Vienna Group Limited (in liquidation) v Kerry Logistics (Oceania) Limited
[2022] NZHC 1473
•23 June 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-336 [2022] NZHC 1473
BETWEEN VIENNA GROUP LIMITED (in liquidation) Respondent/Plaintiff AND
KERRY LOGISTICS (OCEANIA) LIMITED
Applicant/Defendant
Hearing: 7 March 2022 Appearances:
SD Campbell and J Stringer for the Applicant/Defendant P Murray for the Respondent/Plaintiff
Judgment:
23 June 2022
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 23 June 2022 at 12pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Fortune Manning, Auckland Wynn Williams, Christchurch
Paul Murray, Akarana Chambers, Auckland
VIENNA GROUP LTD (in liq) v KERRY LOGISTICS (OCEANIA) LTD [2022] NZHC 1473 [22 June 2022]
Introduction
[1] The defendant, Kerry Logistics (Oceania) Ltd (Kerry), applies for strike out or summary judgment of claims brought by Vienna Group Limited (in liquidation) (Vienna). The applications are brought on the grounds that the claims are time-barred under the Limitation Act 2010, and that the exclusion, indemnity and limitation of liability clauses in the contract between the parties exclude Vienna’s claims (or limit them to $100).
[2] If the strike out and summary judgment applications do not succeed, Kerry applies instead for security for costs.
[3] The claim by Vienna that Kerry seeks to strike out relates to the completion of New Zealand Customs Service (Customs) entries by Kerry as Vienna’s customs agent for importing European beer into New Zealand. The import entries were made between 23 September 2011 and 29 January 2015. Customs conducted an audit of the import entries from February to June 2015. The audit found that multiple entries understated the alcoholic strength of the imported beer. As a result, on 5 June 2015 Customs issued an Assessment Notice to Vienna, amending the assessment of duty upwards by $2,225,905.95.
[4] Vienna was required to either pay this amount or to file an appeal by 3 July 2015. Vienna did not appeal and was unable to pay the extra duties. The shareholders therefore resolved to appoint liquidators on 23 July 2015.
[5] There is a factual dispute between the parties as to who was responsible for the errors in the import entries. Kerry says that it relied on alcohol strengths provided by telephone by Vienna’s director, Mr Scott Browne. Vienna disputes this. This is not a matter however that needs to be determined for the purposes of this application.
Issues
[6] The issues to resolve depend on the application of the Limitation Act, the application of the exclusion clauses in the contract and, if the claim is not struck out
or summary judgment entered, the appropriateness of a security for costs order against Vienna in liquidation.
[7] Section 11 of the Limitation Act provides a defence to a money claim if a defendant proves the date on which the claim is filed is at least six years after the date of the act or omission on which the claim is based.
[8] Kerry submits that the acts on which the claim is based are the Customs entries completed by Kerry on Vienna’s behalf between 23 September 2011 and 29 January 2015. As the statement of claim was not filed until 30 June 2021 it is, therefore, out of time.
[9] Vienna, by contrast, says that it is the last act or omission on which the claim is based that is relevant for Limitation Act purposes and the due date for the “fresh liability” following Customs’ Assessment Notice on 5 June 2015 is the act or omission on which the claim is based. The due date was 3 July 2015, so the claim is within time.
[10]The issues are therefore:
(a)What is the act or omission on which the claim is based in terms of s 11(1) of the Limitation Act?
(b)Do the exclusion, limitation of liability and/or indemnity clauses prevent the claim by Vienna or confine it to $100?
(c)If the defendant’s application for strike out or summary judgment is not successful:
(i)Is a security for costs order appropriate in this case?
(ii)If so, what amount ought to be ordered and by what date?
[11] I set out the principles applying to strike out and summary judgment applications before considering the factual background.
Strike out/summary judgment principles
Strike out
[12]Rule 15.1 of the High Court Rules 2016 provides:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
(4)This rule does not affect the court’s inherent jurisdiction.
[13] The strike-out principles are well settled. The Supreme Court in Couch v Attorney-General1 endorsed the decision of the Court of Appeal in Attorney-General v Prince & Gardner which summarised the principles as follows:2
(a)a striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true;
(b)the causes of action must be so clearly untenable that they cannot possibly succeed;
(c)the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material; and
(d)the fact that the application to strike out raises difficult questions of law does not exclude jurisdiction.
1 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33] per Elias CJ and Anderson J.
2 Attorney-General v Prince & Gardner [1998] 1 NZLR 262 (CA), (1997) 16 FRNZ 258 at 267.
[14] The Supreme Court in Couch also cautioned that “[p]articular care is required in areas where the law is confused or developing”.3
[15] The Supreme Court held in Murray v Morel & Co Ltd that a Limitation Act defence can be a ground for striking out a proceeding on the basis that it is frivolous, vexatious or an abuse of process.4 The Court held:
[33] I consider the proper approach, based essentially on Matai,5 is that in order to succeed in striking out a cause of action as statute-barred, the defendant must satisfy the court that the plaintiff’s cause of action is so clearly statute-barred that the plaintiff’s claim can properly be regarded as frivolous, vexatious or an abuse or process. If the defendant demonstrates that the plaintiff’s proceeding was commenced after the period allowed for the particular cause of action by the Limitation Act, the defendant will be entitled to an order striking out the cause of action unless the plaintiff shows that there is an arguable case for an extension or postponement which would bring the claim back within time.
[16] In 2021, in Lendlease Capital Services Pty Ltd v Living Holdings Ltd, the Court of Appeal endorsed the above approach:6
[7]A claim can be struck out where there is a clear limitation defence. In Matai Industries Ltd v Jensen, Tipping J said:
(a) The onus is on the applicant to demonstrate the plaintiff’s claim is time barred.
(b) If the plaintiff can show there is a fair argument that the limitation period does not apply, then the matter must go to trial.
(c) The Court should be slow to strike out a claim or cause of action altogether, however, a defendant should not be “vexed” by proceeding to trial where the answer is “obvious and inevitable”.
