Waterford Press Limited v Dounsix Systems Limited HC Christchurch CIV 2009 404 2973
[2010] NZHC 531
•28 April 2010
IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY
CIV 2009 409 002973
BETWEEN WATERFORD PRESS LIMITED
Applicant
AND DOUNSIX SYSTEMS LIMITED
Respondent
Hearing: 26 April 2010
Appearances: L M Dickson for Applicant
C R D Williams for Respondent
Judgment: 28 April 2010 at 2.30pm
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
As to application to set aside a statutory demand
Background
[ 1 ] On 5 February 2009 the parties entered into a contract for the supply and
installation of a computer network (“the network contract”). Waterford Press Limited (Waterford) (the applicant) was purchaser. Dounsix Systems Limited (Dounsix) (the respondent) was supplier. Delivery was to take place in approximately five to seven working days from confirmation of the order. Dounsix attended to delivery and installation promptly. Waterford immediately encountered what it considered to be difficulties in migrating data across to its new server and complained (and continues to complain) that in the subsequent five weeks there were repeated, serious problems with the system. Dounsix took steps both in terms of work and further products to deal with the complaints. Exchanges took place between the principals of the companies. The possibility that Waterford pay the hardware component of the contract price (the hardware having been supplied to
WATERFORD PRESS LIMITED V DOUNSIX SYSTEMS LIMITED HC CHCH CIV 2009 409 002973 28 April 2010
Dounsix by a third party) and that it not pay the installation/labour portion was explored. No contractual compromise was reached between the parties.
It was common ground in submissions that a cancellation of the network contract occurred no later than 17 March 2009. On 16 March 2009 Waterford handed to Dounsix a notice terminating the network contract (together with an earlier contract which Waterford had entered into with Advance Business Computing Limited (ABC)). On the next day, 17 March 2009, Dounsix in writing accepted the termination of the contracts. While the parties exchanged views and positions over subsequent weeks, Dounsix again confirmed in writing on 6 April 2009 that the contract had been terminated.
Out of the mutual remonstrations which occurred during this period, there developed a position (which has not changed to this day) whereby the equipment remains with Waterford. However, the contract contained a reservation of title clause.
The parties continued inconclusive discussions and correspondence in April and May 2009. Waterford issued invoices in relation to claims it was making against Dounsix in relation to the network contract. Dounsix for its part issued statements of account for sums which it said were owing, including in relation to the present contract. Nothing was paid by either side.
On 2 December 2009 Dounsix, through its solicitors, issued a statutory demand for $24,822.72. The sum claimed was made up of $18,252.00 (which was said to represent the goods supplied pursuant to the network contract – as against the installation services) and $6,570.72 (representing an interest charge, described in the contract as a “finance charge” on late payment).
Waterford applies to set aside the statutory demand.
As Waterford has raised an argument that certain rights under the network contract are the rights of ABC and not Dounsix I will deal with that contention before considering issues of breach of contractual rights.
The parties identified in the network contract - construction and rectification of the contract.
In his evidence for Dounsix its director Michael Van Lokven exhibited the documents which both parties accept constituted the network contract as entered into on 5 February 2009. The contract came about in the following way. The parties had been negotiating the price of a “PC and Network Proposal”. On 4 February 2009 on its own letterhead, Dounsix thanked Waterford for choosing Dounsix to supply a proposal for the computer network hardware/software/networking requirements; set out an overview; then some basic costings; and then two and a half pages under the heading “Proposal Terms and Conditions”. Mr Van Lokven signed at the bottom of the document. The proposal was accepted and became a contract the following day (5 February 2009) when Waterford emailed its acceptance. Unsatisfactorily, James Lynch of Waterford in his affidavit in support of the originating application failed to exhibit this central agreement, exhibiting and referring only to two earlier contracts between ABC and Waterford. He therefore came to deal in evidence with the network contract for the first time only when he filed his affidavit in reply. In referring to Dounsix’s 4 February 2009 document, Mr Lynch described that as “the respondent’s PC and network proposal...”. His affidavit (at paragraph 12) contained four propositions which were in the nature of argument rather than evidence. In none of those arguments was it suggested that if the PC and network proposal had become a contract it was other than a contract between Dounsix and Waterford. The different contractual argument which Mr Lynch listed first in paragraph 12 of his affidavit was that the proposal had never become a contract because it has not been signed or initialled as required under its “acceptance” provision. Responsibly Mr Dickson did not pursue that argument the proposal had clearly been accepted in writing the following day and the contract then acted upon.
