Viand Holdings Limited v Leonard
[2021] NZHC 1675
•6 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-542
[2021] NZHC 1675
BETWEEN VIAND HOLDINGS LIMITED
Plaintiff / Counterclaim Defendant
AND
DOUGLAS JOHN LEONARD and ROBERT RICHARD KORNMAN
Defendants / Counterclaim Plaintiffs
Hearing: 11 February 2021 Appearances:
NR Frith and Ms HO Meikle-Downing for the Applicant/Defendants
Ms AE Hansen for the Respondent/Plaintiff
Judgment:
6 July 2021
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 6 July 2021 at 4.30pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Heimsath Alexander, Auckland MinterEllisonRuddWatts, Auckland
VIAND HOLDINGS LIMITED v LEONARD & ANOR [2021] NZHC 1675 [6 July 2021]
Introduction
[1] The defendants, Mr Leonard and Mr Kornman, apply for summary judgment or, in the alternative, orders striking out Viand’s claim.
[2]Summary judgment is sought on the following basis:
(a)the first cause of action must fail because the defendants did not breach their contractual obligation to carry on the business of the companies in the usual and ordinary course and as a going concern and in substantially the same manner as it had done to date;
(b)the fourth cause of action must fail because even if there was a failure to maintain records as required, the plaintiff did not suffer any loss;
(c)if the above claims cannot proceed, the remaining second and third causes of action cannot meet the aggregate threshold of $100,000 required by the share sale agreement between the parties before a claim is brought.
[3] In the alternative, the defendants seek to strike out the first and fourth causes of action, again relying on the result that the remaining causes of action will not be able to meet the aggregate threshold of $100,000, and so will not be able to proceed.
[4] Summary judgment by defendants must be sought either at the time the statement of defence is served on the plaintiff, or, if later, only with the leave of the Court. The defendants failed to file their application at the same time as the statement of defence. Leave is therefore required.
[5] After setting out a brief summary of the proceeding, I will determine three issues:
(a)Should leave be granted?
(b)If so, have the defendants met the high bar that the parties accept is necessary for summary judgment by a defendant?
(c)If not, is the result the same for the defendants’ application to strike out?
Background
[6] The plaintiff, Viand Holdings Ltd (“Viand”) is suing the defendants, Mr Douglas Leonard and Mr Richard Kornman, for alleged breaches of a share sale agreement dated 1 March 2019 (“SSA”) relating to Leonard’s Superior Smallgoods Ltd, KLP Properties Ltd and Father’s Holdings Ltd (together, “Leonards”).
[7] Prior to completion of the share sale on 1 April 2019 (“Completion”), the defendants were the directors and shareholders of Leonards.
[8] The plaintiff settled the purchase of 100 per cent of the shares in Leonards under the SSA on 1 April 2019.
[9] On 27 March 2020, the plaintiff filed a statement of claim pleading that the defendants, as vendors, failed to operate Leonards as required by the SSA and in breach of express warranties.
[10]On the current pleading there are four causes of action relating to:
(a)the failure to commence and/or substantially progress negotiations for the price of pork legs for purchase for the Christmas season (“Pork Legs”);
(b)missing assets and assets not in working order (“Missing Assets”);
(c)the failure to transfer a Multivac Thermoformer machine in satisfactory working order (“Multivac”); and
(d)a failure to maintain records, particularly in relation to its dealings with a supplier, Oppenheimer NZ Ltd (“Oppenheimer”), which is now demanding payment for stock (“Missing Records”).
[11] The plaintiff seeks to recover losses it has suffered as a consequence of the alleged breaches, currently pleaded as totalling $563,820.59 excluding GST, interest and costs.
[12] The defendants filed a statement of defence and counterclaim for failure to recover debts of not less than $60,816.64 on 8 May 2020.
[13] The parties completed discovery on 24 July 2020 and the plaintiff answered interrogatories on 2 September 2020.
[14] On 11 September 2020 the defendants filed an application for leave to file a summary judgment application, summary judgment and for strike out.
[15] On 30 October 2020 the plaintiff filed a notice of opposition together with a first amended statement of claim. The amended statement of claim removed the fifth cause of action, relating to the Fair Trading Act, revised the first cause of action and introduced new warranty claims and additional missing assets in the second cause of action.
[16] Following the filing of the amended statement of claim, an amended notice of application for summary judgment and strike out was filed on 20 November 2020. Two further amendments to the application followed. The current application is dated 27 January 2021. A notice of opposition was filed for completeness on the day of the hearing. No issue was raised by the defendants in relation to the timing of this notice of opposition.