[8]In Murray v Morel & Co Ltd, Tipping J said the defendant must satisfy the Court the claim is “so clearly [time]-barred” that it can “properly be regarded as frivolous, vexatious or an abuse of process”.
3 Couch v Attorney-General, above n 1, at [33].
4 Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721.
5 Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (HC).
6 Lendlease Capital Services Pty Ltd v Living Holdings Ltd [2021] NZCA 386, (2021) 22 NZCPR 498; citing Matai Industries Ltd v Jensen, above n 5, at 532; and Murray v Morel & Co Ltd , above n 4, at [33].
Summary judgment
[17] Whereas strike out is determined on the pleadings alone, determination of an application for summary judgment includes consideration of the affidavit evidence.
[18] Summary judgment in favour of a defendant is provided for in r 12.2(2) of the High Court Rules:
The court may give judgment against the plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[19] In Stephens v Barron7 the Court of Appeal summarised the longstanding Court of Appeal authority on defendant summary judgment, Westpac Banking Corp v M M Kembla New Zealand Ltd:8
(a)The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually this will arise where the defendant can offer evidence which is a complete defence to the plaintiff’s claim.
(b)An 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 able to be properly arrived at only after a full hearing of the evidence.
(c)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 is not to be arrived at on a fine balance of the available evidence as would be appropriate at a trial.
(d)The residual discretion of the Court to refuse summary judgment would be properly invoked to avoid the oppression which would otherwise result if an application by a defendant for summary judgment would pre-empt a plaintiff exercising the right to amend the pleadings.
(e)Summary judgment should not be applied for unless the substantive merits of the case are clear and capable of summary disposal.
(footnotes omitted)
7 Stephens v Barron [2014] NZCA 82 at [9].
8 Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
Factual background
[20] Imported alcohol products are subject to duty in New Zealand. Duty on imported beer products is based on the alcohol strength of the product. Lower strength alcohol products attract lower duty than full strength products. If the alcohol strength of a product is understated in Customs entries, the importer pays less duty than they are legally required to by the Customs and Excise Act 1996 (CEA), the legislation applying at the time.
[21] Kerry provided Customs clearance services to Vienna for imported alcohol products from September 2011 to January 2015.
[22] The contract between Kerry and Vienna is in the form of an application form for a credit account. I record that when the contract was first entered into on 12 September 2011 Kerry was known as Lead Logistics Limited.
[23] The application form is signed by Vienna and says that Vienna has read, understands and agrees to the Terms and Conditions supplied with the application. Kerry’s standard terms and conditions of trade are attached.
[24] Kerry’s evidence is that when a consignment of imported beer arrived Kerry would receive a bill of lading from the origin agent. Kerry would also receive a commercial invoice from Mr Browne, Vienna's director, which had been issued to Vienna by the overseas supplier. When the invoice disclosed the alcohol strength, Kerry used that information to complete the consignment entry. Kerry’s evidence is that this was often not the case and so it would then telephone Mr Browne from Vienna for the alcohol strength information. Kerry says there was a note to this effect in Kerry’s “Cargowise” system. Mr Browne disputes this but this issue does not need to be resolved for the purposes of this application
[25] On 11 February 2015, Kerry and Vienna were advised that Customs would be conducting an audit of 15 entries submitted by Vienna. The audit found that several entries understated the alcoholic strength of the imported products. On 13 March 2015 Vienna was advised of these findings and that a full audit and investigation would be undertaken by Customs of Vienna’s import entries since March 2011.
[26] Customs advised Vienna of the findings of its investigation by letter dated 5 June 2015 with an Assessment Notice issued for the “short payment” of duties and levies of $2,225,905.95 (Assessment Notice). The due date for Vienna to make payment or file an appeal was 3 July 2015. Vienna did neither. As it was unable to pay the assessed duties, Vienna was placed into liquidation by shareholders’ resolution on 23 July 2015.
[27] In addition, on 11 May 2016, Customs imposed an administrative penalty on Kerry of $67,702.21 under s 128A of the CEA.
[28] Kerry advised Customs that it had relied on alcohol strength information from Mr Browne. However, Customs still imposed a penalty because Customs considered that it was not reasonable for Kerry to rely on verbal confirmation only.
[29] In response to a request for reasons, Customs advised Kerry that reg 27 of the Customs and Excise Regulations 1996 (CEA Regulations) provided that when making an entry under s 39(1):9
… the person making the entry shall specify the volume of alcohol in accordance with the alcohol strength stated by the manufacturer in the invoice, or on the label of the product concerned.
First ground for strike out/summary judgment: Limitation Act 2010
[30] Kerry submits Vienna’s claim is time barred. Kerry relies on s 11(1) of the Limitation Act 2010 which provides:
11 Defence to money claim filed after applicable period
(1)It is a defence to a money claim if the defendant proves that the date on which the claim is filed is at least 6 years after the date of the act or omission on which the claim is based (the claim’s primary period).
(2)However, subsection (3) applies to a money claim instead of subsection (1) (whether or not a defence to the claim has been raised or established under subsection (1)) if—
(a)the claimant has late knowledge of the claim, and so the claim has a late knowledge date (see section 14); and
(b)the claim is made after its primary period.
9 Customs and Excise Regulations 1996, reg 27. Note, this regulation has since been revoked on 1 October 2018, by section 443(4) of the Customs and Excise Act 2018.
(3)It is a defence to a money claim to which this subsection applies if the defendant proves that the date on which the claim is filed is at least—
(a)3 years after the late knowledge date (the claim’s late knowledge period); or
(b)15 years after the date of the act or omission on which the claim is based (the claim’s longstop period).
[31] The key question in terms of the primary period in s 11(1) is what is the act or omission on which the claim is based.
