Paper Reclaim Limited v Brown HC Dunedin Civ-2006-412-915

[2007] NZHC 1659

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2006-412-000915

BETWEEN  PAPER RECLAIM LIMITED Plaintiff

ANDMICHAEL PATRICK BROWN First Defendant

ANDDONNA ROWE Second Defendant

Hearing:         23 February 2007

Appearances: MIS Phillipps for Plaintiff

QJC Stratford for Defendants

Judgment:      23 February 2007

Reasons:        27 February 2007

REASONS FOR JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN Upon Application For Summary Judgment

[1]      At the conclusion of my hearing of the summary judgment application I said that even accepting for present purposes that Mr Brown may have been acting in an honest belief that he had authority to collect for himself the payments payable by Paper Reclaim to PMP, in fact there was no reasonable or logical basis for him to believe he had reached an agreement of that kind with PMP.  The affidavit evidence of Mr Brown alone convinces me the defendants have no arguable defence to Paper Reclaim’s case.  Accordingly I entered judgment for Paper Reclaim as to liability.

[2]      I noted issues had been raised in submissions regarding the level of quantum for which judgment should be entered.   Mr Stratford mentioned there could be a

basis for a counterclaim owing to the fact that Paper Reclaim’s own systems may be

PAPER RECLAIM LIMITED V BROWN AND ANOR HC DUN CIV-2006-412-000915  23 February 2007

at fault.  Also, and as I noted, of the funds received by the defendants, some $64,000 approximately, was paid to the Inland Revenue Department for tax of one kind or another.

[3]      Accordingly  I  adjourn  the  issue  of  quantum  to  enable  counsel  to  file submissions.  The initial submissions of each side shall be filed and exchanged no later than 2 March 2007.  Thereafter, any responses are to be filed and exchanged no later than 9 March 2007.  Following receipt of those I will issue my judgment as to quantum.

Issues

[4]      They are:

i)Whether  Paper  Reclaim  can  prove  the  defendants  have  no defence to their claim.

ii)Whether on the basis of the affidavits filed there is any real conflict of evidential issues which would be required to be resolved beyond this hearing.

iii)What   evidence   is   there   of   an   agreement   between   the defendants and PMP which entitled Mr Brown to direct Paper Reclaim to pay him for the recyclable waste supplied by PMP?

iv)Whether judgment ought in the circumstances to be entered for quantum, even if Paper Reclaim should prove the defendants have no defence to their claim: or, are there reasons to fix quantum  in  a  reduced  sum  pending  further  enquiry by the Court.

Factual background

[5]      Paper Reclaim is an Auckland company that carries on business as a waste paper recycler.

[6]      The defendants live together in Dunedin.  They have two school-age children and a pre-schooler.   From about July 2004 Ms Rowe was engaged by PMP Distribution Limited trading as its distributor in Dunedin, distributing brochures, advertising material and other publications to households throughout the Dunedin area.   Previously she had been engaged in a similar position in Auckland.   The defendants say that while they were in Auckland Mr Culpan, the national operations manager for PMP Direct Limited (another of the PMP Group of companies, collectively “PMP”), contacted the defendants and advised there was a supervisor’s position available in Dunedin, and asked if they would be interested in it.  Following an interview Ms Rowe was appointed to the position in Dunedin and they made the move there.

[7]      Since 1993 Paper Reclaim had an arrangement with PMP to purchase waste paper from various PMP outlets in the greater Auckland region.   Paper Reclaim would uplift it, take it to its own plant, weigh it and generate an invoice from PMP to it based on weight.  Paper Reclaim would then pay PMP for the waste paper.

[8]      Over the months August-October 2005 Mr Brown approached Mr P Thorne of Paper Reclaim with a view to entering into a new arrangement regarding the purchase of waste paper from PMP.  Those discussions culminated in a letter from Mr Brown on letterhead of “PMP Distribution” and signed by him as “Dunedin Area Manager”, requesting payment to now be made to Ms Rowe’s personal bank account in Dunedin.   Paper Reclaim, believing that Mr Brown was authorised by PMP to make this request and to receive payment, acted on the request accordingly.