In his oral submissions Mr Dickson developed a submission that rights created in the two and a half pages of “Proposal Terms and Conditions” of the network contract were not the rights of Dounsix but belonged to (if anyone) ABC. This submission was based on a number of references in the two and half pages where consistently the supplier/seller is referred as to “ABC” or “Advanced Business Computing Limited”. Thus, for example, the limitation of liability was expressly in
relation to “Advanced Business Computing Limited”. Similarly, the retention of title clause was in favour of “Advanced Business Computing Limited”. Mr Dickson developed the submission that the rights and benefits created in those pages did not belong to Dounsix.
[ 10] There are two answers to Mr Dickson’s submissions in this regard.
[ 11 ] First, it is settled law that if a Court finds a clear mistake and it admits of no other construction, the Court may correct the mistake in the process of construction: see Rattrays Wholesale Limited v Meredyth-Young & A’Court Limited [1997] 2 NZLR 363 at 371.
[12] Secondly, where it is clear that the parties had shared a common understanding or intention which was not expressed correctly in the contract, the contract should be rectified: Rattrays Wholesale v Meredyth-Young at 372 – 373.
[13] On the documentation before the Court it is abundantly clear that the reference to ABC is an error. The evidence is that while Waterford had in earlier years looked to ABC for computing support, Mr Van Lokven and his colleague at ABC had gone their separate ways in 2008 with Mr Van Lokven thereafter, as director of Dounsix, dealing with Waterford. It is clear that in February 2009 Waterford and Dounsix intended to contract with one another and intended that the network contract apply as between them. If there were any doubt about that (which there is not) then the subsequent conduct of both parties in mutually dealing with the problems over the network contract confirms their respective understandings that the relevant parties were Dounsix and Waterford. Waterford provided its notice of cancellation to Dounsix on 16 March 2009 and Dounsix accepted the termination of the contract on 17 March 2009.
[14] For completeness, I note that the Court received some evidence and submissions on the fate of two earlier ABC/Waterford contracts and counsel explored the issue of whether ABC had assigned its interest in those contracts to Dounsix. It is not necessary to decide that issue in the context of this case where the central issues all arise under the network contract entered into in February 2009.
In the event, it is clear the rights and liabilities under the contract were intended to be as between Dounsix and Waterford. All references in the contract to “ABC” should be read as being to Dounsix. This arises as a matter of construction but would also be available through rectification.
Can Dounsix bring an action for the price in relation to a cancelled contract?
The issues explored by counsel for the parties were much more extensive than reflected in the background I have set out (at [1] to [5] above).
[ 17] In the course of counsels’ submissions, it became evident to the Court that a fundamental issue which needed to be answered was whether it remained open to Dounsix, upon the cancellation of the contract, to seek as its remedy the payment of the price of the goods.
[ 18] The grounds relied upon by Waterford in its application to set aside the statutory demand were general in this regard, in that they alleged that there was a substantial dispute as to whether or not the debt was owing. While reference was made in the affidavit evidence in support to the cancellation of the contract, the thrust of Mr Dickson’s submissions did not involve a consideration of a seller’s rights when suing for the price or the consequences of the cancellation of a contract involving the sale of goods. For its part, Dounsix’s opposition understandably proceeded in response to the arguments specifically explored by Waterford and proceeded apparently on an assumption that (if none of Dounsix’s other arguments prevailed) Waterford remained liable as a matter of contract to pay the price for the goods as identified in the contract.
[19] Because neither counsel addressed these matters specifically in the course of their submissions, the Court offered Mr Williams and Mr Dickson in turn the opportunity to make any submissions they wished to on whether an action for the price could survive cancellation. Mr Williams could not offer any further submissions on that issue. Mr Dickson was content to adopt as correct the Court’s tentative conclusion that an action for the price was not available.
[20] The Court has come to the conclusion as a result of this issue alone that there is a substantial dispute as to whether or not the debt claimed is owing.
