New Zealand Bloodstock Limited v Bruce HC Auckland CIV-2011-404-001447

[2011] NZHC 894

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-001447

BETWEEN  NEW ZEALAND BLOODSTOCK LIMITED

Plaintiff

ANDIAIN BRUCE Defendant

Hearing:         11 July 2011

Appearances: Mr J Collinge for Plaintiff

Mr S Perese for Defendant

Judgment:      10 August 2011 at 10:00 AM

JUDGMENT OF ASSOCIATE JUDGE DOOGUE

This judgment was delivered by me on

10.08.11 at 10 a.m., pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Counsel

Mr J Collinge, 10 London Street, St Mary’s Bay, Auckland – by email: [email protected]

Ed Johnston & Co, P O Box 2180, Waitakere, Auckland

(Counsel: Simativa Perese, Barrister, Ponsonby – by email:  [email protected]) for Defendant

NEW ZEALAND BLOODSTOCK LIMITED V BRUCE HC AK CIV-2011-404-001447 10 August 2011

Background

[1]      The plaintiff in this case is an auctioneer of racehorses.  The defendant signed a contract, through an agent, to purchase a colt at an auction.   The total amount owing on that transaction is $311,393.75.   That sum has not been paid, so the plaintiff seeks summary judgment for that sum which is opposed by the defendant.

[2]      The defendant,  Mr  Bruce,  appears to  be  a  Hong  Kong resident  with  an interest in bloodstock.  The sale was concluded on his behalf by Mr Chris McAnulty, son of Mr Robert McAnulty, who was the agent employed by the defendant.  There is no question as to either of the McAnultys’ capacities to act for the defendant.

[3]      The horse was owned by Mr and Mrs Treweek of Cambridge (the vendors), who apparently carry on business under the name Lyndhurst Farm, which offered it for sale at auction through the plaintiff.   Having accounted to the vendors for the sum owing under the sale, the plaintiff now sues the defendant.

[4]      On 17 November 2010 at Karaka, the horse was sold to the defendant for a price of $300,000.   With the addition of some expenses, the total amount on the purchase was $311,393.75.  Mr Chris McAnulty signed a purchase note for the sale. In that purchase note was a passage relating to the date of payment and a reference to the general conditions of sale found in the auctioneer’s catalogue.  I will deal with the relevant parts of those documents below.   Payment was to be made by 17

December 2010.

[5]      The horse was delivered to Lyndhurst Farm by a transport company, Majestic Horse Floats.  There was no payment by 17 December 2010.  Mr Collinge, solicitor for the plaintiff, Mr Robert McAnulty, and the defendant exchanged a series of emails  in  relation  to  whether payment  was  forthcoming.    A letter asking when payment would be made was sent on 27 January 2011 by e-mail.  An e-mail sent by the defendant on 27 January records as follows:

I much regret that it has been necessary for you to write to me.  It was my understanding that my agent, an individual who I have dealt with for many, many years, had sufficient funds to take care of the outstanding invoice on or before the due date of 17 December 2010.  It was only when I received a reminder, as of 31 December 2010, from [the plaintiff] that the invoice

appeared to remain unsettled, that caused me to contact my agent, to be advised by his office that he was on an extended holiday through 31 January.

… [P]lease bear with me and I hope to have this all resolved by 15 February. I would appreciate your understanding on this matter.

[6]      In reply, time for settlement of the account was extended to 15 February 2011 by an e-mail from Mr Collinge to the defendant.   That date also passed and Mr Collinge enquired further as to payment.  In response, the defendant on 21 February e-mailed the following:

I appreciate very much the patience of your client to date.   It has always been my understanding that my agent would be responsible for remitting the funds in respect of this sale, and I see from other communications that you are aware of the other party involved.

I have received a communication from that party today, which suggests there is a problem with the colt, and this is the first I have heard of it; I will send you a copy of that email separately.

