Safety & Medical Manufacturers Limited v The King

[2024] NZHC 3873

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2024-485-171 [2024] NZHC 3873

BETWEEN

SAFETY & MEDICAL MANUFACTURERS LIMITED

Plaintiff

AND

HIS MAJESTY THE KING IN RIGHT OF NEW ZEALAND

First Defendant

AND

HEALTH NEW ZEALAND (TE WHATU ORA)

Second Defendant

Hearing:

13 November 2024

Counsel:

Z G Kennedy KC and D M Kraitzick for Plaintiff R S May and S T Hartley for First Defendant

J L Schwarcz and J J Gosha for Second Defendant

Judgment:

17 December 2024

JUDGMENT OF RADICH J

[Plaintiff’s application for further particulars]

[1]                 The plaintiff sold respiratory masks to the first defendant. It claims damages from the defendant upon the conclusion of the contractual relationship between the parties. It seeks further particulars of the basis upon which the first defendant says that it had grounds to cancel the contract and of the basis for certain of the alleged losses the first defendant claims against the plaintiff in its counterclaim.

The case

[2]                 The plaintiff manufactures safety and medical products. It trades as Quality Safety or QSi. I will refer to it as QSi.

SAFETY & MEDICAL MANUFACTURERS LTD v HIS MAJESTY THE KING IN RIGHT OF NZ & ANOR [2024] NZHC 3873 [17 December 2024]

[3]                 QSi and the Ministry of Health entered into contracts in 2015 and 2021 for the manufacture and supply by QSi of respiratory masks to the Ministry. Following its establishment in 2022, Health New Zealand (Te Whatu Ora) took on responsibility from the Ministry for the 2021 contract.

The 2015 Agreement

[4]                 The terms of the Agreement, entered into on 1 October 2015, are disputed but QSi and the Ministry agree that it relates to the manufacture and supply by QSi of particular masks to the Ministry for New Zealand’s national stockpile of masks. Two orders were placed—the First Order and the Second Order. The content of both orders is disputed.

[5]                 QSi alleges that on 30 November 2020, the Ministry varied, unilaterally, the Second Order by cancelling an order of 12 million P2 masks and reducing an order of 12 million GP masks to 6 million.

[6]                 Underlying these alleged events are perceived quality issues. In October 2020, the Ministry sent samples of QSi’s P2 masks to a UK based testing company to see if they met required standards. The test results, which arrived in December—after the Ministry had allegedly varied the Second Order—caused the Ministry to say that exhalation resistance requirements had not been satisfied. QSi’s own independent testing produces results that are to the contrary.

[7]                 On 22 December 2020, the Ministry published a media release on its website about QSi’s P2 masks advising that they should be withdrawn from use on the basis of its testing. QSi paused production and supply of its P2 masks as a result.

The 2021 Agreement

[8]                 QSi and the Ministry entered into a new agreement in March 2021. It was to run from December 2020 to November 2025. Like the 2015 Agreement, it provided a contractual framework for any orders placed under it.

[9]                 Following the Ministry’s media release, the Medical Devices Safety Authority (Med Safe) investigated the quality of the P2 masks. While the outcome of its testing was, initially, inconclusive, Med Safe advised that a recall of the masks was not mandated. QSi conducted its own testing of the masks and redesigned them to ensure that they met the required standards.

[10]             QSi alleges that the Ministry declined to purchase any batches of the newly designed P2 masks during 2022, despite them having been certified as meeting the required standards by a New Zealand based laboratory. There was disagreement between the parties over whether the New Zealand based laboratory was accredited for testing the masks. In any case, in August 2022, QSi, Health New Zealand and the Ministry met over the future quality testing of the masks. There are different views about the outcomes of the meeting but all agree that the New Zealand based laboratory would carry out testing of the P2 masks that had been produced from 2016 to resolve the issue of whether they complied with the required standards.

[11]             QSi says that Health New Zealand did not provide it with the test results until 31 May 2023, that the results showed that the masks complied with the required standards but that, by this time, it had already ceased trading in the manufacture and supply of masks due to the Ministry’s and to Health New Zealand’s actions.