[21] In relation to the core aspect of the statutory demand (being $18,252.00 in respect of goods), Dounsix was a seller and Waterford a buyer. Section 50 Sale of Good Act 1908 sets out the circumstances in which a seller of goods may bring an action for the price. Section 50 provides:
Action for price
(1)Where, under a contract of sale, the property in the goods has passed to the buyer, and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods.
(2)Where, under a contract of sale, the price is payable on a day certain irrespective of delivery, and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed, and the goods have not been appropriated to the contract.
I remind myself that in this jurisdiction (on an application for an order setting aside a statutory demand) what the applicant must show is that arguably it has a genuine and substantial dispute as to the existence of the debt.
In terms of s 50 Sale of Goods Act 1908 there may be an issue as to whether this seller could at law maintain an action for the price at all. Section 50(1) is not available because by the contract all property in the goods did not pass to the buyer, but remained with the seller (because payment in full was not made). Furthermore, s 50(2) of the Act does not apply to this contract as the price was not payable on a day certain irrespective of delivery. The payment provision of the contract provided expressly:
Hardware/Software will be billed from the day it is placed on your site.
As those are the two situations in which a seller has the remedy of an action for the price the core of the Dounsix claim is at best arguable. As the balance of the Dounsix claim (the claim for interest or “finance charge”) is itself dependent on the core of the claim, that is equally arguable at best.
If those matters did not of themselves arguably raise a genuine and substantial dispute as to the existence of the debt, the cancellation arguably does.
A convenient summary of the law is contained in Gault on Commercial Law, (Wellington, Brookers, 2010) SG 50.01, where there appears this commentary, which I adopt as a correct summary of the law:
SG50.01 Action for the price
An action for the price of goods will exist only where the contract of sale is still on foot. If the contract has been rescinded (where the goods are resold or the buyer’s rejection is accepted by the seller), no right to sue for the price will exist. Rather, the seller will be limited to an action for damages. If the goods have not been delivered then it is a prerequisite of an action for the price that the seller is willing and able to deliver the goods on payment of the price: see MacLean v Dunn (1828) 6 LJOS 184. The advantage of a claim for the price is that it is a claim for a debt and, therefore, once the debt is proved the Court will make an order for its payment. Damages, on the other hand, are more difficult to prove in so far as loss, remoteness, foreseeability, and mitigation, while not relevant to a claim for the price, are relevant in a claim for damages.
In this case the parties agree that the contract was cancelled in March 2009. Dounsix has not presented its statutory demand as a calculation of damages to which it says it is unquestionably entitled. It has presented no evidence aimed at establishing the quantum of a damages entitlement. It has chosen to pursue its claim as one for the price (plus late payment interest). The right to bring an action for the price in accordance with the law as summarised in Gault disappeared when the contract was cancelled.
The difficulty facing Dounsix in this regard may alternatively be presented as an issue which would arise (even without the Sale of Goods Act) under the provisions of the Contractual Remedies Act 1979. Section 8(3)(a) of the Act provides that when a contract is cancelled no party shall be obliged or entitled to perform it further so far as it remains unperformed at the time of cancellation. While there is now authority as to the retention by the innocent party of rights to enforce obligations which had accrued unconditionally before cancellation (see Brown v Langwoods Photo Stores Limited [1991] 1 NZLR 173) the right to payment of purchase price when property has yet to pass to the purchaser does not fit within the
exceptional category recognised – rather, it is an unperformed obligation fully caught by s 8(1)(3)(a) of the Act.
Conclusion
The cancellation of the contract means that there is arguably a genuine and substantial dispute as to the existence of the debt claimed by Dounsix.
The fact that it happens that the goods have physically remained with Waterford in the intervening period does not cut across this conclusion. The provisions of the Sale of Goods Act 1908 implicitly recognise that a seller who retains title controls as a matter of law the final disposition of the goods. Remedies were and remain available to the seller to enable it to take possession of the goods in order to sell them or to use them elsewhere at market value, and to quantify the damages.
The s 290(4) discretion and equitable estoppel
The Court retains under s 290(4) Companies Act 1993 a discretion as to whether or not to set aside a statutory demand when one or more of the grounds specified in s 290(4)(a),(b) or (c) has been established.
