NZNet Internet Services Ltd v Superdockets Advertising Ltd HC Auckland CIV 2011-404-3577
[2011] NZHC 1390
•31 August 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2011-404-3577
BETWEEN NZNET INTERNET SERVICES LTD Applicant
ANDSUPERDOCKETS ADVERTISING LTD Respondent
Hearing: 29 August 2011
Appearances: S J Corlett for applicant
P R Cogswell for respondent
Judgment: 31 August 2011
JUDGMENT OF ASSOCIATE JUDGE BELL
Pursuant to r 11.5 of the High Court Rules, this
Judgment was delivered by me at 4.00 pm on Wednesday 31 August 2011
Solicitors:
Brookfields, Auckland P Moodley
Cogswell & Jaduram, Auckland [email protected]
NZNET INTERNET SERVICES LTD V SUPERDOCKETS ADVERTISING LTD HC AK CIV 2011-404-3577
31 August 2011
[1] John Wanamaker, considered to be the father of modern advertising, and a pioneer in marketing, is credited with the saying, “Half the money I spend on advertising is wasted; the trouble is I don‟t know which half”. This case may bear out that saying. It arises out of an advertising contract. The applicant is disappointed with advertising by the respondent.
[2] Superdockets Advertising Ltd prints promotional coupons that go on the back of till tapes in all the major supermarkets in the country, about 280 in all, including New World, Pak „n Save, and Countdown. NZNet Internet Services Ltd is an internet service provider on the North Shore, Auckland.
[3] On 1 February 2011, NZNet Internet Services Ltd entered into a contract with Superdockets for coupons for it to be printed on till tapes to be used in 280 supermarkets. The contract provided for three print runs starting from mid March, mid April and mid May 2011 respectively and for each print run finishing approximately 12 months later. The number of coupons to be printed was
51,717,930. The contract price was $89,385.92 inclusive of GST payable by twelve equal monthly instalments of $7,448.83 each. Curiously, the first payment was to be made on 29 February 2011.
[4] NZNet says that it has had minimal response to the advertising. Its technical director went to supermarkets on the North Shore and the Hibiscus Coast on the weekend of 21 and 22 May 2011, collecting till tapes from each of the supermarkets. He found that NZNet‟s advertising did not appear on the till tapes of nine of the 15 supermarkets he visited. He followed this up on 24 July 2011 with further visits to those supermarkets plus new supermarkets. Again he found that on many till tapes at the supermarkets the respondent‟s coupons did not appear. He says that as a result of this sampling, it appears that NZNet‟s advertisements are on the till tapes of no more than 20% of the stores required under the contract.
[5] So far NZNet has paid only $4,000 under the advertising contract.
[6] Superdockets served two statutory demands on NZNet, the first dated 24 May
2011, demanding the sum of $85,385.96 and the second dated 30 May 2011, demanding $25,795.32. Superdockets relies only on the second[1]. NZNet has not been substantially prejudiced by the service of the first demand. Superdockets made it clear within time that it required compliance with the second demand only. The amount sought in that demand is the balance payable for the first four months‟ invoices, February to May 2011, less the part payment.
[1] The first claimed payment of the entire contract sum. That had not fallen due and could not be the subject of a statutory demand – s 289(2)(a) Companies Act 1993.
[7] NZNet has applied under s 290(4) to set aside the statutory demand for
30 May 2011. It says that there is a substantial dispute whether the sum is owing and that it has an arguable counterclaim, set off or cross demand within s 290(4)(b) of the Companies Act 1993. It also alleges it is able to pay the sum sought in the demand.
[8] The applicant cited familiar principles[2] used on applications to satisfy statutory demands:
[2] North Harbour Equine Hospital Ltd v Little Associate Judge Abbott HC Auckland CIV 2006-404-7585, 19 February 2007, Carpet Plus 2003 Ltd v A Team Flooring Specialist Ltd Associate Judge Sargisson, HC Auckland CIV 2008-404-4725, 19 January 2009.
(a) An applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. The task for the court is not to resolve the dispute but to determine where there is a substantial dispute the debt is due;
(b)The mere assertion that a dispute exists is not sufficient. Material, short of proof, is required to support the claim that the debt is disputed. If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court;
(c) An applicant must establish that any counterclaim or cross-demand is reasonably arguable in all the circumstances. The obligation is not to prove the actual claim. Such an obligation would amount to the
dispute itself being tried on the application;
(d)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[9] The applicant also referred to the decision of the Court of Appeal in
Industrial Group Ltd v Bakker,[3]
[3] [2011] NZCA 142 [24] and [25].
[24] We note that the statutory scheme is for applications to set aside statutory demands to be a summary proceeding. The application must be made within 10 working days of the date of service of the demand: s 290(2)(a). No extension of time may be given: s 290(3). It follows that it would be unusual for the High Court to engage in detailed analysis of the merit of any counterclaim, set off or cross demand. The section calls for a prompt judgment as to whether there is a genuine and substantial dispute. It is not the task of the Court to resolve the dispute. The test may be compared with the principles developed in cognate fields such as applications to remove caveats, leave to appeal an arbitrator‟s award and opposition to summary judgment.
