Raph Engle Concepts Limited v SCL Holdings Limited
[2013] NZHC 2410
•13 September 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-3145 [2013] NZHC 2410
BETWEEN RAPH ENGLE CONCEPTS LIMITED Plaintiff AND
SCL HOLDINGS LIMITED First Defendant
SCL INDUSTIRES LIMITED PARTNERSHIP
Second Defendant
Hearing: 13 September 2013 Appearances:
R J Hollyman and A J Steel for plaintiff
I Williams for first defendantJudgment:
13 September 2013
(ORAL) JUDGMENT OF LANG J [on applications for summary judgment]
RAPH ENGLE CONCEPTS LIMITED v SCL HOLDINGS LIMITED [2013] NZHC 2410 [13 September 2013]
[1] In this proceeding REC, Raph Engle Concepts Ltd (“REC”) seeks to recover sums of money it alleges are payable by the defendants.
Application by REC for summary judgment against Industries
[2] REC sought summary judgment against the second defendant, SCL Industries Limited Partnership (“Industries”) in respect of the fifth cause of action. This was initially opposed. Recently, however, Industries withdrew its opposition to summary judgment being entered on the fifth cause of action.
[3] There being no opposition, I enter judgment against Industries on that cause of action. There is no dispute as to quantum. I enter summary judgment in favour of REC against Industries in the sum of €515,295.02.
[4] The remaining causes of action against Industries are to proceed to trial in the usual way.
Application by Holdings for summary judgment against REC
[5] The first defendant, SCL Holdings Limited (“Holdings”), has now applied for summary judgment on the remaining four causes of action. It is not a defendant in the fifth cause of action, in respect of which I have entered judgment against Industries. In order to understand the issues that the application raises, it is necessary to briefly set out the background.
Background
[6] REC is an engineer specialising in giving advice regarding the design of significant commercial refrigeration installations. Industries is a registered partnership that designs, manufactures and installs such installations on a global basis.
[7] Their mutual involvement in the commercial refrigeration industry brought REC and Industries into contact. On 1 October 2010, they decided to formalise their relationship by entering into a written agreement (“the 2010 agreement”). It contained the following terms:
2. REC Resource
[Industries] will use REC for the purpose of selling, application design, pricing and in any other way considered appropriate for the ultimate benefit of [Industries]. In return REC will be paid an agreed monthly retainer of
$5,000.00+GST for a maximum period of 12 months only. During this period all out of pocket expenses directly related to the [Industries] business will also be reimbursed. In the event that REC does not take up ownership in [Industries] at the end of the 12 month period this agreement will end, and a new contract with REC will be considered.
…
4. PROJECTS – Commission
For all projects secured by [Industries] that are attributable to REC by lead or prospect and/or REC IP, a commission equalling 5.5% or the total [Industries] contract value will be paid to REC by way of sales commission from any payments received, when received.
In the event that a discount is required to lock-in a project under consideration then all participants, including [Industries] and REC and any local agent, will collectively consider reduced commission payments (the value of which will be by negotiation) in order to secure the project.
[8] The object of the 2010 agreement was clearly to enable the parties to pool their respective talents for their mutual benefit. REC would use its contacts to enable Industries to tender for projects in the field in which it specialised. REC also permitted Industries to use intellectual property designed and patented by REC when tendering for projects. In return, Industries was required to pay REC a commission equalling 5.5 per cent of the value of the contract for each project. Industries was required to pay that commission to REC as and when it received payments from its client in respect of the project.
[9] After entering into the 2010 agreement, Industries was successful in tendering for several projects after being introduced to them by REC and/or using REC’s intellectual property.1 These included projects in Mexico (“the Sukarne project”) and Venezuela (“the FTI project”).
[10] The parties were required to vary the 2010 agreement when Industries tendered for the FTI project, because the 2010 agreement did not permit Industries to
1 After delivering this judgment counsel advised me that there is now a dispute as to whether REC
was entitled to be paid the commission it has received in respect of these projects.
use REC’s intellectual property in South America.2 This variation was recorded in a handwritten document dated 10 February 2012, and was subsequently confirmed in an email dated 14 February 2012 from Industries’ Chief Executive Officer, Mr Bates, to REC’s principal, Mr Engle. In the latter document, the parties agreed that Industries currently owed REC the sum of NZ$961,040.41. Of this sum,
$422,517.43 comprised commission owing in respect of the Sukarne project, with the balance being made up of commission owed in respect of the FTI project.