Submissions
[32] Kerry submits that the act or omission on which the claim is based must be the act or omission of the defendant. The last Customs entry completed by Kerry was on 31 January 2015 and so Kerry submits the last possible day on which the primary period could end is six years later on 31 January 2021. As Vienna filed its claim on 29 June 2021, Kerry submits Vienna’s claim is clearly statute-barred.
[33] Kerry further submits that the late knowledge period does not assist Vienna as the latest possible late knowledge date would be 5 June 2015, being the date Vienna was issued with the Assessment Notice by Customs. By that date Vienna had gained knowledge of all of the relevant facts referred to in s 14(1) of the Limitation Act.
[34] If there is a late knowledge period, a further three year period is allowed, starting from the late knowledge date. In this case, this would not have the effect of extending the limitation period as, if the late knowledge date was 5 June 2015, the three-year extended late knowledge period would expire within the usual six-year period.
[35] Vienna does not rely on the late knowledge period to defeat Kerry’s Limitation Act defence. Vienna instead relies on Galway v Pugh where Associate Judge Paulsen held:10
10 Galway v Pugh [2021] NZHC 3431 at [31]; citing JC Corry Limitation Act Handbook (Lexis Nexis, Wellington, 2011) at 19.
The expression in s 11 “on which the claim is based” links the act or omission with the legal basis of the claim. For limitation purposes, the act or omission relevant to the start date must be an essential element of the claim. If there is more than one act or omission essential to the claim for limitation purposes, the claim is based on the last to occur.
[36] Vienna submits that the last act or omission on which its claim is based is the due date under the Customs Assessment Notice. This date is 3 July 2015. As Vienna filed its claim on 29 June 2021, just less than six years following, the claim is within time.
[37] In support of this, Vienna submits s 88 of the CEA provides that an entry for goods made under the CEA is deemed to be an assessment as to the duty payable in respect of those goods. Section 89(1) then allows for amendment of the assessment “in order to ensure the correctness of the assessment even though the goods to which the duty relates are no longer subject to the control of the Customs or that the duty originally assessed has been paid”. Section 89(2) further provides:
If the amendment has the effect of imposing a fresh liability or altering an existing liability, notice in writing shall be given by the chief executive to the person liable for the duty.
[38] Vienna submits that the Assessment Notice issued by Customs on 5 June 2015 imposed a “fresh liability” for Customs duty and therefore the Assessment Notice must be the act on which the claim is based.
[39] Vienna further relies on Duthie v Roose to submit that the start date for limitation purposes is the date by which the tax (as it was in that case) or the duty (in this case) becomes payable rather than the date of the Assessment Notice itself.11
[40] Kerry submits the duty assessed on 3 June 2015 was always the correct duty payable so Duthie v Roose can be distinguished on that basis.
[41] But Vienna submits that if the paragraphs relating to the reassessment by Customs were deleted from the statement of claim, Vienna would have no claim. On that basis the acts of Customs must be acts on which the claim is based.
11 Duthie v Roose [2017] NZSC 152, [2018] 1 NZLR 355 at [30].
Discussion
[42] There is very little discussion in previous cases of the meaning of “act or omission on which the claim is based” in s 11 of the Limitation Act 2010. Paulsen AJ made the observation in Galway v Pugh, relied on by Vienna and referred to above, that where there is more than one act on which the claim is based it is the date of the last act.12
[43]In Ward Ranch Ltd v Minister of Conservation/Te Papa Atawhai Wylie J held:13
[34]Under the 2010 Act, the limitation period for an action in tort runs from the date of the act or omission on which the claim is based. There has been a shift away from when the cause of action relied on accrued, which required an analysis of the elements required to prove each cause of action relied on, to a common start date, being the date of the act or omission on which the claim is based.
[35]Due to the change in position under the 2010 Act, it is unnecessary to distinguish, for limitation purposes, between a cause of action in nuisance and a cause of action in trespass. As the Law Commission stated in its report prior to the introduction of the 2010 Act:
60. … Except for the torts of negligence and nuisance, this reform will not alter in substance the time within which a claim in contract or tort is to be brought. For negligence and nuisance time will run from the date of the defendant’s act or omission, not from the date damage occurs.
(Citations omitted)
[44] I note that although the Law Commission referred to “the defendant’s act or omission” in the above quote, the reference to defendant’s act or omission did not carry through into the legislation.
[45] Kerry submits that although s 11 does not refer to the defendant, it should still be interpreted as meaning the defendant’s act or omission in the same way as the similar wording in s 91 of the Building Act 1991 (or s 393 of the Building Act 2004)
12 Galway v Pugh [2021] NZHC 3431; citing JC Corry Limitation Act Handbook (LexisNexis, Wellington, 2011) at 19.
13 Ward Ranch Ltd v Minister of Conservation/Te Papa Atawhai [2018] NZHC 2893 at [34]; citing Law Commission Limitation Defences in Civil Cases: Update Report for the Law Commission (NZLC MP16, 2007).
have been interpreted. Kerry relied on the Court of Appeal decision in Gedye v South14
in support of this.
[46] However, as the plaintiff submits, the wording of s 91 was being considered in the context of the 10 year longstop provision for building work. The Court of Appeal reached the view that the words must mean act or omission of the defendant after considering the Law Commission report but then holding:
[37] … ultimately it is the meaning of the words used in the context of the section and the Act as a whole, with due regard paid to the purpose of the provision, which is necessarily determinative.
[47] In the Limitation Act s 5 contains a definition of “the date of the act or omission on which the claim is based for certain claims”. Only the first situation set out refers to an act of the defendant - “a claim based on an obligation not enforceable until a demand is made—the date on which the defendant defaulted after demand was made.”15
[48] Sections 14 and 48 appear to make it clear that it does not have to be the defendant’s act or omission. These sections provide for a late knowledge period and fraud respectively and both list the facts that a claimant must have gained knowledge of (or ought reasonably to have gained knowledge of) before the late knowledge period commences or the longstop period commences if fraud is involved. The lists include firstly a reference to the “act or omission on which the claim is based” (ss 14(1)(a) and 48(1)(a)) and then at ss 14(1)(b) and 48(1)(b) knowledge of:
the act or omission on which the claim is based was attributable (wholly or in part) to, or involved, the defendant.
