Speirs Group Limited v Summers HC Rot CIV 2007-463-490

[2008] NZHC 2380

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV 2007-463-490

BETWEEN  SPEIRS GROUP LIMITED Plaintiff

ANDJAMES JUNIOR SUMMERS First Defendant

ANDANGELINA CATHERINE SUMMERS Second Defendant

Hearing:         17 June 2008

Appearances: Mr E M S Cox for plaintiff

Mr J P Temm for first defendant
Mr K J Patterson for second defendant

Judgment:      27 June 2008 at 11 a.m.

JUDGMENT OF ASSOCIATE JUDGE DOOGUE

This judgment was delivered by me on

27.06.08 at  11 a.m, pursuant to

Rule 540(4) of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

Mr E M S Cox, Gibson Sheat, Private Bag 31905, Lower Hutt

M J P Temm , Phoenix Chambers, P O Box 1124, Rotorua

Mr K J Patterson, P O Box 13006, Tauranga

SPEIRS GROUP LIMITED V SUMMERS AND ANOR HC ROT CIV 2007-463-490 27 June 2008

Background

[1]      The plaintiff sues the defendants as guarantors of obligations entered into by a company called Mokoia Island Cruises Limited (“Cruises”) under a finance lease which Cruises entered into with the plaintiff.   Under the lease arrangement, the plaintiff  agreed  to  Cruises  taking  possession  of  a  Scat  Cat  vessel  used  for transporting tourists on Lake Rotorua.

[2]      Mr Robinson, a credit manager for the plaintiff, in his history of the dealings involving the vessel referred to the fact that the plaintiff had previously leased it to another company, Mokoia Island Tours (“Tours”).  The first defendant and another man called Mr George were the shareholders in Tours.  Mr George, his wife and Mr Summers and his wife were all guarantors of Tours’ obligations to the plaintiff under the lease.  The dealings between the parties under the lease arrangement with Tours resulted in considerable arrears of debt accruing due to the plaintiff.  As at 16 May

2006 the amount of arrears was some $27,000.   The lease arrangement between Tours  and  the  plaintiff  then  came  to  an  end.    The  plaintiff  says  that  Tours surrendered possession of the vessel.   Still more arrears had accumulated by then. Between 16 May 2006 and 18 October 2006 the vessel was in the possession of the plaintiff.

[3]      The  plaintiff  then  attempted  to  sell  the  vessel.  Nothing  came  of  those attempts.   On 13 October 2006 the plaintiff entered into a lease agreement with Mokoia Island Cruises Limited (“Cruises”).  The first defendant was at all material times a director of Cruises and both the first and second defendants entered into a further deed of guarantee and indemnity relating to Cruises’ obligations under the new lease agreement.

[4]      The plaintiff now seeks recovery of unpaid money which it says is owing by Cruises under the now-terminated lease agreement and which the defendants are liable to pay under their guarantees.

[5]      The defendants have raised a number of defences.  Some of those defences are defences which would be available to the company and which the guarantors are able to invoke against the present claim.   Others, particularly in the case of Mrs Summer, are personal to the defendant.  Specifically, Mrs Summers raises a defence that she was the subject of undue influence when she executed the guarantee.  It is only necessary for the defendants to raise an arguable defence on any one of the defences for the present application for summary judgment to be dismissed.

Sale of Goods Act 1908 Warranties

[6]      At the heart of the dispute between the parties was the correct classification of the agreement that they entered into.  A large part of the submissions advanced by Mr Temm was directed towards persuading me that the agreement that the parties entered into was a sale of goods transaction into which were to be implied the various statutory warranties including that to be found in s 16 of the Act.  I do not agree  with  that  analysis.    In  my view,  the  distinction  is  best  explained  by the following passage from Laws of New Zealand, Sale of Goods Volume [55]:

Sale of goods distinguished from bailment plus option.

A contract of hire purchase is, strictly speaking, a contract of hire whereby the  hirer  is  granted  an  option  to  purchase  but  is  not  obliged  to  do  so. Contracts which impose an obligation on the purchaser to buy although payment is by instalments are sales or agreements to sell.  The two kinds of transaction must be distinguished.  The substance, rather than mere form, of an agreement is decisive in determining the category into which the agreement falls.   The reforming Hire Purchase Act 1971 (now repealed) however, applies to both kinds of transactions; a hire purchase agreement within that Act means an agreement whereby goods are let or hired with an option  to  purchase,  and  an  agreement  for  the  purchase  of  goods  by instalment payments whether the agreement describes the payment as rent or hire or otherwise where the person who agrees to purchase the goods is given possession of them before the total amount payable has been paid. Excluded  from this  definition  with  some  exceptions  are  contracts  under which property in the goods passes absolutely to the purchaser at the time of the agreement or before delivery, and sales made otherwise than at retail.

