Sheppard Cycles New Zealand Limited v Ashton
[2024] NZHC 2345
•23 August 2024
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2024-485-119
[2024] NZHC 2345
BETWEEN SHEPPARD CYCLES NEW ZEALAND LIMITED
PlaintiffAND
BRENDAN STUART ASHTON
First Defendant
JULIE CHRISTINA ASHTON
Second DefendantJULIE CHRISTINA ASHTON, BRENDAN STUART ASHTON and WILLIAM
DUNCAN MACDONALD as trustees of the JULIE ASHTON NO. 2 TRUST
Third Defendants
JULIE CHRISTINA ASHTON, BRENDAN STUART ASHTON and WILLIAM
DUNCAN MACDONALD as trustees of the BRENDAN FAMILY TRUST
Fourth Defendants
Hearing: 29 July 2024 (further written submissions for the plaintiff on 30 July and 8 August 2024, and for the defendants on 7 August 2024) Appearances:
M C A O’Brien for plaintiff
D G Dewar and H K L Withers for Defendants
Judgment:
23 August 2024
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 23 August 2024 at 2.45 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
SHEPPARD CYCLES NEW ZEALAND LIMITED v ASHTON [2024] NZHC 2345 [23 August 2024]
[1] Sheppard Cycles New Zealand Ltd (Sheppard) supplied bicycles and accessories to Ashton Cycles Ltd (Ashton) pursuant to a dealer agreement. Ashton was put into liquidation on 5 December 2023 and the liquidation has been completed. Sheppard says there is an amount of $403,362.95 owing to it. This amount makes allowance for credits given for goods returned following Ashton’s liquidation. Sheppard seeks summary judgment against the defendants as guarantors of the obligations of Ashton under the dealer agreement.
[2]The defendants oppose summary judgment on the grounds:
(a)Sheppard waived or is estopped from relying on or enforcing the dealer agreement or the guarantee.
(b)The third and fourth defendants’ liability arises in their capacity as trustees and is limited to an amount equal to the value of the assets of the trusts. As Sheppard has already had full recourse to those assets, the third and fourth defendants’ liability has been discharged.
(c)Sheppard has not passed appropriate credits for goods returned and there is a dispute as to the quantum owed (if anything).
(d)The case is not appropriate for summary judgment as there are disputed factual issues and other information that might provide a basis to challenge the claim both as to liability and quantum.
[3]The issues that arise are as follows:
(a)Has Sheppard established that the defendants have no arguable defence that it has waived or is estopped from enforcing the dealer agreement or the guarantee?
(b)Has the third and fourth defendants’ liability under the guarantee been discharged because Sheppard has had full recourse to all trust assets?
(c)Has Sheppard properly accounted and passed appropriate credits for the returned goods?
(d)Should the Court exercise its discretion to refuse summary judgment because a full review of the facts at trial is warranted?
Context
[4]Sheppard carries on business as a bicycle wholesaler.
[5] Ashton traded as a retailer of bicycles. It went into liquidation on 5 December 2023 by shareholders resolution.
[6] The first defendant, Brendan Ashton, is the director and a shareholder of Ashton. The second defendant, Julie Ashton, is the wife of Brendan Ashton and is also a shareholder of Ashton. A third and fourth defendant, William MacDonald, is the former lawyer of Mr and Mrs Ashton and along with them is a trustee of the Julie Ashton No. 2 Trust and the Brendan Family Trust. Those trusts owned shares in Ashton.
[7] Ashton was incorporated in 2007 by Mr Ashton and a Murray Howe. The company was originally called Ashton and Howe Ltd. The company acquired an existing business trading as Avanti Cycles in Lower Hutt. The shares in Ashton were held by Mr Ashton and Mr Howe personally. Subsequently the shares were transferred to family trusts.
[8] Mr and Mrs Ashton’s position is that due to financial difficulties in 2020 Sheppard was advised that Ashton intended to close down its business, but that at a Zoom meeting Sheppard’s Country Manager, Mr Darin Te Paa, said there was a way forward. This would require either Mr Ashton or Mr Howe to step out of the business because it could not support a salary for both of them. It was agreed that Mr Howe would remain in the business and Mr Ashton would step aside, and that Mr Ashton left the business in the charge of Mr Howe.
