Rivette v Atrax Group New Zealand Ltd HC Auckland CIV 2008-404-7606
[2010] NZHC 609
•19 April 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2008-404-007606
BETWEEN CHARLES RIVETTE Plaintiff
ANDATRAX GROUP NEW ZEALAND LIMITED
First Defendant
ANDKEVIN BRIAN MAURICE Second Defendant
Hearing: 30 March 2010
Appearances: M W Tolhurst for Plaintiff
A Gilchrist for Defendant
Judgment: 19 April 2010 at 4.00 p.m.
JUDGMENT OF VENNING J
This judgment was delivered by me on 19 April 2010 at 4.00 pm, pursuant to Rule 11.5 of the High
Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Citylaw, Auckland
Walker Associates, Auckland
Copy to: A Gilchrist, Auckland
RIVETTE V ATRAX GROUP NEW ZEALAND LIMITED AND ANOR HC AK CIV-2008-404-007606 19
April 2010
Introduction
[1] The plaintiff seeks summary judgment against the first defendant Atrax. The plaintiff was the purchaser under an agreement for the sale and purchase of Atrax’s business. The plaintiff agreed to pay $450,000 for stock in trade, subject to adjustment of that figure in accordance with the terms of the agreement. The plaintiff says that the actual value of stock in trade, as assessed by an expert valuer, is $217,906 less than the value attributed to it by Atrax. He seeks summary judgment for that sum.
Background
[2] The plaintiff agreed to buy the business of Atrax for $750,000. A figure of
$450,000 was estimated as the figure for stock in trade. The agreement was executed on a standard REINZ ADLS form of agreement for sale and purchase of a business. It incorporated the following provision for the valuation of stock in trade:
5.2The actual value of the stock in trade as at the giving and taking of possession shall be determined by joint stock-take by the vendor and the purchaser or their appointees or, if required by other party, by an independent valuer if one can be agreed upon. Due allowance shall be made for obsolete or damaged stock in trade. If the parties cannot agree on an independent valuer, or in the event of any dispute concerning a joint stock-take, either party may serve on the other party notice in writing requiring that the question be determined by an independent valuer to be appointed by the president of the law society for the district where the premises are situated and the party serving the notice may at any time thereafter refer the dispute for determination. An independent valuer acting under this clause shall act as an expert in determining any question concerning the stock in trade or the value of the stock in trade. The cost of such valuation shall be borne equally by the parties.
[3] Shortly after settlement the plaintiff took issue with Atrax’s estimate of value of the stock in trade at $450,000. The parties’ solicitors then engaged in correspondence relating to the appointment of an independent valuer. Regrettably the parties were unable to even resolve that issue. The plaintiff then requested the President of the Auckland District Law Society to appoint a valuer to act as expert.
The President of the Law Society appointed Mr Ray Tilling of Tilling Valuations
Limited.
[4] The upshot of the Tilling valuation was that items that had been attributed a value of $332,574 in the initial valuation of stock were valued by Mr Tilling at
$114,668. The plaintiff seeks judgment for the difference of $217,906.
Procedural matters
[5] The plaintiff initially sought summary judgment against both Atrax and the second defendant Mr Morris. During submissions Mr Tolhurst confirmed however that summary judgment was not sought against the second defendant.
[6] The defendants initially filed an appearance under protest to jurisdiction in response to the application for summary judgment. They considered Mr Tilling was not validly appointed and the dispute should be referred to mediation. That protest to jurisdiction was resolved against Atrax by Associate Judge Abbott.
Issues
[7] The issues, as clarified by counsel during the course of submission, are:
a) Has the plaintiff standing to seek summary judgment against Atrax?
b)Accepting Mr Tilling was appointed as an expert, is his valuation nevertheless fundamentally flawed in certain respects?
c) If the plaintiff is otherwise entitled to summary judgment should the Court invoke its residual discretion not to enter judgment because of Atrax’s counterclaim?
Has the plaintiff standing to seek summary judgment against Atrax?
[8] The first issue raises a short but not entirely straightforward point. Atrax says that prior to settlement the plaintiff nominated either Ben Lomond Crescent Ltd or perhaps Weighpac Australasia Ltd as purchaser. Mr Gilchrist submitted that given the nomination of one or other of those parties, the plaintiff had lost his right to sue under the agreement. As a refinement to that proposition he submitted that there was no evidence the plaintiff had suffered any loss.
