Pure Pacifika Limited v NZ Natural Dairy Limited
[2013] NZHC 2870
•31 October 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2012-404-5829 [2013] NZHC 2870
BETWEEN PURE PACIFIKA LIMITED Plaintiff
ANDNZ NATURAL DAIRY LIMITED Defendant
Hearing: 16 October 2013
Counsel: MD Pascariu and NR Frith for Plaintiff
P Sills for Defendant
Judgment: 31 October 2013
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 31 October 2013 at 4.00 p.m., pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors:
Minter Ellison, Auckland
Hornabrook MacDonald, Auckland
PURE PACIFIKA LTD v NZ NATURAL DAIRY LTD [2013] NZHC 2870 [31 October 2013]
[1] The defendant, NZ Natural Dairy Limited, applies for an order pursuant to High Court Rule 15.101 setting aside a default judgment dated 21 June 2013, obtained by the plaintiff, Pure Pacifika Limited (in receivership) for the liquidated sum of $1,664,650 and $7,745.50 for costs.
Background
[2] The basis of the plaintiff ’s claim on which the default judgment was entered against the defendant is a written contract for the supply of Noni juice which the plaintiff says the parties entered into on 27 June 2011. The plaintiff says it was paid for two of ten invoices for juice supplied to the defendant between July and December 2011, pursuant to the agreement. For a two-year period before obtaining the default judgment, the plaintiff has pursued payment for the remaining eight invoices. The plaintiff served two statutory demands on the defendant and sought initially to obtain summary judgment on one of two causes of action in its statement of claim when it commenced this proceeding in September 2012. Throughout, the defendant has denied that the supply agreement is valid or effective, and has refused to pay the invoices. It took steps to formally oppose the statutory demands and the plaintiff’s application for summary judgment, all of which the plaintiff withdrew.
[3] Despite its continued resistance to the plaintiff’s demand for payment, the defendant did not file its statement of defence within the time that was fixed when the plaintiff’s summary judgment application was dismissed on the plaintiff’s request. As a result, the plaintiff made application on 20 June 2013 by way of memorandum seeking judgment by default for liquidated damages on the invoices under its first cause of action and the plaintiff ’s solicitors personally served the memorandum at the defendant’s registered office in the afternoon that day. On
21 June 2013, the Registrar entered judgment by default on the plaintiff’s first cause of action, leaving its second cause of action for loss of profits for later resolution.
[4] The defendant’s position is that it has alternative substantial defences to the
plaintiff’s claim that it is liable on the invoices, which it should be permitted to take
1 Rule 15.10 states: “Any judgment obtained by default under rule 15.7 or 15.8 may be set aside or varied by the court on such terms as it thinks just, if it appears to the court that there has been, or may have been, a miscarriage of justice.”
to trial. The first centres on the validity of the agreement and turns largely on the authority of the signatory who signed the agreement on behalf of the defendant. The signatory was a Mr Chin. The defendant accepts that Mr Chin was the Chief Executive Officer for the company at the time he signed the agreement. It also accepts that the consignments of Noni juice covered by the invoices arrived in China though it does not agree that all ten of the consignments were accepted on arrival.
[5] Nonetheless, the defendant says that the agreement was a major transaction which Mr Chin lacked the authority to negotiate or commit the defendant to. Additionally, the defendant says that the plaintiff was aware that Mr Chin did not have that authority. It says that the two consignments that it did pay for were subject to an earlier agreement, and that contrary to the plaintiff’s assertion, those payments cannot be taken as determinative of its acceptance of the disputed agreement, or as a waiver of the plaintiff’s knowledge of Mr Chin’s lack of authority.
[6] The defendant’s alternative defence is that if it is found to be bound by the agreement, the plaintiff has breached the terms of supply and that the extent of its liability for the invoices is a matter of genuine dispute.
Procedural history
[7] The history of this proceeding is lengthy.
[8] On 27 September 2012, after initial attempts to enforce payment of the disputed invoices by statutory demand, the plaintiff filed this proceeding together with an application for summary judgment. That application was listed in the summary judgment list on 7 November 2012, and on the preceding day the defendant filed a notice of opposition.