[9] The Ashtons contend that in mid-2021 Sheppard “called time” on that arrangement and presented an ultimatum that Mr Howe was to leave the business or Sheppard would sue and Mr Ashton and Mr Howe would lose everything.1 Mr Ashton says he was told that if he took over the business and paid down some of the debt owed to Sheppard they would give him a fresh start, remaining debt would be “parked”, and Sheppard would continue to support him in the business.
[10] In October 2021, Mr Howe and his family interests exited the business. This appears to have been formally documented by the parties’ lawyers. The shares in Ashton were thereafter held principally by the third and fourth defendants, with Mr and Mrs Ashton each retaining nominal personal shareholdings.
[11] On around 22 November 2021, Sheppard and Ashton entered into the dealer agreement. The defendants were also parties to the dealer agreement as guarantors of Ashton’s obligations. This superseded a previous dealer agreement of 30 January 2013 between Sheppard and Ashton.
[12] Under the dealer agreement Sheppard extended credit to Ashton on terms that included:
(a)Ashton would exclusively acquire goods from Sheppard for such price as was determined by Sheppard from time to time.
(b)The due date for payment varied depending on the type of product, and upon termination of the agreement the purchase price for all goods delivered to Ashton would become immediately due and payable to Sheppard.
(c)The agreement commenced on 18 November 2021 and would continue for a period of 60 months, unless terminated earlier in accordance with the agreement.
1 It is not however suggested that the dealer agreement and guarantee were later entered into under duress or undue influence or that they were unconscionable bargains.
(d)Either party could terminate the agreement on written notice to the other if that other party became the subject of an insolvency event (defined as including Ashton’s placement into liquidation).
(e)Interest would accrue on overdue payments at the rate of two per cent per calendar month (on a cumulative basis).
(f)Ashton would be liable to pay all of Sheppard’s expenses on a full indemnity basis (including all legal costs and disbursements actually payable to its legal representatives, whether or not under a costs agreement) in attempting to obtain, or obtaining, a remedy for Ashton’s failure to make payment to Sheppard in accordance with the agreement.
[13] Also under the agreement, the defendants guaranteed Ashton’s debts to Sheppard on the following terms (among others):
(a)The guarantors unconditionally and irrevocably guaranteed to Sheppard the prompt performance of all of Ashton’s obligations under the agreement on a joint and several basis, including obligations to pay money (which amounts the guarantors agreed would be recoverable by Sheppard as liquidated debts).
(b)In the case of a guarantor who had no right or interest in any of the assets of the trust except in that person’s capacity as a trustee of the trust, their liability would be limited to an amount equal to the value of the assets of the trust available to meet that person’s liability, unless the right of that person to be indemnified from the assets of the trust had been lost in which case that person’s liability under the guarantee would be personal and unlimited.
(c)The guarantors each indemnified Sheppard and agreed to hold it harmless in respect of any failure by Ashton to perform any of its obligations under the agreement, including any obligation to pay money to Sheppard.
(d)The guarantors would pay on demand all costs and expenses incurred by Sheppard in exercising, protecting or enforcing its rights against the guarantee (including legal costs on a solicitor/client basis).
[14] The terms of the dealer agreement confirmed that Ashton and the guarantors assumed full liability for the trading balance of $575,582.30 that had arisen under the previous dealer agreement, which remained outstanding as of 21 November 2021.
[15] There were other clauses in the dealer agreement referred to by counsel in argument which should be mentioned at this juncture, namely that:
(a)The guarantors’ liability under the guarantee for the performance of all obligations of Ashton under the dealer agreement was not affected by the “granting of time, forbearance or other concession” by Sheppard to Ashton.
(b)The dealer agreement was “the entire agreement and understanding between the parties on everything connected with its subject matter” and “supersedes any prior agreement or understanding on anything connected with that subject matter”.
(c)A party’s failure or delay to exercise a power or right did not operate as a waiver of that power or right and that “[a] waiver is not effective unless it in writing” and “[w]aiver of a power or right is effective only in respect of the specific instance to which it relates and for the specific purpose for which it is given”.
[16] Sheppard supplied goods to Ashton under the dealer agreement and issued invoices for those goods. However, Ashton’s business did not prosper. On 5 December 2023 Ashton was placed into liquidation by special resolution of the shareholders.
