Sappa v Fletcher Distribution Limited t/a Placemakers New Lynn
[2023] NZHC 2582
•15 September 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1797
[2023] NZHC 2582
IN THE MATTER of a civil matter of Fletcher Distribution Limited BETWEEN
SRINIVAS PRASAD SAPPA
Plaintiff/Respondent
AND
FLETCHER DISTRIBUTION LIMITED t/a PLACEMAKERS NEW LYNN
Defendant/Applicant
Hearing: 7 September 2023 (By AVL) Appearances:
C J Pendleton for Applicant/Defendant
S P Sappa self-represented Plaintiff/Respondent
Judgment:
15 September 2023
JUDGMENT OF ASSOCIATE JUDGE LESTER
(Strike out application)
This judgment was delivered by me on 15 September 2023 at 12:30pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
……
SAPPA v FLETCHER DISTRIBUTION LIMITED t/a PLACEMAKERS NEW LYNN [2023] NZHC 2582
[15 September 2023]
[1] Mr Sappa’s company, Sappa Homes Limited (SHL), in March 2020, opened a trade credit account with Fletcher Distribution Limited trading as PlaceMakers New Lynn (PlaceMakers).
[2] Mr Sappa provided a guarantee of SHL’s obligations to PlaceMakers, that guarantee being contained in a separate section of the trade credit account.
[3] SHL was carrying out a number of developments. Mr Sappa’s amended statement of claim refers to work at five addresses; four in Auckland and one in Queenstown. On the trade credit account form, next to the printed words “Nature of business (e.g. commercial builder)” is written: “Construction of Residential and Construction Management”. It is clear that SHL was in business.
[4] In the amended statement of claim, dated 16 August 2023, Mr Sappa alleges that PlaceMakers supplied out of specification materials and delayed in supplying materials to SHL’s properties, creating delays and additional costs in respect of those developments.
[5] Mr Sappa also complains that PlaceMakers put caveats over three properties owned by Mr Sappa’s family trust which, he says caused delays in raising finance which he would have used to meet SHL’s indebtedness to PlaceMakers. Mr Sappa says the presence of the caveats frustrated lenders with whom he had arranged finance causing him to incur finance costs, holding costs and further contributing to delay of the developments.
[6]PlaceMakers has applied to strike out Mr Sappa’s claim.
[7] I note here that if the claim is not struck out on the grounds that Mr Sappa does not have arguable causes of action, then it would have to be substantially repleaded. Mr Sappa is representing himself and his claim does not have a clear structure or provide appropriate particulars. If such were the only issues, they would not justify striking out the proceeding. If the claim could be saved through amendment, then time
for the pleading to be recast would be appropriate.1 However, PlaceMakers submits each of the pleaded claims are untenable and should be struck out.
[8] PlaceMakers obtained a default judgment against Mr Sappa under his guarantee for $335,321.75. Mr Sappa has reduced the amount he owes to $135,321.75 plus costs. PlaceMakers has applied to have Mr Sappa adjudicated bankrupt. The bankruptcy application is essentially on hold awaiting the outcome of this application as Mr Sappa relies on this proceeding to resist bankruptcy.2
Strike out principles
[9] The principles to be applied in a strike out application are well established. The strike out application is brought pursuant to r 15.1 of the High Court Rules 2016 (the Rules). The established criteria for strike out were summarised by the Court of Appeal in Attorney-General v Prince as follows:3
(a)pleaded facts, whether or not admitted, are assumed to be true;
(b)the cause of action or defence must be clearly untenable;
(c)the jurisdiction is to be exercised sparingly, and only in clear cases;
(d)the jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument; and
(e)the Court should be particularly slow to strike out a claim in any developing area of law.