[49] In my view, this suggests that the “act or omission on which the claim is based” does not have to be the act or omission of the defendant, contrary to the submissions made on behalf of Kerry. If it had to be the act or omission of the defendant, then the second part of (b) as quoted above would have said (or similar) “was the act or omission of the defendant” rather than “was attributable (wholly or in part) to, or involved, the defendant”.
14 Gedye v South [2011] NZCA 207.
15 Limitation Act s 5(a).
[50] In addition, ss 14(1)(e) and 48(1)(e) refer to knowledge where the defendant’s alleged liability is dependent on the act or omission on which the claim is based having been induced by fraud etc, that the act or omission was induced by fraud. It seems that the act or omission in those circumstances could not be the act or omission of the defendant.
[51] In the Limitation Act Handbook, JC Corry (who was involved in the Law Commission review of the Limitation Act) supports this view recording that although the expression “act or omission on which the claim is based” was originally thought to refer to the act or omission of a defendant, ss 14(1)(e) and 48(1)(e) require a construction that the act or omission on which the claim is based “need not be an act or omission by the defendant”.16
[52] In the preface to JC Corry’s handbook he refers to the interpretation issue as follows:
There are some awkward inconsistencies that may be difficult to deal with by judicial interpretation, but which would be best resolved by amending legislation. The expression “act or omission on which the claim is based” was generally thought to refer to the act or omission of a defendant. Sections 14(1)(e) and 48(1)(e) require a construction which includes the act or omission of a claimant. The expression “conduct of the defendant on which the claim is based” may be a more satisfactory expression to use generally to define the start date of a primary or Part 3 period, and for the purpose of an ancillary claim, although ss 14(1)(e) and 48(1)(e) would have to be amended.
[53] For the purposes of this strike out and summary judgment application, I consider that there is a reasonable argument that it does not have to be the defendant’s act or omission and that the act of Customs in issuing the Assessment Notice is one of the acts on which the claim is based.
[54] In Duthie v Roose the Court considered that in the special circumstances of that case, where the vendor and purchaser were related, the plaintiff/vendor knowing of its potential tax liability may have cancelled the transaction before settlement to avoid the tax.17 The settlement date was therefore found to be the start date for limitation as it was the due date for the tax when it could no longer be avoided. However, in this
16 Corry Limitation Act Handbook, above n 10, at v; and see also 17 – 19.
17 Duthie v Roose, above n 11.
case, once the Assessment Notice was issued the duty was payable unless appealed. There may be a basis therefore for distinguishing Duthie v Roose.
[55] Although Kerry says the claim cannot be based on the act of Customs because the duty was always payable, the operation of ss 88 and 89 of the CEA suggest that until there is a reassessment the duty payable on the basis of the import entries completed by Kerry is deemed to be the duty payable.
[56] In my view, although Customs may have altered an existing liability rather than imposed a fresh liability, the point remains that at the time the entries were made by Kerry, the duty assessed as payable by Kerry would have been deemed to be the duty payable in respect of those goods pursuant to s 88 of the CEA. Until the Assessment Notice was issued, there was no obligation on Vienna to pay the increased amount.
[57] From the statement of claim, it appears that there may also be an argument that the acts or omissions on which the claim are based include the accumulation of errors by Kerry leading to the reassessment by Customs and the inability then to recover the duty through prices charged. Vienna alleges that if Kerry had correctly recorded and returned the import duties, levies and GST and advised and invoiced Vienna in a timely manner, Vienna would have sold its product for a higher price to meet the higher entry costs.
[58] Kerry disputes that Vienna would have been able to recover the increased duty by increasing its prices but this is not a matter that can be determined in the context of a strike out or summary judgment application.
[59] From the documents annexed to the affidavits filed, it appears that Customs may not have issued a penalty decision to Kerry if it had voluntarily disclosed errors in entering the alcohol strengths prior to the issuing of the Assessment Notice. There may therefore be an argument that Kerry’s obligation to insert the correct alcohol strength was ongoing. The start date for the primary period under the Limitation Act is from when the act or “omission” occurred. Omissions by Kerry in failing to correct the errors could be said to have occurred right up until the date of the reassessment.
[60] Furthermore, the terms of trade include the following term under the heading “Role of Logistics”:
1.4 The Customer authorises [Kerry] to depart from any instructions given by it or on its behalf in any respect if, in [Kerry]’s opinion, it is necessary or desirable to do so.
[61] In the cases referred to above, it was held to be appropriate to strike out a claim on the basis of a Limitation Act defence where the answer is “obvious and inevitable” or “so clearly statute barred” that it can properly be regarded as frivolous, vexatious or an abuse of process. 18 Furthermore, the Courts have held that it is not usually appropriate to strike out or grant summary judgment to a defendant in a developing area of the law.19 I consider this is an apt description of the limitation defence with so little discussion on the appropriate interpretation of the start date for the primary period in s 11(1) in the 2010 Act in a case such as this.
[62] In my view the answer on the Limitation Act defence is not so obvious or inevitable that it is appropriate to either strike out the claim or grant summary judgment to the defendant. It may be that following a full hearing, a defence based on the Limitation Act may be able to be established but I am not prepared to do so without the benefit of full evidence and argument on this issue.
Second ground for strike out/summary judgment: contractual limitation and exclusion clauses
[63] The second ground on which Kerry relies for its application for strike out or summary judgment are the contractual limitation and exclusion clauses in its terms of trade. I will refer to these together as exclusion clauses to avoid confusion with the Limitation Act defence.
[64] Clause 13 of Kerry’s Terms and Conditions of Trade (or Lead Logistics as it was known at the time) provides as follows:
18 See at [15] – [16] above.
19 Couch v Attorney-General, above n 1, at [33].
13.Limitation of Liability
13.1All handling which is subject to the Carriage of Goods Act 1979 shall be performed at limited carrier’s risk.