I would much appreciate any legal action being held over until I have had the opportunity to speak with my agent and ascertain the reason for the non- payment, and also the problem with this colt

[7]      A series of e-mails between Mr McAnulty and Mr Collinge discussing the medical condition of the colt and the right to possession of it followed between 22

February and 8 March 2011.

[8]      On 28 February 2011 Mr McAnulty e-mailed the defendant.  He sent a copy of it to Mr Collinge.  In his e-mail, he said that the ―vendors‖ of the colt ―have not and will not release that horse to our care to allow us to put him into training and educate him for his transfer to Hong Kong in June/July‖.   Mr McAnulty also expressed his view on who was liable for the purchase price, his understanding apparently being that the plaintiff had no right to sue for the money.  I interpolate that this point was not taken further at the hearing before me.  The vendors were paid out by the auctioneer who thereafter stood in the place of the unpaid vendor.   Mr McAnulty said that:

Our legal advice is that neither Chris [McAnulty] or yourself are under any liability to [the plaintiff].  [The plaintiff] the financier has no claim against you, not even the $30k commission that they would have gained.   If you wish and it would be my privilege for my Lawyers to handle this on your behalf, free gratis.

[9]      He then went on to say: ―Mr Bruce has no commitment to buy the horse.‖

[10]     Mr Treweek at whose property the colt was being agisted has given evidence that in the second half of January 2011, Majestic Horse Floats called to remove the horse to take it to another trainer.   Mr Treweek said he called Mr Gwyn, finance manager for the plaintiff company, to discuss this and was told that although the decision was for Lyndhurst Farm, the purchaser had not paid for the horse by the due date of 17 December 2010 and that possession should not be granted to Majestic. Lyndhurst Farm decided not to release the horse to Mr McAnulty (that is, to Majestic on his behalf).

[11]     In his affidavit Mr McAnulty said:

13.If  what  I  am  given  to  understand  is  correct  —  that  Mr  Gwyn instructed  Lyndhurst  Farms  not  to  release  the  horse  until  the purchase price had been paid, then that instruction is a basic rewrite of the normal terms of trade in relation to Approved buyers like Mr Bruce and myself.   We were never advised by Mr Gwyn that the terms of trade had been changed for Mr Bruce’s Approved buyer status.

14.When I discovered Mr Gwyn’s role in preventing us from taking possession of the horse, I cancelled the agreement within the 30 day period.

[12]     It is plain that Mr McAnulty did not have firsthand information about the circumstances of the retention of the horse at Lyndhurst Farm, which would go to the weight to be accorded to his evidence.

[13]     Mr McAnulty has not said anything additional about the circumstances in which he cancelled the contract.  All that he says about it is contained in the passage that I have set out above.

[14]     The sale was not completed and the horse remains at Lyndhurst Farm.

Submissions

[15]     The submission for the plaintiff is that, due to the failure to pay for the horse, the defendant is liable for the full sum under the terms of the contract.

[16]     The submission for the defendant is that the contract was varied from its original terms because he was an ―approved buyer‖, so as to allow the defendant immediate possession prior to payment.   The defendant argues that when he was denied this possession, it constituted a breach of a fundamental term of the contract. He claims that he therefore validly cancelled the contract prior to the money becoming due and now owes nothing to the plaintiff.

Interpretation of contract

Introduction

[17]     The starting point is to consider the express terms of the contract to see the basis upon which the defendant was entitled to exercise possession over the colt and what rights the plaintiff retained to direct what was to happen to the horse pending payment of the purchase price.   Thereafter the Court will be required to consider whether the express terms were varied by any relevant implied terms.   That in turn will inform the question of whether the plaintiff was acting in derogation of its contractual obligations when it advised Lyndhurst Farm to retain possession of the colt.

The ordinary terms of sale

[18]     As a preliminary comment, it would seem that the standard conditions of the contract do not contain any provision that discriminates between buyers who are

―approved‖ and those who are not.