When the Court raised with Mr Williams the potential difficulty for his client’s case which I have dealt with above, Mr Williams understandably responded in the following way. He urged the Court in the event that it found that there is a substantial dispute as to whether a debt is owing nevertheless, in the discretion, to refuse to set the demand aside by reason of promises of payment made by Waterford to Dounsix. The notice of opposition had referred to the evidence of such promises and had invoked the doctrine of promissory estoppel. Mr Williams had developed his equitable estoppel submissions in his written synopsis both as a matter in their own right (going to negate a dispute) but also as relevant to the discretion. It was therefore entirely appropriate that he adopt those submissions in order to try to meet the consequences of the cancellation.
The respondent’s equitable estoppel argument
Mr Williams conveniently summarised the equitable estoppel argument as it fed into the residual discretion at the conclusion of his written synopsis in this way:
35. The Court is asked to exercise this discretion based on the following
factors unique to this case:
35.1 Waterford made a specific request for an invoice containing just the computer hardware.
35.2 Waterford promised to pay for the hardware on at least three occasions in writing.
35.3 Waterford changed their position and said they would return the hardware. Dounsix supplied the information required to enable the return (RA number).
35.4 Waterford then changed their position again and said it was Dounsix’s responsibility to collect the hardware.
35.5 Waterford changed their position yet again and said they
would hold the hardware until their claim is settled.35.6 Waterford returned to their position that it was Dounsix’s responsibility to collect the hardware.
35.7 The hardware remains in the possession of Waterford (as far as Dounsix is aware).
In a jurisdiction such as the present, where the applicant’s task is to establish that its position is arguable (with final determinations to be reached at a trial if necessary), the respondent is likely to struggle to establish that it is beyond argument that an equitable estoppel has arisen. Equitable estoppel ultimately involves the identification of equities and the assessment of competing equities. It is conceivable that cases might arise in a summary jurisdiction where the equities are clear beyond argument. On the evidence produced on this interlocutory application, this is not such a case. As a trial judge might ultimately have to rule definitively on the issue of equitable estoppel, I refrain from detailed analysis and conclusion, and record simply what is arguable.
It is at least arguable that Waterford’s requests and promises were more complicated than Dounsix contends:
(a)The evidence is that Waterford indicated it would pay the hardware/software content of the invoice if a separate invoice were rendered and would deal with the remaining issues by a discussion or negotiation to follow the next week. That was not acceptable to Dounsix as Dounsix required a signed authorisation to cover further labour costs as well.
(b)At least arguably there could have been no reasonable reliance on anything said by Waterford as the nature of any promise or representation as to payment was qualified by its requirement to leave decisions on further labour costs to the next week.
(c)At least arguably no inequity could have arisen because Waterford promptly thereafter gave notice of cancellation, with Dounsix the next day accepting the termination.
(d)In relation to the period which immediately followed (a period of less than two weeks) it is at least arguable that that was a period of commercial argy-bargy with both sides taking positions as to what they would or would not do and ultimately not agreeing on anything. It is further arguable that Dounsix could not reasonably have relied on any particular position taken from time to time in that period – both sides changed their positions at least once during the period. The correspondence indicates that by 1 April 2009 (just over two weeks after the cancellation of the contract), Waterford had requested Dounsix at least three times to remove the goods. Mr Williams’s submissions highlighted Mr Van Lokven’s evidence which indicated that the reason Dounsix did not remove the goods lay in concerns as to what Waterford (or its own computer consultant) may have done to alter the hardware and software with consequences for its potential resale. It is at least arguable that Dounsix was relying upon its own view as to how best to deal with the goods rather than relying on anything represented by Waterford. It is also arguable, indeed explained in Mr Van Lokven’s evidence, that his view of the contract
was that it was Waterford’s duty to return the goods and not Dounsix’s to uplift them. These matters suggest that Dounsix relied on its own view, not upon anything represented by Waterford.
Accordingly, in this summary context Dounsix cannot invoke the doctrine of equitable estoppel to defeat what is otherwise an arguable flaw in the statutory demand.
The s 290(4) discretion
Mr Williams relied upon the discussions between the parties and the fact that the goods have remained with Waterford not only to invoke the doctrine of equitable estoppel, but also to as a basis for the Court’s refusing, in its discretion, to set aside the demand under s 290(4) Companies Act.
