TR Group Limited v KHL Haulage Limited

[2014] NZHC 1061

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV-2012-463-000758 [2014] NZHC 1061

BETWEEN

TR GROUP LIMITED

Plaintiff

AND

KHL HAULAGE LIMITED First Defendant

MATTHEW JAMES SMITH Second Defendant

Hearing:	6 May 2014
Appearances:	Murray McKechnie for the Plaintiff No appearance for the First Defendant No appearance for the Second Defendant
Judgment:	20 May 2014

RESERVED JUDGMENT OF MOORE J

This judgment was delivered by  on 20 May 2014 at 4:30pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Date:

TR GROUP LIMITED v KHL HAULAGE LIMITED & ANOR [2014] NZHC 1061 [20 May 2014]

Introduction

[1]      This is an action to recover monies payable under a credit contract for goods and services, namely the leases of various trucks and trailers to the first defendant. The first defendant is in liquidation and the liquidators have informed the plaintiff’s solicitors they wish to take no further part in the proceedings.  The second defendant, a shareholder in the first defendant, is the guarantor of the first defendant’s performance under the contract.

[2]      The first defendant has filed a statement of defence and counterclaim and the second defendant has filed a statement of defence. A statement of defence to the first defendant’s  counterclaim  has  also  been  filed.     Initially  the  first  and  second defendants were both represented by Mr Vane.   However, as recorded in a minute dated 3 December 2013 Christiansen AJ, on Mr Vane’s application, ordered that he cease to be the solicitor on the record for the defendants.  Christiansen AJ also set the proceeding down for formal proof.

Background

[3]      The plaintiff is the supplier of heavy transport vehicles.   It hires out trucks and trailers to transport operators.  Between 2003 and 2011, trucks and trailers were leased  by the plaintiff  to  the first  defendant.   At all  material  times  the second defendant was the guarantor of the first defendant’s obligations under the leases. Chronic difficulties were experienced by the plaintiff in being paid by the first defendant under the lease agreements.

[4]      In contemplation of this formal proof hearing the plaintiff filed two briefs of evidence from senior employees of the plaintiff.   Both witnesses confirmed their briefs of evidence before me on oath.

The plaintiff ’s evidence

Mr Schmidt

[5]      Mr Schmidt is the long term pricing co-ordinator employed by the plaintiff. He gave evidence the relationship with the defendants commenced around July 2003

when the second defendant approached the plaintiff enquiring into pricing options for a fleet of heavy vehicles.  Over the following few months, the plaintiff provided the defendants with a variety of quotations for operating leases on a mixture of trucks and trailers.  Ultimately, in December 2004, a quotation was accepted by the first defendant.

[6]      Following this, the plaintiff commissioned a credit check on the defendants. As a result, the plaintiff became reluctant to enter into a business relationship with the first defendant.   Its principal concerns related to the first defendant’s lack of equity and history of late payment.  However, this view changed when the second defendant approached the plaintiff seeking pricing requests to supply two trucks and trailers for a Fisher & Paykel contract.  The plaintiff agreed to supply the vehicles in the knowledge that the commercial reputation of Fisher & Paykel was such that the contract represented a reliable source of income for the first defendant.  The plaintiff was also of the view the first defendant’s contract with Fisher & Paykel would provide an opportunity for the first defendant to develop a positive reputation and build up an effective trading relationship with the plaintiff.

[7]      However, out of an abundance of caution it was arranged that Fisher & Paykel would pay the plaintiff direct under the leases.  This arrangement continued until  October 2007  from which  point  the first  defendant  became subject  to  the plaintiff’s general terms and conditions under the individual agreements and leases.

[8]      On 4 April 2008 the plaintiff met with the second defendant and completed a “Customer Information Form”, also commonly known as a Credit Agreement both as a director of the first defendant and as a personal guarantor.

[9]      Under this credit contract the plaintiff agreed to supply the first defendant various goods and services on credit and the first defendant agreed to pay for those goods and services.

[10]     On 4 April 2008 and 21 May 2008 the second defendant guaranteed the due and punctual payment of all monies owing to the plaintiff by the first defendant under the credit contract and any other agreement including contracts of hire.

[11]     The second defendant acknowledged receipt of these terms and conditions by signing and dating the letter dated 4 April 2008 addressed to the plaintiff.   In the same letter, the defendants accepted the plaintiff ’s lease quotation dated 4 April 2008 for the supply of existing lease equipment previously leased to Kecamaho Haulage Limited, in existing specification and condition

[12]     Any default under the plaintiff’s general Terms and Conditions applicable to fully maintained Contracts gave the right to the plaintiff to terminate any one or more of the agreements between the plaintiff and the first defendant.

[13]     On 21 May 2008 the plaintiff met with the second defendant.   The second defendant  read  and  signed  a  Personal  Guarantee  and  Indemnity.    Under  this document the second defendant personally guaranteed the first defendant’s present and future obligations to the plaintiff.

[14]     On 21 May 2008 and 14 August 2009 the first defendant entered into four fully maintained specific lease agreements with the plaintiff for the lease of two trucks and two trailer units.

[15]     In  anticipation  of  the  expiration  of  the  first  defendant’s  specific  lease agreements referred to in [10] to [14] hereof the plaintiff provided the defendants with a number of quotations to replace their existing fleet.   However, it became apparent that the first defendant was unable to afford to replace the existing vehicles with new trucks and trailers.  It was thus decided to price extending the contracts on the first defendant’s existing trucks and trailers over a period of 18 months; this option being considerably less expensive than replacing the vehicles with new vehicles.