[19]     The normal terms that govern sales are to be found in the Conditions of Sale which provide, as to the time of payment:

21.2A  Purchaser  must  make  full  payment  in  cash  and  sign  the Auctioneer’s  form of  Acknowledgment  of  Purchase at  the  Sales Office no later than 60 minutes after the fall  of the hammer in respect   of   each   purchase   by   that   Purchaser   unless   other arrangements have been agreed to in writing by the Auctioneer.

[20]     Clauses 21.3 and 22 set out the auctioneer’s remedies on non-payment in accordance with 21.2.  Clause 21.3 allows the auctioneer to cancel the sale and re- sell the horse to another, and makes the purchaser liable for any loss on re-sale.

Clause 22 allows the auctioneer to sue the purchaser for liquidated damages in cases where it has not exercised its right of cancellation and re-sale under cl 21.3.

[21]     The substitution of the auctioneer for the vendors in their rights and remedies is to be found in cl 26.  Certain rights of the purchaser to cancel for medical reasons are to be found in cls 16 and 17.

[22]     As to the passing of possession in the animal there are five clauses, which provide:

29.1THE Auctioneer reserves the right to withhold delivery, at the Purchaser’s expense and risk, until full payment of the purchase price and ancillary charges has been made, including but not limited to amounts due pursuant to clauses 21, 22 and 23 herein.

29.2SHOULD the Purchaser take possession of the Lot prior to payment then although title remains with the Vendor until payment in full, the risk of loss or damage or injury to the animal shall be with the Purchaser, and subject to the provisions of these Conditions of Sale the Purchaser shall lose his right, if any, to reject the Lot.

30.1IN all cases, notwithstanding that delivery has been made to the Purchaser,  property  and  title  in  the  Lot  shall  not  pass  to  the Purchaser  until  payment  in  full,  including  any  monies  owing pursuant to clauses 21, 22 and 23 herein, has been made.

30.2WHERE delivery of any Lot is made to the Purchaser prior to title in the Lot passing to the Purchaser pursuant to these Conditions, the Purchaser shall hold the Lot as bailee only and shall not deal with the Lot in any manner inconsistent with the reasonable directions which may be given from time to time by the Vendor and/or the Auctioneer.

30.3UNTIL title in the Lot has passed to the Purchaser, the Purchaser shall not exercise or purport to exercise any rights of ownership or possession including, without limitation, registering or racing the horse.

[23]     Obviously cls 30.1 and 30.2 made express provision for the situation which arose in this case.   In the normal of course of business then, the purchaser would have had to pay within a very short time of conclusion of the sale and title would have then passed to him.  Arrangements for delivery and possession could be made before payment of the full purchase price but, in that case, the vendor/auctioneer would retain significant rights.

[24]     The issue that needs to be resolved seems to be as follows.   The parties’ contract contemplated that the vendor could retain possession of the colt until payment had been received.  It did not have to exercise that contractual power and could release the horse to the possession of the purchaser.  On the latter occurrence taking place, the purchaser would acquire possession as a bailee.  It held possession subject to the reasonable directions that might be given by the vendor.  In that case, the express provisions of the contract, and in particular cl 30.2, applied, and the issue of whether the vendor was justified in preventing the removal  of the colt from Lyndhurst  Farm  would  raise  the  question  of  whether  such  a  direction  was reasonable.   If it was not, then the vendor would be in breach of its contractual obligations.  That would then lead to consideration of whether the breach was of a kind that would justify the purchaser cancelling the agreement.

Interpretation of contract — “reasonable directions”

[25]     The  issue  is  what  restrictions,  if  any,  were  imposed  on  the  defendant’s exercise of rights during this grace period?  Was the direction that the purchaser be granted possession of the horse to take it to Lyndhurst farm, but that the horse was only to be agisted at Lyndhurst farm and nowhere else reasonable?