[17] On 15 December 2023, Sheppard terminated the dealer agreement and made a demand for payment of $515,005.42, the amount then said to be owing by Ashton including a sum for legal costs.
[18] Following the termination of the dealer agreement, but also on 15 December 2023, Sheppard sent a demand for payment to the defendants as guarantors. The demand required the defendants pay the demand on or before 19 December 2023.
[19] Sheppard subsequently accepted the return of some goods it had supplied to Ashton under the dealer agreement and applied credits to the sum owing. As a result it says the amount owing as of 30 June 2024 was $403,362.95 (including interest).
[20]The defendants did not respond to the demands for payment.
Summary judgment principles
[21]The relevant rule is r 12.2 of the High Court Rules 2016 which reads as follows:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[22] The principles that apply to a plaintiff’s summary judgment application were summarised by Associate Judge Osborne in Mount Grey Downs Ltd v Pinot Properties Ltd as follows:2
(a)Commonsense, flexibility and a sense of justice are required.
(b)The onus is on the plaintiff seeking summary judgment to show that there is no arguable defence. The Court must be left without any real doubt or uncertainty on the matter.
2 Mount Grey Downs Ltd v Pinot Properties Ltd [2018] NZHC 3094 at [12].
(c)The Court will not hesitate to decide questions of law where appropriate.
(d)The Court will not attempt to resolve genuine conflicts of evidence or to assess the credibility of statements in affidavits.
(e)In determining whether there is a genuine and relevant conflict of facts, the Court is entitled to examine and reject spurious defences or plainly contrived factual conflicts. It is not required to accept uncritically every statement put before it, however equivocal, imprecise, inconsistent with undisputed contemporary documents or other statements, or inherently improbable.
(f)In assessing a defence the Court will look for appropriate particulars and a reasonable level of detailed substantiation – the defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the Notice of Opposition.
(g)In weighing these matters, the Court will take a robust approach and enter judgment even where there may be differences on certain factual matters if the lack of a tenable defence is plain on the material before the Court.
(h)The need for judicial caution in summary judgment applications has to be balanced with the appropriateness of a robust and realistic judicial attitude when that is called for by the particular facts of the case. Where a last-minute, unsubstantiated defence is raised and an adjournment would be required, a robust approach may be required for the protection of the integrity of the summary judgment process.
(i)Once the Court is satisfied that there is no defence, the Court retains a discretion to refuse summary judgment but does so in the context of the general purpose of the High Court Rules which provide for the just, speedy and inexpensive determination of proceedings.
(footnotes omitted)
The defences
Estoppel and waiver
[23] While the defendants advance both waiver and estoppel as defences, counsel agreed the distinction between those concepts is a fine one as their elements are almost identical. To the extent that a distinction exists it will not affect the outcome of this application.3
3 McGruddy v Spotless Facility Services (NZ) Ltd [2020] NZHC 2471 at [44].
[24]Unconscionability is often said to be the basis of the doctrine of estoppel. In
National Westminster Finance NZ Ltd v National Bank of NZ, Tipping J said:4
The decisions of the Court ... have emphasised the element of unconscionability which runs through all manifestations of estoppel. The broad rationale of estoppel, and this is not a test in itself, is to prevent a party from going back on his word (whether express or implied) when it would be unconscionable to do so.
[25] The four requirements for a claim of promissory estoppel are well established and are set out in Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd as:5
(a)A belief or expectation by [A] has been created or encouraged by words or conduct by [B];
(b)To the extent an express representation is relied upon, it is clearly and unequivocally expressed;
(c)[A] reasonably relied to its detriment on the representation; and
(d)It would be unconscionable for [B] to depart from the belief or expectation.
[26]The authors of Burrows, Finn and Todd on the Law of Contract in New Zealand
note:6
For the first requirement, there must be clear words or conduct by one party which creates a belief or expectation in the other. Under the second, if this is a representation, it must be clear and unequivocal. Such a representation is judged objectively “according to the impact that whatever is said may be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee”. Sometimes silence, in the light of surrounding circumstances, will be sufficient.
(footnotes omitted)
[27]It has been held that a waiver requires:7
(a)a clear, unequivocal representation by the waiving party, which can be made orally or by conduct;
4 National Westminster Finance NZ Ltd v National Bank of NZ [1996] 1 NZLR 548 at 549.
5 Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44].
6 Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, Wellington, 2022) at [4.6.2]).