QSi’s claims

[12]             QSi makes a number of claims. First, it alleges that, by varying the Second Order on 30 November 2020, the Ministry repudiated the 2015 Agreement. The Ministry accepts that it cancelled or reduced some orders. However, it says that it was entitled to bring the Agreement to an end or to cancel particular orders if it had good reason to believe that QSi was unable, or would soon become unable, to carry out its material obligations under the Agreement. Its position is that there was a material obligation on QSi’s part to provide P2 masks that were fit for purpose, of acceptable quality and that could be provided within specific timeframes. It says that it had good reason to believe that these obligations could not be fulfilled by QSi.

[13]             Secondly, QSi alleges that the Ministry breached the Fair Trading Act 1986 by publishing the media release in December 2020 and by not removing the release from

its websites as events unfolded. The release is said to have contained false and misleading statements. QSi says that the media release, in addition, formed part of what it alleges are wider breaches of relationship duties under the 2015 Agreement. The Ministry does not accept that it breached the Act or any relationship duties and says that any claim under the Act is time-barred.

[14]             Thirdly, QSi alleges that the Ministry and Health New Zealand breached relationship duties under the 2021 Agreement. It alleges that the Ministry did so by declining to purchase masks and by taking the position that the New Zealand based laboratory was not accredited to perform testing. It alleges that Health New Zealand did so by declining to purchase masks  and  by  withholding  the  results  of  the  New Zealand based testing. The claims are denied by both defendants.

[15]             Finally, QSi alleges that both the Ministry and Health New Zealand breached payment obligations under the 2021 Agreement.

[16]             The Ministry and Health New Zealand allege that the terms of the contract exclude liability of the type claimed. And the Ministry alleges that, insofar as any claims might be made out, QSi failed to mitigate its losses or contributed to them through its negligence.

[17]             Furthermore, the Ministry brings a counterclaim in which it alleges that QSi breached the Agreement and the terms of the First and Second Orders, that it made misrepresentations that induced the Ministry to enter into the First and Second Orders and that it received money under the Agreements that it is obliged to return. The Ministry seeks, among other things, the difference between the sums it paid QSi for masks and the cost of purchasing replacement masks from third parties.

Legal Principles

[18]             Under r 5.21 of the High Court Rules 2016, a party may, by notice, require any other party to give any further particulars that may be necessary to give “fair notice” of a cause of action, a ground of defence or the particulars that the Rules require. If the party on whom a notice is served does not comply with it, the Court may order a

more explicit pleading to be filed and served if it considers that the pleading objected to is defective or does not give particulars that are properly required by the notice.

[19]             The “particulars required by these Rules”1 brings in r 5.26, which relates to the particulars required in the statement of claim, and r 5.48, which relates to the requirements of a statement of defence.

[20]Under r 5.26, statements of claim must, among other things:

give sufficient particulars of time, place, amounts, names of persons, names and dates of instruments and other circumstances to inform the Court and the party against whom relief is sought of the plaintiff’s cause of action.

[21]             The requirements of a statement of defence, under r 5.48, include that “a denial of an allegation of fact in the statement of claim must not be evasive” and that a “fair and substantial answer must be given”.

[22]             It is important that pleadings contain particulars that are detailed to such a level as to allow the other party to know the case that they are to meet. Sweeping allegations cannot be made on the basis that sufficient details or particulars might be uncovered during discovery or following the exchange of evidence. That is the wrong way around. The pleadings must provide clear details to define clearly each parties’ position so that discovery and the briefing of witnesses can take place in accordance with the framework that the pleadings must provide.

[23]As the Court of Appeal said in Price Waterhouse v Fortex Group Ltd:2

It has become fashionable in some quarters to regard the pleadings as being of little importance. There was an echo of that approach in the implicit suggestion floated in this case that exchange of briefs of evidence before trial might be seen as curing any lack of particularity in the pleadings. Any such view is misguided. Pleadings which are properly drawn and particularised are, in a case of any complexity, if not in all cases, an essential road map for the Court and the parties. They are the documents against which the briefs of evidence are or should be prepared. They are the documents which establish the parameters of the case, not the briefs of evidence.

