IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-7429

UNDER	Part 12 of the High Court Rules

IN THE MATTER OF	an application for summary judgment

BETWEEN	REDEAL LIMITED Plaintiff

AND	GREGORY CHARLES FROUDE Defendant

Hearing:	6 May 2010

Counsel:	B J Upton and N E Montgomery for Plaintiff
G M Illingworth QC for Defendant

Judgment:	20 October 2010 at 11 am

RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Summary Judgment Application)

This judgment was delivered by me on 20 October 2010 at 11 am pursuant to
Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date ..........................

Solicitors:

Simpson Grierson, Private Bag 92518, Auckland
Kemps Weir, PO Box 62566, Auckland

REDEAL LIMITED V  FROUDE HC AK CIV-2009-404-7429  20 October 2010

[1]       The plaintiff, Redeal Limited, applies for summary judgment on its claim against the defendant, Mr Gregory Froude, under a guarantee.   Its claim relates to trade debts incurred by Aden Electrical Limited.   The defendant, a director and shareholder of Aden Electrical, guaranteed those debts.

[2]       The application is opposed.

Background

[3]       The plaintiff is a distributor of electrical products.  It supplied goods to Aden Electrical.   The terms and conditions on which it first did so were, variously, the Ideal Electrical Suppliers terms and conditions and the GEC (New Zealand) Limited standard conditions of sale.  Except where necessary to refer to them separately, I refer to them collectively as the standard terms and conditions of supply.

[4]       In September or October 2008, Aden Electrical defaulted on its payment obligations under the standard terms and conditions of supply.   On 12 February
2009,  after  protracted  negotiations,  the  plaintiff  and  Aden  Electrical  agreed  to revised terms and conditions.  These were set out in a letter of that date signed by Mr Raymond Offord, a director of the plaintiff, and countersigned by the defendant for Aden Electrical.

[5]       The revised terms included the following:

a)        Credit was to be limited to a maximum “to be agreed” but expected to be not less than $1.8 million.   The credit limit was to reduce by
$40,000 per month in line with monthly payments of this amount.

b)        The  defendant  was  to  personally  guarantee  monies  owing  to  the plaintiff by Aden Electrical.  A deed of guarantee was executed to this effect on 12 February 2009.

c)        Aden Electrical was to make payment of $40,000 per month “in order to   reduce   the   current   debt   outside   60   days   (excluding   any

appropriately held or validly disputed invoices)” and to make all other payments by their due dates within the current terms.

d)	The standard terms and conditions of supply were to continue to apply except to the extent inconsistent with the terms of the letter.

[6]       An email followed on 13 February 2009.   It was from Mr Offord to the defendant, both of whom signed a hard copy.  The email confirmed that credit was “capped, at this point, to a value not exceeding $1.8m”.

[7]       From March 2009 onwards, on the plaintiff’s account, Aden Electrical was in persistent  breach  of  these  terms.    It  exceeded  its  credit  limit  and  its  monthly payments were less than agreed.   The plaintiff accordingly applied stop credit directives to its account.  The parties’ respective obligations, and the extent to which they were discharged by each of the parties, is the subject of dispute.

[8]       In any case, on 2 October 2009 the plaintiff issued written demands on Aden

Electrical and the defendant for $1,819,585.39.  The demands went unheeded.

[9]       Aden Electrical was placed in liquidation on 5 March 2010.   The plaintiff commenced this proceeding against the defendant as guarantor on 6 November 2009. It seeks summary judgment on the balance outstanding, $1,877,917.99 including interest  to  31  October  2009,  plus  costs  and  interest  from  1  November 2009  to judgment under the standard terms and conditions of supply and the terms of the guarantee.

Legal principles on summary judgment

[10]     The plaintiff applies for summary judgment under r 12.2 of the High Court

Rules. Rule 12.2 provides:

12.2 Judgment when there is no defence or when no cause of action can succeed

(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

…

[11]     The legal principles applying to applications for summary judgment were succinctly expressed by the Court of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26]:

The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ
84 (CA).

