RD1 Limited v Fleming

[2016] NZHC 1395

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV 2016-463-000003 [2016] NZHC 1395

BETWEEN

RD1 LIMITED

Plaintiff

AND

ANTHONY PAUL FLEMING AND CARLA ELIZABETH FLEMING AS TRUSTEES OF THE COUNTRY SPIRIT TRUST

Defendants

Hearing:	21 June 2016
Appearances:	T S Burtenshaw for the Plaintiff D M OʼNeill for the Defendants
Judgment:	24 June 2016

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

24.06.16 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

RD1 LIMITED v A P FLEMING AND C E FLEMING AS TRUSTEES OF THE COUNTRY SPIRIT TRUST [2016] NZHC 1395 [24 June 2016]

[1]      The plaintiff (RD1) applies for summary judgment upon its claim of a debt due by the defendants the trustees of the Country Spirit Trust (the Trust) for the supply of farming products to the Trust which owned and operated the defendants’ dairy farm and farming business.

[2]      The defendants’ opposition was advanced on the basis that any debt was that of the Trust’s and for which the defendants were not personally liable; that RD1’s terms and conditions were never brought to their notice; nor did they complete any written contract for purchase; and, that the dispute should engage the Trust’s Bank because the Bank had taken the funds which had been arranged for the payment of RD1’s debt, and therefore the dispute was not suitable for resolution by summary judgment process.

[3]      This judgment will initially review the parties’ trading background, RD1’s claims of contractual obligation due by the defendants,  and the evidence of the defendants’ in  opposition,  before  briefly  reviewing  relevant  summary  judgment principles.

Background

[4]      RD1  is  a  subsidiary  of  Fonterra  Enterprises  Limited  which  itself  is  a subsidiary of Fonterra Co-operative Group Limited (Fonterra).

[5]      The defendants by their Trust previously operated a dairy farm near Taupo. The Trust had supplied milk to Fonterra and as part of their milk supply arrangement the Trust was extended credit for purchases from RD1.

[6]      Usually when the Trust purchased goods from RD1, RD1 received payments for those from Fonterra from whom milk supply payments were payable to the Trust. RD1 says from April 2015 goods were purchased from it that exceeded the amount that Fonterra owed to the Trust.  For the months ending April – July 2015 the Trust purchased goods (i.e. mainly fertilizer) to a value of $326,216.  They say the Trust did not pay for those goods as required but after demand was made, RD1 received

one payment of $8,850.79 on 20 October 2015 from Fonterra.  RD1 says the Trust owes $317,365.21, for which it applies for summary judgment.

[7]      RD1 sold rural supplies on credit pursuant to its terms of supply.   Those terms are printed on the reverse side of all statements and invoices that were issued to the Trust.  Those terms stated the purchase prices were to be paid by 20th  of the month following; that RD1 may deduct those from any money owed to the Trust by Fonterra; that default interest was payable at 2  per cent per month on overdue payments; and in the event of default solicitor/client costs were payable.

[8]      The arrangement enabled RD1 to deduct any payment due to it from the monthly Fonterra payment for milk supplied by the Trust to Fonterra.

[9]      RD1’s evidence is that the defendants as trustees of the Trust had traded with RD1 since about 2002; and that it was RD1’s practice to print its terms of trade on the back of all of its invoices.

Evidence in opposition

[10]     Mr Fleming has sworn an affidavit in opposition.   He deposes the Trust operated the farm.   From his recollection nothing was ever signed when the Trust started supplying Fonterra and likewise nothing was signed when items were purchased from RD1.  The defendants say no one has ever pointed out to them they were personally liable for the Trust’s purchases and RD1 never asked them to sign any terms and conditions of contract.  They say RD1 never told them to read any document; that whenever they received an account it was filed with all others in relation to the Trust and paid as and when it was due or when it could be paid.

[11]     The defendants say that RD1 never brought to their attention any terms of supply  or  conditions  of  contract;  that  “like  all  rural  arrangements”  matters progressed so long as bills were paid.

[12]     The defendants say they got into some difficulties in 2012 when the Bank was closely monitoring their expenditure and when their Bank was overseeing Trust

expenditure.    They  say  that  they  purchased  fertilizer  for  the  farm,  with  Bank approval, and at a stage when purchaser interest was being shown by a Chinese entity.   That entity was to pay for fertilizer for the farm but the money was, the defendants say, grabbed by the Bank when it should have been paid to RD1.  That accounted for a significant element of the debt now claimed.   The defendants say RD1 knew that the Trust required Bank approval for large purchases.