[11] Although the retainer arrangement created by the 2010 agreement was stated to last for just 12 months, it appears to be common ground that the parties continued to act as if it remained on foot after 1 October 2011. By March 2012, however, they had decided to enter into a new arrangement. On 9 March 2012, they signed a further agreement (“the 2012 agreement”) in which the contracting parties were the first defendant, SCL Holdings Limited (“Holdings”), and REC. The relevant clauses of this agreement are as follows:
1. REC IP
Patented IP owned by REC, specifically relating to Multipass, CF1 and CF2 technologies (“the REC IP”) will be available to SCL [Holdings] on a globally exclusive basis.
Under no circumstances is the REC IP transferable to any third party without REC’s written consent. The rights of SCL under these Terms of Engagement will not be assignable without REC’s written consent. Changes in shareholding of more than 25% from the date these Terms of Engagement are signed by both parties, are deemed to infringe the restriction on transferring the IP.
2. REC Resource
SCL will use REC for the purpose of selling, application design, pricing and in any other way considered appropriate for the ultimate benefit of SCL. All out of pocket expenses incurred by REC directly related to the SCL business will be reimbursed on presentation of the appropriate expense claim and supporting documentation. All overseas travel will be booked an paid for by SCL and trips longer than 5 hours will be on no less than Premium economy class.
3. PROJECTS – Commission/Royalty
For all projects secured by SCL that are connected to REC by lead or prospect and/or REC IP or any extension of the REC IP, a commission equalling 8.5% for Latin America (determined as USA/Mexico border south)
2 Defined as south of the USA/Mexico border.
and a 5.5% for the rest of the world, of the total SCL contract value will be paid to REC by way of sales commission.
Payment of all commissions will be on a like-for-like basis with the SCL
contract.
Payment terms to which commission payments are to be made will also be on a back-to-back basis with the SCL contract.
In the event that a discount is considered necessary to “lock-in” a proposal under consideration then all participants (SCL, REC, Agents and the like) will collective consider, negotiate and mutually agree a reduced commission structure, thereby maximising the potential to secure the project.
…
[12] The agreement was stated to be for a term of 20 years from 1 March 2012, with the ability to extend the contract for a further five year period thereafter.
[13] During the months leading up to the execution of the 2012 agreement, Industries had been negotiating to undertake a project for Nestle (Thai) Limited in Thailand. This related to the installation of a freezer in an ice cream factory in Thailand. Industries submitted a proposal to Nestle on 1 March 2012, and Nestle accepted the proposal on 2 April 2012. The 2012 agreement was therefore finally concluded a little over three weeks after the parties had signed the 2012 agreement. Thereafter, Industries proceeded to undertake the Nestle project, and REC received the sum of $42,550.00 by way of commission in respect of it.
[14] A dispute has now arisen as to commissions payable to REC in respect of the Sukarne, FTI and Nestle projects. REC alleges that Industries and/or Holdings have received payments in respect of those projects (‘project payments”). It says that the
2010 and 2012 agreements required Industries and Holdings to account to it for the commission payable in respect of those projects, and that they have failed to meet this obligation. REC contends it is owed a total sum of $338,944.76 by Industries and/or Holdings in respect of outstanding commission.
REC’s claim against Holdings
First and second causes of action
[15] REC advances its claim against Holdings under three separate heads. They are the first, second and fourth causes of action in the current statement of claim. Although the third cause of action also purports to relate to Holdings, counsel for REC accepted during the hearing that no claim could lie against Holdings under this head.
[16] In the first cause of action, REC contends that the 2010 and 2012 agreements created a fiduciary relationship between REC and the two defendants. This obliged Industries and Holdings to account to REC for a sum equivalent to the value of any commission payable to it plaintiff from project payments that they received. As a result, Industries and Holdings held a proportion of the project payments in trust for REC. In failing to account to REC in respect of commission payments, the defendants thereby breached their fiduciary obligations as trustees.
[17] The second cause of action is based on knowing receipt. It alleges that, to the extent that Industries or Holdings received any of the project payments, they did so knowing that those funds were impressed with a trust in favour of REC to the value of outstanding commission payments. As a result, they are liable to account to REC in respect of those sums. In the event that the defendants have dissipated the project payments, REC seeks an order requiring them to remedy their breach of trust by restoring the trust funds.