[9]      From November 2005 to June 2006, Paper Reclaim paid a total of $254,205 into Ms Rowe’s account.   These payments were made in respect of waste paper supply from PMP outlets in Auckland.

[10]     Certain services were also provided by Paper Reclaim to PMP, including the provision of bins, for which invoices were rendered.   From November to May the defendants made payments to Paper Reclaim in respect of certain invoices in the total of $6059.04.

[11]     Since the defendants were informed that Paper Reclaim was investigating the unlawful/improper redirection and misappropriation of funds received from Paper Reclaim they have made full disclosure of their banking records and have given particulars of all amounts in excess of $1000 of payments made from those accounts. They have disclosed details of the purchase of vehicles, a computer, and a home in Dunedin.    Also  they have  made  payments  of  more  than  $64,000  to  the  Inland Revenue Department for GST, tax and provisional tax.

Paper Reclaim’s claim

[12]     Essentially it has two parts:

i)For deceit by making a representation as to fact which the defendants knew to be false, with the intention that it be relied upon when, if it was relied upon, damage occurred as a result.

ii)In that the defendants received a benefit, at the expense of Paper Reclaim, in circumstances where it would be unjust that that benefit be retained.

[13]     As to the claim of deceit, Paper Reclaim asserts the defendants represented to them they were authorised by PMP to direct payment to their account, for the supply of waste paper.   Paper Reclaim says the defendants knew the representation was false and they intended it be relied upon.  It said it relied upon that representation by making payments to the defendants and as a result they have suffered damage, in the amount that is due and owing by it to PMP.

[14]     The  other  claim  is  something  of  a  hotch-potch  of  allegations  including monies had and received/monies paid by mistake/knowing receipt/dishonest assistance.  If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it.   However, the claim may fail if:

a)        the  payer  intends  the  payee  shall  have  the  money  at  all  events, whether the fact be true or false or is deemed in law to so intend;

b)the payment is made for good consideration, in particular if it is paid to discharge and does discharge a debt owed to the payee (or a principal on whose behalf he is authorised to receive the claim);

c)       the payee has changed his position of good faith, or is deemed in law to have done so.

[15]     In this case Paper Reclaim alleges it mistakenly believed that monies it paid to the plaintiff were being paid to PMP for the supply of waste paper.  It says the defendants received those monies to which they were not entitled at the expense of the plaintiff in circumstances rendering it unjust that they retain the monies.  Paper Reclaim  further  claims  that  Mr  Brown  dishonestly assisted  Ms  Rowe  to  obtain payment of those monies, and that Ms Rowe knew she was not entitled to them.

[16]     In all, Paper Reclaim have filed eight affidavits in support of the summary judgment application.  Also, and in response to affidavits filed by the defendants, the plaintiffs have filed seven further affidavits in reply.

[17]     The import of Paper Reclaim’s affidavits is that the defendants were not entitled to receive the money they did; that there was never any contractual relationship between the defendants and Paper Reclaim, but rather that they acknowledged the contractual relationship between Paper Reclaim and PMP.  Paper Reclaim says a letter from the defendants to them dated 25 October was intended to convey that the contractual relationship between Paper Reclaim and PMP was preserved and that payments made to that account were still effectively payments made pursuant to that contractual relationship.

[18]     That letter, on PMP Distribution letterhead noting the address and contact details of PMP’s Christchurch office, to Paper Reclaim noted:

Attention: Peter Thorne (General Manager), Amber Reese (Accounts) Dear Amber,

As per discussion with Peter Thorne, Paper Reclaim is looking to service PMP Hubs Nationwide.  Mike Brown will run the operation from Dunedin this will require your company to set up payment account National Bank

DROWE (pmp distributor) chq account 060-188-0082828-00 Reference (Preclaim).  Please forward all documents to S Prasad Accounts 424 Hillside Road,  Dunedin  enquirys  [sic]  Mike  Brown  DDI  03-4555281  Mobile

0211089719.