7 McGruddy v Spotless Facility Services (NZ) Ltd, above n 3, at [41].
(b)the intention to waive must be made known to the other party expressly or by conduct;8 and
(c)the person relying on the waiver must demonstrate that they have relied on the representation made.
[28] The primary submission for Mr and Mrs Ashton is that Sheppard represented by words and conduct that it would not look to their personal resources to recover debt owing under the dealer agreement if Mr Ashton continued to trade in the business, cooperated with Sheppard and promoted its brand.
[29] There is much about the evidence of Mr and Mrs Ashton which is unsatisfactory and unsupported by contemporary documents that one would expect to exist. I agree with Mr O’Brien that their evidence is inherently improbable, both that Sheppard would and did make promises or representations of the kind they say were made or that they would enter into the dealer agreement and guarantee had such promises or representations been made.
[30] By way of example, despite Mr Ashton’s business experience and knowledge of the affairs of Ashton and the market in which it operated, the Ashtons’ position appears to be both that they had no choice but to take over the business from Mr Howe and that the business was “a front” for Sheppard. Such assertions are plainly not reconcilable with each other or the documentary evidence of communications between Mr Ashton and Sheppard, the conduct of the Ashtons in personally injecting capital into the business, and the manner in which the business was run and then put into liquidation (without any involvement from Sheppard). Similarly, there are references to projections provided by Sheppard, directions said to have been made as to how the business was to be run and a failure by Sheppard to apply rebates, which are not supported by documentary evidence.
[31] Turning to what it is said was expressly represented to them by Sheppard when the dealer agreement was entered into, the high-water mark of Mr Ashton’s evidence
8 Eagle Flight Training Ltd v Aerospace Invest Pte Ltd [2018] NZHC 966.
is he was told in relation to the restructuring of the business that existing debt would be “parked”, and he would be given a fresh start as follows:
They told to us that if [Mr Howe] left and transferred ownership to me and that he and I paid down $120,000.00 of debt between us, that they would give me a fresh start and let [Mr Howe] off. They said that the debt that was owing by the company would be “parked”, and they would continue to support me.
[32] Mrs Ashton’s evidence is that Mr Te Paa said if the business did not come right Sheppard would make another plan. In her affidavit she puts the matter this way:
[11] Brendan was promised a fresh start by them By the time I signed
the documents in December 2021, I understood that the old debt was set aside and was only going to be there on paper.
...
[14] They made it clear to me in the time I dealt with [Mr Te Paa] that
as long as Brendan ran the business for them, they would find a way to make it work and they have gone back on their word. ...
[15] … [Mr Te Paa] came to my house and spoke to me when I put to him my concern about what would happen if their latest idea about putting Brendan back in charge wouldn’t work.
[16] [Mr Te Paa] was [sic] my house when he told me that I did not need to worry because if that plan didn’t work they would make another one.
[33] Mr Dewar submits that in evaluating the defence of estoppel/waiver the Court should consider the circumstances under which the dealer agreement was entered into, that Ashton was known to be insolvent, the significant level of involvement Sheppard had in the business of Ashton, the failure by Sheppard to enforce strictly the terms of the dealer agreement including in relation to charging of penalty interest, and the hard work and dedication with which Mr Ashton applied himself to the business. Mr Dewar submits that “right to the end” Mr Ashton did his best in a failing market in the belief that Sheppard would look only to the business and not to any personal resources he might have to meet book debt that was accruing in Ashton’s balance sheet.
[34] Even accepting at face value the evidence of Mr and Mrs Ashton of what was said to them, the defence of estoppel (or waiver) is not arguable for several reasons.
[35] First, statements to the effect that Mr Ashton would have a fresh start, that existing debt would be “parked”, or that if the plan to restructure the business did not
succeed the parties would make a new plan are not clear and unequivocal representations that the dealer agreement or guarantee would not be enforced. The submission that such statements were understood that way is contrary to the evidence of Mr Ashton that he signed the guarantee knowing what that meant and intending to take responsibility as a guarantor. Mrs Ashton does not say that she did not understand the nature of the guarantee either.