[18] The fourth cause of action is based in contract, and relates only to commission payable in respect of the Nestle project. It alleges that, in breach of the terms of the 2010 and 2012 agreements, the defendants have failed to pay REC the commission payable in respect of the Nestle project. It seeks an order directing the defendants to pay the sums currently owing to REC by way of commission in respect of that project.
Relevant principles
[19] There is no dispute regarding the principles to be applied when a defendant applies for summary judgment against a plaintiff. These have been clearly established through decisions of the Court of Appeal such as Pemberton v Chappell,3
Grant v New Zealand Motor Corporation Ltd4 and Westpac Banking Corporation v
MM Kembla New Zealand Ltd.5
[20] In considering Holdings’ application, I propose to apply the following general principles:
a) Holdings must satisfy the Court on the balance of probabilities that REC’s claim cannot succeed. Usually this will require a defendant in Holdings’ position to establish that it has a complete answer to the plaintiff’s claim.6
b)It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise. Issues of law, even though they may be complex, can, however, be determined in an application for summary judgment.
c) Although the Court should adopt a robust approach, nevertheless summary judgment may be inappropriate where the ultimate determination turns on a judgment that can only properly be reached after a full hearing of all the evidence.
Decision
First and second causes of action
[21] Both of these causes of action are based on the premise that REC can establish that the recipient of project payments, whether it be Industries or Holdings,
3 Pemberton v Chappell [1987] 1 NZLR 1.
4 Grant v New Zealand Motor Corporation Ltd [1989] 1 NZLR 8.
5 Westpac Banking Corporation v MM Kembla New Zealand Ltd [2001] 2 NZLR 298
6 Westpac Banking Corporation v Mr McAllister Kembla New Zealand Ltd above n5 at 313.
held those funds on trust for REC. Holdings contends that the claim under the first cause of action has no prospect of success for two reasons. First, it argues that the contractual relationship between REC and Industries was merely that of debtor and creditor. It argues that the terms of the agreements did not impose a fiduciary obligation on the recipient of project monies to set aside sufficient monies for the purpose of using them to pay outstanding commission.
[22] Secondly, Holdings contends that it has received no monies from either Industries or the entities who have made payments in respect of the three projects in question. It relies on affidavit evidence from Mr Bates confirming that fact. He says he has checked Holdings’ records, and can categorically state that Holdings has not received any funds from these sources.
[23] I do not propose to finally determine the issue of whether or not the contractual arrangements under either of the agreements created fiduciary obligations on the recipient of project funds to pay outstanding commission amounts to REC. That issue will need to be determined when REC’s claim against Industries eventually goes to trial. If I was to finally decide the point at this stage, Industries would be bound by my decision notwithstanding the fact that it was not a party to the present application.
[24] Counsel have referred me to a large number of authorities in which the courts have discussed the circumstances in which a fiduciary relationship may arise in contexts broadly similar to the present case.7 I accept that some of the indicia identified in those cases as being usually present when such a situation arises are not present in the present case. By way of example, neither agreement required Industries to set project funds aside in a separate account to meet outstanding commission payments. Nor did it expressly state that Industries held such funds on trust for REC.
[25] I consider, however, that it is at least arguable that the terms of the 2010 agreement created the fiduciary obligation for which REC now contends. I base this
7 See eg Stiassny v North Shore City Council [2008] 1 NZLR 825 at [28]-[29] (HC); Stiassny v
Dunedin City Council HC Auckland CIV-2007-404-3463, 30 May 2008 at [26]-[28].
conclusion on the fact that it stated that commission payments would be paid “from any payments received, when received”. It can be argued, in my view, that this required the recipient of project payments to pay outstanding commission to REC out of any project funds it received. The obligation was therefore more than an obligation merely to pay the commission once project payments were received.
[26] For that reason, I proceed on the basis that REC can establish that Industries was under a fiduciary obligation to account to REC in respect of outstanding commission from any project payments it received. If Holdings received such funds in the knowledge that they were to be used to pay commission, it would similarly arguably hold them on trust for that purpose.