Amber is it possible to have accounts setup for end of month payment, if there are any questions please call me on my cellphone as I am out of the office Wed 26/Thurs 27.

Regards, Mike Brown

Dunedin Area Manager

PMP Distribution Dunedin

[19]     Paper Reclaim contends it is not arguable that the defendants entered into a contract with PMP, to provide the services as suggested, in return for the payments made by Paper Reclaim.  They say there is no evidential basis for such a proposition because:

a)       Mr Brown does not claim the defendants were being paid personally for their “services”.

b)The letter conveys an impression the request has been made on behalf of PMP.

c)       There are no documents supporting the contention of a contractual relationship between the defendants and PMP.

d)Mr  Brown  does  not  assert  that  PMP  agreed  to  pay  him  for  his “services”, nor does he assert that PMP agreed that all monies payable by Paper Reclaim should be made directly to him.

[20]     In support of this position Mr Phillipps, for Paper Reclaim, refers to Mr Brown’s own affidavit.  In that, Mr Brown detailed his developing relationship with the recycling business of PMP.  He spoke of a conversation with PMP’s South Island manager, Mr Stevens, concerning recycling of waste paper, and that he would be more  than  keen  to  deal  with  the  problem  of  managing  waste.    He  stated  that following this discussion:

… it was clear to me that PMP were looking to have someone in charge of all the waste paper and that as a result of this discussion I could now take on this role.

[21]     And (paras 11-34):

… no-one that I was dealing with in [PMP] seemed to be concerned by it… Shane (a Senior PMP Site Manager) was happy to deal with me as I was now responsible for waste paper…  I took over waste paper for PMP in around August 2005 and continued in that role until July 2006…  I had taken over responsibility for waste paper as requested by Craig Stevens, and it appeared that  I  should  be  receiving  the  payments  for  the  waste  paper…  I  heard nothing more until the first payments started arriving in the bank account.  I took it from that PMP had given authority to Mr Thorne, and that all was now in place for me to continue my role…  I then took on responsibility for paying PRL for the bins and pickups.  They would invoice me directly.  I was now providing a service to PMP whereby I was disposing of their waste paper at no cost to them…   Given that Mr Applebee [who took over as national operations manager from David Culpan] and Mr Stevens knew that I had been visiting plants… it seemed to me that the arrangement was all approved…  I had  a  profile  and  was  known  amongst  those  PMP  senior managers and they certainly could not have missed what I was doing… I was carrying out a role for PMP that had previously caused them problems, the relevant managers appeared happy to have me resolving them.   In return I was paid for the waste paper created by PMP… I cannot be held responsible for any miscommunications or internal problems within PMP that allowed me to carry out the role and receive payments in return for this responsibility of the waste paper problem… I was prepared to take Craig Stevens at his word, and the fact that it appeared that the people who matter (Mr Stevens and Mr Applebee) knew what was happening and allowed it to continue.  If I was not meant to have been paid directly from [Paper Reclaim] then it is not my problem… I believe I have given a service to PMP as requested by them and any payments received are reward for that service.  The fact that I was paid the money in the first place was enough to prove that someone in PMP authorised the payments.

[22]     The plaintiffs’ evidence discloses Paper Reclaim acted on Mr Brown’s letter and dealt with him on the basis that he represented PMP.   Mr Shepherd, CEO of PMP, confirmed Mr Brown was never authorised to receive any monies from Paper Reclaim on behalf of PMP.   Paper Reclaim’s arrangement with PMP produced a revenue of hundreds of thousands of dollars a year.  It was nonsense to suggest Mr Brown provided a service to PMP whereby he disposed of this waste at no cost to them.