The Court of Appeal has said in Primary Health Remuera Limited v Avoca Residential Construction Limited (2004) 9 NZCLC 263, 647 per O’Regan J at [42], that:
We agree that, in general terms, the discretion not to set aside a statutory demand when the necessary jurisdiction to do so is established under s 290(4)(a) or (b) will be exercised only in rare cases, when there are strong grounds for doing so.
On the evidence filed neither an equitable estoppel nor the existence of other grounds is strongly established. Dounsix is clearly aggrieved that it has been without its goods. However, the evidence at least suggests that that arose through a decision by Dounsix relating to whether the goods had been altered rather than any refusal by Waterford to allow Dounsix to have the goods. Mr Van Lokven said in his evidence that a time came some months later when he “revoked the applicant’s right to return the goods”. But by that time the contract had been cancelled, and neither party had the ability to alter the rights as they existed at the date of cancellation: s 8(3)(a) Contractual Remedies Act. Dounsix had its legal rights available to recover what remained its property. The fact that the goods have remained with Waterford therefore does not constitute a strong ground for the exercise of a residual discretion.
Conclusion – equitable estoppel and s 290(4) discretion
[40] The Court finds that Dounsix can establish neither an equitable estoppel beyond argument nor strong grounds for refusing to set aside the demand in its discretion under s 290(4) Companies Act.
Other argument – counterclaim or set-off
[41] By reason of the Court’s finding that the statutory demand should be set aside on the grounds already stated it is unnecessary for the Court to reach conclusions on other grounds advanced. Given that issues between the parties may now require resolution through a different proceeding at trial, it is undesirable that I express firm conclusions on the other grounds that were before me in this summary context.
The primary alternative argument for Waterford lay in the assertion of a counterclaim or set-off. Mr Dickson’s submission in this regard involved the premise that the relevant contractual obligations in the network contract were not as between Waterford and Dounsix but as between Waterford and ABC. The limitation of liability clause, for example, made repeated reference to ABC’s liability rather than the liability of Dounsix. Mr Dickson’s submissions in that regard could not succeed by reason of the construction and rectification principles I have referred to (above at [7] [14]).
In his initial written synopsis Mr Dickson did not submit that once the limitation of liability clauses operated Waterford had an argument for avoiding their application. Waterford had sent to Dounsix two invoices which were purportedly for damages or losses incurred as a result of the failure by Dounsix to deliver a properly functioning network. The first invoice, however, appears to be subject to an exclusion in relation to consequential damages. It is at least arguable that the second invoice, which appears to relate to Waterford’s own time, may also be excluded by a limitation requiring that replacement or repair of faulty equipment be by Dounsix. Mr Lynch also exhibited a third party invoice, which was said to relate to work carried out to remedy the situation by another information technology company.
That again is arguably precluded by the exclusion clause requiring such work to be carried out by Dounsix.
The Waterford assertion of a counterclaim or set-off also faced difficulty in that the evidence it provided fell short of the type of evidence normally required by this Court when an applicant seeks to establish a set-off or counterclaim. Mr Williams correctly referred to the judgment of the Court of Appeal in Covington Railways Limited v Uni -Accommodation Limited [2001] 1 NZLR 272, at 274 – 275, as establishing guidance as to the quality of evidence required. What Mr Williams fairly characterised as the “one line or two line” invoices provided by Waterford might well be considered to fall short of evidence before the Court showing that a real basis for the claimed amounts of set-off existed.
Costs
I have heard submissions from counsel as to costs.
It is accepted by Mr Williams for Dounsix that costs must follow the event.
Mr Williams submits that a 2B award of costs is appropriate. Mr Dickson submits that this is a case in which all the relevant information was known the parties so that there was an understanding a dispute existed. He submitted that the application should therefore not have been brought. In my assessment, that oversimplifies the matter The particular basis on which the Court has found for Waterford is not along a line of reasoning precisely adopted by Waterford or its counsel. Further, there are aspects of the commercial difficulties between the parties, including the conduct of each to the other, which have undoubtedly complicated the analysis of issues and the assessment of the correct remedy. In these circumstances a 2B award is appropriate, subject to the following limitation.