[7]      And in paragraph 52 of the same work, the authors state:

Common personal property transactions outside the definition of "contract of sale of goods" in the Sale of Goods Act 1908 include a gift or an exchange which lacks the requirement of money consideration,  and a  bailment  or

bailment plus option which lacks the requirement that the buyer is bound to buy and the seller is bound to sell.

(My emphasis)

[8]      I agree with and adopt these statements of the law.

[9]      In this case the following were the features of the agreement that the parties entered into.   First, the plaintiff, which was the owner of the goods immediately before the transaction, remained so after the transaction was entered into.  Secondly, the plaintiff, as owner who had the right to possession of the goods, bailed them to Cruises.  The third element was that the amounts which Cruises was required to pay in terms of the contract represented the consideration for the plaintiff making possession of the vessel available to Cruises together with certain interest and other charges  which  Cruises  agreed  to  pay.     As  well  the  consideration  may  have recognised the value of the option that Cruises obtained to purchase the boat for $1 at the end of the bailment period.

[10]     In  my view  the defendants’  submission  is  incorrect  in  asserting that  the contract in this case was a sale of goods covered by the Act.   That being so, the defences based upon breaches of implied terms as to quality etc contained in the Act, are not arguable defences.

[11]     The agreement in this case was expressed to be a lease which is a type of bailment.   As I understand the submission, Mr Temm suggested that I would go behind the terms in which the parties had cast their agreement and, if I did so, I could well conclude that what had occurred in this case was a sale rather than a lease.  I do not agree.  If the parties cast their transaction as being of a particular kind, there is no justification for the Court ignoring the expression of their contract and determining that in fact the contract was in substance something different.  The only exception to this is where the Court is able to conclude that the contract is a sham.  A sham was defined by Diplock LJ in Snook v London & West Riding Investments Ltd [1967] 1

All ER 518 at p 528 as follows:

“...[‘sham’] means acts done or documents executed by the parties to the

‘sham’ which are intended by them to give to third parties or to the court the appearance  of  creating  between  the  parties  legal  rights  and  obligations

different from the actual legal rights and obligations (if  any)  which the parties  intended to  create.  One  thing I think,  however,  is  clear in  legal principle, morality and the authorities ... that for the acts or documents to be a ‘sham’, with whatever legal consequences follow from this, all parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a 'shammer' affects the rights of a party whom he deceived.”

[12]     In this case, there is no proper foundation upon which I could conclude that the parties’ agreement is not what it says it is, namely, a lease and to determine that instead that the transaction that the parties entered into was a sale of goods.

Misrepresentations

Background

[13]     The defendants cross-claim based on misrepresentation.  Before I deal with the alleged misrepresentations, it will be helpful to set out some further background.

[14]     The  lease  agreement  provided  for  Cruises  to  make  payments  totalling

$225,197 over a period of 36 months.  The lessee, Cruises, acknowledged by signing the agreement that the goods were at its risk (clause 6), that it was obliged to maintain the goods ‘in good working condition’ and the lessee was required to pay the costs of repairs to the vessel (clause 10) and to pay rent while the goods were being repaired.

[15]     The lease provided that the lessor could end the lease if the lessee was ‘in default of any payment due under this lease’ (clause 50).

[16]     Some five weeks after the lease agreement was signed the vessel broke down and was unable to be used any further.   Problems included a seized motor and possibly problems with the other engine as well.  The pontoons on which the body of the vessel were mounted had suffered major water leaks.  Ancillary equipment in the form of a dry dock was not working properly and had to be fixed.  The vessel had to be lifted from the water and put in storage which was very expensive. The vessel was not in fact ever repaired and was eventually sold for $27,400.

[17]     Mr Summers said in his affidavit of 26 October 2007:

(b)In any event, the plaintiff represented the condition of the vessel to us at the time of executing the lease agreement. We  were  unaware  at  the  time  in  October  2006  that  the subject of the lease, being the vessel Hinemoa Scat Cat, had already suffered a major failure in that its pontoons (sic) such that it was not seaworthy.  The plaintiff represented to us that the vessel was suitable for its purpose when, plainly, that was not the case.  We have subsequently had confirmed that  the  deterioration  of  the  pontoons  had  occurred  over many months and that the plaintiff was seeking to lease to us a vessel that was unsuitable for its purpose.