[26]     There is no presumption that the direction which the plaintiff gave that the horse was to be retained at Lyndhurst Farm was reasonable.   Equally, there is no presumption that it was unreasonable.  While the defendant does not have to prove that the direction was unreasonable, he has to be able to point to some basis upon which he would persuade the Court at trial that he has an arguable defence that such a direction was not a reasonable one as contemplated by cl 30.2.  The basis for such a claim can be found either in evidence or in the inherent circumstances of the case.

[27]     When    interpreting  a  contract,  the  Court  needs  to  look  at  the  relevant background circumstances including the commercial objectives that the parties had in mind: see Vector Gas Ltd v Bay of Plenty Energy Ltd.[1]

[1] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.

[28]     The background can be determined by having regard to express evidence given and also from what is made apparent about those circumstances by examining

the contractual arrangements that the parties came to and taking into account the subject matter of the sale and the mode of sale, amongst other factors.

[29]     As  a  class  of  property,  racehorses  have  inherent  risks  in  that  they  are vulnerable to suffering physical harm or illness that reduces their value at a stroke. That consideration underscores the risk attendant on parting with possession before payment has been made.

[30]     Furthermore,  bloodstock  animals  will  often  be  valuable.    They  are  also portable.  The facts of this case are in point: the purchaser was based in Hong Kong and intended to take the horse out of New Zealand for its racing career.   It is understandable why, for those reasons on their own, the vendors/auctioneer would not, in the general course of business, wish to relinquish possession before payment had been made.

[31]     The defendant puts forward the evidence of Mr McAnulty.  It was implicit in Mr McAnulty’s evidence that it was unreasonable for the plaintiff to give such a direction at a time when the defendant needed to take steps to, inter alia, have the colt put into training and ―educated‖ ahead of its removal to Hong Kong where apparently it  was to be based.   No evidence was  given concerning this by the plaintiff, but equally, the fact that this was to become a relevant issue in the proceeding was not signalled in the notice of opposition filed by the defendant.  It is correct that Mr McAnulty did refer to this matter in the passage in his affidavit.  But those  particulars  given  in  the notice of opposition  appear to  be based  upon  an assertion that any rights to direct how the defendant was to exercise possession of the colt were wholly or partly to be decided by the reference to the fact that the defendant was an ―approved buyer‖.

[32]     A direction that the horse be retained at Lyndhurst Farm is not obviously unreasonable.  The plaintiff presumably was happy with the colt being delivered to Lyndhurst Farm in the first place because that was the destination specified in the delivery arrangements noted in the sales documentation.  Given the high value of the colt, it is not surprising that the unpaid vendor wanted to keep control of where it was located.  That consideration has all the more force in light of the fact that by

mid-January, payment for the colt was well overdue.   Considerations of this kind were no doubt part of the precise reasons behind why cl 30.2 was included in the contract.

[33]     Not unexpectedly, the purchaser having obtained possession of the colt, was hopeful that he would be able to remove it to the trainer of his choice.   But that consideration does not on its own mean that the plaintiff was giving an unreasonable direction when it declined to cooperate in the removal of the colt from Lyndhurst Farm.

[34]     The question of whether there is a basis upon which it could be asserted that the retention of the colt was unreasonable is one that is to be resolved by having regard to the intention of the parties, objectively ascertained when they agreed to the inclusion of cl 30.2 into the contract.   It will also depend upon an objective consideration of the circumstances of the parties in the second part of January 2011, when the defendant sought but was refused possession of the horse.  The defendant did not make submissions on the question of whether the refusal to grant possession was reasonable or unreasonable.  He seems to have assumed that the failure to hand over possession was self-evidently unreasonable.   It has not been asserted for the defendant that there is any explicit evidence that he would wish to advance at trial concerning the reasonableness or otherwise of the plaintiff’s conduct.

[35]     That the defendant may have a defence arising from the circumstances of the refusal to hand over the colt based on the express terms of the contract is no more than a theoretical possibility and in my judgment, that is not sufficient to negative the plaintiff’s evidence that it does not believe that the defendant has a defence.