Should leave be granted?
[17] The defendants did not file their application for summary judgment until 11 September 2020, four months after the statement of defence was filed and after discovery, inspection and interrogatories had been completed.
[18] The Court of Appeal held in Stephens v Barron that the Court should not treat the leave requirement as a mere formality and that it is important that leave is determined as a prior step.1 The Court recognised that the merits of the substantive application are themselves an important aspect of the leave decision but said the criteria for granting leave still needed to be addressed first.
Legal principles: leave to apply for summary judgment
[19] The Court has a discretion to grant leave to a defendant to apply for summary judgment after a statement of defence has been filed under r 12.4(2) of the High Court Rules 2016. The rule does not set out any criteria for granting leave. The question is a discretionary one.
[20] In determining whether leave should be granted I consider the three questions set out in Tip Top Ice Cream Co Ltd v Polarland Ltd by Master Faire (as he then was):2
(a)Has the delay in filing been satisfactorily explained?
(b)Are the merits of the case for the relief sought — in this case, summary judgment — particularly strong and, therefore, deserving of determination at a later time by the court than is prescribed by the rules?
(c)Is there any risk of a miscarriage of justice by determining the application at the later point in time?
[21] I address (a) and (c) of the Tip Top questions first as they can be answered relatively quickly.
(a) Has the delay been satisfactorily explained?
[22] The defendants submit that the application could not have been made prior to discovery, inspection and interrogatories as the defendants no longer had full access to Leonards’ documents and records. The defendants were not, therefore, able to
1 Stephens v Barron [2014] NZCA 82, (2014) 21 PRNZ 734 at [13].
2 Tip Top Ice Cream Co Ltd v Polarland Ltd (2002) 7 NZBLC 103,564 at [28].
establish that the plaintiff’s causes of action could not succeed on the material available at the time of filing their statement of defence.
[23] The defendants say that the documents exchanged during discovery, reinforced by the evidence filed in support of and opposition to this application, have made it plain that none of the causes of action in the amended statement of claim can succeed. It is submitted:
(a)the evidence relied on in respect of the application for summary judgment or strike out of the second cause of action, comprising evidence from May and June 2020, only came to light in October 2020, after discovery and after the plaintiff had filed its reply evidence in this application;
(b)the documentary record relied on in respect of the fourth cause of action, comprising documents from 4 December 2019 to 20 July 2020 also only came to light in October 2020 following discovery and the plaintiff filing its reply evidence; and
(c)the discovered documents (or lack thereof) are consistent with the defendants’ defences to the amended statement of claim.
[24] The application for summary judgment was brought just over a week after the plaintiff filed answers to interrogatories and within a few months of discovery being completed. The plaintiff did not dispute that some of the information on which the defendants’ applications are based only arose following discovery and reply to this application.
[25] In Stephens v Barron the defendant also contended that the basis for summary judgment only became apparent following the plaintiff answering interrogatories. The Court of Appeal did not consider that this was a compelling reason to grant leave.3 In that case the principal argument for summary judgment was that the plaintiff could not make out a duty of care of the kind pleaded in her statement of claim, and that the
3 Stephens v Barron, above n 1, at [12].
information that came to light in the answers to interrogatories did not play a significant part in that argument.4
[26] The question is, therefore, whether the information discovered late is key to the summary judgment application or not, and subsequently whether this is a satisfactory explanation for the delay.
[27] In this case the application is dated 11 September 2020 and so was filed before October 2020 when the defendants say the information came to light. It is obviously difficult for the defendants to rely on October 2020 information for the delay when the application was first filed in September 2020, prior to receiving this information.
[28] The evidence in support of the second cause of action comes from Mr Kornman and includes photographs dated from May and June of 2020. The photographs depict what is submitted to be some of the missing assets in skip bins. The assets are said to have been discarded by the plaintiff. The new evidence obtained in October 2020 includes statements made by Mr Bernard Brantsma, the plaintiff’s engineering and compliance manager, admitting that he threw out four machines. This evidence supplements or confirms the evidence Mr Kornman had already given in his affidavit in September 2020 relying on the photographs he took in May and June 2020. Such evidence does not make material difference to the application given the defendants had already submitted in the application that the assets had been discarded by the plaintiffs.