13.2Subject to paragraph 13.1 and to any other mandatory provision of law to the contrary, Lead Logistics shall not be under any liability, liable, however caused or arising, and (without limiting the generality of the foregoing) whether arising or resulting from through negligence, breach of contract on the part of Lead Logistics or otherwise for:
(a)any damage to or loss, deterioration, contamination, mis- delivery, delay in delivery or non-delivery of the goods;
(b)any loss of or damage to perishable goods due to any failure or breakdown of machinery or plant, shortage of power or labour, or pilferage, theft or burglary (or any attempt at the same) whether by any servant or agent of Lead Logistics or any other person;
(c)in connection with any instruction, advice, information or service given or provided to any person whether in respect of the goods or any other matter or thing;
(d)any direct indirect or consequential loss or damage caused by or arising from delay, loss of market or loss of or damage to the goods, or otherwise howsoever and whether or not Lead Logistics had actual or constructive notice that such loss or damage could arise.
13.3The Customer shall indemnify Lead Logistics against any claims (whether resulting from the negligence of Lead Logistics or otherwise) brought by any person in connection with any matter or thing done, said or omitted by Lead Logistics in connection with its dealings with the Customer or the goods.
13.4All of the rights, immunities and limitations of liability in these Conditions shall continue to have full force and effect in all circumstances and notwithstanding any breach of contract by, or any negligence on the part of, Lead Logistics.
13.5Subject to paragraph 13.1, 13.2, 13.3, 13.4, in any case Lead Logistics liability has not been effectively excluded by these Conditions, such liability shall to the maximum extent permitted by law be limited to the lesser of:
(a) $100; or
(b)The cost of re-supplying the handling of the goods; or
(c)The replacement value of the good.
13.6Where paragraph 13.5 applies, the maximum aggregate liability of Lead Logistics for all claims arising out of any one incident or occurrence shall be limited:
(a)In any case where liability arises as a result of mis-delivery, delay in delivery or non-delivery of any good, to $10,000; and
(b)In any other case to $100,000.
13.7Where, as a result of the application of paragraph 12.6, not all claims can be paid in full, all claims properly payable shall abate pro rata.
[65]Clause 14 then provides:
14.Actions against Lead Logistics
14.1Lead Logistics shall be under no liability whatsoever unless:
(a)written notice of any claim, giving full particulars of any alleged loss or damage, is received by Lead Logistics within fourteen (14) days after delivery of the goods or the date when they should have been delivered;
(b)any action shall have been commenced by the Customer in a Court of competent jurisdiction within six (6) months from the date of dispatch of the goods.
[66] Kerry submits that clause 13 completely excludes any liability Kerry may have in respect of the alleged acts or omissions on which Vienna’s claim is based. Kerry says that the exclusion is couched in the broadest terms, including excluding all liability however caused or arising “in connection with any … service given … to any person whether in respect of the goods or any other matter or thing” with liability for breach of contract and for negligence expressly identified and excluded.
[67] Kerry says further that sub-clause 13.3 provides a complete indemnity against any legal claims including by Vienna so that if Vienna sues Kerry, Vienna is still required to indemnify Kerry for that claim. Kerry says the reference to claims brought by “by any person in connection with any matter or thing done, said or omitted by Lead Logistics in connection with its dealings with the Customer or the goods” could not be broader.
[68] Furthermore, Kerry submits that in any case where liability has not been excluded by sub-clauses 13.1 to 13.4, sub-clause 13.5 caps the maximum liability at
$100.
[69] Finally, clause 14 requires all claims to be made to Kerry within 14 days after the date of delivery of the goods or the date they should have been delivered and “any action must be commenced by the Customer in a Court of competent jurisdiction within six (6) months from the date of dispatch of the goods”.
[70]There is no dispute that Vienna did not comply with clause 14.
[71] Vienna in response submits that the exclusion clauses need to be narrowly construed and that the Court should be slow to interpret a clause as in effect totally negating liability.
[72] Vienna submits that the onus is on the person seeking the protection of the clause to show that the words clearly and aptly describe the contingency that has in fact arisen. Vienna says that Kerry cannot rely on clause 13(2)(c), which excludes liability for any service provided, because it does not clearly exclude liability in connection with Kerry’s failure to comply with its own statutory obligations imposed under the CEA (including the Regulations). Vienna says to exclude such liability clearer words would be required. Vienna adds that sub-clause 13.2(d) is similar as the words “or otherwise howsoever” have to be informed by the preceding words and it does not clearly exclude liability in relation to Kerry’s statutory obligations.
[73] Vienna says that the indemnity clause can only sensibly be interpreted as meaning that Vienna indemnifies Kerry against claims by any person other than Vienna.
[74] In response to the indemnity clause 14, Vienna submits that if it had the effect of excluding all Kerry’s liability, no claim could ever have been brought by Vienna through no fault of its own because the Customs Assessment Notice was not issued until after the clause 14 timeframes had passed. Vienna says such a clause flouts commercial common sense and given that Vienna could not have been aware of the claims, had not suffered any loss and no causes of action had arisen within the timeframes specified, the clause should not be construed to defeat Vienna’s current claims.
Consideration of exclusion clauses
[75] The Court of Appeal has confirmed that the approach to the interpretation of exclusion clauses should be the same as that applying to the interpretation of contracts
generally. The recent edition of Burrows Finn and Todd on the Law of Contract20 refers to the following passage from the Court of Appeal decision in Dorchester Finance Limited v Deloitte as summarising the current position:21
… The approach to interpreting a limitation clause is like any other contractual interpretation exercise. The interpretation of the contract involves an inquiry as to what a reasonable and properly informed third party would consider the parties to mean. The overall commercial context may be relevant.