[10] The principles set out in Attorney-General v Prince were affirmed by the Supreme Court in Carter Holt Harvey Ltd v Ministry of Education.4
1 Marshall Futures Ltd (in liq) v Marshall [1992] 1 NZLR 316 (HC).
2 Fletcher Distribution Ltd v Sappa [2023] NZHC 2088.
3 Attorney-General v Prince [1998] 1 NZLR 262 (CA).
4 Carter Holt Harvey Ltd v Ministry of Education [2016] NZSC 95 [2017] 1 NZLR 78 at [10].
The nature of Mr Sappa’s claim
[11] SHL’s liability to PlaceMakers has been cleared in part as Mr Sappa has paid part of the debt he owes under the judgment against him as guarantor. Mr Sappa is not entitled to be subrogated to the rights SHL may have against PlaceMakers until he has paid the guarantee debt in full.5 While Mr Sappa is not entitled to the claims held by SHL, I will briefly consider the claims that belong to SHL he has included in the challenged pleading.
[12] I will also need to consider what claims Mr Sappa may have in his own right, that is, as a guarantor. Did PlaceMakers owe Mr Sappa as guarantor a duty of care? In addition, I need to consider the viability of Mr Sappa’s claim as guarantor that PlaceMakers registering caveats against the trust properties breached an obligation owed to Mr Sappa by PlaceMakers.
Possible subrogated claims
[13] The trade credit account form between SHL and PlaceMakers contained the following exclusion clauses:
23.Any times quoted for delivery are estimates only and PlaceMakers will not be liable for any delay in Delivery, whether or not beyond its control. Late Delivery does not entitle the Customer to cancel any order or part order or to refuse to accept Delivery.
…
28.Where the Customer is a “Consumer” under the Consumer Guarantees Act and acquires any Goods, or holds itself out as acquiring Goods, for the purposes of a “Business” (as those terms are defined in the CGA) then to the fullest extent permissible by law PlaceMakers and the Customer agree the CGA Fair Trading Act and any other applicable consumer law is hereby excluded. Otherwise, where the Customer is a “Consumer” these Terms are to be read subject to the terms of the CGA.
29.Subject to clause 28, and to any express warranties given by PlaceMakers (or the manufacturer of the Goods) to the Customer in writing, all conditions, warranties, descriptions, representations and statements as to fitness or suitability for any purpose, workmanship, tolerance of any conditions, merchantability or otherwise, express or implied, are expressly excluded to the fullest extent permitted by law.
5 Matthew Barber (ed) Commercial Law in New Zealand (online ed, LexisNexis) at [25.5.2], Property Law Act 2007, s 53B and 53C.
…
33. To the fullest extent permitted by law, PlaceMakers has no liability (whether statutory, in contract or tort (including negligence), or howsoever) to the Customer or any of its agents or employees for any physical, or special damage, direct loss, indirect loss, economic loss of any kind (including loss of profits and expectation loss), any other loss or costs (including legal and solicitor/client costs) caused or contributed to by PlaceMakers or any of its agents or employees in respect of any Goods or Services supplied or any quotation or estimate given. Without limiting the foregoing, PlaceMakers has no responsibility or liability for any dangerous good(s) or any contaminant, ozone depleting or hazardous substance in or emitted by any Goods.
[14] PlaceMakers argues these clauses are a complete bar to any claim SHL may have had.
[15] One difficulty in Mr Sappa’s claim is that he does not detail how the losses asserted arose but again, as far as I can ascertain, the losses are said to have arisen from PlaceMakers delaying in supplying materials, or from PlaceMakers supplying out of specification materials.
[16] Liability for delay in supplying of materials is excluded by cl (23) set out at [13] above. PlaceMakers’ liability for issues with the quality of materials would also have to survive the limitation in cl (29) and in any event, a claim for consequential losses (which this is), is prevented by cl (33).
[17] If subrogation was applicable, Mr Sappa would have no better claim against PlaceMakers than that of SHL. Given the exclusion clauses, SHL would appear not to have a viable claim against PlaceMakers.
[18] Assuming that Mr Sappa could rely on subrogation to bring claims for losses suffered by SHL, then such are untenable.
Did PlaceMakers owe Mr Sappa a duty of care?
[19] This is not a situation where PlaceMakers realised a security and seek to recover a shortfall from a guarantor.