[23]     All PMP affidavit deponents strongly deny any authority being given to Mr Brown, or any arrangement being entered into as he suggests.   Mr Stevens had nothing to do with the Auckland waste paper purchased by Paper Reclaim.  Other

deponents strongly deny any discussions or arrangements concerning waste paper produced by PMP in Auckland.

[24]     Mr Applebee (Mr Culpan’s replacement) recalls being rung in early 2006 by Mr Brown regarding the possibility of the collection and removal of waste plastic strapping product and printed bundles using on-site wheelie bins in Auckland, Wellington and Christchurch.  No authority was ever given to Mr Brown to receive payment from Paper Reclaim, or to enter into an arrangement to be paid to remove waste paper from PMP in Auckland.

[25]     Mr Culpan considers Mr Brown’s letter of 25 October 2005 to be fraudulent. He did not authorise the defendants to receive payments for waste paper.  He had no authority to do so.   The South  Island offices of PMP deny being party to any arrangement of the type claimed by Mr Brown.  They note in any event it was Ms Rowe with whom they had their distribution arrangement.

[26]     Mr Kinniburgh avers that in his capacity as Technical Service Manager at PMP’s Wiri branch, he met Mr Brown there and showed him around the plant for about 10 to 15 minutes.  He said Mr Brown represented himself as being from PMP in Dunedin and looked after waste management.   They had no discussion about changing the relationship with Paper Reclaim or paying Mr Brown personally.  Mr Hillberg states he is the general manager of PMP Print.  He spoke with Mr Brown around July 2006 regarding the redirection of funds from Paper Reclaim.  He said Mr Brown claimed he had a letter from Mr Culpan appointing him in his role as responsible for PMP’s waste paper nationwide.   Mr Hillberg says no such letter exists. Mr Culpan avers likewise.

The defence

[27]     It is that:

a)        PMP  authorised  the  defendants  to  receive  the  money  from  Paper

Reclaim;

b)the defendants rendered services to PMP by organising the collection and disposal of its waste paper;

c)       in return for rendering these services to PMP, the defendants were entitled to keep for themselves all payments made by Paper Reclaim for the waste paper.

[28]     Effectively, the defendants contend for a contractual relationship between themselves and PMP, by which:

a)       the  defendants  would  organise  and  arrange  for  the  collection  and disposal of waste paper from PMP’s premises;

b)       PMP would pay the defendants whatever sums Paper Reclaim paid to

PMP for the waste paper.

Considerations

[29]     The previously quoted excerpts from Mr Brown’s affidavit exemplify the defendants’ position in this dispute.   PMP’s contract was with Ms Rowe.   They moved to Dunedin when Ms Rowe was appointed a distributor to PMP’s southern district.   She had previously been contracted to PMP.   Mr Brown was never contracted  to  them.    But,  it  was  known  they  worked  together.    Together  they received a certificate as winner of the Southern Region ‘Supervisor of the Month’ for August 2005.  Early on, after their move to Dunedin, they were visited by Ms Lagan, who   was   there   to   show   Ms   Rowe   “through   the   paperwork   side   of   the distributorship”.  There was discussion regarding the printing of a business card and letterhead.  She asked Mr Brown if he would like some business cards of his own “since he had been asked to do sales in Dunedin”.  Together they decided that Mr Brown would be known as an Area Manager, and later she made arrangements with PMP for these cards to be printed and sent to him.

[30]     Ms Rowe describes the developing situation as follows:

As the distributorship continued I could see that Mike was concerned about the wastage of excess paper and the lack of appropriate recycling facilities and systems.   He often commented to me that there was much more that could be done to promote an efficient recycling system.  I know that Mike has always been concerned about recycling through his own real sense of environmental responsibility.

At some point in mid 2005 Mike must have come to an arrangement with PMP to take on the recycling problem from them.   I certainly recall him visiting the Auckland printing plants in August 2005.