[36] Mrs Ashton does say that by the time she signed the guarantee she understood the “old debt” was set aside and was only going to be there on paper. Even if I was to accept that was her understanding, this claim does not relate to debt which was owed by Ashton when the dealer agreement was entered into but debt that has accrued subsequently. The debt that existed when the dealer agreement was entered into was repaid over time. There is attached to the affidavit of Matthew Lyon, Sheppard’s Finance Director, a line-by-line analysis of how the amount owing on 1 February 2024 was made up, and all amounts post-date the dealer agreement.
[37] Second, if the representations the Ashtons say were made could possibly be taken to mean the dealer agreement or guarantee would not be enforced, I do not consider the defendants could reasonably have relied upon them. Mr Ashton was an experienced businessman, well aware of the financial position of Ashton and the nature and risks of the arrangements he was entering into. He says he signed the guarantee knowing and understanding what that means. Mr and Mrs Ashton were clearly receiving legal advice at this time as the restructuring of the business was documented by lawyers and their signatures to several documents were witnessed by their lawyers. In this regard, the dealer agreement states that the guarantors were advised to get independent legal advice before signing, and I note that Mr and Mrs Ashton’s signatures were witnessed by a solicitor.
[38] Third, there is nothing in writing to support the submission that the defendants believed the guarantee would not be enforced against them or that existing debt was “only going to be there on paper”. If that had been the defendants’ understanding, it could be expected that it would be documented in some way or at least that there would be some mention of it in correspondence. There is no such suggestion in correspondence between Mr Ashton and Sheppard. There is, however, email
correspondence between Mr Ashton and ANZ Bank at the time that the business was restructured, where finance is being sought and Mr Ashton acknowledges that existing debt owed to Sheppard would be cleared.
[39] At the same time there was correspondence between Mr Lyon and Mr Ashton, including in respect to the payment of existing debt. In an email of 1September 2021 Mr Ashton asked about Sheppard’s terms for payment of existing debt and Mr Lyon wrote back:
Sheppard Cycles is committed to working with you and the business to pay down the creditors balance. We understand that historical creditors may take an couple of years of good trade. Our expectations is that weekly we receive COGS of Sheppards + 20-25% at a minimum to ensure debt doesn’t increase. Also our expectation is that all bottom line profits from the first few years should come to Sheppard Cycles to reduce creditor’s balance before being distributed to shareholders which we have discussed. Any future invoices will be on terms as per My Ride Agreement.
[40] Mr Ashton also acknowledges that during 2022 Ashton sought to raise further finance against the family home from ANZ Bank to take up an offer made by Sheppard to clear existing debt. Clearly this would not be considered if the debt was “parked” or there on paper only, or the business was in fact Sheppard’s business which Mr Ashton was fronting for Sheppard’s benefit.
[41] Fourth, the assertion that the representations referred to by Mr and Mrs Ashton were made was only raised after service of these proceedings upon them. Mr Lyon notes in his first affidavit that Mr Ashton’s only response to the demand under the guarantee was that he was not going to discuss accounting matters. The manner in which the relationship between Sheppard and Ashton was conducted is so at odds with what Mr and Mrs Ashton now assert, in relation to matters such as payment of existing debt and charging of penalty interest, that it is to be expected concerns would have been raised much earlier.
[42] Fifth, the submission that payment of debt would not be required if Mr Ashton continued in the business, cooperated with Sheppard and promoted its brand implicitly recognises that payment could be enforced when such circumstances no longer existed, such as if Ashton did not continue to trade. That is what has occurred. To the extent that it was thought anything Mr Te Paa said to Mrs Ashton indicated that if the
business did not succeed Sheppard would come up with another plan, it had no opportunity to do so in circumstances where Ashton was put into liquidation.
[43] Sixth, while Mr Dewar submits that in evaluating the defence the Court should consider the conduct of Sheppard over a period of years, none of the conduct can reasonably be said to have created or encouraged a belief or expectation that Sheppard would not enforce the dealer agreement or the guarantee. For instance, much emphasis is placed upon the assertion that Sheppard knew Ashton was insolvent. While I understand that is denied by Sheppard, there can be no suggestion that Mr and Mrs Ashton were not aware of the company’s financial predicament. It was plainly both the desire and expectation of all parties that the position of the company would improve and by entering into the dealer agreement both parties, not only the defendants, accepted significant commercial risk.