[29] The defendants further submit in the application filed in September that the fourth cause of action cannot succeed because the documentary record shows that Leonards had no contractual obligation to purchase stock from Oppenheimer. Again, the new October 2020 evidence from Mr Robert Wala, the managing director of Oppenheimer, filed on behalf of the plaintiff, only provides additional evidence the defendants say supports their application, rather than anything substantive or materially new.
4 Stephens v Barron, above n 1, at [12].
[30] Having stepped through the evidence the defendants submit only came to light after discovery and provision of the answers to the interrogatories in October 2020, it does not appear to be of real significance to the causes of action. The delay in bringing the application for summary judgment is not, therefore, satisfactorily explained.
[31] Despite this, the application was filed on 11 September 2020, only four months after the statement of defence and so this factor does not weigh heavily in the application for leave.
(c) Is there any risk of a miscarriage of justice by determining the application at this later point in time?
[32] Neither party relied on there being a risk of a miscarriage of justice if the application for summary judgment was heard now as opposed to when the statement of defence was first filed.
[33] Counsel for the defendants did submit that the objective of the High Court Rules is “to secure the just, speedy and inexpensive determination of any proceeding or interlocutory application” and that determining this proceeding summarily secures each of those objectives.
[34] Where the causes of action are not able to be determined summarily, or even where only some can, a summary judgment application can, however, increase the costs for the parties as it adds a further step in the process.
[35] Any risk of a miscarriage of justice through the four-month delay in bringing the application is negligible, the key factor in terms of leave being the merits of the application which I move to now.
(b) Merits of summary judgment application
[36] I begin by canvassing briefly the applicable principles of summary judgment before considering the merits of the application.
[37] Where the defendant brings a summary judgment application, it is required to satisfy the Court that none of the causes of action in the plaintiff’s statement of claim can succeed.5 The applicable principles are well settled and are usefully summarised in Westpac Banking Corp v M M Kembla New Zealand Ltd,6 the leading Court of Appeal case on defendant summary judgments. I set the relevant passages out in full because several aspects are of particular importance to this case:7
[59] Since Rule 136(2) permits summary judgment only where a defendant satisfies the Court that the plaintiff cannot succeed on any of its causes of action, the procedure is not directly equivalent to the plaintiffs summary judgment provided by Rule 136(1).
[60] Where a claim is untenable on the pleadings as a matter of law, it will not usually be necessary to have recourse to the summary judgment procedure because a defendant can apply to strike out the claim under Rule 186. Rather Rule 136(2) permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer so that the proceedings can be summarily dismissed. The difference between an application to strike out the claim and summary judgment is that strike out is usually determined on the pleadings alone whereas summary judgment requires evidence. Summary judgment is a judgment between the parties on the dispute which operates as issue estoppel, whereas if a pleading is struck out as untenable as a matter of law the plaintiff is not precluded from bringing a further properly constituted claim.
[61] The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiffs claim. Examples, cited in McGechan on Procedure at HR 136.09A, are where the wrong party has proceeded or where the claim is clearly met by qualified privilege.
[62] Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.
5 High Court Rules 2016, r 12.2(2).
6 Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298.
7 I note r 12.2(2) replaced r 136(2), but is in the same terms.
[63] Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiffs claim. That would permit a defendant, perhaps more in possession of the facts than the plaintiff (as is not uncommon where a plaintiff is the victim of deceit), to force on the plaintiffs case prematurely before completion of discovery or other interlocutory steps and before the plaintiffs evidence can reasonably be assembled.
[64] The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.
[38] As the Court of Appeal reinforced in Stephens v Barron, a defendant seeking summary judgment has a considerable burden to discharge.8
[39] Subsequent to Westpac v Kembla, the Court of Appeal in Bernard v Space 2000 Ltd observed:9
This Court’s insistence on a clear answer which cannot be contradicted and a complete defence to the plaintiff’s claim, that is, a “king hit”, recognises that a plaintiff’s fundamental right to his or her “day in court” is not to be lightly denied.
[40] In Jones v Attorney-General,10 the Privy Council considered a defendant’s summary judgment holding:
… rarely if ever will the procedure be appropriate where the outcome of the action may depend on disputed issues of fact, and reliance on the rule in an inappropriate case may serve to increase both the length and cost of proceedings.
[41]I turn now to consider the merits of the application.
