Wallace Corporation Limited v International Marketing Corp Limited HC Auckland CIV 2003-404-7227

[2005] NZHC 1231

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2003-404-7227

BETWEEN  WALLACE CORPORATION LIMITED

Plaintiff

ANDINTERNATIONAL MARKETING CORP LIMITED

Defendant

Appearances: D M Salmon, J Long, T P Mullins and J P Cundy for Plaintiff A W Johnston and P Shackleton for Defendant

Judgment:      8 February 2005 at 4.25 pm

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

E-mail:

D M Salmon – [email protected] J Long – [email protected]

T P Mullins – [email protected] J P Cundy – [email protected]

A W Johnon – [email protected]

Solicitors:

Lee Salmon Long, PO Box 2026, Shortland Street, Auckland Martelli McKegg Wells & Cormack, PO Box 5745, Auckland

Wallace Corporation Limited V International Marketing Corp Limited HC AK CIV 2003-404-7227 8 February 2005

[1]   The defendant is seeking costs on the withdrawal of the plaintiff’s summary judgment application.

[2]   The issue of costs is long outstanding. It was first raised in February 2004. At  that time the file was returned to Registry to await the filing of memoranda. Unfortunately, for some reason, it was not returned to me after the memoranda were filed. Further, a number of other conferences were held at which neither side raised the outstanding issue of costs. Regrettably, counsel and I seem to have lost sight of the outstanding costs application. Counsel raised the issue shortly before the Christmas vacation and I deal with it at the first opportunity since then.

Background

[3]   On 18 December 2003, the plaintiff issued proceedings by way of summary judgment claiming payment for the supply of meat.

[4]   On 15 January 2004, the defendant’s solicitors wrote to the plaintiff ’s solicitors advising them that the proceeding was not appropriate for summary judgment and inviting them to withdraw the application. The plaintiff did not accede to the invitation and on 27 January 2004 the defendant’s solicitors filed documents in opposition.

[5]   On 19 February 2004, the plaintiff withdrew its summary judgment application, and in effect, accepted that it should not now pursue its application. Timetable  orders were made and at the request of the defendant I directed that memoranda as to costs be filed for my consideration.

[6]   The defendant seeks costs on an indemnity basis, or alternatively, on an increased basis.

[7]   The defendant relies on NZI Bank Limited v Philpott [1990] 2 NZLR 403 (CA) and says that the exception to the normal practice of reserving costs should apply. The exception arises where there is fault on the part of the plaintiff. The basis for the exception is described in Philpott at 405 as follows:

There will be other cases where the plaintiff has embarked on summary judgment proceedings erroneously in the sense that the rules do not allow the summary judgment procedure, or in the certain knowledge that there is a bona fide question of fact or law which can be determined only after a trial.

[8]   Counsel submitted that the plaintiff would have been aware before it filed its summary judgment application that the defendant had a genuine dispute about its liability to pay the sum claimed by the plaintiff, based on an alleged oral agreement which provided for a monthly reconciliation (“wash-up”) process, which would plainly need to go to trial.

[9]   Specifically, the defendant relies on various correspondence and other documents as indicating such knowledge.

[10]      The plaintiff raises various arguments in opposition. In summary, it contends that costs should be reserved because:

a)The defendant has suffered no wasted costs and its expenditure will be used in the trial context;

b)Philpott does not apply in this case and in any event the exception to the normal rule is not made out;

c)Its claim is documentary, based on invoices rendered to the defendant, whereas the defendant’s defence is based on an alleged  oral agreement at odds with the plaintiff’s view of the facts;

d)It acted appropriately in bringing the application and taking a pragmatic approach in withdrawing its application;

e)That if granted, the costs application would raise serious problems for summary judgment plaintiffs, who would need to file reply affidavits to establish they had good grounds to bring the application and that costs should not be awarded; and

f)There is no prejudice to the defendant if costs are dealt with after trial.

Decision

[11]      It is necessary to deal first with the plaintiff’s submission that Philpott does not apply on the basis that that case concerned costs on an unsuccessful summary judgment application after a hearing, whereas the present application has not proceeded to hearing but has instead been discontinued.