[18]     By  way  of  additional  background  I  note  that  on  24.05.06,  following termination of the Tours agreement, but before the plaintiff and Cruises entered into the second finance lease, Mr Summers sent an email to Mr Kilmister of the plaintiff which said, inter alia:

In relation to the Scat Category our captain is checking the vessel every two days doing power and pump functions so all is ok

[19]     In the same email he stated that the insurance was up to date on the vessel.

[20]     Then on 19.06.06 Mr Summers obtained a report on the vessel from a marine engineer.  In the report the engineer stated that since Tours had acquired the vessel he had undertaken responsibility for the vessel.  He noted in his report that he had carried out amongst other things welding of pontoon cracks and he referred to the starboard pontoon having become flooded leading to the vessel having to be taken out of the water so that the engine could be drained and satisfactorily test run.  As well he was involved in the replacement of the starboard engine.

[21]     During July and August there were discussions between the plaintiff and Mr Summers about clearing the arrears that were left over after Tours relinquished the vessel and in a letter of August 2006, Mr Kilmister looked forward to “your new structure” and “seeing the scat cat up and running in time for the busy summer season”.

[22]     The cumulative effect of these aspects of the evidence seems to me to point to the conclusion that, following the surrender of the vessel in May 2006 by a

company that Mr Summers was involved in, the vessel was checked from time to time at the instigation of Mr Summers; and that during the period from June to October  Mr  Summers  was  investigating  the  means  to  clear  his  liability  to  the plaintiff and to resume operating the business in the corporate shape of another company which ultimately became Cruises.  As well, it seems apparent that before Cruises entered into the agreement for sale and purchase the defendants were alerted to the fact that there had been cracks in the pontoon’s of the vessel  and other significant problems experienced with it.

The alleged representations

[23]     The defendants’ claim that the plaintiff made several representations to them concerning the condition of the vessel.  The evidential basis for this is to be found in the affidavit of the first defendant sworn 25 October 2007.  He deposed at paragraph

9:

9.On  or  about  13  October  2007,  the  plaintiff  and/or  its  agent represented to Mokoia Island Cruises Limited that the Hinemoa Scat Cat vessel was available for lease.  Specifically the plaintiff and/or its agents represented that:

(a)      That the vessel was seaworthy; and

(b)That the vessel was suitable was suitable for the purpose for which Mokoia Island Cruises Limited desired,  namely to transport tourists  on  Lake  Rotorua,  and  the  plaintiff  was aware of that purpose and represented the suitability of the vessel for that purpose; and

(c)       The  plaintiff  would  leave  the  vessel  with  an  option  to purchase at the end of the lease term; and

(d)The   plaintiff   through   Mr   Mark   Kilimister   made   oral enquiries about the forward business of Mokoia Island Cruises Limited.

[24]     I observe that the material contained in the last sub-paragraph could not be classified as a representation.

[25]     A notable aspect of the other representations is that no details are provided as to when the representations were made or by whom.   Paragraph 9 has more the

appearance of an extract from a statement of claim than a deposition of fact; it more resembles a lawyer’s summary of the effect of discussions or conversations than an attempt to provide a literal or verbatim account of what a party to a conversation said.   It is this quality that makes the reliability and veracity of the deposition difficult to assess.  While it would seem that the evidence is admissible in terms of the Evidence Act 2006, what weight it should be given, even in the context of a summary judgment application, is an altogether different matter.

[26]     I do not overlook the well-known judgment of Greig J in Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 to which Mr Cox referred me, and in particular to the following passage of that judgment:

In this case there are before me the plaintiff's statement of claim, two affidavits by Kerry Goodwin Morrell, the chief manager of the financial markets division of the Reserve bank, and two affidavits by Mr Alexander. The plaintiff's application was strenuously opposed by the defendant which, by affidavit and submission, has contended that there are a number of arguable matters by way of defence which ought to be tried.

In a matter such as this it would not be normal for a judge to attempt to resolve any conflicts in evidence contained in affidavits or to assess the credibility or plausibility of averments in them. On the other hand, in the words of Lord Diplock in Eng Mee Yong v Letchumanan [1980] AC 331, at

341 E, the Judge is not bound:

"to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be."