8 Stephens v Barron, above n 1, at [9].
9 Bernard v Space 2000 Ltd [2001] 15 PRNZ 338 at [22].
10 Jones v Attorney-General [2003] UKPC 48, [2004] 1 NZLR 433 at [5].
[42] Here the defendants apply for summary judgment on the basis that the first and fourth causes of action cannot succeed. If the first and fourth causes cannot succeed, the defendants submit the loss able to be claimed for the remaining second and third causes of action is less than the aggregate claim threshold of $100,000 as per cl 8.9(6) of the SSA. As a result, the defendants submit, the claim will no longer be able to proceed.
[43] The plaintiff says in response that this is not an appropriate case for leave to be granted. The merits of the defendants’ summary judgment application are not strong and the application will not resolve the proceedings entirely as the defendants have brought a counterclaim. This will remain even if summary judgment or strike out are successful.
[44] The defendants say that if summary judgment is successful the rules specifically provide that they could still continue with their counterclaim11 and, in any event, the counterclaim is likely to resolve if summary judgment is granted because it deals with a relatively small amount that the plaintiff was obliged to pursue following Completion.
[45] As the applications rely primarily on the first and fourth causes of action being unable to succeed, I consider them first in assessing the merits of the summary judgment application.
First cause of action – Pork Legs
[46] In the first cause of action, the plaintiff alleges that the defendants failed, in breach of cl 7.2 of the SSA, to carry on Leonards’ business in the ordinary and usual course “by failing to commence and/or substantially progress negotiations for the price of pork legs for the manufacture of Christmas Hams from the supplier by March”. The plaintiff claims losses totalling $347,114 plus GST, being the additional cost of ordering pork legs after Completion on 1 April 2019.
11 High Court Rules 2016, r 5.59.
[47] The defendants accept that the SSA required them to carry on Leonards’ business in the ordinary and usual course but plead that the ordinary course was to commence and/or substantially progress negotiations for the price of pork legs for that year’s Christmas hams between February and the end of May each year.
[48] The defendants’ evidence was that the ordinary and usual course was evident from the following:
(a)In 2016, there were verbal negotiations in April concluding on 15 April 2016 when Mr Henzell from Farmlands Mathias International Ltd (“Farmlands”), the pork leg supplier, emailed Mr Leonard confirming that an agreement for the price and order for pork legs for 2016 had been reached.
(b)In 2017, negotiations between Mr Henzell and Mr Leonard for the purchase of pork legs for 2017 commenced on 22 February 2017, when Mr Henzell emailed Mr Leonard requesting a price for pork legs. Negotiations continued until 25 April 2017 when a ‘handshake’ deal was reached between Mr Henzell and Mr Leonard. Mr Leonard then emailed Mr Henzell on 3 May 2017 confirming that an agreement for the price and order for pork legs had been reached.
(c)In 2018 negotiations between Mr Henzell and Mr Leonard commenced on 8 March 2018. Negotiations continued until 14 March 2018 when Mr Henzell emailed Mr Leonard confirming that an agreement for the price and order of pork legs for 2018 had been reached. Counsel for the defendants submitted that negotiations were not protracted in 2018 because Farmlands’ offer was competitive.
[49] Counsel for the defendants submitted that the above ordinary course of business was observed in 2019, and I quote from counsel’s submissions:
(a)Mr Henzell emailed Mr Leonard offers for the price of Pork Legs for 2019 on 16 January and 28 February 2019. Mr Leonard and Mr Henzell discussed those offers verbally.
(b)In late March, Mr Henzell and Mr Leonard reached a verbal agreement for the price of Pork Legs for 2019. While the plaintiff has sought to adduce documentary hearsay evidence from Mr Henzell denying this point, he has not given evidence and so this alleged denial cannot be relied upon.
(c)While the price for Pork Legs was substantially progressed, it was not confirmed prior to Completion. It was not in the ordinary and usual course to confirm the order by 1 April of each year. In any event, the order for Pork Legs is a significant expense and one which the defendants could not and would not commit the plaintiff to.
(d)To that end, Mr Leonard organised a meeting for 2 April 2019 between Mr Henzell and Mr Robert Bell, the plaintiff’s sole director, and Carl Brown, Viand’s procurement manager. Mr Leonard advised Mr Bell and Mr Brown that the meeting should be used to confirm the purchase of Pork Legs for that year’s supply at the price agreed between Mr Leonard and Mr Henzell. While this is now denied, the matter is neither here nor there when it comes to the ordinary course of Leonard’s business.