[33] Given the premise that an exclusion clause will enable a party to escape liability for a breach of a contractual promise, it will be assumed that a party will not have intended to limit liability unless clear and unambiguous language is used. A Court will ordinarily look for clear language or necessary implication before concluding that the right to claim for damages is extinguished. Such an intention will not be lightly attributed. The ultimate objective is to ascertain what the parties intended their words to mean in the particular factual context in which the contract was made.
(footnotes omitted)
[76] If there is any doubt as to the meaning or scope of the clause, the contra proferentem rule requires the ambiguity to be resolved against the party who inserted it and is now relying on it.
[77] In this case, perhaps in an effort to be comprehensive, the exclusion clauses may have introduced doubt. In the absence of subclauses 13.5 and 13.6 and clause 14, in my view there would be a stronger argument that Kerry’s liability is excluded. Introducing a $100 limit if liability is not excluded and strict timelines for notifying and filing a claim linked to delivery or dispatch introduce doubt as to whether the preceding clauses so comprehensively exclude liability. If the exclusion and indemnity clauses are as comprehensive as Kerry submits, then sub-clauses 13.5 and
13.6 would not be necessary. Similarly, if clause 14 is intended to ensure all claims are brought promptly, one might have expected the timing to be related to provision of the service rather than delivery.
20 Matthew Barber and Stephen Todd Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, Lexis Nexis, Wellington, 2022) at [7.3.1].
21 Dorchester Finance Limited v Deloitte [2012] NZCA 226 at [32] and [33].
[78] Furthermore, it appears arguable that sub-clause 13.5 may not effectively limit any claim to $100 because sub-clause 13.6 goes on to say the maximum aggregate liability for all claims arising out of any one incident or occurrence shall be limited:
(a)in any case where liability arises as a result of mis-delivery, delay in delivery or non-delivery of any good, to $10,000; and
(b)in any other case to $100,000.
[79] Each of the alleged errors by Kerry do not relate to delivery (or mis- or non- delivery) and do not appear to arise out of one incident or occurrence. It therefore appears reasonably arguable that sub-clauses 13.5 and 13.6 do not effectively reduce the claim even to $100,000.
[80] Vienna accepts that the terms form part of the contract. As Vienna signed the contract there is no requirement for the terms to be brought to its attention. But it is not a case where the parties negotiated the terms. The terms are Kerry’s standard terms. The question for the Court is what a party in Vienna’s shoes objectively would be taken to have understood the exclusion clauses to mean when Vienna agreed to the terms by signing the application form for credit.
[81] In DHL International (NZ) Ltd v Richmond Ltd22 the Court of Appeal held that the exclusion clauses in issue in that case were effective in excluding liability. An equivalent clause to clause 14 was included which provided:23
(a)Any claim must be brought by the Shipper and delivered in writing to the office of DHL nearest the location where the shipment was accepted within 30 days of the date of such acceptance. No claim may be made against DHL outside of that time limit.
[82] The Court of Appeal held that this clause was unambiguous, applying to “Any claim”. The Court of Appeal noted that clause 9(a) was not qualified by reference to discoverability of loss or damage. It held that the plain meaning of the first sentence of clause 9(a) was reinforced by the statement of the consequences of failure to make a timely claim: “[n]o claim may be made against DHL outside of that time limit”.24
22 DHL International (NZ) Ltd v Richmond Ltd [1993] 3 NZLR 10 (CA).
23 At 21.
24 At 21.
[83] In this case, clause 14 states that Kerry shall be “under no liability whatsoever” unless there is both written notice within 14 days and an action has been commenced in a court within six months from the date of dispatch. In contrast to the facts in DHL, however, where the claim related to delivery (or mis-delivery) of the goods, in this case the claim relates to the failure to accurately enter the alcohol strengths. There are a number of other differences between the clauses and the relationship in DHL as compared to the position here. Furthermore, the decision in that case was not a strike out or summary judgment decision so the contract was considered in its full context.
[84] The tenor of cases involving strike out or summary judgment where exclusion clauses are at issue is fairly clear. If a claim is based on an exclusion clause, strike out or summary judgment will be inappropriate where there remain extant interpretation issues which extrinsic evidence may yet shed light on. To grant strike out or summary judgment, the court would have to be satisfied that the alternative interpretation of the exclusion clause is clearly untenable and that extrinsic evidence would not alter that conclusion.
[85] In Local Government Mutual Funds Trustee Ltd v Napier City Council, the Court of Appeal considered an appeal against Hinton J’s refusal to strike out the Council’s claim where the issue was construction of an exclusion clause.25 The Court upheld Hinton J’s decision, finding that it was inappropriate to strike out a claim where extrinsic evidence may yet be important to a fundamental contract interpretation issue on which the claim turned.
[86]The Court of Appeal commented:
[38] The Court is being asked to decide the meaning of a highly variegated series of exclusion clauses in a contextual, factual vacuum. We are unwilling to do that. We consider extrinsic evidence may shed some light on intended meaning.
[87]And concluded:
[41]Here it is evident that there is room for extrinsic evidence as to context and purpose, in construing what the parties were seeking to achieve in the somewhat erratic drafting of the exclusion wording. The Council
25 Local Government Mutual Funds Trustee Ltd v Napier City Council [2019] NZCA 444.
wishes to advance such evidence at trial. In our view the determination of the issue posed before us will be more effectively resolved by a trial Judge in light of that evidence (and any extrinsic evidence called by Riskpool).
[88] Similarly, in Vero Liability Insurance Ltd v Symphony Group Ltd, another appeal of strike out and summary judgment applications based on exclusion clauses, the Court of Appeal made a similar comment that:
[39] … we would have been reluctant to determine the scope and effect of the clause in the absence of primary evidence, such as might have been given if the Court had earlier ordered formulation of a question or questions for trial, informed by evidence of a limited nature.