Implied term

[36]     The other possibility for the purchaser is whether there was a variation to the terms of sale that applied to buyers with an ―approved buyer‖ status, allowing them immediate possession in addition to payment on a deferred basis.  This variation was not recorded in writing and insomuch as it was addressed appears to have been framed in law as an implied term of the contract.

[37]     The traditional requirement is that an implied term cannot contradict express terms of the contract.   Clauses 30.1 and 30.2 are in direct contradiction with the implied term suggested by the purchaser — that he was entitled to immediate and unconditional possession of the horse after the sale but before payment in full.   I conclude that cls 30.1 and 30.2 apply in the circumstances of this case.  There is no provision which says that it does not apply in a case where the buyer is ―approved‖.

Cancellation

[38]     The stated grounds of opposition in the notice of opposition include the following:

b.The defendant has properly cancelled the putative sale and purchase agreement in accordance to the standard terms and conditions applicable to buyers with Approved buyer status[.]

[39]     I found above that the defendant has not adduced any evidence showing that the plaintiff’s direction that the colt was not to be removed from Lyndhurst Farm was unreasonable, and that a term entitling the defendant to unrestricted possession of the horse cannot be implied in this case.  It is therefore not strictly necessary for me to go on and consider the issue of cancellation, as the defendant has not shown a reasonably arguable case that he had sufficient grounds to cancel the contract.  For completeness, I will explain why, even if the defendant had sufficient grounds to cancel the contract, his purported cancellation would not be effective.

Timing of alleged breach

[40]     It seems clear that the refusal of possession occurred in the second half of January 2011.   The only detailed credible evidence on the point comes from Mr Treweek.

[41]     The original date for payment was 17 December 2010, 30 days after the agreement was signed

[42]     I conclude that it is arguable that the date for payment was extended to 15

February  2011.    Mr  Collinge  said  that  the  arrangement  was  not  supported  by

consideration.  It would seem unlikely that where an indication had been given to the purchaser that further time was available for paying the purchase price that the plaintiff could later go back on that representation and claim to now be entitled to exercise contractual rights on the basis that the representation had not been made.  I hardly need add that is a provisional conclusion made for the purpose of summary judgment only.

[43]     Assuming for now that the plaintiff’s direction in January 2011 not to remove the horse from Lyndhurst Farm was unreasonable, the plaintiff would have breached the agreement before 15 February 2011, when the grace period for payment expired. The next issue then is whether the defendant validly cancelled the agreement in the face of this alleged breach.

Notice of cancellation

[44]     Mr Collinge for the plaintiff primarily focused on what he said was a lack of evidence that any notice of cancellation was ever given to the auctioneer.

[45]     Mr McAnulty does not, as Mr Collinge pointed out, state when the purported cancellation was and the means by which he purported to cancel the contract.  Those particulars are of significance.  If he did in fact give notice of cancellation, the time at which he did so is of crucial importance.

[46]     Taking the most favourable view possible of the defendant’s evidence, Mr McAnulty simply says that he gave the notice of cancellation in the 30 day period for payment.  If that means the 30 days after the auction sale occurred, it would seem most unlikely that matters are as the defendant deposes, because the defendant was still seeking further time to pay the price up until February 15.  It would also seem to be inconsistent with the cancellation having occurred prior to 26 January 2011.  On that date, in an e-mail, Mr McAnulty talked about there being ―a risk‖ that the defendant might cancel the sale.  That would suggest cancellation had not occurred by that date.

[47]     Even assuming in favour of the defendant the possibility that the plaintiff could be held to an extension of time to 15 February 2011 to make payment, it is

clear that no payment was made by this last date.  On 15 February, the defendant told Mr Collinge in an e-mail that he expected that his agent would settle the account on 20 February.  This is inconsistent with any cancellation having occurred by 15

February.