[44] Another matter relied upon is that Sheppard had been involved in, as Mr Ashton put it, “doing our books” because Ashton could not afford to pay for that. The evidence of Mr Ashton is that Sheppard had been providing such assistance for years prior to the parties entering into the dealer agreement. Ashton had its own external accountants and there is evidence that they prepared Ashton’s end of year accounts. It is difficult to see how the fact that this book-keeping assistance continued after the dealer agreement and guarantee were signed could amount to a representation in any relevant sense because, as Mr O’Brien correctly submits, there is no logical connection between the provision of those services and the allegation that Sheppard is estopped from enforcing, or had waived, its rights under the dealer agreement or the guarantee.9
[45] Then it is said that Sheppard failed to enforce strictly the terms of the dealer agreement including in relation to charging of penalty interest, yet Mr Ashton acknowledges that penalty interest was being charged.
9 Mr O’Brien also submits that under cl 11 of the dealer agreement Sheppard was contractually required to provide advice and assistance to Ashton in the operation of its business, but I do not need to decide if that extended to the book-keeping services provided.
[46] In his oral submissions Mr O’Brien referred to the terms in the dealer agreement, at [15], which he submits prevent the defendants from raising in defence of the claim any promises or representations that were historical or oral or any acts of forbearance by Sheppard. I raised with counsel that if those clauses were relied upon as excluding Sheppard’s liability for statements or promises made in negotiations for the dealer agreement, that then engaged s 50 of the Contract and Commercial Law Act 2017. Neither counsel spoke to that issue in any detail. As I do not need to decide this application in reliance upon those clauses of the dealer agreement, I have not addressed them or the application of s 50.
[47] Finally, the evidence of Mr and Mrs Ashton and the submissions of their counsel emphasise the commitment made by Mr Ashton to the running of the business, that the failure of the business was not due to any mismanagement and also the financial hardship that has been suffered. There is no challenge to any of this. However, I do not accept counsel’s submission that it is arguable that Mr and Mrs Ashton were led to believe that Sheppard would not look to the Ashtons’ personal resources to recover debt owing to it. The defence of estoppel/waiver is untenable and cannot succeed.
Credits for returned goods
[48] Mr Ashton says that after liquidation Sheppard took back all its goods, which had a book value of “approximately $280,000.00 with a retail value substantially more than that” but Sheppard credited Ashton with only $94,054.42. He says Sheppard has a network of dealers and ought to have accounted for at least the price at which the goods were sold to Ashton. Mr Ashton has provided no evidence of what goods he says were returned to Sheppard or anything to support his assertion of their book value.
[49] This issue is addressed in the evidence of Mr Te Paa. He says when Ashton went into liquidation Sheppard was contacted by the liquidators and asked to uplift goods, some of which had been damaged. He prepared an inventory of the goods uplifted (which is produced in evidence). The total cost price of those goods to Ashton was $94,389.59 for bicycles and $32,697.82 for parts and accessories. Mr Te Paa says he then applied credits to the value of the goods with discounts which ranged from
between zero to 44 per cent for bicycles and 25 to 75 per cent for parts and accessories. In a memorandum filed after the hearing, it has been confirmed that the total cost price of the returned goods was $127,087.40 and that the amount credited by Sheppard to Ashton was $88,238.78. The discount applied to all goods was $38,848.62.
[50] Mr Te Paa says that as Sheppard is not a retailer, the goods in the inventory will be resold through its existing dealer network at cost price if they are undamaged and in good condition or less if they are not. He says the discounts applied to the cost price of the returned goods reflects their current market value given their age and condition and what Sheppard will be able to charge another retailer for them.
[51] I have no reason to doubt that Mr Te Paa prepared an accurate inventory of the returned goods and their cost price to Ashton. I note in this regard that although Mrs Ashton filed an affidavit in reply to Mr Te Paa’s affidavit, she did not take issue with his evidence in respect to these matters.
[52] In my view also there can be no basis upon which it could be asserted that Sheppard was obliged to accept the return of goods at above cost, and I do not understand that Mr Ashton was suggesting otherwise. The issue then is whether the discounts Mr Te Paa applied to the cost price of the goods are justified.