[9] On 19 December 2012, the defendant’s affidavit in support of the grounds of opposition was filed. In February 2013, a one day fixture was allocated for a defended hearing in early May, and the time for the plaintiff’s affidavits in reply was extended.
[10] Before the day of the hearing, several material events occurred. The plaintiff went into receivership and did not file any affidavits in reply. Instead, on 26 April
2013, by memorandum, the plaintiff’s receivers advised that they had decided not to pursue the application for summary judgment and they requested timetable orders to progress the substantive hearing. At about the same time, the defendant’s solicitor made application for an order to remove him as solicitor from the record.
[11] On 29 April 2013, the Court made orders in chambers. It directed that the defendant’s address for service be its registered office and removed its solicitor as solicitor on the record. It ordered that the summary judgment application was dismissed on the plaintiff’s request, vacated the fixture in the summary judgment application, and ordered that the defendant file a statement of defence to the plaintiff’s statement of claim by 27 May 2013.
[12] Materially, both parties were represented on each occasion that the matter came before the Court, including and until the chambers hearing on 29 April 2013. Thereafter, the defendant was without legal representation. The defendant does not dispute that this situation came about because it had not paid its legal advisers. Nor does it dispute that its legal advisers took steps to inform it of the directions made by the Court on 29 April.
[13] The defendant did not file a statement of defence. Mr Yee, a director of the defendant and its parent company in Hong Kong, takes responsibility for that failure which he says occurred as he mistakenly understood that when the default judgment application was dismissed, the entire matter was to be treated as at an end unless and until the plaintiff took further steps to bring a fresh claim.
[14] Mr Yee says he was wholly unaware of the plaintiff’s memorandum seeking judgment by default and that the first he learned it was when a sealed copy of the default judgment was drawn to his attention on 27 June 2013 after the plaintiffs arranged for service on the defendant’s registered office.
[15] On 15 July 2013, the defendant filed and served the present application to set aside the default judgment, so that the first cause of action can proceed to trial
together with the second cause of action for loss of profits which remains live. Counsel for the defendant has prepared a statement of defence which he advises will shortly be filed.
Issues
[16] The primary issue for determination is whether the claimed defences are indeed substantial grounds of defence to the claim for which judgment by default has been entered. If they are, the following issues will also require determination under r
15.10:
(a) Whether or not the defendant’s failure to file a statement of defence
within the time allowed is inexcusable; and
(b)Whether or not the plaintiff will suffer irreparable injury if the judgment is set aside.
[17] I begin with these issues before turning to the key issue of whether there is a substantial defence.
Discussion
Is failure to file the statement of defence reasonably explained?
[18] I agree with counsel for the plaintiff’s submission, that the defendant’s conduct falls short of what the Court and the parties are entitled to expect. Compliance with the Court’s direction that the statement of claim be filed by 27 May
2013 ought not to have been difficult as the defendant had already clearly stated its grounds of defence in its notice of opposition to the summary judgment application and earlier in its response to the statutory demands. The defendant does not suggest otherwise.
[19] Against that, however, the plaintiff must have been surprised by the defendant’s failure to file a defence given that the defendant had opposed the plaintiff’s demand over a two-year period. Conversely, it could not have been surprised by Mr Yee’s explanations – first, that he was acting under a genuine
mistake about the Court’s direction made on 29 April 2013, and secondly that the situation was compounded when the plaintiff ’s memorandum, filed on the eve of the Registrar’s entering default judgment, did not come to his attention. Given these circumstances, I am prepared to accept that Mr Yee’s explanation is one that sits marginally on the right side of what is and what is not credible and I allow the defendant the benefit of that approach. In reaching this view, I am also influenced by counsel for the defendant’s submission that, from the outset, the defendant has consistently made known its belief that it had alternative defences, and held to those defences throughout the dispute over the statutory demands and the summary judgment application.
[20] I am therefore satisfied that it would be unsafe to find that this is a case where the defendant chose to take an inexcusable risk that the plaintiff had decided to “throw in the towel”. Rather, I accept that the defendant’s conduct falls short of being egregious or lamentable and does not attract criticism of the kind that was warranted in Re Van Loghem Investments Ltd.2 In this case it was found there was no reasonable explanation as the party purposefully took no steps in the hope that the issue would be settled by the other parties and he would escape liability.