[12]     Ordinarily, the enquiry into whether the plaintiff has satisfied the Court that the defendant has no defence focuses on the absence of a substantive defence. However, as Duffy J held in Westpac New Zealand Ltd v Cooper HC Auckland CIV-
2009-404-990, 29 January 2010, the form of the plaintiff’s claim, and the evidence to establish the claim, is also relevant to this enquiry (at [8]):

A statement of claim which fails to include material allegations, and primary affidavits   which   fail   to   adduce   evidence   relevant   to   proving   those allegations, can also result in the application for summary judgment being

dismissed.  Minor  errors  or  omissions  may be  curable  by permitting the applicant  leave  to  amend  its  pleading  and  to  file  additional  affidavit evidence. But where such errors and omissions create real prejudice for a defendant, the likely result will be refusal of summary judgment.

[13]     Duffy J later observed (at [61]):

The purpose of an application for summary judgment is to provide a robust and efficient means of obtaining judgment in cases where the defendant has no available defence. This should be done in a clear and cogent manner by way of the original documents the applicant files in the Court. Applicants whose cases get off to a poor start through material failures to plead the claim properly, and to provide all the necessary and relevant evidence in the original affidavits should not be able to keep such cases going through filing reply evidence, which result in defendants then needing leave to respond. What is intended to be a quick and efficacious remedy becomes instead something that is long and drawn out. As a matter of policy, I consider that it is wrong in principle for applicants for summary judgment to bring poorly prepared applications and then to attempt to repair them once the defendant has identified the deficiencies.

Issues for determination

[14]     The overarching issues in the present case reduce to these:

a)        What were the terms and conditions on which the plaintiff supplied

Aden Electrical?

b)        Were  these  terms  and  conditions  breached,  and  if  so  in  what particulars, by either party?

c)        If the terms and conditions were breached, what was the effect of the breach on the continued obligations of the plaintiff and Aden Electrical, and of the defendant as guarantor?

[15]     The plaintiff must resolve these issues in its favour in two respects.  First, the plaintiff must establish its entitlement to relief.   That is, it must establish that it supplied Aden Electrical on certain terms, that Aden Electrical breached those terms, and that pursuant to those terms and those of the guarantee it may now claim against the defendant as guarantor.  This is a threshold enquiry.  A statement of claim which fails to include material allegations, and primary affidavits which fail to adduce

evidence relevant to proving those allegations, can result in the application for summary judgment being dismissed: Westpac New Zealand Ltd v Cooper at [8].

[16]     Secondly,  the  plaintiff  must  satisfy  the  Court  that  the  defendant  has  no defence to its claim.  I turn to this presently.

Has the plaintiff made out its case?

[17]     Mr Offord for the plaintiff verifies the statements and allegations contained in the plaintiff’s statement of claim.  He deposes to the belief that the defendant has no defence.

[18]     The statements and allegations contained in the plaintiff’s statement of claim, however, do not establish the facts the plaintiff needs in order to claim against the defendant under his guarantee.  Material facts, which should have been stated at the outset, were not.  They emerged, patchily, in successive affidavits.  The inadequacies are several.  The amount claimed was not in its entirety due.  The statement of claim misstated the relevant terms and conditions of supply.  The amount claimed did not account for rebates, invoices held and otherwise disputed invoices, for which belated deduction has since been made without any attempt to amend the pleading.  Finally, the statement of claim did not particularise the breach or breaches relied on.

The amount claimed

[19]     The plaintiff’s original documents did not establish that, as at the date of their preparation, the amount claimed was not only owing but due.  It claimed:

a)	$1,590,113.03 outstanding under the Ideal terms and conditions;

b)	$37,657.50  in  interest  accrued  pursuant  to  the  Ideal  terms  and conditions as at 31 October 2009; and

c)	$250,147.46  outstanding  under  the  GEC  terms  and  conditions  of supply.

[20]     Mr Offord for the plaintiff, in his affidavit, annexed a statement which he deposed confirms the amounts “due and owing”.  The statement does indeed confirm the amount claimed is owing.  However, of the $1,590,113.03 owing under the Ideal terms and conditions, only $1,530,277.53 was overdue as at 31 October 2009.  Of the $250,147.46 owing under the GEC terms and conditions, only $216,063.66 was overdue as at 31 October 2009.

[21]     Of the amount claimed, $93,913.30 was not then due, as it was so described by Mr Offord for the plaintiff in his evidence.   This discrepancy proved to be the first of many.