[12]      I do not accept the submission. In Vision Aluminium Limited v McLaughlan (HC CHCH, CP 123/90, 8 June 1990), the plaintiff withdrew its summary judgment application prior to the hearing. Master Hansen (as he then was) considered that the principle in Philpott applied in that situation. So too did Master Gambrill in First  City Finance Ltd (In Receivership) v Tait-Jamieson (HC AKL, CP 1529/90, 5 June 1991). A more recent example is Henkel Kgaa v Holdfast Manufacturing Ltd (2004) 17 PRNZ 54, in which Associate Judge Faire considered that Philpott could apply in the same situation. I see no reason to depart from this well-accepted practice.

[13]      The question I must answer therefore is whether the plaintiff embarked on the summary judgment procedure in the certain knowledge that there was a bona fide question of fact or law which could only be determined after a trial.

[14]      I bear in mind that in many cases, it will be difficult to be satisfied that the plaintiff had “certain knowledge” until the case itself is concluded and the best course will be to reserve costs: Philpott at 405-406. However, this is a case where I do not have that difficulty, because the documents produced by the defendant contain several sufficient and significant indications that the plaintiff was aware that there was a bona fide question to be determined:

i)I refer first to the defendant’s letter of 11 December 2002 (exhibit “E” to Mr Fairley’s affidavit) to Wallace. The defendant refers to its “practice since the outset of its agreement with Wallace” of forwarding “wash ups each month”. The writer, Mr Cooper, explicitly sets out his understanding of the agreed extent of the wash-up process, particularly his understanding that it included trading losses.

He states that “Wallace have recognised the wash up process” and that Wallace had previously been satisfied with the integrity of the process. He asks Mr Perkins of Wallace why this "situation would now change". This letter demonstrates that Wallace must have known that the defendant had a view of the agreement between the parties, which was at odds with the case advanced in the summary judgment application. Further, it also shows that the defendant’s views was not a sudden or last minute invention designed to stave off summary judgment.

ii)Wallace’s facsimile of 28 March 2002 (exhibit “J” to Mr Cooper’s affidavit) to the defendant. In the facsimile, Mr Perkins of Wallace says he is “absolutely stunned” with the amount owing to Wallace after the February wash-up figure. He goes on to say, “The current arrangement is not working – we have all the risks and are making all the losses whilst you are receiving a profit and always will, ie, regardless of the margin.” This statement acknowledges the existence of a wash-up mechanism. Arguably, it also indicates that Wallace was party to an agreement that the market risk for the sale of meat would rest with Wallace under the wash-up mechanism.

iii)The remittance notes from Wallace to the defendant between April to December 2002 (exhibit “C” to Mr Fairley’s affidavit and exhibit “H” to Mr Cooper’s affidavit). These confirm payment by Wallace of invoices from the defendant. These invoices record significant adjustments for a monthly wash-up. A clearly arguable inference is that Wallace accepted the wash-up process when invoicing the defendant and that it points to an oral agreement.

iv)The reconciliation statement (exhibit “G” to Mr Fairley’s affidavit) prepared by Wallace on 10 September 2003. This

statement expressly acknowledges the wash-up process in two places. The fact Wallace itself prepared this statement is especially significant in demonstrating Wallace’s awareness of the need for monthly adjustments. The fact that such adjustments occurred is further evidence that suggests it is arguable that Wallace was party to the wash-up agreement alleged by the defendant.

[15]      All of these documents arose in correspondence with the plaintiff or they are the plaintiff’s own documents. They could not have come as a surprise to Wallace when the defendant produced them in evidence. In my judgment, these factors and the contents of the documents, clearly point to Wallace’s having certain knowledge, prior to filing proceedings on 18 December 2003, that there was a bona fide question of fact (broadly, the nature of the marketing agreement between the parties and the extent of the wash-up process). Plainly, that is a question which can be determined only at a trial.

[16]      There is a further reason for concluding that Wallace knew that the defendant contested its liability for Wallace’s claim before the claim was filed. In the submissions made on behalf of the plaintiff counsel contends:

During negotiations relating to payment of these invoices, the plaintiff became aware that the defendant was refusing to pay the invoices on the basis that the plaintiff’s invoices to the defendant would be subject to monthly adjustments or “wash-ups” of a significant size.

[17]      Such an acknowledgement is consistent with the fact that the plaintiff was fully aware of the defendant’s basis for disputing the claim and that it did, in fact, intend to actively dispute the claim. That is ostensibly also the very reason why the plaintiff withdrew its summary judgment application.

[18]      In addition, the plaintiff’s submissions in response to the matters of evidence relied on by the defendant do not persuade me that there is not clear evidence that the plaintiff had certain knowledge that there was a bona fide dispute.