[53] Mr O’Brien submits it would be unnecessarily onerous if Sheppard was required to justify the discounts applied to each item. He also submits the discounts were applied consistently with the terms of the dealer agreement and, whilst referring to several provisions, ultimately argues the position was governed by cl 15, which reads as follows:
15Returns
15.1Sheppard Cycles New Zealand is not obliged to authorise, or accept for credit, the return of Goods that have been accepted by the Dealer under clause 4.8 unless: Sheppard Cycles New Zealand is required to do so by law; Sheppard Cycles New Zealand determines that the Good does not comply with a Sheppard Cycles New Zealand Warranty; or Sheppard Cycles New Zealand otherwise agrees to do so in writing.
15.2In respect of Goods returned in accordance with clause 15.1:
(1)only account credits, and no cash payments, will be made; and
(2)Sheppard Cycles New Zealand may deduct a handling fee of 10% or more (as specified by Sheppard Cycles New Zealand from time to time) from any credit as set out in the Policies, except where the Goods are returned for breach of an [sic] Sheppard Cycles New Zealand Warranty or warranty implied by law that is applicable to Sheppard Cycles New Zealand.
[54] I do not see how cl 15.2 provides justification for the discounts that were applied. Clause 15.2 appears to provide only that Sheppard may deduct a handling fee as set out in its policies. It is clear that many of the discounts were not handling fees and to what extent handling fees have been applied, or on what items and at what rates, is also unclear. There are also no policies in evidence.
[55] In these circumstances I accept there is a dispute that cannot be decided upon summary judgment as to whether the discounts applied to the cost price of the returned goods were justified. That dispute relates to only $38,848.62 of the amount claimed.
The trustees’ liability
[56] At issue is cl 23.11 of the dealer agreement which limits the liability of a trustee under the guarantee as follows:
If that person has no right to or interest in any of the assets of the trust except in that person’s capacity as trustee of the trust, that person’s liability under this Agreement shall not be personal and unlimited but shall be limited to an amount equal to the value of the assets of the trust that are available to meet that person’s liability unless the right of that person to be indemnified from the assets of the trust has been lost and in which case that person’s liability under this guarantee shall be personal and unlimited.
[57] The third and fourth defendant Mr MacDonald has not made an affidavit in the proceeding. Mr Ashton says that Mr MacDonald is sued as a trustee only, his liability is limited to the assets of the third and fourth defendant trusts, and that the only assets held by those trusts are the shares in Ashton which have no value.
[58] Sheppard accepts that Mr MacDonald was a professional trustee who had no right to or interest in any of the assets of the trusts except in his capacity as a trustee and that, accordingly, cl 23.11 applies as a limitation on his liability.
[59] However, Mr Dewar’s submissions on behalf of the defendants go further than that. He did not distinguish between the position of Mr MacDonald and Mr and Mrs Ashton as the third and fourth defendants and submits that as the trusts have no assets the liability of the third and fourth defendants has been “discharged”. He also argues that Mr Ashton’s evidence that the shares in Ashton were the only assets of the trusts is unchallenged, there is therefore no obligation under the guarantee that the trustees can be called upon to perform and judgment should not be entered against them.
[60] I have several difficulties with the submissions advanced for the defendants. First, while it has no real consequences in this case because Mr and Mrs Ashton also provided guarantees other than as trustees, it is not contended that they had no right to or interest in the assets of the trusts for the purposes of cl 23.11. Mr Ashton’s evidence was directed to Mr MacDonald’s circumstances only.
[61] Second, even if it is the case that there are now no trust assets, at the time that demand was made under the guarantee there were assets (being the shares in Ashton) and Mr MacDonald did not respond to the demand. He was therefore in breach of the guarantee. I do not see how anything that occurred subsequently would as a matter of law discharge the guarantee as Mr Dewar submits.
[62] Third, other than the bald assertion of Mr Ashton there is no other evidence as to the financial circumstances of the trusts. There are, for instance, no financial accounts for the trusts in evidence. I do not accept Mr Dewar’s submission that Mr Ashton’s evidence should be accepted as unchallenged in circumstances where no supporting documentary evidence has been provided, Mr Ashton’s evidence has not been confirmed by either Mrs Ashton or, importantly, Mr MacDonald, and there is nothing to suggest that Sheppard was privy to the affairs of the trusts and had the ability to challenge Mr Ashton’s evidence on this point.