1      As the High Court Rules 2016, r 5.21(1)(a)(ii) provides.

2      Price Waterhouse v Fortex Group Ltd CA179/98, 30 November 1998 at 17; as cited in Cayman Spectrum (NZ) Co v Spark New Zealand Trading Ltd [2023] NZCA 428, (2023) 26 PRNZ 332 at [41].

[24]             By the same token, the request for particulars cannot be an oppressive or an unreasonable burden on the party concerned.3

Paragraphs 14(c)(ii), 15, 18 and 19

[25]             QSi pleads that the First Order and the Second Order, placed under the 2015 Agreement, did not contain a specific deadline for the manufacture and supply of the relevant masks and that the parties agreed that the delivery of the masks would likely occur:

(a)by the end of November 2020 in the case of the First Order; and

(b)by the end of January 2022 in the case of the Second Order.

[26]             The Ministry denies the allegations and pleads, in para 14(c)(ii) of its amended statement of defence and counterclaim, that:

… it was an implied term of the Agreement that any goods required to be supplied by the plaintiff were to be supplied in a reasonable time, having regard to the circumstances known to the plaintiff including the urgent requirements of the Ministry to receive masks having regard to the emergent global COVID-19 pandemic;

[27]             QSi asks for particulars of the implied term pleaded in 14(c)(ii) and essentially repeated in paras 15, 18(d), 19 and 25(b). In particular, it seeks details of the date by which it is alleged that the masks under the First and the Second Contracts were required to be supplied pursuant to the alleged implied term.

[28]             The Ministry says that, where a contact does not contain expressly a time for its performance, performance “in a reasonable time” is the term that is implied by operation of law.4 It says that, whether a reasonable time stipulation was met goes to the question of breach.5

3      Body Corporate 74246 v QBE Insurance (International) Ltd [2015] NZHC 1360 at [18(h)(iii)].

4      Citing Bathurst Resources Ltd v Capital L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 at [116] and [232]; and Feltex New Zealand Ltd v Nielsen Property Management Ltd [1974] 2 NZLR 292 (SC) at 295.

5      Citing Cazna Avenue Nominees Ltd v The University of Auckland [2014] NZHC 303, (2014) 15 NZCPR 496.

[29]             The Ministry says that, at the time of the Agreement, the parties did not have in mind the specific dates on which masks would be delivered and that the First and Second Orders placed under the Contract may not themselves be contracts.

[30]             However, this particular case would flounder in a procedural sense if the pleadings were left on that basis ahead of discovery and the briefing of evidence. The Ministry pleads that it had good reason to believe that QSi would be unable to provide P2 masks of acceptable quality within certain timeframes that it has referred to in para 14(c) of its statement of defence.6 The Ministry pleads that, accordingly, it cancelled the order under the terms of the Contract.

[31]             Clause B32.1(a) of the First Agreement entitled the Ministry to cancel in the event that it had good reason to believe that QSi was unable, or would soon become unable, to carry out its material obligations under the Agreement. The Ministry’s position appears to stem from that provision. It must be the case, then, that, in deciding to cancel, the Ministry had in mind a particular date presenting, as QSi puts it, the “outer limit of the reasonable time” contemplated under the implied term for delivery from its perspective. And it must have determined that it had a good reason to believe that QSi would be unable to meet those dates and, therefore, be in breach of the Agreement.

[32]             It cannot be that the Ministry should be entitled to wait until discovery is complete before saying what its position is. Discovery will provide QSi’s documents. The focus here is on the Ministry’s own understanding, based upon its documents. QSi is entitled to know, before it goes into the discovery and briefing process, the outer limit of the time by which the Ministry says that delivery was no longer reasonable for the masks to be supplied under the First and Second Orders.