In one regard it would be unjust if Waterford were to obtain a full recovery for a particular item. That is item 4.14, Schedule 3, High Court Rules (preparation for the hearing of a defended interlocutory application). The evidence in this case was not vast but was nevertheless of some bulk. When on 25 January 2010 the
application was set down for hearing (on 26 April 2010) the Court made its standard directions requiring the applicant to file its submissions five working days before the hearing and the respondent to file its submissions two working days before the hearing. There is a twofold reasoning for such sequential directions. First, they enable a respondent to understand how the applicant’s case is to be particularly developed and to respond to that case, without having to embark on unnecessary guesswork in the light of what is often (and was in this case) a brief statement of grounds in the application. Secondly, they enable the Court if it has time in the days before the hearing to digest the submissions and the evidence in the light of those submissions, and to consider authorities to be relied upon. In the context of costs it is the impact of late filing on the first of those considerations (enabling the respondent to deal with the case against it) that should influence the outcome.
Waterford did not apply to the Court for variation of the timetable directions. For reasons that remain unexplained, its synopsis of argument was not filed in the Court until 22 April 2010. By the time counsel for the respondent received that document there was no realistic prospect of the respondent’s submissions being filed even by the working day before the hearing. Counsel appropriately discussed the matter with the case officer and sought leave to provide the Court a copy of his submissions by 9am on the morning of the hearing. I accepted that as appropriate. Necessarily, that entailed counsel for the respondent having to work under an unnecessary degree of urgency and at a weekend to complete his submissions for the Court.
I put to Mr Dickson in these circumstances a tentative view that his client, being successful on the application, should have the item for preparation reduced by fifty percent. Mr Dickson accepted that such an approach would be appropriate.
Therefore in relation to item 4.14 (preparation for the hearing) it is appropriate that there be an allowance of only one quarter day (the hearing having occupied two quarter days). Otherwise all items will be on a 2B basis.
Further disposition of issues between the parties
The Court’s jurisdiction in relation to this proceeding is close to an end. I wish to add this. Nothing in this judgment should be taken by the parties as suggesting that either party is unjustified in considering that the other could be said to have contributed to the failure of the parties to resolve these issues outside Court. I perceive that the effort that has gone into this application reflects in part a realisation that the costs of ordinary civil litigation proceeding to trial might have quickly exhausted the value of what is at stake. This Court now understands in unusual detail most of the issues. The Court has power to convene a settlement conference under r 7.79 High Court Rules at any time during the hearing. Before I make the formal orders in this case come into effect I invite counsel to address me as to whether the parties would appreciate the Court’s assistance through a settlement conference. I am in a position to make available a conference commencing 10.30am this Friday (30 April 2010) with two and a half hours reserved. If the parties seek such a conference, my intention would be that with the consent of the parties I would now pronounce formal judgment but stay the effect of those orders for a period which enables the parties to attend such a conference. To meet the provisions of r 7.79(4)(a) I will only agree to convene a conference before myself if the parties agree that I should assist in that way while being the hearing Judge.
Orders
Subject to receiving advice as the parties’ positions in response to paragraph [52] above, the formal orders of this Court would be:
(a)An order that the statutory demand issued by Dounsix Systems Limited on 2 December 2009 be set aside.
(b)An order that the applicant pay to the respondent the costs of this application on a 2B basis, subject to a reduction on item 4.14 to one quarter day only, together with disbursements to be fixed by the Registrar.
(c) An order staying the entry of this judgment to 10am 3 May 2010,
with leave to apply for a further stay only if a settlement negotiation is proceeding but has not concluded.
[54] For now, I adjourn the proceeding to 10.30am 30 April 2010. Counsel are to confer promptly and are to jointly advise the Case Officer in writing by 10am tomorrow (29 April 2010) whether the parties request the convening of a settlement conference on Friday on the basis set out in paragraph [52]. If such confirmation is received the Court will tomorrow issue a supplementary judgment formally making the order as set out in paragraph [53](a) – (c) above. If a settlement conference is not to be convened, the Court will tomorrow make the formal order set out in paragraph [53](a) – (b) only.
Solicitors
Malley & Co., Christchurch
Patient & Williams, Christchurch.
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