[63] Fourth, there is an issue that I raised with counsel as to what is the appropriate date for assessing the value of the assets of the trusts for the purposes of determining the extent of Mr McDonald’s personal liability.10
[64] Contrary to Mr Dewar’s submission that judgment should not be entered against the third and fourth defendants, I have been referred to several decisions where similar claims have been made against trustees with limited liability and the extent or value of the trust assets was unknown. In such cases the Court has entered judgment but on terms that enforcement of the judgment was limited to the extent of the assets held by the defendants as trustees.
[65] In Official Assignee v Wheeler, there was no evidence of the extent of the trust assets or their value, but Venning J entered judgment against the defendants “in their capacity as trustees, and any enforcement of the judgment is limited to the extent of the assets held by them as trustees of the [trust]”.11
[66] In Thompson v Bradley, the defendant trustees had not put forward evidence that the plaintiffs’ claim might exceed the value of the trust assets, but Associate Judge Smith followed the approach taken by Venning J in Official Assignee v Wheeler.12
[67] In Frimley Estate Ltd v Stonewall Homes Ltd, Associate Judge Gendall noted that the extent of the trustees’ liability required evidence of the available assets of the trust which was not before the Court such that the trustees’ liability as to quantum could not be determined by way of summary judgment.13 He granted summary judgment as to liability with quantum to be determined at a subsequent hearing.
[68] In my view, and in circumstances where there is at least one other issue going to the quantum of the plaintiff’s entitlement that will need to be determined in a subsequent hearing (involving the discounts on the cost price of returned goods), I
10 See for instance Frimley Estate Ltd v Stonewall Homes Ltd (2010) 12 NZCPR 769, (2010) 3 NZTR 20-037 (HC).
11 Official Assignee v Wheeler [2015] NZHC 1644 at [51].
12 Thompson v Bradley [2016] NZHC 922 at [59] and [66].
13 Frimley Estate Ltd v Stonewall Homes Ltd (2009) 10 NZCPR 637 at [28].
adopt the approach taken by Associate Judge Gendall in Frimley Estate Ltd v Stonewall Homes Ltd.
Discretion not to enter judgment
[69] The defendants’ submission is that there may be other information available that will provide them with a defence to the claim that they have not had an opportunity to advance. Mr Ashton says he has not been able to supply his lawyers with all the information about this case and he may be able to obtain further information from Ashton’s accountants and the liquidators. He says he would like the opportunity to provide further evidence.
[70] Sheppard has satisfied me that the defendants have no defence to its claim except in relation to quantum. The Court will rarely exercise its discretion to refuse summary judgment in such cases except where an injustice will arise as a result.14
[71] All the matters the defendants have raised have been responded to by Sheppard. Mr Ashton has not identified the information that he has not provided to his lawyers or the matters upon which he would call further evidence, nor has any further evidence been provided despite the passage of three months since he swore his affidavit.
[72] To refuse summary judgment on the basis of nothing more than a possibility that something may be found that provides a defence to the claim would defeat the purpose of the summary judgment procedure. There is to my mind no injustice in entering summary judgment.
Result
[73] Judgment is entered for the plaintiff against the first and second defendants and against the first and second named third and fourth defendants in the amount of
$364,514.33, representing the amount Sheppard says is owing at 30 June 2024 less the amount of disputed discounts applied to the cost price of the returned goods.
14 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR12.2.11].
[74] Interest pursuant to s 22 of the Interest on Money Claims Act 2016 shall continue to accrue on the amount in [73] above pursuant the dealer agreement from 30 June 2024 to the date of payment.
[75] In relation to the third named third and fourth defendants, judgment is entered as to liability only, with such liability limited in accordance with cl 23.11 of the dealer agreement.
[76]There are issues of quantum outstanding both in relation to:
(a)the discounts applied to the cost price of returned goods; and
(b)the extent of Mr MacDonald’s personal liability.
[77] The issues in [76] are adjourned to be called again at a telephone conference to be arranged by the Registrar before an Associate Judge to put in place a timetable for a hearing for them to be determined.
[78] Sheppard has been successful and is entitled to costs on a solicitor and own client basis under cl 23.12 of the dealer agreement. Counsel shall confer on costs, and in the event there is any dispute may file memoranda to have costs (and disbursements) fixed by the Court. Such memoranda should not exceed six pages in length.
O G Paulsen Associate Judge
Solicitors:
MinterEllisonRuddWatts, Auckland Thomas Dewar Sziranyi Letts, Lower Hutt
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