[50] The difficulty with this submission is that it is not clear that the ordinary and usual course was for the negotiations for the price of pork legs to take place between February and the end of May each year. The evidence before the court does not support that finding. In 2016 negotiations apparently only took place in April. In 2017, they appear at this stage to have extended between February and May but in 2018 negotiations commenced on 8 March and concluded by 14 March 2018.
[51] Furthermore, there are key issues of disputed fact for 2019 as to whether a price was agreed in March as deposed by Mr Leonard on behalf of the defendants but denied by Mr Henzell.
[52] The defendants, Mr Leonard and Mr Kornman, further depose that they made it clear to the plaintiff that the meeting on 2 April was for the purpose of confirming a price for the pork legs but Mr Bell for the plaintiff denies that this was the case.
[53] The defendants submit that Mr Brown, the plaintiff’s procurement manager, and Mr Henzell have not provided evidence for the plaintiff on the following key matters:
(a)that Mr Henzell and Mr Leonard did not verbally discuss Mr Henzell’s 16 January and 28 February 2019 offers;
(b)that Mr Henzell and Mr Leonard did not reach a verbal agreement in late March 2019 for the price of pork legs for 2019; and
(c)that the meeting organised for 2 April 2019 with Mr Henzell was not for the purpose of purchasing pork legs for 2019 at the price agreed between Mr Leonard and Mr Bell.
[54] The defendants then invited the Court to draw an inference, because evidence was not adduced from Mr Henzell or Mr Brown, that their evidence would not have helped the plaintiff and treat Mr Leonard’s evidence as unchallenged.
[55] Mr Bell gave evidence for the plaintiff, however, attaching an email from Mr Henzell confirming that the price of pork legs was not agreed by March 2019. Mr Leonard acknowledged this dispute in the evidence in his affidavit. Mr Henzell’s email says further that “the discussions during the meeting [on 2 April 2019] were based on a formal introduction of Farmlands Mathias and Healy’s business’s to Robert Bell and Carl Brown of New Co. Leonards” without referring to any discussion of the price of pork legs.
[56] Furthermore, the defendants’ submission that the Court should draw the adverse inference that evidence was not adduced from Mr Henzell, suggests that there is an obligation on the plaintiff to present the sort of evidence that might be required at trial in responding to an application for summary judgment by the defendants. As submitted on behalf of the plaintiff, there is no such obligation. It is for the defendants, who say that a verbal agreement was reached with Mr Henzell, to establish this. Yet they chose not to provide an affidavit from Mr Henzell. The defendants took no issue with Mr Henzell’s email which was put in evidence as an annexure to Mr Bell’s affidavit on 28 October 2020 and in fact acknowledge that there is a dispute on the evidence in the affidavit in support of the application for summary judgment.
[57] The defendants submit that the factual disputes that arise, however, do not prevent a finding that the first cause of action cannot succeed because the pleading is only that the ordinary and usual course of business is “to commence and substantially
progress negotiations … by March”, rather than to agree the price, and that the evidence shows this to be the case in 2019.
[58] The evidence does not clearly show the above to be the case. Such a finding relies on the evidence of Mr Leonard that there were oral discussions between Mr Leonard and Mr Henzell in respect of the offers made in January and February 2019. This evidence was only raised in reply by Mr Leonard and there has been no opportunity for the plaintiff’s representatives or Mr Henzell to respond.
[59] Moreover, Mr Leonard’s evidence that he reached an oral agreement in March 2019 and then advised Mr Bell and Mr Brown to use the meeting on 2 April 2019 to confirm the price does not necessarily support the submission that the ordinary course of business was to agree a price between February and May each year.
[60] To dispose of this claim summarily, the onus is on the defendants, not the plaintiff, to provide this evidence. And in a summary judgment context the evidence needs to be indisputable, which it is far from here.
[61] Furthermore, as submitted on behalf of the plaintiff, until the close of pleadings the plaintiff has the right to amend its pleading of this claim without leave. They have already done so once following this application first being filed by the defendants. The defendants attempted to rely on the fact that the plaintiff amended its claim to submit that it was an implicit acknowledgment that the defendants’ case for summary judgment was strong. But this does not necessarily follow. As with strike out, if it would be possible to amend the claim to prevent dismissal on a summary basis, the application for summary judgment is unlikely to succeed.
[62] As set out above in the quote from Westpac v Kembla, summary judgment “will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits”.12 Furthermore “[i]t may also be inappropriate where ultimate
12 Westpac Banking Corp v M M Kembla New Zealand Ltd, above n 6, at [62].
determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence”.13
[63] In my view the first cause of action is clearly not an appropriate claim for determination by summary judgment.