[33]The particulars sought by QSi under this head need to be provided.

6      Allegations are contained in three sets of cross-referenced paragraphs in the statement of defence: paras 25(b)–(d), which refers to 18(d) which, in turn, refers to 14(c).

Paragraphs 14(c)(iii) and 15, 18 and 19

[34]             The Ministry pleads, in para 14(c)(iii) of its statement of defence that, in the alternative to the implied term in the 2015 Agreement to supply within a reasonable time (as just discussed), it was induced to place the First and Second Orders by, and relied in placing those Orders on, certain representations made by QSi that were essential to the placing of the Orders.

[35]             Some particulars of the alleged representations are given in the amended statement of defence. Conversations between certain named individuals are pleaded. Since the giving of its notice requiring particulars, QSi accepts that some particulars have now been provided for para 14(c)(iii) and it now limits its request to:

(a)whether it is alleged that the representation was made, in addition to the named individuals, by unnamed representatives of QSi; and

(b)if so, who they are.

[36]             QSi says that this information is necessary to enable it to identify and brief the relevant witnesses.

[37]             The Ministry says that the particulars identify certain representatives of QSi but that the Ministry is not yet in a position to identify an exhaustive list. It says that QSi knows “to a sufficient extent for present purposes” what it needs to do in order to respond to this part of the Ministry’s claim and that discovery will provide further details.

[38]             In my view, QSi is right to say that it should not properly be required to proceed through discovery and the briefing process based upon an allegation that certain as yet unknown people may also have made or contributed to the representations it pleads. That would lead to a wild goose chase in discovery and that is not the basis upon which a proceeding should be conducted at this point in the process. If the Ministry says that certain other people were involved in making the representations it claims, then it should identify them.

[39]The particulars sought under this head are appropriate.

Paragraph 25(c)

[40]             QSi pleads that, in an email of 30 November 2020 and an attached letter of  27 November 2020, the Ministry purported to vary the Second Order unilaterally by cancelling the order of 12 million P2 masks and reducing the order of GP masks from 12 million to six million masks.

[41]             The Ministry pleads in response (by way of summary): that it was an express term of the Agreement that it was entitled to end it in whole or in part or to cancel in whole or in part the Second Order by written notice if it had good reason to believe that QSi was unable or would soon become unable to carry out material obligations; that it was a material obligation to provide P2 masks that were fit for purpose and of acceptable quality within certain timeframes; that the Ministry had good reason to believe that QSi was unable to carry out that material obligation; and that it had consulted   with   QSi   about    that    before   exercising   the    right   through    its 27 November 2020 letter.

[42]             QSi seeks particulars of the facts that the Ministry alleges gave rise to it allegedly having good reason to believe that QSi was unable, or would soon become unable, to carry out all of its material obligations under the 2015 Agreement. It asks, in addition, for particulars of who, for or on behalf of the Ministry, was aware of the relevant facts and when and how they became aware.

[43]             The Ministry says that the key issue here is likely to come down to an objective question: whether good reason existed. It says that it has provided particulars of key meetings and correspondence. It is said that discovery will be likely to improve clarity as to the order of events. It says that it is not yet known who knew what and when.

[44]             The same issues arise here as those that have been discussed already. The Ministry makes broad allegations about having come to a particular set of beliefs. But it does not say how or why. Discovery of QSi’s documents will not help that. It is not enough at this point in a proceeding for a party to say that it is not sufficiently familiar with its own documents and that, therefore, providing the necessary particulars of its

pleading will need to wait. QSi is entitled to disclosure of the material facts that are alleged to have given rise to the Ministry’s pleaded entitlement to cancel, partially at least, the Second Order.

[45]The particulars sought under this head are appropriate and need to be provided.

Paragraphs 116(a) and (c)

[46]             In para 116 of the Ministry’s counterclaim, it is pleaded that (by way of summary) it was of the essence to the Ministry in placing the First and Second Orders that the masks were supplied in a prompt manner and within a reasonable period and that QSi maintained the capacity to manufacture the masks it was required to supply.