Will the plaintiff suffer irreparable injury if default judgment is set aside?
[21] I accept that the plaintiff will inevitably suffer injury if the default judgment is set aside. Self-evidently it will lose the benefit of the judgment and will have to revisit the contest. But it will have its day in Court, and an assessment of its case on the merits. The plaintiff submits, however, that there is more to its complaint. It says that it will be disadvantaged and the damage will be irreparable as:
(a) The process to trial is likely to be drawn out, given the parties’
conduct of the litigation to date, and therefore costly.
(b)Added to the costs of trial will be increased administration costs in the receivership which will be unnecessarily prolonged.
2 Re Van Loghem Investments Ltd [2012] NZHC 1446.
(c) Even if costs can be recovered (which is doubtful), an award of costs at scale will not be full compensation for its actual costs of taking the matter to trial.
[22] A difficulty with the plaintiff’s argument is that it the second cause of action for loss of profits must, in any event, be resolved at trial. Materially, there is no evidence before me that the plaintiff does not intend to proceed with the second cause of action. The risk the plaintiff perceives of not recovering the costs of perusing the claim at trial exists therefore whether or not the default judgment is set aside. The plaintiff’s contention that its receivership will be prolonged unnecessarily and the costs of administration will go up, also does not bare scrutiny for the same reason.
[23] The plaintiff’s concerns about delay, though real, are concerns that are properly addressed by the process of case management. There is no apparent reason why there would not be a strict timetable to trial and the plaintiff may seek the allocation of an early trial date. Additionally, the plaintiff can expect that there will be no room for excuses on the defendant’s part for delay. The defendant must expect to face “unless orders” if it does not adhere to the timetable and that non-compliance will result in its being debarred from defending the claim if it is responsible for delays.
[24] I accept that the plaintiff has genuine concerns about its ability to recover costs. However, it is a matter of speculation whether the defendant lacks the funds to pay costs and that risk is one that a plaintiff faces when bringing proceedings.
An award of costs at scale will not be full compensation for its actual costs of taking the matter through to trial.
[25] If the plaintiff is the successful party at trial, the plaintiff’s position is no different in that respect, to the position of any other plaintiff which must make an economic decision as to whether or not to proceed. Relevantly, there is no suggestion that the plaintiff could not proceed to trial and, without wishing to be seen to determine what orders will be made for costs at trial, it will be open to the plaintiff to seek indemnity costs if it is the successful party.
[26] Additionally, counsel for the defendant acknowledges that if the defendant’s application to set aside default judgment is granted, then the plaintiff should be compensated for all of the costs that it has been put to in respect of the application, and that orders to that effect will go some way to safeguard the plaintiff ’s position.
[27] I find therefore that this is not a case where the plaintiff will suffer irreparable injury if the default judgment is set aside.
Does the defendant have a substantial ground of defence?
[28] This brings me to the remaining issue – whether the defendant has satisfied the Court that it has a substantial ground of defence. The parties’ dispute as to whether or not the defendant has a substantial ground of defence centres primarily on the first alleged defence and whether it may look to the exception set out in s 18 of the Companies Act 1993. Section 18 relevantly states:
18 Dealings between company and other persons
(1) A company ... may not assert against a person dealing with the company ... that—
...
(c) A person held out by the company as a director, employee, or agent of the company—
(i) Has not been duly appointed; or
(ii) Does not have authority to exercise a power which a director, employee, or agent of a company carrying on business of the kind carried on by the company customarily has authority to exercise:
(d) A person held out by the company as a director, employee, or agent of the company with authority to exercise a power which a director, employee, or agent of a company carrying on business of the kind carried on by the company does not customarily have authority to exercise, does not have authority to exercise that power:
(e) A document issued on behalf of a company by a director, employee, or agent of the company with actual or usual authority to issue the document is not valid or not genuine—
unless the person has, or ought to have, by virtue of his or her position with or relationship to the company, knowledge of the
matters referred to in any of paragraphs (a), (b), (c), (d), or (e), as the case may be, of this subsection.