The terms and conditions of supply

[22]     The plaintiff’s original documents misstated the terms on which the plaintiff supplied Aden Electrical.  The plaintiff pleaded that:

a)        It supplied goods to Aden Electrical pursuant to its standard terms and conditions of supply;

b)        The   defendant   guaranteed   performance   of   Aden   Electrical’s obligations  to  the  plaintiff  pursuant  to  its  standard  terms  and conditions of supply; and

c)        The plaintiff continued to supply goods pursuant to its standard terms and conditions of supply in consideration of the guarantee.

[23]     Mr Offord for the plaintiff verified the above and placed in evidence the standard terms and conditions of supply.

[24]     It became apparent, however, that these were not the terms and conditions on which the plaintiff supplied goods to Aden Electrical, at least from 12 February
2009.   The terms and conditions of supply were modified by letter of that date, signed by Mr Offord for the plaintiff and countersigned by the defendant for Aden Electrical.  They were modified in at least one material respect thereafter.  The terms set out in the letter, expressed as those on which the plaintiff would continue to

supply Aden Electrical, included a credit limit, the defendant’s provision of a guarantee and monthly payments in reduction of non-current debt.

[25]    The terms of the letter of 12 February 2010 and the extent to which they were subsequently varied may not ultimately avail the defendant.   There are certain indications they will not.  But that is hardly the point.  The point is that the plaintiff in its pleading and evidence misstated the terms and conditions on which it supplied Aden Electrical.   The statement of claim should have provided an “essential road map  for  the  Court  and  the  parties”  (Price  Waterhouse  v  Fortex  Group  Ltd CA179/98, 30 November 1998).   In this case it proved, from the outset, entirely diversionary.

Rebates, invoices held and otherwise disputed invoices

[26]     The plaintiff’s original documents claimed an amount the entirety of which, by its own belated acknowledgement, is not due.  The defendant contends, and to a limited extent the plaintiff now accepts, that the plaintiff’s claim does not account for rebates, invoices held and otherwise disputed invoices.  He contends that:

a)        Such  ought  properly  to  be  deducted  from  his  monthly  account balances, which will not then be seen to have exceeded his credit limit; and

b)        Such was the legitimate basis for withholding the monthly payments prescribed by the terms of the letter of 12 February 2009.

[27]     The defendant’s estimate is unsubstantiated and I would be minded to adopt a robust approach to it, was it entirely at odds with the evidence of the plaintiff.  Such is not the case.  While the plaintiff’s original documents fail to make any reference to rebates, invoices held or otherwise disputed invoices, Mr Offord for the plaintiff in his first reply affidavit belatedly acknowledges outstanding rebates in the amount of
$9,758.41.

[28]     The position as to invoices held and otherwise disputed invoices remains unclear.  The plaintiff’s evidence is that the defendant would withhold payment not only, as is usual commercial practice, of the disputed amount, but rather of the total invoice.  Mr Offord for the plaintiff refers, for example, to an invoice for $3,298.56 of which only $132.42 is in apparent dispute.   Quite how this establishes that the plaintiff is entitled to its claim without any further deduction is unclear.

[29]     What is clear is that the issue of rebates, invoices held and otherwise disputed invoices did not arise for the first time in the defendant’s affidavit.  Rather, it has been an ongoing feature of the relevant parties’ correspondence:

a)        The  terms  of  the  letter  of  12  February  2009  excluded  from  the monthly payments “any appropriately held or validly disputed invoices”.

b)        The  terms  of  the  email  of  13  February  2009  excluded  from  the monthly payments “any validly disputed invoices on hold and any credits for rebates”.  As to the latter, the email acknowledged rebates were  last  credited  to  the  end  of  October  2008  and  promised  to calculate the position to the end of January 2009 and process it in the February billings.

c)	An email from the defendant to Mr Offord of 3 June 2009 talked of a

$40,000 invoice to be credited, nearly $200,000 having been invoiced in April 2009 and not delivered until May, and noted Aden Electrical was still waiting on the breakdown of the rebates to October 2008.

d)	Mr Offord for the plaintiff deposed to having processed a credit of

$23,460 on 18 August 2009 for the value of disputed amounts from 1

February 2009 to 31 July 2009.