Fourth cause of action – Missing Records – Oppenheimer
[64] In the fourth cause of action, the plaintiff alleges that the defendants breached the SSA by removing and destroying records. The SSA required the defendants to maintain records pursuant to cls 1.1 and 7.3(m) and warranties 5.1(a) and 5.1(b).
[65] The plaintiff claims an estimated loss in excess of $50,00014 including a loss of $25,247.61 (excluding GST) for future stock orders with Oppenheimer.
[66] The defendants admit that, in accordance with warranties 5.1(a) and (b) and cl 7.3(m), they were required to fully, properly and accurately maintain Leonards’ records and not destroy or otherwise dispose of any records.
[67] “Records” is very broadly defined under cl 1.1 of the SSA as including all original and copy records, documents, books, files, reports, accounts, plans, correspondence, letters and papers of every description and other material regardless of their form or medium and whether coming into existence before, on or after the date of this agreement.
[68] The plaintiff says there were no records concerning arrangements with Oppenheimer, a supplier of packaging to the business. Furthermore, the plaintiff alleges the defendants left filing cabinets with file names on them, including “Oppenheimer”, but that all documents were removed.
[69] The defendants filed evidence that Oppenheimer supplied Leonards with casing and various packaging and other products, some with Leonards’ branding, over a period of 25 years. They say it is clear from the evidence, including from the
13 At [62].
14 The defendants say this has not been particularised in breach of High Court Rule 5.33.
plaintiff, that there was no contract or formal arrangement between Leonards and Oppenheimer and that Oppenheimer managed its own stock requirements in accordance with its own established procedures so as to ensure that stock would be available for Leonards as and when required. The defendants submitted that Leonards was not required to purchase stock unless it was agreed on a case by case basis.
[70] Following Completion, Oppenheimer advised Viand that they were holding stock as authorised by the defendant vendors and that the plaintiff must pay for it. Oppenheimer insists that there is an obligation and an affidavit was filed on their behalf by Mr Wala.
[71] The plaintiff says no records were provided to the plaintiff showing any arrangement with Oppenheimer or previous orders, saying they appear to have been destroyed or not provided, making it impossible for the plaintiff to credibly dispute the claim.
[72] The defendants submit that the documentary record demonstrates that Leonards had no contractual obligation to purchase any stock from Oppenheimer and there were no records to that effect, submitting:
(a)Mr Wala described in an email to Mr Bell the relationship between Leonards and Oppenheimer as follows:
We have always held stock on Leonard’s behalf and in cases like the printed Leonards pouches where sales were slow on some lines, we would discuss this with their production managers as required and hoped to have these used up this coming summer.
(b)Mr Jeff Orsbourn, Oppenheimer’s national sales manager, confirmed to Mr Bell that “there was no formal supply agreement or contract between Leonards and Oppenheimer NZ Ltd”.
[73]Mr Wala, in his evidence, said:
…
Oppenheimer NZ always ordered products on behalf of Leonards on an ongoing basis based on historical demand, seasonal fluctuations, supplier lead times and associated supply chain considerations such as shipping. Typically, all of our manufacturing suppliers have lead times at or in excess of three to
four months, so at any point in time we would have a minimum of three to four months stock plus buffer to cover demand and exceptional increases in consumption.
…
Our established procedure for Leonards and other customers was to review usage reports for all customer orders over the preceding four month period, and then order the average quantities of that four month period from overseas suppliers. This varied depending on the time of year, to cover seasonable fluctuations.
[74] The defendants submit that this evidence shows that there are no records which could possibly found an obligation on the plaintiff to purchase any stock from Oppenheimer.
[75] The defendants admit that they disposed of certain obsolete documents that were over 10 years old prior to Completion but say that the plaintiff has not suffered any loss as a result and so cannot proceed with this cause of action.
[76] The plaintiff in response says this is a clear breach of the SSA as the defendants were not permitted to remove or destroy any records.
[77] The position on the fourth cause of action is not sufficiently clear for dismissal on a summary basis. In the correspondence above between Mr Orsbourn and Mr Bell, Mr Orsbourn said that supply was agreed on a “case by case basis, following a normal quote/trial process, in place until further notice with pricing adjustments both up and down in accordance with raw materials and exchange rate variables. This was based on continuous supply …”. This creates a number of questions including whether copies of any quotes given were included in the records transferred.