(2) Subsection (1) of this section applies even though a person of the kind referred to in paragraphs (b) to (e) of that subsection acts fraudulently or forges a document that appears to have been signed on behalf of the company, unless the person dealing with the company or with a person who has acquired property, rights, or interests from the company has actual knowledge of the fraud or forgery.
[29] A number of essential issues arise:
(a) Whether the plaintiff received advice during the course of a meeting held in Hong Kong on 2 June 2013 that the transaction was of a such magnitude that it required approval of the Board of the defendant’s parent company and the Hong Kong Stock Exchange.
(b)Whether it can possibly be inferred from such advice that the plaintiff knew that Mr Chin could not give the go-ahead and bind the defendant – in which case the defendant may properly argue that Mr Chin did not have the authority a CEO is customarily taken to have and may look to the exception set out in s 18 of the Companies Act
1993.
(c) Whether there is substance to a related allegation that the plaintiff knew that a new processing factory to be used by the defendant was still to be completed and approved by the Chinese authorities before the processing and packaging could begin on a large scale – in which case, whether it is not conceivable the defendant would commit to a major supply transaction little more than 3 weeks later, on 27 June
2011.
(d)Whether the defendant paid for the first of two of the disputed invoices and whether the invoices are consistent with the schedule of deliveries provided for in the agreement and the plaintiff received payment for the first5 two – in which case the defendant has waived
any irregularity associated with Mr Chin’s actions in signing the
agreement.
(e) Whether each consignment was shipped after consultation between the parties and whether the claimed telephone discussions were confirmed by email and other communications before the agreement was signed – in which case, it may be concluded that the defendant did request delivery of the consignments referred to in the invoices and did waive any irregularities relating to the requirement for purchase orders and letters of credit under the agreement.
[30] Counsel for the plaintiff does not argue that Mr Chin’s role as Chief Executive Officer is determinative of the question whether Mr Chin had the necessary authority to bind the defendant to the supply agreement. He accepts that the plaintiff’s knowledge about Mr Chin’s authority is a factor to take into account. His argument is essentially one that is factually based and will turn on a careful assessment of a good deal of disputed evidence.
[31] Counsel for the plaintiff submits that the Court should take a robust view of the disputed evidence about these and other factual disputes. But that submission rather begs the very question that the defendant raised in its documents in opposition to the plaintiff’s summary judgment application. Relevantly, in that evidence, Mr McNicholl, the director for the plaintiff, deposes that each of the invoiced consignments were preceded by discussions with the defendant, in which it confirmed the order. He purports to produce the e-mails confirming the discussions, but those e-mails have been omitted from the exhibits to his affidavit.
[32] Counsel for the plaintiff did not seek to explain this omission. There was also no clear explanation in the evidence as to why the consignments in the invoices do not appear to be consistent with the schedule of consignment contemplated by the agreement. These are but two aspects of the parties’ arrangements that require explanation. They are not fully explained in the evidence. The evidence presently before me leaves lingering questions about the knowledge and nature of the relationship between the plaintiff and the defendant.
[33] For these reasons, I am satisfied that the first of the defences that the defendant relies on is arguable and does amount to a substantial defence. It is unnecessary therefore to consider the second of the defences that the defendant relies upon.
Orders
[34] The default judgment is set aside on these conditions:
(a) The defendant is to pay the reasonable solicitor/client costs and disbursements of the plaintiff within five working days of those costs being approved by the Court;
(b)For the purpose of that approval, the plaintiff is to file and serve a memorandum not later than 5.00 p.m. on 8 November 2013. The defendant has until 5.00 p.m. on 15 November 2013 to file a memorandum in reply.
(c) The defendant is to file and serve a statement of defence to the plaintiff’s claim not later than 5.00 p.m. on 15 November 2013, failing which it will be deemed debarred from defending the plaintiff’s claim.
[35] The Registrar is to allocate a case management conference on or after
22 November 2013 which will proceed if a statement of defence has been filed within the time allowed.
H Sargisson
Associate Judge