[27] Counsel for REC accepts, however, that Holdings cannot be liable under either cause of action unless it actually received monies from the project payments. It does not necessarily accept the assertions made by Mr Bates regarding this issue. It wishes to test the position by using the discovery process to satisfy itself that he is telling the truth.
[28] There is nothing to suggest that Mr Bates is not telling the truth. He has also made his statements on oath. It would obviously be a serious matter for him to make those statements if in fact Holdings has received monies from Industries (or from a project client).
[29] I am mindful, however, that if I enter judgment against REC now, it will be precluded from resurrecting the matter if the discovery process as between itself and Industries produces information to suggest that Mr Bates’ assertions are not correct. By that stage REC would be bound by this judgment, and would have no redress available other than seeking leave to appeal against this judgment out of time.
[30] In order to guard against this possibility, however remote it might be, I propose to defer entering summary judgment to enable the parties to engage in limited discovery. Should that process not provide evidence suggesting that Holdings has received funds from project payments, I will be satisfied that Holdings
has established that REC has no prospect of success under the first two causes of action.
The fourth cause of action
[31] This cause of action has two components. It relies on both the 2010 agreement and the 2012 agreement.
[32] Holdings was not a party to the 2010 agreement, so it could not be liable to REC under it. As a result, it can only be liable if the 2012 agreement applied to commission payable in respect of the Nestle project.
[33] It is clear, however, that Industries tendered for the Nestle project and Nestle accepted that company’s tender. Thereafter, Nestle made payments to Industries. When Industries received those payments, it asked REC to provide invoices made out to Industries. REC complied with this request. Industries then paid one of the invoices, but has not paid the balance.
[34] The 2012 agreement related only to projects secured by Holdings. The evidence does not disclose that Holdings ever secured any projects, let alone the Nestle project. As a consequence, the 2012 agreement does not provide REC with any right to commission from Holdings in respect of the Nestle project.
[35] Counsel for REC sought to deal with this issue by submitting that, by its terms, the 2012 agreement superseded the 2010 agreement. As a result, in order to provide the 2012 agreement with business efficacy, it was necessary for the 2012 agreement to apply to all projects formerly undertaken by Industries.
[36] I do not find this reasoning persuasive. In my view, the wording of the 2012 agreement confirms that it was to apply to projects that Holdings might secure in the future. This is demonstrated by the use of the words “will be” in several places within the agreement.
[37] Counsel for REC has also sought to rely on alleged confusion regarding the entity of the party with whom REC was contracting. He points to instances in
correspondence where the signatory has signed under the name of “SCL Group”, or some similar name that does not permit the true identity of the signatory to be ascertained. He submits that this suggests the parties may have proceeded on the basis that Holdings was the entity involved in the Nestle project.
[38] I accept that on some occasions documents have been sent in the name of identities that cannot directly be associated with either Industries or Holdings. There can be no confusion or ambiguity, however, regarding the parties to key contractual documents. They comprise the 2010 agreement, the 2012 agreement and the contract between Industries and Nestle. I do not consider that such confusion as may arise from the correspondence detracts in any way from this proposition.
[39] The reality is that Industries negotiated the Nestle project during the period when the 2010 agreement was in force. As a consequence, I consider that the parties proceeded throughout on the basis that the 2010 agreement continued to apply to the Nestle project. This was the case even though Nestle did not formally accept Industries’ proposal until shortly after the parties signed the 2012 agreement. Ironically, any other interpretation would deprive REC of its ability to seek recovery of the outstanding commission payments from Industries.
[40] I therefore conclude that REC cannot succeed in a claim based on breach of either the 2010 or 2012 agreement. As a consequence, it cannot establish its claim under the fourth cause of action.
Discovery
[41] Counsel are to liaise in order to reach agreement regarding the ambit of the discovery that Industries and Holdings will need to provide to deal with the issues referred to above. They should file a joint memorandum setting this out, together with a timetable for discovery and inspection to be undertaken. If they cannot reach agreement, they should file separate memoranda within the next seven days and I will arrange for a telephone conference to be held to determine outstanding issues. At that point I will fix the next event in this proceeding.
[42] The application for summary judgment is accordingly adjourned part-heard
pending completion of discovery and inspection.
Lang J
Solicitors:
Metro Law, Auckland
Kemps Weir Lawyers, Auckland
Counsel:R J Hollyman, Auckland
I Williams, Auckland
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