[9] Mr Gilchrist referred to the recent Court of Appeal decision in Laidlaw & Anor v Parsonage & Anor.[1] The focus of the Court of Appeal’s consideration in Laidlaw was on the ability of a nominee to sue where the agreement for sale and purchase provided for the purchaser to be a named person “and or nominee”. The Court of Appeal held s 4 of the Contracts (Privity) Act 1982 applied and the nominee was entitled to the benefit of the agreement for sale and purchase. The Court declined to follow Field v Fitton[2] and held that the phrase “or nominee” was a sufficient designation of ‘name, description or reference to a class’ to meet the test in s 4 of the Act and allow a named nominee to sue to enforce a promise to it in the contract. The Supreme Court declined leave to appeal, stating that the law had been satisfactorily settled by the Court of Appeal.[3]
[1] Laidlaw & Anor v Parsonage & Anor [2009] NZCA 291; [2010] 1 NZLR 286.
[2] Field v Fitton [1988] 1 NZLR 482 (CA).
[3] Laidlaw & Anor v Parsonage & Anor [2009] NZSC 98; [2010] 1 NZLR 286.
[10] The issue in the present case is different to the issue resolved by the Court of Appeal in Laidlaw. It was not considered by any of the Courts in Laidlaw. It is whether the plaintiff, as the original party to the contract, can sue and enforce the contract even after nominating another to complete the purchase.
[11] Counsel were not able to refer to any authorities where the point had been expressly considered.
[12] The start point must be that the plaintiff, as the original purchaser and a party to the contract, has contractual rights. There does not seem to be any principled reason why the fact of nomination should lead to the loss of those rights. That is not
the purpose or effect of the Contracts (Privity) Act. Rather, the purpose of that Act is remedial, to ensure that the nominee, in addition to the original contracting party, can enforce rights under the agreement. As the learned author observed in Blanchard A Handbook on Agreements for Sale and Purchase of Land (4th ed 1988) at [519] in relation to land, the Contracts (Privity) Act does not make the nominee a party to the contract but “merely allows him to take the benefit of it and he obtains an equitable
interest in the land”. The original contracting party remains liable under the contract. In those circumstances there is nothing inherently objectionable in both the original contracting party and the nominee having rights under the contract. Often they will be the same rights, but they need not be, depending on the terms of the contract and the stage of the nomination. The effect of s 4 of the Contracts (Privity) Act is to create additional rights in the nominee, not to extinguish the original plaintiff’s rights. I note that s 14(a) of the Act would operate to preserve the plaintiff’s existing rights.
[13] The wording of the particular contractual provision creating the nomination may be important. In this case the purchaser is said to be the plaintiff and/or nominee. Framed that way, the and/or is not to be read as meaning it is mutually exclusive so that it must be either the purchaser or nominee. It may be both. I conclude that either the purchaser under the contract or the purchaser’s nominee may enforce the benefit of the contract. Even in a situation where the purchaser has nominated another party to settle the purchase as in the present case, the plaintiff as original purchaser retains the right to call for performance of the defendant’s obligations under the contract. The plaintiff would only lose such right in the event of a novation. There has been no novation in the present case.
[14] The next and related issue is whether the plaintiff has suffered any loss under the contract to support his claim for judgment in this case. The party that settled the purchase and paid $450,000 for the stock is the party that suffered the loss in this case by paying too much for the stock.
[15] The evidence about the nomination and just which entity settled the purchase of the business is confused. Mr McMillan, a financial controller of Atrax and the plaintiff have both given evidence about the issue. There is a reference in the
solicitors’ correspondence that suggests a company Weighpac Australasia Ltd, was to purchase the business. But then there is further correspondence from the solicitors for the purchaser noting that the nominated purchaser was to be Ben Lomond Crescent Ltd.
[16] Despite the reference in his solicitor’s correspondence to the nominee being
Ben Lomond, at one point in his affidavit Mr Rivette says:
Notwithstanding that I have chosen to nominate Weighpac Australasia Limited as purchaser I have never relinquished my rights to sue under the agreement.
[17] One thing is clear: a company related to the plaintiff was nominated to purchase the business. Prima facie, it is that company, which settled the purchase and paid $450,000 for the stock (whichever one it was), that would have sustained the loss rather than the plaintiff.