[78] There appears to be a very broad obligation under the SSA to retain all records. The defendants admit that they did destroy some records but resist the claim on the basis that there is no loss. The evidence of what records there were, however, has not been fully explored, nor has the position as to loss.
[79] In an interesting twist, the defendants approached Oppenheimer and purchased stock held by Oppenheimer to the value of $852 plus GST in an attempt to reduce the value of the Oppenheimer debt below the individual claim threshold of $25,000 in the
SSA so that the plaintiff could not proceed with this claim. The defendants are not, now, seeking to rely on the reduced amount so I approach this cause of action on the basis that the debt still meets the minimum individual threshold.
[80] To reach a view on whether the fourth cause of action can succeed requires several findings on the evidence, which is not appropriate on a summary judgment application unless it is indisputable. As for the first cause of action, the merits of a summary judgment application in respect of the fourth cause of action are not strong.
Second and third causes of action – aggregate threshold mandated in the SSA
[81] If the first and fourth causes of action are dismissed summarily (or struck out) the defendants submit that the whole claim falls away as the aggregate threshold for a proceeding in the SSA will no longer be met. The aggregate threshold is set at
$100,000.
[82] The combined loss sought on the current pleading for the second and third causes of action is $166,706.59. The defendants submit, however, that the maximum possible liability under the second and third causes of action is only $63,314.59 in total excluding GST.
The second cause of action – Missing Assets
[83]The second cause of action alleges breaches of:
(a)warranty 16.2 of the SSA which provides “the Companies own or have valid and subsisting leases to use all Plant and Equipment”;
(b)warranty 16.4(a) which provides each item of plant and equipment is “in a safe and reasonable state of repair and condition and satisfactory working order for its age and has been regularly and properly maintained”; and
(c)warranty 16.4(b) of the SSA which provides each item of plant and equipment is “in the Companies’ possession or control”.
[84] Judgment is sought on this cause of action for $157,222.25 ($136,715 plus GST) comprising $91,336 plus GST for the Schedule 1 assets identified as missing in April 2019 and $45,379 plus GST for the Schedule 2 assets identified as missing in October 2020.
[85] The loss sought by the plaintiff for the second cause of action was amended at the hearing to be $125,568, with the plaintiff acknowledging that four of the Schedule 1 assets had been discarded by the plaintiff and so could not be claimed as missing.
[86] The disposal of these assets was discovered by the defendants following two visits to (or near) Leonards’ premises following Completion by Mr Kornman. On those visits Mr Kornman photographed assets that he deposes appeared to have been thrown away, including into a skip bin.
[87] Following the filing of Mr Kornman’s affidavit, an affidavit was filed by Mr Brantsma, the engineering and compliance manager for the plaintiff, confirming that he had discarded four PA 30-7 linkers.
[88] In the affidavit Mr Brantsma explains that the four linkers had “missing operating panels, no screens and most electrical control gear was missing”. He further deposed the linkers were rusted and did not work and that he originally mistook those items for another type of machine because of the condition they were in.
[89] At the same time as he was checking on the identity of the “scrap” that he had thrown out, Mr Brantsma deposes that he checked the list of assets and identified a number of further missing assets.
[90] The plaintiff then amended the pleading of the second cause of action to include the further missing assets in Schedule 2 and a breach of warranty 16.4(a): that each item of plant and equipment was to be in safe and reasonable condition and satisfactory working order.
[91] In the original pleading of the second cause of action, the plaintiff had only pleaded a breach of warranty 16.4(b), that each item of plant and equipment is “in the companies’ possession and control”.
[92] The defendants say the amendments to the pleading are too late, as cl 8.6 of the SSA required written notice of any breach of warranty to be given on or before 18 months following the Completion date which was 1 April 2019.
[93] The defendants say because neither notice of the warranty claim under cl 16.4(a) nor the Schedule 2 assets were given within time, those claims cannot succeed. The plaintiff in response says that it did give notice of a breach of warranty 16.4(a) and of a breach of warranty 16.4(b). The SSA contemplates claims which are not fully understood or particularised at the time notice is given, with “claim” defined to include “unascertained … future or contingent” claims and the notice provision in cl 8.10 requiring notification in writing “together with all available details”.
[94] Even if Schedule 2 assets are not included for the purposes of the loss claimed, the plaintiff submits the loss suffered as a result of the breaches pleaded in the second cause of action still amounts to $80,189 plus GST.