[16]     On  9  December  2010,  at  the  second  defendant’s  request,  the  plaintiff

prepared a quotation for extending the defendants’ existing trucks and trailers for a

36  month  period.   A request  was  also  made  to  include  the  costings  to  retrofit mezzanine  floors  to  the  trailer  units.    Ultimately this  was  not  accepted  by  the defendants.    Further  discussions  continued  with  the  defendants  about  the  first

defendant’s fleet.  The plaintiff was concerned the mileage of the trucks was such

that significant mechanical work was imminent.

[17]     In April 2011 the plaintiff reviewed the first defendant’s account and carried out a number of credit checks. These revealed that the first defendant’s ability to pay was questionable.

[18]     The earlier quote prepared in December 2010, which was not accepted by the defendants, was modified by the plaintiff to remove the retrofitted mezzanine floor option because of its expense.  On 3 April 2011 the plaintiff made a final offer to the defendants which involved the first defendant leasing from the plaintiff the existing vehicles and trailers on 12 month leases without mezzanine floors.  Additionally, the plaintiff would carry out certain agreed mechanical upgrades of the trucks.

[19]     On 8 April 2011 the plaintiff met with the second defendant and made the offer set out above.  The plaintiff made it clear to the defendants that the retrofitted mezzanine floors were not included in the offer despite this being recorded in error in the written quotation dated 8 April 2011.  The inclusion of the reference to the retrofitted mezzanine floors was a mistake which occurred when Mr Schmidt forgot to update the 2010 precedent he was using to formulate the written quotation.  In the course of the meeting, Mr Schmidt noticed his error and immediately brought it to the attention of the second defendant.  He offered to change the quote by deleting the words “retrofitted mezzanine floors” but the second defendant expressly accepted it was a mistake and indicated it was unnecessary to change the paperwork.

[20]    The agreement reached on 8 April 2011 was recorded in four separate agreements titled, “Amendment to Fully Maintained Specific Lease Agreement”. These agreements related to each of the four vehicles subject to the lease.

[21]   Following this meeting the plaintiff carried out significant preventative maintenance work on the trucks.  The cost of the work carried out on the trucks was

$38,052.12 and $17,855.19 respectively.

[22]     In addition to the new, varied agreement, the plaintiff entered into a number of short term rental contracts with the first defendant.  This was between 28 March

2011 and 20 June 2011.  In addition to the Credit Contract terms, the terms of hire also included the same obligations relating to repairs, maintenance and regulatory obligations as applied under the 2008 agreement.

[23]     Following  the  meeting  on  8  April  2011  the  first  defendant  made  six substantial payments towards their account, although five of the six payments were dishonoured.

[24]     On or about 20 July 2011 the first defendant returned the trucks and trailers. The first defendant did not give prior notice to the plaintiff nor did it seek the plaintiff’s consent to return the vehicles in breach of the General Terms and Conditions.

Mr Robson

[25]     The plaintiff’s second witness was its finance manager, Mr Robson.   He stated that as at 28 February 2014 the total amount owing by the defendants to the plaintiff under the credit agreement, specific lease agreements and short-term rental agreements was $281,138.47.   This figure was calculated in accordance with the terms and conditions contained in the Credit Agreements, Specific Lease Agreements and the Short-Term Rental Agreements entered into by the plaintiff and defendants between 4 April 2008 and 15 June 2011.

[26]     Furthermore, the total amount owed under the Specific Lease Agreements has been adjusted by the plaintiff to take into account the on-sale of the two trucks and one of the trailers and the renting out of the remaining trailer prior to the end of the

12 month leases.

[27]     The  first  defendant  has  defaulted  on  its  obligations  under  the  Credit Agreement,  Specific  Lease  Agreements  and  Short-Term  Rental  Agreements  by failing or refusing to pay monies due and owing by it to the plaintiff.

[28]     Demand has also been made of the second defendant as personal guarantor.

Defence

[29]     The first and second defendants, in their defence, assert that the plaintiff repudiated the agreement entered into between the parties on 8 April 2011 by failing to perform the condition that it fit mezzanine floors to the trucks and trailers and by reason of that repudiation, the defendants assert that the defendants were entitled to cancel the contract which they did on 20 July 2011 when they returned the trucks and trailers to the plaintiff.

[30]     At no time following the meeting on 8 April 2011 was any mention made by the defendants of the retrofitted mezzanine floors.   The first time this issue was raised was in the defendants’ statement of defence.

[31]     On the evidence I have received I am satisfied that the fitting of mezzanine floors (to the trailers only) was an option initially offered to the first defendant but which, by the time the agreement was reached on 8 April 2011, had been withdrawn by the plaintiff and agreed to by the second defendant notwithstanding the transpositional error contained in the quotation dated 8 April 2011.

[32]     No defence was put forward in respect of any of the prior agreements or the short-term rental agreements.

Conclusion

[33]     I am satisfied on balance that the amount of $281,138.47 is the amount owed to the plaintiff by the first defendant under the Credit Agreements, Specific Lease Agreements and Short-Term Rental Agreements.

[34]     I am satisfied the plaintiff has made demand of both the first and second defendants but they have not paid the monies owed.

[35]     I  am  satisfied  there  is  no  evidence  to  support  the  defence  the  plaintiff repudiated the agreement by failing to fit mezzanine floors to the trailers.

Result

[36]     Accordingly,  there  is  judgment  against  both  defendants  for  the  sum  of

$281,138.47.  Costs are awarded on a 2B basis together with disbursements as fixed by the Registrar.

Moore J

Solicitors:

M McKechnie, Rotorua