[25] The approach required by the “appearance” test in s 290 is a review with a low threshold. The tight time constraints distinguish the s 290 discretion from that to be exercised on, say, a summary judgment application, where the presence of complex legal issues is not necessarily a bar to a remedy. As with leave to appeal an arbitrator‟s award, the hearing should, in the normal course, be short and to the point, and the judgment likewise.
[10] In this case I am satisfied that within the tight time allowed under s 290 and despite having been served with two statutory demands in quick succession, the applicant has had the opportunity to mount a proper setting aside application. The issues in this case are not as complex as those in Industrial Group Ltd v Bakker.
This case
[11] NZNet puts its application in various ways. It says that:
(a) Superdockets has not performed under the contract and is therefore not entitled to recover payment;
(b)it can claim for breach of contract and its losses exceed the amounts payable under the agreement;
(c) it can claim for misrepresentation under the Contractual Remedies Act and the Fair Trading Act and these give it a right of equitable set off or counterclaim;
(d)an exclusion clause and a limitation of liability clause in the conditions of contract ought not to be applied against it at this stage; and
(e) it is able to pay if required.
Non-performance
[12] The major issue is whether Superdockets has performed under the contract. The contract requires NZNet coupons to appear on Superdockets till tapes in 280 supermarkets. NZNet relies on its sampling of supermarkets around Auckland to suggest that there is a serious issue whether Superdockets has performed under the contract. At first sight, the large bundle of copies of till tapes attached to the applicant‟s reply affidavit, with only a few of them showing the applicant‟s coupons, would suggest that something has gone awry. The supermarkets where till tapes were
obtained were within the 280 supermarkets to be supplied under the contract.[4]
[4] The contract provided a list of supermarkets. Two supermarkets, Pak „n Save Albany and Victoria Market New World, were not included but were to be added when available. The applicant obtained a till tape from Victoria Market New World in its July 2011 sampling
[13] The respondent‟s evidence described the production and despatch of till tapes with advertising. It had artwork plates made containing NZNet‟s advertisement along with numerous other promotional coupons. Copies of the 117 plates were put in evidence. They have up to six strips of coupons, with 15 coupons in each strip. Each strip has a code identifying the print run and supermarket for the till tape. Not all the strips of till tapes on one plate go to the same supermarket. Not every strip of till tape has a coupon for the applicant. But, with three exceptions, in all the till tapes for any one supermarket there is at least one of the applicant‟s coupons. The three exceptions are supermarkets 543, 567 and 1071 in print run 144. The
respondent says that these are errors in artwork, acknowledging that under the
.
contract the till tapes for those supermarkets ought to have had the applicant‟s
coupons.
[14] For this contract there were three print runs, starting in March, April and May
2011 respectively. The respondent says that from March to May it progressively
delivered till tapes with the applicant‟s coupons to 276 supermarkets. It explains the
changes to the contract number of 280:
(a) Two additional supermarkets, initially not included, became available, (b)
(c)
One supermarket closed,
Three new supermarkets were added,
(d) Four supermarkets in Christchurch suspended trading as a result of the
February 2011 earthquake[5], and
(e) The three supermarkets with the artwork errors were not counted.
[5] The respondent also says that its artwork plates included the four Christchurch supermarkets that stopped trading.
[15] On the respondent‟s account, in the 276 supermarkets there were till tapes with coupons promoting the applicant‟s business. The applicant points to its sampling evidence as showing that that cannot be the case. Its submission is that the court cannot resolve this factual conflict in this hearing and the matter ought to be decided in another proceeding.
[16] The respondent countered that the applicant‟s evidence does not show non- performance, but proves delivery of the required till tapes. The till tapes put in evidence by the applicant show the identifying codes used by the respondent. It is possible to match the till tapes in the applicant‟s evidence with columns of till tapes in the respondent‟s copies of its plates. The applicant‟s evidence generally shows
three columns of till tapes, with nine coupons in each column – twenty-seven
coupons. Comparison with the copies of the respondent‟s plates shows that the till tape strip of 15 coupons has been printed again and again in the exhibits to the applicant‟s evidence. Not every till tape strip has the applicant‟s coupon, but the respondent‟s case is that not every till tape strip has to have a coupon.
[17] I accept the respondent‟s argument on that point. As long as at least one till tape strip from an artwork plate delivered to each supermarket has one of the applicant‟s coupons that is sufficient compliance with the contract. There is no term in the contract requiring every till tape strip to have the applicant‟s coupon. The point is reinforced by clause 11.2 which provides in part:
...The Customer acknowledges however, that whilst the Company endeavours to ensure the accuracy of the foot traffic averages, and will exercise every reasonable endeavour to place rolls with Customers advertising during the relevant periods, that the true benefit of the contract to the Customer is total exposure within the store on a given number of rolls. The Customer[6] will not entertain any claim for a credit or compensation if advertisements are not carried on rolls, produced by any store precisely during the extent of a contract period.