[13]     The defendants say the Overseas Investment Office would not approve the Chinese entity’s purchase of the property; and that if the purchase had gone ahead everyone would have been paid.

Evidence in reply

[14]     By an affidavit in reply RD1’s Mr Bentley responds to the defendants claim that nothing was signed when they purchased items from RD1.  Mr Bentley deposes that when farmers become a Fonterra supplier they are automatically offered a trade account with its subsidiary RD1; and that they are not required to complete  an application form but if they use the account the terms of supply are on the first invoice and all subsequent invoices.

[15]     Mr Bentley deposes all of the Trust’s purchases made on credit were subject to the terms of their account detailed on the back of each invoice sent to them. Further, that on 16 January 2015 the defendant Mrs Fleming applied for a personal Farm Source Rewards card to be linked to the Trust’s RD1 account.  RD1’s account details were then entered onto Mrs Fleming’s card application.   Her application noted that she warranted she had authority to act on behalf of the Trust and that she had read and accepted the rewards card terms and conditions both in her personal capacity and in her capacity as an agent of the Trust.

Principles

[16]     It is for RD1 to persuade the Court that the defendants have no defence to the claim  that  is  that  there  is  no  real  question  to  be  tried.1      Where  evidence  of  a

1 Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA).

plaintiff’s claims of a contractual obligation is provided then usually evidence from a defendant ought to be provided in opposition.

[17]   Ultimately the Court’s objective analysis is required and in that regard independent subjective intention of a party’s reasons for assuming debt repayment obligations may not be persuasive.

Considerations

[18]     The defendants agree that the terms of supply are to be found on the reverse of the invoices supplied by RD1 including that interest be paid together with costs in the event of default.  The defendants say however that they were not aware of the terms of supply, nor made specifically aware of those.  They say nothing was signed, and that “everything happened automatically” when milk was supplied to Fonterra and items were purchased from RD1 because Fonterra paid the bills directly to RD1 and that’s how it occurred until the defendants ran into financial difficulty and were asked to pay the invoices directly as they have not done so in the past.

[19]     The defendants say their Bank should be joined as a third party because the Bank had agreed with the defendants to pay the amounts owing to the plaintiff until the defendants ran into financial trouble and lost control of their finances at a time the Bank was closely monitoring expenditure.

[20]     The defendants say the Bank reduced its mortgage when it had previously told the defendants it would pay RD1 rather than reduce the amount owing to it; that RD1 knew or should have known that all large purchases were, at that stage, controlled by the defendants’ Bank.

[21]     The defendants’ issues with RD1’s claims are that the terms of supply were not brought to its attention either as trustees or in their personal capacity, and RD1 was aware or should have been aware that when the defendants ran into financial difficulties all large purchases from the plaintiff were controlled by the Bank and that those payments would come from the Bank rather than the defendants.

[22]     The defendants say they never looked at the invoices.  They rather assumed the trading practice neither was nothing more than they had simply been operating successfully for many years; that the defendants have never signed anything nor provided any guarantee in writing of any debt.  Mr Fleming deposes having believed the defendants have never assumed a personal responsibility for payment of the Trust’s debts.

[23]     Mr O’Neill for the defendants submits that the evidence of Mr Bentley in response is insufficient to persuade a Court that an arguable defence is not available. Mr Bentley does not say he has undertaken a search of the parties’ history of trading and therefore the Court should be weary of accepting bland claims that Mr Bentley and RD1 believe the defendants have no defence to the claim.

[24]     It  follows  submits  Mr  O’Neill  that  there  is  no  proof  to  contradict  the

defendants claims of a belief that their liability was limited to the assets of the Trust.

[25]     In the Court’s view this claim is about non-payment of invoices over a few months towards the end of a trading relationship which has existed for many years – and apparently without incident or disagreement.

[26]     The Court assumes there is nothing recording their arrangement which has been signed by the parties.  A lack of signature is not in this case important.  Clearly there was an agreement between the parties that Fonterra would, from payments due to the Trust, pay sufficient amount to meet the cost of any purchases made during that same monthly accounting period.

[27]     The acceptable evidence is that RD1’s invoices carefully detailed the cost purchases and the consequences of default.  It is not sufficient for the defendants to claim they had no knowledge of these terms.