[20] Mr Sappa does not point to any authority where a creditor owed a duty of care directly to a guarantor in relation to the performance of the creditor’s contract with the principal debtor.
[21] Given the clauses set out at [13] above, PlaceMakers did not owe SHL a general duty of care. There is no basis for finding PlaceMakers owed Mr Sappa some general duty of care in relation to the supply of materials or delivery times, that would be greater than the duty it owed to its customer.
Does Mr Sappa have a claim arising from the lodging of caveats?
[22] PlaceMakers placed caveats on three properties owned by Mr Sappa’s family trust. PlaceMakers relies on the following clause contained in the guarantee, Mr Sappa agreed to give:
The Guarantor(s) agree to pay PlaceMakers’ costs and expenses (including legal costs on a solicitor and client basis) incurred in enforcing this Guarantee. To better secure the amounts payable to PlaceMakers under this Guarantee the Guarantor(s) agree, to grant to PlaceMakers a registrable mortgage (in the form of the current New Zealand Law Society all obligations mortgage) over any land owned now or in the future by the Guarantor(s) whether beneficial or legal interest owned jointly or alone or as trustee(s)) from time to time and the Guarantor(s) irrevocably appoint PlaceMakers as its attorney for the purposes of executing and registering such mortgage. The Guarantor(s) specifically authorises PlaceMakers to lodge a caveat against any such land.
[23] Mr Sappa does not explain how the lodging of caveats was not authorised by the above clause which expressly permits the lodging of a caveat over any property in Mr Sappa’s name, whether held by him as trustee or not. That a property may be held as a trustee is not recorded on its title. Of course, the onus is on PlaceMakers to explain why this clause is a barrier to Mr Sappa’s claim but given the breadth of the clause, I am satisfied Mr Sappa’s claim that the caveats were in breach of an obligation owed to him by PlaceMakers is untenable. Mr Sappa says the caveats were lodged without prior notice. There is no obligation under the clause for Mr Sappa to be given prior notice. Indeed, the giving of prior notice would undermine the purpose of the right to caveat as an unscrupulous guarantor could transfer properties before a caveat was lodged.
[24] Mr Sappa submitted the registration of the covenants put him in breach of the terms of his mortgage with his bank. At the risk of being blunt, that is not a matter for PlaceMakers. Mr Sappa granted PlaceMakers an agreement to mortgage and the right to caveat. If PlaceMakers exercising that right meant Mr Sappa is in breach of his mortgage, then that is Mr Sappa’s responsibility.
Consumer Guarantees Act 1993
[25]Mr Sappa in his amended statement of claim pleads:
15. Due to the delays of the material to sites and mistakes of the material sent to building sites and caveat plaintiffs’ family trust property without plaintiff’s consent; plaintiff not satisfied with any service that provided by defendant.
[26] Again, SHL was the customer. SHL is in business as a building company. Clause (28) of the terms of trade set out above, excludes the application of the Consumer Guarantee Act 1993 where the customer is a business.
Fair Trading Act 1986
[27] The amended statement of claim introduces a new cause of action under the Fair Trading Act 1986. The essence of the pleading is:
21. Due to the misleading and professional team of building material company and not deliver the fair and professional manner and not deliver proper services to plaintiff.
[28] The conduct complained of concerns PlaceMakers’ dealings with SHL. Section 5D of the Fair Trading Act provides:
5D No contracting out: exception for parties in trade
(1)Despite section 5C(1) and (2), if the requirements of subsection (3) are satisfied, parties to an agreement may include a provision in their agreement that will, or may (whether directly or indirectly), allow those parties to engage in conduct, or to make representations, that would otherwise contravene section 9, 12A, 13, or 14(1); and in that case,—
(a)the provision is enforceable; and
(b)no proceedings may be brought by any party to the agreement for an order under section 43 in relation to such a contravention of section 9, 12A, 13, or 14(1).