[18] Against that there is the evidence of the plaintiff, Mr Rivette. In his affidavit in reply he reiterates that he was the purchaser under the agreement and says that the new company “which I purchased is 100 per cent mine. I own all the shares and am the only director”. But even if Mr Rivette advanced funds to the company to enable it to settle the purchase it is the company that has suffered the loss, by paying too much for the stock, not Mr Rivette: see De Nagy v Wellington City Council.[4]Mr Rivette may have suffered a loss, in that his investment in Ben Lomond or Weighpac may have been unsuccessful, but that is an indirect form of loss. It is not the loss
sued for in these proceedings. In his own evidence Mr Rivette seems to acknowledge that the nominated company paid for the stock and thus suffered the loss. He goes on to say in the same affidavit:
6. Frankly Mr Maurice has put the Company into a position over the past year where it was at times barely solvent due to the overpayment made of the stock. ...
[4] De Nagy v Wellington City Council HC Wellington CP141/00 16 September 2002 at [32]; [40].
[19] While confusing, the evidence overall suggests that the party that has lost money was the nominated purchaser, rather than the plaintiff. This is not a case where it could be argued the plaintiff can sue for the loss of the nominee. Such cases
are limited to the situation where the plaintiff effectively contracts on behalf of, and for the benefit of the third party: The Albazero.[5]
[5] The Albazero [1977] AC 774.
[20] The plaintiff’s cause of action is for breach of contract arising from the difference between the price paid for the stock in trade and its actual value. Fundamental to that claim for breach of contract is loss. The loss in this case must have been sustained by the party that paid too much for the stock. The evidence is not clear on that point as to the identity of the party, but it seems it was not Mr Rivette, the plaintiff. The plaintiff had the opportunity to clarify the matter in his affidavit in reply but failed to do so. His evidence is ambiguous. The plaintiff fails to satisfy the Court that the defendant has no reasonably arguable defence on this point. For that reason alone the application for summary judgment must be dismissed.
Accepting Mr Tilling was appointed as an expert, is his valuation nevertheless fundamentally flawed?
[21] Given that finding, it is strictly unnecessary to consider the remaining issues but I do so in deference to counsels’ submissions, and in the hope it may be of some assistance to the parties. No appeal has been taken from Associate Judge Abbott’s decision confirming the appointment of Mr Tilling as an expert under cl 5.2 of the agreement for sale and purchase. Mr Gilchrist accepted that Mr Tilling was appointed as an expert. As a consequence, the circumstances in which a Court would be justified in setting aside or embarking on a consideration of whether the valuation should be set aside are necessarily and properly restricted: Masport Ltd v
Morrison Industries Ltd.[6] In Brown v Rod Cook Sportswear Ltd[7] Richardson J
[6] Masport Ltd v Morrison Industries Ltd CA362/92, 31 August 1993.
[7] Brown v Rod Cook Sportswear Ltd CA260/91, 7 July 1992.
approved the following statement of principle by McHugh JA in Legal & General
Life of Australia Ltd v A Hudson Pty Ltd:[8]
[8] Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 at 335.
By referring the decision to a valuer, the parties agree to accept his honest and impartial decision as to the appropriate amount of the valuation. They rely on his skill and judgment and agree to be bound by his decision. ...
While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement between the parties. But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract.
[22] As noted in Glaister v Amalgamated Dairies Ltd[9] the distinction is between failure to follow the terms of the agreed valuation instruction in accordance with the contract and a failure to apply valuation principles correctly in exercising an evaluative judgment. The former is reviewable. The latter is not. The justification for the difference lies in the parties’ bargain. If the expert valuer goes outside the terms of the parties’ bargain, or contract, then the resulting valuation or part of it, may be subject to review, but if he operates within the terms of it, then the parties will be fixed with even a gross under or over valuation.
[9] Glaister v Amalgamated Dairies Ltd [2003] 1 NZLR 829; (2003) 9 NZCLC 263,087.
[23] In the present case Mr McMillan has identified a number of issues that he takes with the valuation. Atrax supports its challenge to the valuation by an alternative valuation from Mr Langley. With respect, however, the suggested valuation by Mr Langley, another registered valuer, is essentially a challenge to the methodology and resulting values applied by Mr Tilling. It supports the defendant’s argument that Mr Tilley erred in his approach leading to a gross undervalue. That is precisely the sort of challenge which the parties, by the terms of their contract leading to the appointment of Mr Tilling as an expert, have agreed to exclude.
[24] Mr McMillan, however, refers to four other matters which he says have led to the plaintiff’s claim being inflated.
a) First, that the loan rental stock list was valued by Mr Tilling when it was not included as stock in trade.
b)Next, that the book value of the stock transferred was $481,596.00, not $450,000.00.
c) Next, that one item, which has a book value of $673.00 was subsequently sold by the plaintiff for $1,300.00. The valuer has failed to ascribe any value to that item.
d)Finally, that in relation to key production machines the valuer has applied a completely new estimated value before valuing the items.