[28]     Indeed it is the defendants’ evidence that on occasions they did pay the accounts themselves when insufficient funds were held in credit by Fonterra to meet that payment due.

[29]     It was clear that Fonterra would only make these payments when there was sufficient funds held in credit for that to be done – and that the defendants knew that when the payment could not come from Fonterra it would be paid from their Bank account.   Therefore there was no dispute that the invoiced amount was payable. Claims of not being aware of what was contained by those terms noted on the invoice appears to ignore the fact that for years those terms of supply were monthly reinforced by the issue of invoices.   Further that when Mrs Fleming applied for a further Farm Source card (which allowed payment on account) she acknowledged reading the terms stating that it was the defendants’ responsibility to check their monthly statements.

[30]   It is clear the parties’ agreement did not require any signature or acknowledgement in writing on behalf of the defendants.

[31]     Regarding the defendants’ claims that they were not personally liable for debts incurred in the name of their Trust, the Court finds that this argument too cannot be sustained.

[32]     The  defendants  were  the  trustees  of  the  Trust.    In  the  absence  of  any agreement between RD1 and the defendants limiting the liability of the defendants to the assets of the Trust, then the defendants are personally liable for those debts. There is no evidence of anything said or of there being any agreement made supporting claims of any limitation of personal liability.

[33]     The defendants have expressed their understanding about limitation.  In the circumstances of this case and viewed objectively, that understanding was clearly incorrect.   There has never been an agreement to limit their liability to the extent they claim.

[34]     Regarding the defendants claims that issues of liability should not ignore the actions of the Bank who it is claimed unilaterally took those funds that had been paid by a party interested in purchasing the Trust’s property – in circumstances contrary to the Bank’s own assurances of financial support at the time.

[35]     Mr O’Neill submits RD1 was aware of or if it was not it should have been aware that when the Trust ran into financial difficulty all large purchases including purchases from RD1 were controlled by the Bank and those payments would come from the Bank rather than the defendants.

[36]     In  the  Court’s  view  the  issues  involving  the  Bank  are  discreet  and  are confined to the defendants and the Bank.   If the defendants consider they have claims against the Bank then those claims should have been pursued before now and not simply relied upon in support of claims of an indemnity in this proceeding.

[37]     The Court sees no reason to defer RD1’s claim while the Bank is to be pursued.

[38]     A long and uneventful trading arrangement has existed between the parties. The defendants lodged to their Bank account funds provided by an interested purchaser which apparently by arrangement with that purchaser were to be used to buy fertilizer for the farm property.  There are no suggestions of a lack of good faith of the defendants in this.  Regrettable though it is in the outcome RD1 has not been paid the debt it was due.

Summary

[39]     As trustees of the Trust and in the absence of any agreement limiting the

defendants’ liability for Trust debts, the defendants are liable to meet RD1’s claim.

[40]     Issues involving the Bank are discreet and do not provide a reason to delay

RD1’s claims against the defendants.

[41]    The Fonterra payment arrangement did not absolve the defendants from responsibility to account for any shortfall – as they acknowledge on occasions they had paid the accounts themselves.

[42]     Against the background of dealings over a long period of time and during which  the  defendants  actions  provided  evidence  of  their  acknowledgement  of

responsibility, there is no acceptable evidence the Court considers to support claims that the terms of supply were not received by the defendants.

[43]     However, and whilst on balance the Court may consider the defendants were fully aware of the terms of their payment arrangement, there is sufficient in the balance of these considerations to persuade the Court that judgment should not at this time be entered upon the plaintiff’s claims of contractual interest.

Judgment

[44]     Judgment is awarded against the defendants jointly and severally in the sum of $316,730.11.

[45]     Interest of $5,304.85 shall be paid on the judgment sum to 30 June 2015 and after that date to the date of judgment interest shall be fixed at the Judicature Act

1908 rate of 5 per cent per annum.

[46]     There  shall  be  a  declaration  that  interest  will  continue  to  accrue  at  the Judicature Act 1908 rate of 5 per cent per annum on the judgment sum from the date of judgment until paid in full.

[47]     Costs and disbursements on a solicitor/client basis are awarded in the amount of  $10,931.31  together  with  costs  and  disbursements  on  a  2B  basis  for  the

appearance at the hearing and the sealing of the judgment as fixed by the Registrar.

Associate Judge Christiansen