[89] In Ferrer-Aza v Nzone Race Management Ltd Katz J declined the defendants strike out or summary judgment applications based on the exclusion clauses in the relevant contract.26 After noting the parties differing interpretations of the exclusion clauses in issue, Katz J held that the issue for the Court was whether the Court could “confidently interpret the exclusion clauses at this preliminary stage, in the absence of full contextual evidence?”27 Her Honour summarised the approach as follows:
[36]The issue before me is not whether the defendants’ interpretation of the exclusion clauses is tenable, or even whether it is more likely to prevail at trial than the plaintiffs’ narrower interpretation. Rather, I must be satisfied that the interpretation advanced by the defendants is correct and that the narrower interpretation advanced by the plaintiffs is untenable.
[90] Whilst I do not accept the plaintiff’s submission that exclusion clauses need to be interpreted strictly, I consider that the clauses need to be understood in their commercial context to be properly interpreted as held both in DHL and in Dorchester Finance Limited v Deloitte.28 This requires a full hearing following discovery. The application for strike out or summary judgment on this basis also fails.
26 Ferrer-Aza v Nzone Race Management Ltd [2016] NZHC 885.
27 At [40].
28 DHL International (NZ) Ltd v Richmond Ltd, above n 22, and Dorchester Finance Limited v Deloitte, above n 22, at [32] – [33].
Security for costs
[91] In the event that the claims are not struck out or summary judgment entered, Kerry says that the liquidators have funds and that the interests of justice require a security for costs award in the circumstances of this case.
[92] Vienna resists any award of security for costs on the basis that the claim is brought by a company in liquidation and that its impecuniosity is caused by Kerry. Vienna further submits that the setting of an amount of security for costs would in effect prevent the claim being brought.
Relevant Legal Principles
[93] Rule 5.45 of the High Court Rules provides jurisdiction for an order for security for costs.
[94] The principles applying are well settled. The general approach was summarised in Busch v Zion Wildlife Gardens Ltd (in rec and in liq) as being to address the following questions:29
(a)Has the applicant satisfied the court of the threshold under r 5.45(1)?
(b)How should the court exercise its discretion under r 5.45(2)?
(c)What amount should security for costs be fixed at?
(d)Should a stay be ordered?
Is the r 5.45(1) threshold met?
[95]The threshold in r 5.45(1) will be met if either:
(a)the plaintiff is resident out of New Zealand; or
(b)there is reason to believe that the plaintiff will be unable to pay costs if unsuccessful.
29 Busch v Zion Wildlife Gardens Ltd (in rec and in liq) [2012] NZHC 17 at [2].
[96]Vienna accepts that, as it is in liquidation, the threshold in r 5.45(1) is met.
Exercise of discretion
[97] Rule 5.45(2) provides that once the threshold is met, security may be ordered if it is “just in all the circumstances”.
[98] Meeting the threshold effectively opens the door for an order for security for costs. But it is not enough on its own. As Kós J held in Highgate on Broadway Ltd v Devine, impecuniosity does not per se require the making of such an order.30 The plaintiff’s right to access to justice must be balanced against a defendant’s right to be protected for costs.
[99] In A S McLachlan Ltd v MEL Network Ltd, the Court of Appeal held that the discretion in r 5.45(2) is not to be “fettered by constructing ‘principles’ from the facts of previous cases”.31 In its decision in Lee v Lee, the Court of Appeal described the discretion as follows:32
[20] The discretion is a broad one. It may be exercised to require security even if that may prevent a plaintiff from pursuing a claim. But access to the Court for a genuine plaintiff is not lightly to be denied. In A S McLachlan Ltd v MEL Network Ltd this Court summarised the position:
[15]The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the Courts for a genuine plaintiff is not lightly to be denied.
[16]Of course, the interests of defendants must also be weighed. They must be protected against being drawn into unjustified litigation, particularly where it is over-complicated and unnecessarily protracted.
30 Highgate on Broadway Limited v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [20]–[21].
31 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13].
32 Lee v Lee [2019] NZCA 345 (footnote omitted).
[100] Similarly, in Reekie v Attorney-General the Supreme Court said that applications for security in first instance proceedings call for careful consideration and judges are slow to make an order for security which will stifle a claim.33
Relevant factors
[101] Kerry submitted that four factors were relevant to the exercise of the discretion whether to make an award for security:
(a)the merits of the claim;
(b)the allegation that Vienna’s impecuniosity results directly from Kerry’s conduct;
(c)the impact of insolvency; and
(d)the effect of ordering security on whether claim proceeds.
Merits
[102] Vienna submits that if its claim survives the strike out and summary judgment application, then this criterion is met as it cannot then be said that the claims are altogether without merit.
[103] Both parties accept that there is a factual dispute regarding which party was responsible for the errors and the import entries.
[104] Kerry submits that Vienna’s claim faces substantial legal and evidential obstacles.
[105] Although Vienna has survived the strike out and summary judgment applications, Vienna will need not only to prove its claim but to overcome defences based on both the Limitation Act and the exclusion clauses in the terms of trade. The strength of these defences is difficult to assess at this stage.
33 Reekie v Attorney-General [2014] NZSC 63, [2014] 1 NZLR 737 at [3].
[106] In my view this factor is neutral as to whether a security for costs order ought to be made.
Vienna’s impecuniosity results from Kerry’s conduct
[107] Kerry submits that the liability of Vienna arises as a result of the Customs duty regime and not the incorrect entries by Kerry. Kerry refers to s 86(1) of the CEA which describes the duty as a “debt to the Crown immediately on importation of those goods” and s 39 which provides that the debt becomes payable when the goods are imported.
[108] Kerry submits therefore that Vienna’s liability for the increased duties is as a result of the operation of the statutory scheme and not the actions of Kerry.
[109] However, there appears to be an argument that there was an obligation on Kerry to make its import entries on the basis of the invoices or information on the product being imported itself, rather than relying on information from the customer, as the penalty imposed on Kerry appears to confirm. Furthermore, s 88 deems the duty payable to be the amount assessed in the import entry as completed by Kerry, unless and until it is reassessed by Customs.