From November 2005 we started receiving the payments for waste paper directly from [Paper Reclaim].  We would then pay any accounts received from [Paper Reclaim] for bins.   Mike was busy trying to sort out a more efficient and streamlined recycling process.

We set up the recycling business as a legitimate operation to the point of paying tax and keeping proper business records.

[31]     The defendants received their first payment from Paper Reclaim within a month of Mr Brown’s letter dated 25 October 2005.   Three months later, on 28

February 2006, they made two payments to the Inland Revenue Department totalling approximately $12,650.

[32]    In the face of allegations of fraud and deceit the defendants have been refreshingly forthcoming about their activities, about the receipt of funds from Paper Reclaim, and about their use of those funds.   There is no perceptible wastage or extravagant use.   They have registered for GST and have paid tax, including provisional tax.  These are not the activities of persons commonly associated with fraudulent purpose.   Mr Brown may have come to believe the defendants were entitled to the payments they received and that he was earning those payments.

[33]     However rationalised and however Mr Brown may justify to himself his claim  of  having  authority  to  receive  the  Paper  Reclaim  payments,  there  is  no sensible, sound or logical commercial basis to justify his claim to them.  It was PMP who supplied the product that Paper Reclaim paid for.    It  was  not  Mr  Brown. Neither did Mr Brown have express or written authority to make the payment arrangements he did with Paper Reclaim.   There is no evidence to support Mr Brown’s view of matters, save  for  supposition,  as  is  evident  from  the  affidavit excerpts I have already referred to.

[34]     If the bank records and the defendants’ disclosures regarding their use of payment receipts (including the payment of tax) might suggest a lack of deceit or fraudulent intent, there could be no sound, safe basis for accepting the defendants considered themselves entitled to those payments which should properly have been made to PMP.   In the absence of written authority, and notwithstanding claims of entitlement, they could not claim to be paid for a product which they did not provide. Mr Brown’s letter of 25 October 2005 contained a representation that was false in that at least it was reckless or careless as to its consequences, for at most it provided a representation that Mr Brown had no proper basis to maintain.

[35]     However analysed, there is nothing in Mr Brown’s account to support his claim that an agreement was reached with PMP through Mr Stevens.   Although subsequent events and actions may have reinforced Mr Brown’s own belief that he was entitled to the payments received, in fact there was never a proper contractual basis for their receipt, nor reasonably could it be argued otherwise.  He did what he did simply because no-one told him he could not do it.  Also, it is naïve for him to believe Paper Reclaim has suffered no loss.  They still have a liability to PMP for the waste paper supplied.

Judgment

[36]     Overall, I am prepared to accept the defendants do have an arguable defence to a claim alleging deceit.  However, in my judgment there is no defence to a claim based  on  monies  had  and  received  in  circumstances  where  it  is  unjust  they be permitted to retain them.  The affidavit evidence does not disclose any real conflict relating to issues which can be dealt with on the papers filed.  Even on Mr Brown’s evidence,  there is  no  agreement  which  entitled  him  to  receive  payment  for  the recyclable waste supplied by PMP.

[37]     Although the extent of payments to the defendants by Paper Reclaim is not in dispute, there may be reasons for recalculating the sum properly repayable by the defendants.   About a quarter of the funds received have been paid to the Inland Revenue Department for which some adjustment or recalculation may be in order.

[38]     Also Mr Brown expended effort and expense, possibly in the belief he was providing some benefit to PMP which upon analysis might provide some basis for offset/counterclaim.

[39]     In these circumstances, I am initially prepared only to enter judgment for liability rather than for quantum.  I will issue my decision as to quantum once I have received counsel’s submissions.

Solicitors:

MIS Phillipps, Auckland for Plaintiff O’Neill Devereux, Dunedin for Defendants (Counsel: QJC Stratford)