[95] The SSA is silent on whether GST is to be included when determining the claim amount. If GST is to be included for the purpose of the aggregate threshold, then the total claimed for Schedule 1 assets is $92,217.35 before taking the third cause of action into account.
The third cause of action – Multivac
[96] In the third cause of action, the plaintiff alleges that a Multivac R105 Thermoformer machine (“Multivac”) operated by Leonards was not in satisfactory working order for its age. Further, it had not been regularly and properly maintained because no preventative maintenance had been performed on it in breach of warranty 16.4(a) in the SSA. The plaintiff claims a loss totalling $29,991.59 plus GST, being the alleged cost of repairing the Multivac.
[97]The defendants did not dispute the loss claimed on the third cause of action of
$29,991.59 for the purposes of the summary judgment or strike out. Even if GST is not included, the second and third causes of action still meet the aggregate claim threshold of $100,000 if notice of breach of warranty 16.4(a) was given. Whether notice was given or not is not a matter that is able to be summarily determined at this stage on the basis of the evidence filed.
Result on leave application
[98] The application for summary judgment was brought soon after discovery and interrogatories and well before the hearing,15 but the delay has not been satisfactorily explained. There does not appear to be a risk of a miscarriage of justice from determining the application at this later time. There does, however, appear to be a real risk of a miscarriage of justice through determining these proceedings summarily because there are clearly factual issues in dispute in the first, second and fourth causes of action.
[99] Furthermore, the loss suffered as a result of the breaches in the second cause of action would have to be less than $58,230.83 for the aggregate claim threshold not to be met. Although the defendants submit that the loss suffered is, at most, $33,323 excluding GST, this relies on the Court finding that notice was not given of a breach of warranty 16.4(a) in respect of the missing Schedule 1 assets or of a breach of warranty 16.4(b) in respect of the missing Schedule 2 assets.
[100] This factual issue was not fully explored before me so even if the first and fourth causes of action were amenable to summary judgment, I would not dismiss the proceeding because the second and third causes of action may still meet the aggregate claim threshold required by the SSA.
15 Unlike in Corbans Viticulture Ltd v Waihopai Valley Management Ltd [2012] NZHC 2799 at [60] and Waihopai Valley Management Ltd v Savvy Vineyards 3550 Ltd [2015] NZHC 592, (2015) 22 PRNZ 724 at [34] where hearings were fast approaching.
[101] If either of the first or fourth causes of action cannot be dismissed summarily (and I have determined that neither can be), then the proceedings will be able to continue because, with three causes of action, the aggregate claim threshold is still likely to be met.
[102]In these circumstances, I exercise my discretion against the granting of leave.
Have the defendants met the high bar that the parties accept is necessary for summary judgment by a defendant?
[103] As I have determined that leave should not be granted, there is no need to go on to determine the substantive application.
[104] If I am wrong on the question of leave, however, my position on the substantive application is clear from the discussion of the merits of the summary judgment application. As I say above, there are currently disputed issues of fact in respect of the first, second and fourth causes of action. Those facts need to be fully explored.
[105] Furthermore, as set out above, the notice issues in regard to the second cause of action were not fully explored before me. Unless clearly indisputable it is not an argument that I would be prepared to dismiss summarily.
[106] Even if I had granted leave, I would therefore dismiss the application for summary judgment.
Is the result the same for the defendants’ application to strike out?
[107] The parties approached the strike out application on the basis that the test for summary judgment was the same as the test for strike out in the context of this proceeding.
[108] A strikeout application is usually based on the pleadings alone with the Court proceeding on the assumption that all of the facts can be made out.16 Affidavits are ordinarily only required in strike out applications to bring key documents before the
16 Couch v Attorney General [2008] NZSC 45 at [33].
court in respect of which there is no dispute, or where the documentary evidence makes the evidence indisputable. That is not the position here. The defendants’ affidavit evidence makes it plain that the court is being asked to resolve questions of fact.
[109]If summary judgment cannot succeed in this case, then neither can strike out.
Result
[110] The applications for leave to apply for summary judgment, summary judgment and strike out of the plaintiff’s claim are dismissed.
Costs
[111] As the plaintiff has succeeded, it is entitled to costs on a 2B basis. The parties are to confer on quantum. If agreement cannot be reached, the plaintiff may file a memorandum within 15 working days of this judgment and the defendants within 20 working days. Memoranda are to be of no more than 5 pages with quantum to be determined on the papers.
Associate Judge Sussock
0
4
1