[110] Vienna’s claim is based on its inability to recover the increased duty through the price charged for the beer rather than a claim for recovery of the duty payable. Kerry disputes whether Vienna would have been able to adjust the prices as proposed but this is not a matter I can determine without full evidence.
[111] One of the liquidators, Mr Iain McLennan, provides context in his evidence given for Vienna for the approximately $2 million claimed by Customs in the Assessment Notice. Mr McLennan’s evidence is that Vienna’s signed accounting records show that in the period 1 April 2008 to 31 March 2015 Vienna imported $2.77 million of beer at cost and paid only $894,402 in duty.
[112] I consider that, given the statutory scheme, there is a reasonable argument that Vienna’s impecuniosity was caused by Kerry. This factor therefore goes against an award of security.
Vienna’s liquidation
[113] Vienna submits that traditionally Courts have found there must be unusual circumstances to justify an award of security against companies in liquidation. Vienna relies on the following comment from Tasman Charters Inc v Kamphius:34
[33] Though Pacific Wools and authorities discussed in that case indicate Courts’ long-standing disinclination to order security for costs in cases brought by companies in liquidation, those authorities make clear the practice is founded on the fact that liquidators are bringing or supporting proceedings to maximise returns for the benefit of all creditors and should not be inhibited in their statutory obligations in that regard by being in jeopardy of orders for security. However, such orders can be made in exceptional cases, as acknowledged in Pacific Wools and as actually made in Cory-Wright & Salmon.
[114]Kerry relies on Retail Ready Logistics Ltd v BNZ where Brewer J held:35
[23] I note that traditionally there has been an aversion to requiring liquidators to provide security for costs where proceedings are brought by a company in liquidation. This is to ensure that proceedings brought for the benefit of creditors are not stifled by security for costs applications.36 But recently this aversion has been palliated. This is because there is a distinction between claims brought by a company in liquidation alone, and a claim brought by a liquidator. The relevance of the distinction is that a company in liquidation may have only its own assets available to meet any claim for costs, whereas a liquidator may be personally liable for costs and may have to look to his own assets if the assets of the company are insufficient. The Courts will be less inclined to require a liquidator personally to provide security for costs because his potential personal liability will provide better protection for a successful defendant than a costs order against a company in liquidation alone.
[115] Furthermore, Kerry relies on the fact that in Tasman Charters while the Court acknowledged the traditional approach was not to order security, it did in fact make an order.
[116] The liquidators’ evidence refers to their holding $214,993 in uncommitted funds at the time Mr McLennan’s affidavit was sworn. The affidavit further records that the liquidators have admitted $2,341,092.87 in third party preferential claims. The liquidators’ report filed with the Companies Office dated 23 July 2021 records that
34 Tasman Charters Inc v Kamphius HC Auckland CIV-2002-404-1642, 24 September 2004.
35 Retail Ready Logistics Ltd v VB NZ [2015] NZHC 2682.
36 Citing Heath and Whale on Insolvency (online ed, LexisNexis) at [38.32].
this is made up of a claim by Customs for $2,335,896 and by Inland Revenue for
$5,197. In addition, there are unsecured claims totalling $8,186.21 and a possible secured claim from the company shareholder and director of $105,564.
[117] Although there appear to be uncommitted funds available in the liquidation there is a considerable shortfall taking into account the claims by the creditors. The concern I have is that by the time any adverse costs award is made there may no longer be any funds available to pay it. There may therefore be no prospect of costs recovery for Kerry if Vienna fails in its claim. Where the claim is brought by the company in liquidation and not the liquidator personally, as it is here, I consider that the liquidation status ought not to necessarily prevent a security award being made, particularly given the other creditors.
Effect of security for costs award on proceedings
[118] Kerry submits that the liquidator’s evidence shows there are funds to provide security. Furthermore, Kerry says there is always the opportunity for funds to be sourced from creditors or litigation funders.
[119] Vienna submits that if security is ordered it would prevent the claims being heard on the merits in circumstances where Kerry accepts that errors were made and the key issue is to determine which party was responsible.
[120] Although there is a balance recorded as being held in the liquidators’ report to 22 July 2021, those funds are likely to have reduced since then. It appears, however, that there may be options available to the plaintiff to assist in funding security. I consider therefore that this factor is neutral as to whether an order ought to be made.
Conclusion on whether order ought to be made
[121] Taking all of the above factors into account, I consider that it is in the interests of justice for an order for security for costs to be made. I consider though that the quantum ordered should reflect both Vienna’s liquidation status and that it is arguable that Vienna’s impecuniosity may have been caused by Kerry.
Quantum of security
[122] Kerry submits that security should be fixed at $100,000 based on scale costs calculated on a 2B basis of $105,639 and an additional $100,000 for likely disbursements including expert evidence. This allows for a 10 day hearing with five days for second counsel.
[123] Vienna submits that the estimate of trial costs is too generous as the issues have narrowed. Vienna proposes a five day hearing would be sufficient, with 2B costs on that basis being $59,000 on Vienna’s calculation.
[124] Taking into account Vienna’s liquidation status and the possible cause of Vienna’s impecuniosity, I consider an award of $50,000 in total, payable in two instalments of $25,000, would be appropriate.
[125] Vienna accepts that if security is ordered, there should be a stay until the first instalment is paid. Counsel sought three months for payment to be organised. I make orders below on that basis. If it is paid earlier, the stay will be lifted.
Result
[126]I order:
(a)the applications for strike out and summary judgment are dismissed;
(b)the application for security for costs is granted on the following terms:
(i)$25,000 is to be paid to the Registrar of the High Court in Auckland by 16 September 2022;
(ii)a further $25,000 is to be paid to the Registrar on the close of pleadings date;
(c)the proceeding is stayed until the amount referred to in (b)(i) above is paid.
Costs
[127] Counsel for Kerry asked that costs be reserved to allow the parties to confer and attempt to reach agreement. If that is not possible, memoranda may be filed by the plaintiff within 20 working days of this judgment and by the defendant within a further 30 working days.
Associate Judge Sussock
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