[25] There is force in some of the matters that Mr McMillan has identified. The parties’ bargain in relation to the valuation exercise is to be found in cl 5.2. The clause relates to the valuation of stock in trade. Mr Tilling was appointed to value the stock in trade, as identified generally in the contract. But the loan rental stock list, which formed part of Mr Tilling’s valuation, was not part of the stock in trade. It is apparent from the agreement for sale and purchase itself that the loan rental stock was included as part of the plant list forming the tangible assets which had a separate value of $140,000.00 (in addition to the $450,000 for stock in trade). The parties had not agreed for the loan rental stock to be valued by Tilling. I agree that to that extent the difference between the valuation ascribed by the parties and the Tilling valuation of $37,007.00 in relation to the loan rental stock should be deducted from the plaintiff’s claim.
[26] However, I do not consider there is anything in Mr McMillan’s suggestion that the true book value of the stock transferred was in fact $481,596.00 rather than
$450,000.00. That overlooks that not all of the stock in trade was in issue between the parties.
[27] In the course of the affidavits filed by Atrax in opposition to the application for summary judgment Mr McMillan and Mr Maurice, Atrax’s director, have referred to a number of different schedules relating to the stock in trade. Two of the
lists have more items on them than the Tilling valuation. One, the first one, has less. It seems apparent from the evidence of Mr Maurice in particular (at [11] of his affidavit of 26 February 2009) that the parties were working off a limited list of disputed stock. The short point is that the dispute was not in relation to all items of stock but was only in relation to a limited number of items. I also note this point was not taken by Atrax in its first letter of complaint regarding the valuation in November 2008. The suggestion that the actual stock figure was more than
$450,000.00 has been raised for the first time in Mr McMillan’s second affidavit, which seems very much an afterthought.
[28] In any event, there is no practical advantage to the defendant in the objection taken by Mr McMillan that the Tilling valuation did not consider all of the items of stock supporting Atrax’s estimate of stock of $450,000.00. It seems a reasonable inference that given the difference between Atrax’s estimate of valuation for the stock that was valued of $332,574.00 and the Tilling valuation, that if the list had been more extensive and had included other items there would have been a further substantial difference between the value of the items. There is nothing in this point.
[29] The failure of Mr Tilling to ascribe a value to the load cell 6 which has a book value of $673.00 but was subsequently sold at a profit by the purchaser has led to an overstatement of the claim by $673.00. This is not an error in the nature of the exercise of discretionary judgment by the valuer. It is a failure by the valuer to value that item at all. It supports an adjustment of $673.00.
[30] Finally, there is the issue of the key production machines. There is force in Mr McMillan’s evidence that rather than adopt the difference between the value ascribed to the items by the parties and his valuation Mr Tilling has ascribed completely new values, the estimated new cost values to key production machines, and then calculated the difference between those values and his value. The task of the expert valuer in this case was to apply his valuation to the particular items in issue. The valuation exercise was intended to lead to an adjustment from the price paid by the plaintiff purchaser. The adjustment was to be calculated by the difference between the values claimed by Atrax and the expert’s valuation. That is what clause 5.2 provided for. By ascribing estimated new, and higher estimated cost
values to the items before then fixing his values, Mr Tilling has departed from the basis of the contract and clause 5.2. The difference is $18,547.00.
[31] Those adjustments total $56,227.00. Had the correct plaintiff been identified
I would have held the defendant liable to pay the balance of $161,679.
Does the counterclaim affect the position?
[32] This is not a case where the counterclaim that Atrax has against Weighpac for claims arising post settlement would have prevented the entry of summary judgment. It is not a set-off. It is a true counterclaim relating to events that have arisen since the purchase was settled.
[33] Nor is this a case where the Court would have been minded to have exercised its discretion not to enter summary judgment. Summary judgment would have been appropriate, leaving it for the defendant to make a formal application for stay of execution when different considerations and further information can be put before the Court.
Result
[34] For the foregoing reasons, however, the plaintiff has failed to satisfy the Court on the evidence before it that the defendants have no arguable defence to the claim made by Mr Rivette as plaintiff. The application for summary judgment is declined.
Costs
[35] Costs are fixed on a 2B basis but their incidence is to follow the outcome of the substantive proceedings.
Review
[36] The Registrar is to allocate a review before an Associate Judge for further directions on this file.
Venning J
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