(f)When received, the funds were held in a separate foreign currency account and were not mixed with funds in his company’s general trading account.
(g)When he received the payment, he offered to forward it to U&M.
(h)U&M did not claim any interest in the funds held in his company’s bank account, because it had declined to have the funds forwarded on to it.
(i)The funds were held until it was known whether the dump trucks would again become available to buy.
(j)National Plant and Equipment had requested the return of the funds it had paid, before he transferred USD 450,000 into his company’s operating account.
[64] I make no assumptions as to Mr Mundy’s knowledge of the law. It is arguable for Mr Mundy that at trial a judge may find that he had little or no understanding of the law relating to funds paid as holding deposits. I also accept that a trial judge may find that Mr Mundy genuinely believed that his company was entitled to a commission on the agreement to sell the six dump trucks to National Plant and Equipment, even though the sale had not gone through.
[65] I assume in favour of Mr Mundy that this is not a black and white case, but there are “shades of grey”. Mr Mundy may have sincerely believed that the payment on 27 September was “non-refundable” because of the term in the invoice and believed that his company was entitled to commission on the sale (even though there was no delivery or payment). In “shades of grey” cases, there is guidance from the Privy Council’s advice in Royal Brunei Airlines v Tan. Lord Nicholls addressed this under the heading “Taking risks” in the context of investment decisions. He noted that there may be differences of degree rather than of kind. While the test for liability for a trustee is strict, he said:
The analysis of the position of the accessory, such as the solicitor who carries through the transaction for him, does not lead to such a simple, clear-cut answer in every case. He is required to act honestly; but what is required of an honest person in these circumstances? An honest person knows there is doubt. What does honesty require him to do?
The only answer to these questions lies in keeping in mind that honesty is an objective standard. The individual is expected to attain the standard which would be observed by an honest person placed in those circumstances. It is
impossible to be more specific. Knox J captured the flavour of this, in a case in a commercial setting, when he referred to a person who is “guilty of commercially unacceptable conduct in the particular context involved: see Cowan De Groot Properties Ltd v Eagle Trust plc… Acting in reckless disregard of others’ rights or possible rights can be a tell-tale sign of dishonesty. An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise, and the seriousness of the adverse consequences to the beneficiaries. The circumstances will dictate which one or more of the possible causes should be taken by an honest person. He might, for instance, flatly decline to become involved. He might ask further questions. He might seek advice, or insist on further advice being obtained. He might advise the trustee of the risks but then proceed with his role in the transaction. He might do many things. Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct.
Likewise, when called upon to decide whether a person is acting honestly, a court will look at all the circumstances known to the third party at the time. The court will also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did.
(Citation omitted)
[66] When National Plant asked for the USD 1.32m to be returned on 18 October 2019, it is summary-judgment arguable that an honest person with the knowledge and attributes of Mr Mundy and without any knowledge of the legal position may be in doubt what to do with the money. He may be unsure of the validity of National Plant’s demand. For an honest person in doubt whether the company was required to refund the money to National Plant, these actions are consistent with honesty:
(a)The company could write to the potential claimants (National Plant and U&M) explaining that a demand for payment had been made and setting out the reasons for doubting the demand.
(b)If Mr Mundy considered that his company had a claim to the fund, he would explain why to National Plant and U&M.
(c)An honest person would not have left the demand unanswered.
(d)An honest person would not have treated the money as its own without telling the others.
(e)An honest person who believed that Mundy Heavy Equipment was entitled to a commission would have issued an invoice and sent it to the person liable for the commission. In this case, Fabick did send an invoice for commission, but to Mundy Heavy Equipment.
[67] An honest person would not have done what Mr Mundy did. He ignored the demand from National Plant, moved USD 450,000 from the foreign currency account to the company’s ordinary trading account to pay off its overdraft, did not tell anyone else and did not issue an invoice for the commission which he now alleges was due to his company.
[68] As those steps fell below what an honest person would do, they were dishonest. The decisions do not suggest that there is any half-way house between acting honestly and acting dishonestly. Accordingly, whatever Mr Mundy’s personal beliefs, he did not act in accordance with the normal requirements of honesty when he did not return USD 1.32m to National Plant but instead used some of it to pay off his company’s overdraft and trading expenses. Therefore I find Mr Mundy liable for knowing assistance in his company’s breach of trust. National Plant is entitled to an order for equitable compensation to the extent of any shortfall in the recovery from his company.
Outcome
[69]I find for National Plant on all its causes of action:
(a)On its first cause of action, it recovers judgment against Mundy Heavy Equipment for USD 1.32m.
(b)On its second cause of action against Mundy Heavy Equipment, I make the declarations sought and make orders for equitable compensation, which require the trust funds to be reinstated to USD 1.32m and repaid to National Plant.
(c)On the cause of action against Mr Mundy, I make an order for equitable compensation, which requires him to make good any shortfall in the USD 1.32m, payable to National Plant. The shortfall is to be paid in US dollars or the New Zealand currency equivalent as at the date of payment.
(d)On all its causes of action, National Plant recovers interest under the Interest on Money Claims Act 2016 from 21 October 2019, the date when it should have been repaid, until the date of payment.
(e)National Plant has costs against both defendants. If the parties cannot agree costs, memoranda may be filed and I will decide costs on the papers.
………………………………
Associate Judge R M Bell
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