[6] Something has gone wrong with the language here. Properly understood, the company (the respondent) is the one that will not face a claim if a particular roll does not carry a customer‟s advertisement.
[18] The applicant‟s sampling evidence shows that some till tapes did not carry its coupons, but by itself that is not evidence of non-performance. Instead the till tapes in evidence carry the required codes, showing that till tapes printed from the artwork plates put in evidence by the respondent have been delivered to and used by the supermarkets. On this basis the till tapes in evidence are consistent with the respondent performing its contract. They do not support the applicant‟s claim that the respondent has not complied with the contract. The apparent conflict between the evidence of the applicant‟s sampling of till tapes and the respondent‟s evidence of printing and delivering till tapes to the required supermarkets is resolved. The applicant does not have an arguable case that the respondent did not perform in terms of including the applicant‟s coupons on till tapes as required under the contract.
[19] The respondent addressed on the progressive roll out of the till tapes over three print runs. The applicant did not dwell on that aspect. There is no evidence of
non-performance by the respondent in sending out till tapes over the course of three print runs.
[20] One aspect that was not raised in argument is the effect of the four supermarkets in Christchurch suspending trading following the February earthquake. The applicant did not suggest that there should be a deduction on account of only
276 supermarkets being supplied instead of the contracted 280. It is therefore unnecessary to consider the question of partial frustration of contract. It appears that customers of those four supermarkets in Christchurch would use other supermarkets where they would also be exposed to the applicant‟s advertising. The applicant would receive the same benefit it contracted for.
[21] In summary, the applicant has not shown an arguable case for a substantial dispute as to performance by the respondent under the contract. That finding also disposes of any claim for abatement of price[7] for damages arising from breach of contract for non-performance and any counterclaim or cross demand claiming damages for non-performance.
Misrepresentation
[7] As under Mondel v Steel (1858) 8 M & W 858, 151 ER 1288
[22] The application did not give misrepresentation as one of the grounds for setting aside. The affidavit sworn in support of the setting aside application did not contain any evidence as to misrepresentation. The first evidence as to misrepresentation came in the applicant‟s affidavit in reply. It is very brief.
During pre-contractual negotiations Mr Boag advised me that another internet service provider like NZnet had recently used similar dockets advertising and had received a great deal of customer response from that advertising. From the outset, Mr Boag had recommended advertising with Superdockets as a good method of attracting new customers to NZnet.
[23] The applicant is not entitled to introduce new grounds for setting aside in a reply affidavit. If the applicant had wanted to raise new setting aside grounds, it ought to have done so at the time when this application was first called in court, to
allow the respondent the opportunity to answer them. In any event, the applicant‟s
evidence does not show an arguable case for misrepresentation. The first sentence above records a statement of fact by Mr Boag (the respondent‟s business development manager). There is no evidence to suggest that the statement of fact is false. The second statement records the normal vaunting of a product expected of any salesman. It is not actionable.
[24] NZNet complains about lack of customer response to the advertising. No- one is to know how effective the advertising would be. Here the John Wanamaker adage applies. There is not enough in the applicant‟s case to take complaints of misrepresentation as to the effectiveness of advertising seriously.
Exclusion and limitation clauses
[25] The applicant urged me not to have regard to clause 4 of the terms of contract which contains an acknowledgement that the customer has not relied on any representation or warranty, and contains an entire contract clause. The applicant says that any assessment whether to give effect to that clause is a matter for trial under s 4(1) of the Contractual Remedies Act. I accept that submission. I have decided the case without applying s 4.
[26] Similarly I have not applied the limitation of liability clause 11 because at present I am not satisfied that Superdockets is under any liability under s 10(4)(b).
Ability to pay
[27] The applicant said it was able to make payment, but simply disputed liability. The respondent alleges that the applicant has cashflow difficulties. There is not adequate proof of solvency. In any event, proof of solvency ordinarily does not give grounds for setting aside a statutory demand.[8]
[8] AMC Construction Ltd v Frews Contracting Ltd (2008) 19 PRNZ 13 (CA) at [10].
[28] In conclusion, I am satisfied that there is not a substantial dispute as to the liability of NZNet to pay the sum of $25,795.32, to Superdockets as the outstanding
balance for the invoices of 20 February, 20 March, 20 April and 20 May 2011. I am
also satisfied that the company does not appear to have a counterclaim set off as a cross demand within s 290(4)(b) and that the statutory demand ought not to be set aside on other grounds.
[29] Under s 291(1)(a) I order NZNet to pay Superdockets the sum of $25,795.32 within 15 working days of this order, by 21 September 2011.
Costs
[30] The applicant is ordered to pay the respondent on the 2B scale in the sum of
$6,016.00.
R M Bell
Associate Judge
0
2
1