[19]Counsel submitted that:

a)The apparent dispute recorded in the September reconciliation statement does not mean that the summary judgment application was inappropriate, since it alone does not indicate a bona fide arguable defence to the plaintiff’s claim;

b)The adjustments made between April and December 2002 were made in accordance with industry practice of taking into account minor positive and negative adjustments only, not the ability to set off trading losses;

c)The 11 December 2002 letter merely records the defendant’s claim that it was entitled to invoice the plaintiff for wash-ups, and there are documents which the plaintiff could have produced which record its position that no oral agreement for the payment of wash-ups for trading losses was in force; and

d)The concern expressed by the plaintiff in the facsimile of 28 March 2002 does not relate to any liability to pay wash-ups for trading losses, but to the risk arising from the way in which the price for the plaintiff’s weekly invoices was calculated.

[20]I deal with these submissions in turn.

[21]      First, I accept that a mere dispute alone does not make a summary judgment application inappropriate. However, when the September reconciliation is viewed alongside other pieces of evidence, it is clear that the dispute was substantial and such as to make the application inappropriate.

[22]      Secondly, the defendant’s evidence (Mr Fairley’s affidavit paras 7-10 and 12ff, Mr Cooper’s affidavit paras 4, 11-15, 22-29) about its understanding of the wash-up process, is that the process covered more than merely minor positive and negative adjustments. This understanding was conveyed to Wallace well in advance of the filing of the summary judgment application. For example, in the letter of 11 December 2002 (to which I have already referred), Mr Cooper conveyed his

understanding to Wallace that the process covered realisation on stock items valued and sold at a profit or loss, claims and specification faults, and realisation on stock items further processed. The question of which party is correct about the terms of  the agreement is something that can only be determined after trial.

[23]      Thirdly, in the 11 December 2002 letter the defendant confirmed with Wallace its understanding of the nature and extent of the wash-up process. This shows that Wallace was clearly aware of the defendant’s understanding of the wash- up process. Wallace may well have disagreed with this understanding (and, as it  says, could have produced reply evidence denying any such oral agreement), but that can only be consistent with the existence of a dispute, of which Wallace was aware.

[24]      Fourthly, the facsimile may be open to several interpretations, but on its face it is clearly arguable that is consistent with the possibility of a risk-based marketing agreement being in force. As such, Wallace ought to have recognised it raised issues that would have to be dealt with at trial.

[25]      Counsel also made a more general submission on behalf of Wallace, that it has always denied an alleged oral agreement for wash-ups to cover trading losses and that the defendant has not referred to any document which records such an oral agreement. However, it is of no relevance for present purposes that the plaintiff has denied an alleged oral agreement or that the defendant has not produced a formal written agreement. The simple fact is that the evidence shows that the plaintiff must have been aware that the scope of the agreement was not only contentious, but that the factual issues involved were of sufficient substance to necessitate determination at trial.

[26]      In these circumstances, I am satisfied that Wallace did not act appropriately  in bringing the summary judgment application.

[27]      Further, I do not accept that if costs follow this result, that the costs order will raise the "serious problems for summary judgment plaintiffs" contended for by the plaintiff. In appropriate cases it will be possible for the Court to decide whether a

summary judgment application should have been brought without necessarily needing to take into account affidavits in reply.

Leave to formalise affidavits

[28]      The plaintiff has requested leave to formalise its reply affidavits to show lack of “certain knowledge”. I do not think this course is appropriate for two reasons. First, the plaintiff had ample opportunity to file such affidavits after it was given notice on 19 February 2004 that the defendant would seek costs, but has not done so. Secondly, in paras [16] and [26-33] of its submissions, counsel for the plaintiff sets out for the Court what its evidence in reply “would have been”. Even accepting that this would be the evidence, such evidence would not alter the view I have reached. I do not therefore see anything to be gained by allowing the plaintiff leave to file detailed affidavits.

Quantum

[29]The defendant relies on r 48C to seek indemnity costs in the sum of

$4,738.50 inclusive of GST. In the alternative, it seeks increased costs representing two-thirds of the indemnity sum.

[30]      I am satisfied that the plaintiff has contributed unnecessarily to the time and expense incurred in the proceeding by making an inappropriate summary judgment application. It was given warning that indemnity costs would be sought if it proceeded. It chose to proceed and to ignore the warning. Accordingly I make an order as requested in the sum of $4,738.50 inclusive of GST.

Dated at Auckland on2005 atam/pm

Associate Judge Sargisson