[27]     Because   of   the   absence   of   detail   and   also   because   the   alleged misrepresentations lack verisimilitude, I am sceptical that they were ever made.

[28]     However, notwithstanding the unsatisfactory form of the deposition, it is important to remember Mr Summers has said on oath that the plaintiff indeed gave assurances to the defendants on the subjects mentioned.   Unless there was other material before the Court which would drive it to conclude the contrary, it should be assumed that the deponent has, in making the statement, acted in conformity with his oath to tell the truth in his affidavit.  That consideration on its own poses difficulties for the plaintiff.

[29]    The next matter that I deal with is to attempt some assessment of the probabilities that the defendants’ account of the alleged representations were in fact made

[30]     A consideration of the background that I set out in the preceding section of this  judgment  suggests  to  me  that  it  would  be  surprising if  the  plaintiff  would volunteer the statements that Mr Summers attributes to it and which it sets up as misrepresentations.   It would also seem surprising that Mr Summers would have sought assurances from the plaintiff about the condition of the vessel. I express that view because for a number of reasons related to the background.

[31]     First, a company that Mr Summers was one of the proprietors of had operated the vessel for a considerable period of time before it was laid up.   Second, in the intervening period from the laying up until the second lease agreement was signed there seems to have been no indication that anything had occurred to put the plaintiff in a position where it would have the necessary information to make the representations about the boat that it is alleged to have made.  Further, it seems to me to be unlikely that the plaintiff would tell Mr Summers that the boat was seaworthy or suitable for the purpose of transporting tourists unless it had some basis for doing so.  The plaintiff had never operated the vessel itself.  There is no indication that it obtained  a  survey  of  the  vessel  or  similar  which  would  give  the  necessary information to qualify it to make representations about the vessel.

[32]      Mr Summers, on the other hand, must have known of the relevant problems with the boat during the time that he was a director of Tours and then, as well, he obtained the report which I have referred to on or about 19 June 2006.

[33]     There  is  no  documentary  confirmation  that  Mr  Summers  sought  the assurances that he claimed from Spiers.

[34]     Obviously the plaintiff, which is a finance company, had not operated the vessel itself.   The vessel had stayed at its moorings from the point where it was relinquished by Tours.   It is  improbable  that  Spiers,  given  its  apparent  lack  of

knowledge of the operation of the vessel, would have made the representations that the defendants say it made about the state of the vessel.

[35]     Against those considerations it is significant that Mr Robinson in his affidavit in reply did not expressly deny making the representations which were set out in paragraph  nine of Mr Summers’ affidavit.  What Mr Robinson said was:

11.I refer to paragraph 9 of the affidavit of Summers and say that Mr Summers had full involvement and knowledge of the vessel through his involvement as director of Tours.

[36]     One   might   have   expected   that   had   the   plaintiff   not   accepted   that representations had been made of the kind alleged that there would have been a forthright denial of them.  If paragraph 11 of Mr Robinson’s affidavit was intended as a reply to Mr Summers claim that representations were made, I have to say it is a rather elliptical one.

[37]     My conclusion is that while there is reason to be sceptical about the claimed representations, my overall assessment of the evidence is that it cannot be said that the claim that the plaintiff made the representations is so inherently improbable that it would be permissible for me to conclude that the claims that Mr Summers makes in his affidavit are dishonest.

[38]     It follows from my conclusions that the defendants are able to establish an arguable  defence   to   the   summary  judgement   claim.     That   defence   would, presumably, be that Cruises was induced to enter into the contract by a misrepresentation as to the condition of the vessel and that as a result it suffered significant loss. That loss would include revenue losses on operating the vessel and liability to the plaintiff for finance charges that the company would not have incurred had it not entered into the agreement with the plaintiff.   Not only would that be a defence available to the company, the defendants as guarantors would be able to arm themselves with it, too.

Conclusion

[39]     Because the defendants have established that they have a reasonably arguable defence, there is no need for me to go on and consider the various other defences that they raised.

[40]     For those reasons I dismiss the application for summary judgment.

Directions

[41]     The defendants are to file and serve their statements of defence within 21 days of the date of this judgment.  All parties are to provide affidavits of documents not  less  than  21  days  after  the  date  of  the  date  of  the  statements  of  defence. Inspection will take place 21 days thereafter.

[42]     The Registrar is to allocate a further conference for this matter after the end of August 2008.

J.P. Doogue

Associate Judge