[47]             QSi seeks further particulars of the period of time, or date, by which it is alleged that it was obliged to supply the masks under the First and Second Orders. It says that it is impossible to discern from the terms of para 116 the point in time when the Ministry is alleging that it was in breach of its contractual obligations.

[48]             The respective positions of the parties under this head are the same as those discussed in relation to para 14(c)(ii). For the reasons I have given in discussing the particulars sought there, the particulars sought of para 116 of the counterclaim are appropriate and should be provided.

Paragraph 117

[49]             It has been clarified, through the exchange of submissions for this application, that particulars provided by the Ministry in response to the request for particulars of para 14(c)(iii) apply equally to the allegations in para 117 of the counterclaim. Accordingly, nothing further is required under this head.

Paragraph 120

[50]             In para 120 of the counterclaim, the Ministry pleads that, by 14 October 2022 at latest, it was apparent to it that QSi was incapable of delivering masks in accordance with the terms of the First and Second Orders.

[51]             It was on 14 October 2020 that the Ministry informed QSi that it would be sending P2 masks supplied by QSi to the laboratory in the United Kingdom for independent testing. The test results were received on 19 December 2020. Therefore, the results of the tests could not form a basis for the Ministry’s pleading that it knew by 14 October 2020 at the latest that QSi was incapable of delivering masks in accordance with the Agreement and the First and Second Orders.

[52]             In these circumstances, QSi quite fairly asks for details of what, then, it was that caused the Ministry to form the view by 14 October that QSi was incapable of delivering in accordance with the contractual arrangements.

[53]This is a fundamental point and particulars must be provided.

Paragraphs 122, 133, 134, 137 and 138

[54]             In para 122 of the counterclaim it is pleaded that, between 1 October 2015 and 30 June 2022, the Ministry made payments to QSi under the 2015 Agreement and the First and Second Orders in relation to the delivery of P2 masks that were not capable of use in accordance with the Ministry’s requirements by reason of non-compliance with relevant standards and specifications.

[55]             In paras 133, 134, 137 and 138 it is pleaded (by way of summary) that QSi had no entitlement to receive those payments.

[56]QSi seeks particulars of:

(a)the quantum of the contractual payments pleaded;

(b)how many P2 masks the Ministry alleges were not capable of use in accordance with its requirements;

(c)the grounds on which it is alleged that the masks did not comply with the relevant standards and specifications;

(d)the dates on which the allegedly defective P2 masks were delivered by QSi to the Ministry;

(e)how the allegedly defective P2 masks are apportioned as between the 2015 Agreement, the First Order and the Second Order.

[57]             QSi has pleaded that, between June and December 2020, it  had been manufacturing masks using material provided to it that turned out to be faulty. On this basis the Ministry says that it is known that at least some of the masks it received from QSi were not up to standard. It should not, it says, have been supplied those masks and it should not have had to pay for them. However, as QSi says, the allegations here go well beyond that.

[58]             It is only fair, and it could not be said to be oppressive and an unreasonable burden, for the Ministry to provide the particulars sought. Otherwise, QSi will not know the case it has to meet under this head.

Paragraph 123

[59]             In para 123 of its counterclaim, the Ministry alleges that, as a result of QSi’s alleged conduct, it had to acquire P2 and GP masks from third parties. QSi seeks particulars of the identity of the third parties, the volumes ordered, when the Orders were made, the costs of the Orders and when they were supplied.

[60]             The Ministry says, as it has in relation to other categories, that does not have the relevant details at this point in the process. It does not know exactly which third party it went to from masks because of its concerns about particular batches from QSi being defective.

[61]             As has been said several times in this decision, it is not appropriate to make a broad, yet fundamental, allegation of this sort without being able to provide appropriate details. A full actuarial assessment is not needed at the time of pleading, but the nature of this allegation is overly broad. There must be some appropriate endeavour to tell QSi who the third parties are and to provide details of purchases made from them.