(2)A provision of the kind referred to in subsection (1) includes, for example,—
(a)a clause commonly known as an entire agreement clause:
(b)a clause that acknowledges that a party to the agreement does not rely on the representations or other conduct of another party to the agreement, whether during negotiations prior to the agreement being entered into, or at any subsequent time.
(3)The requirements referred to in subsection (1) are that—
(a)the agreement is in writing; and
(b)the goods, services, or interest in land are both supplied and acquired in trade; and
(c)all parties to the agreement—
(i)are in trade; and
(ii)agree to contract out of section 9, 12A, 13, or 14(1); and
(d)it is fair and reasonable that the parties are bound by the provision in the agreement.
(4)If, in any case, a court is required to decide what is fair and reasonable for the purposes of subsection (3)(d), the court must take account of all the circumstances of the agreement, including—
(a)the subject matter of the agreement; and
(b)the value of the goods, services, or interest in land; and
(c)the respective bargaining power of the parties, including—
(i)the extent to which a party was able to negotiate the terms of the agreement; and
(ii)whether a party was required to either accept or reject the agreement on the terms and conditions presented by the other party; and
(d)whether the party seeking to rely on the effectiveness of a provision of the kind referred to in subsection (1) knew that a representation made in connection with the agreement would, but for that provision, have breached section 12A, 13, or 14(1); and
(e)whether all or any of the parties received advice from, or were represented by, a lawyer, either at the time of the negotiations leading to the agreement or at any other relevant time.
[29] Mr Sappa does not specify which sections of the Fair Trading Act he relies on but the reference to misleading conduct, suggests it is s 9.
[30] Mr Sappa refers to PlaceMakers not delivering proper services to him. Again, the service was delivered to SHL. Section 11 of the Fair Trading Act provides:
11. Misleading conduct in relation to services
No person shall, in trade, engage in conduct that is liable to mislead the public as to the nature, characteristics, suitability for a purpose, or quantity of services.
[31] The pleading does not specify what the misleading conduct is, only that proper services were not delivered.
[32] The Fair Trading Act is focused on misleading representations or conduct which here would have involved the dealings between PlaceMakers and SHL. Paragraph (21) of Mr Sappa’s amended claim does not plead such conduct, save the reference to : “… the misleading of professional team…”. Mr Sappa’s pleading does not identify any misrepresentations or conduct that affected him as opposed (on his case) to SHL.
[33] The short point again is that Mr Sappa is not entitled to advance claims owned by SHL until he has met his guarantee debt in full.
Conclusion
[34] I can find no arguable cause of action in Mr Sappa’s amended statement of claim and accordingly it is struck out.
Costs
[35] PlaceMakers has been successful. It is entitled to costs. It is to file a memorandum, not more than four pages, within five working days, if costs other than on a 2B basis are sought.
[36] If no memorandum is filed, then the order of the Court is that PlaceMakers is entitled to costs on a 2B basis plus disbursements as fixed by the Registrar. If a memorandum is filed, Mr Sappa is to reply within 10 working days.
Observation
[37] The judgment against Mr Sappa in the District Court was a default judgment. Clause 18 of the terms of trade provides:
Payment of all monies owing to PlaceMakers must be made free of any counterclaim, set-off, deduction or other claim whatsoever. PlaceMakers may deduct or withhold any amount (whether by way of set off, counterclaim or other equitable or lawful claim or otherwise) from any money owing by PlaceMakers or any Related Company to the Customer on any account whatsoever.
[38] Given SHL is obliged to “pay first argue later”, it is not clear on what basis SHL could have opposed judgment or the basis upon which Mr Sappa could have resisted judgment under his guarantee, but that is ultimately an issue for the District Court where Mr Sappa says he has filed an application to set aside the District Court judgment.
[39] Mr Sappa made submissions in relation to not receiving advice on giving the guarantee. That issue is not relevant to the present application.
Associate Judge Lester
Solicitors:
Turner Hopkins, Takapuna (for Defendant/Applicant)
Copy to:
Mr S P Sappa (self-represented Plaintiff/Respondent)
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