[48]     On  21  February,  the  defendant  stated  his  appreciation  of  the  plaintiff's patience in waiting for payment of the purchase price.  It is true that in an e-mail, the defendant referred to the fact that he had received a communication from Mr McAnulty that day ―which suggests there is a problem with the colt, and this is the first I have heard of it …‖.  This sequence of events is inconsistent with cancellation having occurred by that date.

[49]      Indeed, the first occasion when contemporary documents show that there was any disquiet expressed because Lyndhurst Farm would not release the horse was

28 February 2011.  On that date, too, Mr McAnulty also made the first documented communication which could be construed as cancellation in an e-mail he sent.  In the text of the e-mail he said ―Mr Bruce has no commitment to buy the horse‖.

[50]     As I have noted, such evidence as there is establishes that the refusal to grant possession occurred in the second half of January 2011.  But the defendant asked for further time to settle the purchase.   Even if the plaintiff breached the contract by directing that it not be removed from Lyndhurst Farm, it seems clear that the defendant affirmed the contract afterwards.

[51]     Mr McAnulty has not provided any particulars of the cancellation.   The circumstantial  evidence  suggests  that  any  cancellation  had  not  occurred  by  the critical date of 15 February 2011.   From that point, the defendant was in default because the purchase price was not paid.  If I am correct that the attempt to cancel took place on 28 February 2011, it was at a point where the defendant was himself in breach by not having paid the purchase price and was not entitled to cancel.

Summary

[52]     My conclusions are as follows.

[53]     In my view, the defendant has not established an arguable defence that he validly cancelled the contract under s 7, let alone that he did it for good cause.  In this case the plaintiff has, by its affidavit verifying the absence of a defence, done sufficient to pass to the defendant the obligation to demonstrate affirmatively the facts upon which the suggested defence (of valid cancellation) is based.   That is because once the plaintiff has provided proof of the matters that are incumbent upon it, it is up to the defendant to demonstrate the existence of a tenable defence.  He

does not have to prove the matters on which the defence is based:  Auckett v Falvey.[2]

But he has to provide the Court with some ground upon which it can reasonably conclude that there is an issue of substance to be tried.  There has to be sufficient detail given to enable the Court to make the judgment that the plaintiff may fail at trial because of the suggested defence now raised, albeit in a preliminary way. Because of the dearth of material put forward here by the defendant, it is impossible to reach the conclusion that his counsel submits I should.   The position is little different from a case where there is a complete absence of evidential foundation for a defence so that all that the Court has to go on are the bare assertions made by counsel in submissions.

[2] Auckett v Falvey HC Wellington CP296/86, 20 August 1986.

[54]     Even assuming in favour of the defendant that the plaintiff breached the bailment arrangement in late January 2011 when it directed that the horse not be removed from Lyndhurst Farm, the defendant affirmed the contract thereafter asking for further time to pay.  Further time having been granted to pay until 15 February

2011, the defendant himself was in breach of the contractual arrangements when he did not pay the price on that date. I further conclude that any notice of purported cancellation was given by Mr McAnulty on 28 February 2011 which I have referred to at [8]–[9] above. But by that time the defendant himself was in breach and not entitled to give a notice of cancellation. Further, the alleged grounds relied upon (the refusal of possession) had been lost to the defendant because of his affirmation of the contract. The defendant therefore had no right to cancel the contract and must

pay the purchase price.

Result

[55]     There will be judgment for the plaintiff in the sum of $311,393.75.  As well, the plaintiff will be entitled to interest at the rate of 12 per cent per annum from 1

March 2011.  By cl 23 of the contract (the indemnity clause), the plaintiff is entitled to recover its actual legal costs.  I see no reason why that provision should not be given effect.  I suggested that the plaintiff advise Mr Perese and the Court what its actual costs are.  If the defendant wishes to make any submissions on the quantum of the costs and disbursements, he is to do so within seven days of receiving a copy of

the statement of the plaintiff's legal costs.

J.P. Doogue

Associate Judge