Paragraph 130

[62]             In para 117 of the counterclaim, the Ministry pleads a representation on QSi’s part. The representation is relatively detailed but in broad terms it is alleged that QSi represented that it had access to sufficient stocks of raw materials and capacity to manufacture 60,000 to 80,000 masks a day, that the capacity could be increased materially and that it would apply its manufacturing capacity exclusively to fulfilling its obligations under the First and Second Orders.

[63]             In para 130 of the counterclaim, it is said that the representation was a misrepresentation, not only because QSi did not have sufficient stocks or manufacturing capacity to manufacture that number of masks or to increase capacity, but that it “did not believe that” it had such access or capacity.

[64]             QSi says that this pleading on the Ministry’s part alleges that it acted dishonestly, in bad faith, or that it otherwise mislead the Ministry intentionally.

[65]             The Ministry says that it is not asking the Court to infer dishonesty. It says that fraud involves a deceitful state of mind and an intention that a plaintiff acts on a false statement to their detriment. It involves knowledge of the falsity or conscious indifference to its truthfulness.7

[66]             By way of contrast, the Ministry says, para 130 pleads an innocent contractual misrepresentation in terms of s 35 of the Contract and Commercial Law Act 2017. The existence of such a misrepresentation, it is said (and unlike the position at common law) does not depend on the representor’s intention. Rather, the focus is on the objective meaning of the representor’s words and it is sufficient that the representor’s statement as to past or present fact is misleading.8

[67]            The Ministry says that the focus is on whether a “wrongful impression” was created. Reference is made to the decision of the Court of Appeal in West v Quayside

7      The Ministry refers to Amaltal Corp Ltd v Maruha Corp [2007] 1 NZLR 608 (CA) as to the elements of deceit in New Zealand at present.

8      A position that is said to be consistent with that under s 9 of the Fair Trading Act 1986 – with reference to Gilmore v Smith (2002) TCLR 392 (HC).

Trustee Ltd in which it was said (with reference to the decision of Allan J in the High Court in that case) that a statement of intention will become actionable if it can be established that the person making the representation did not at the time genuinely have that intention or, alternatively, that the person had no reasonable expectation of being able to fulfil the representation.9 Equally, as the Court of Appeal put it in Buxton v The Birches Timeshare Resort Ltd, “a statement of intention will be a misrepresentation if the intention did not in fact exist when the statement was made”.10

[68]             That, in my view, accurately summarises the nature of the allegations made in para 130. The Ministry says that individuals within QSi made certain representations as to what could be achieved when they “did not believe” that the conditions were such as to enable that. The allegation is that they had a certain intention but that in fact the intention did not exist because the circumstances would not have permitted it. I do not see it as being an allegation of fraud, dishonesty, bad faith or of intentionally endeavouring to mislead the Ministry.

[69]             As counsel for the Ministry put it, the focus is on what QSi “objectively” said (not what it meant), and whether that reflected reality.

[70]I do not see the particulars sought under this head as being warranted.

Result

[71]             I make an order that the first defendant provide further and better particulars of its amended statement of defence and statement of counterclaim dated 16 July 2024 in accordance with each of the particulars sought in the schedule attached to the plaintiff’s application of 4 September 2024 with the exception of the particulars sought, in that schedule, of para 130 of that pleading.

[72]             QSi has, largely, been successful on its application and is entitled to costs on a 2B basis. In the event that costs cannot be agreed, then QSi may file a memorandum by 5 pm on 14 February 2025 and the Ministry may file a memorandum in response

9      West v Quayside Trustee Ltd (in Rec and in Liq) [2012] NZCA 232, [2012] NZCCLR 16 at [30].

10     Buxton v The Birches Timeshare Resort Ltd [1991] 2 NZLR 641 at 646.

by 5 pm on 28 February 2025. Any such memoranda, including schedules, are to be no longer than five pages in length.

Radich J

Solicitors:

Minter Ellison Rudd Watts, Auckland for Plaintiff

Luke Cunningham Clere, Wellington for First Defendant Wilson Harle, Auckland for Second Defendant