[30]     Counsel for the plaintiff submitted that the amount claimed is correct “save for the outstanding rebate of $9,758.41”.  The plaintiff has not sought to amend its

pleading.   The defendant’s evidence is, of course, that a much greater sum is in dispute.

[31]     I consider that the plaintiff has not established its entitlement to the amount claimed.  I am satisfied there is a real question to be tried as to the amount of rebates, invoices held and otherwise disputed invoices.  I would be more inclined to adopt a robust approach to the unsubstantiated assertion as to quantum of the defendant was it not corroborated, albeit in minimal part, by the late concession of the plaintiff, and did it not resonate, at least to some degree, with the tenor of the parties’ earlier correspondence.

Breach

[32]     The  plaintiff’s  original  documents  failed  to  particularise  the  breach  or breaches of the terms and conditions of supply on which it relies in its claim against the defendant as guarantor.   Its pleading is in this respect limited to the allegation that Aden Electrical “defaulted in that it failed to pay amounts due and owing to the plaintiff”.  The only document from which a breach may be gleaned was annexed, to a different end, to Mr Offord’s first reply affidavit.  Counsel for the plaintiff, at the hearing, engaged in a meticulous analysis of this document, endeavouring in a handwritten  document  to  demonstrate and  quantify the monthly shortfalls  in  an attempt to identify a discrete breach or breaches.  This attempt to fill in the gaps in the plaintiff’s evidence came too late.  It should have been in evidence.

Conclusion

[33]     In the event that I was to regard the facts that have emerged in the parties’ successive affidavits as sufficient to make out a claim for the plaintiff, the fact remains  that  they  have  emerged  in  a  piecemeal  fashion  and  that  it  became increasingly apparent the plaintiff’s original documents were hopelessly inadequate. In the event that I was, this notwithstanding, to grant summary judgment, I would be granting it on a claim wholly different from that pleaded.  There has been no attempt to amend the pleading.  It would be a claim largely of my own creation and based on an attempt to make sense of the factual morass that has emerged from the manner in

which the plaintiff’s case was advanced.  I do not regard such a forensic exercise as appropriate on summary judgment or, from a policy perspective, as an appropriate response to a case that is advanced in the manner described.   Every affidavit has added a new twist.   I cannot be satisfied there are not more yet to come.   This is plainly a case which should be re-pleaded and discovery allowed to proceed in an orderly fashion prior to trial.

The defendant’s defence

[34]     The defendant’s defence was advanced on various bases.   They   may be reduced to this: that the plaintiff, in serious breach of the terms and conditions on which it was to supply Aden Electrical, unjustifiably ceased supply.   The consequences are said to be either or both of the following:

a)        A significant departure by the plaintiff from the terms and conditions on which it supplied Aden Electrical, conditional on performance of which the defendant entered into the guarantee, operating to preclude the continued existence of the circumstances in which the guarantor agreed to be bound.  Counsel referred in this respect to Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 (HCA).

b)        A breach by the plaintiff of the terms and conditions on which it supplied  Aden  Electrical, the effect  of  which  was  substantially to reduce the benefit of the contract to Aden Electrical, thus entitling Aden Electrical to cancel the contract pursuant to s 7(3) of the Contractual Remedies Act 1979 and discharging the defendant from further liability.

[35]     Counsel for the plaintiff submitted the defendant is seeking merely to muddy the waters, and that his defence may be disposed of in short order.  Counsel submits the plaintiff ceased supplying Aden Electrical not unjustifiably – that is, not in breach of the terms and conditions on which it had agreed to supply it – but rather

justifiably, in that Aden Electrical was itself in clear and repeated breach of those terms and conditions.

[36]	Specifically, counsel submitted, Aden Electrical exceeded its credit limit and failed to make the monthly payments prescribed by the letter of 12 February 2009.

The credit limit

[37]	The plaintiff did not rely on this breach (indeed made no reference to this term) in its original documents.  The position emerged as follows:

a)	The defendant, in his original affidavit, placed in evidence the letter of

12  February  2009  and  email  of  13  February  2009  in  which  the plaintiff and Aden Electrical agreed on a credit limit and fixed it at
$1.8 million.  The defendant deposed it was subsequently extended to at least $2.5 million.

b)        Mr Offord for the plaintiff, in his first reply affidavit, acknowledged that the plaintiff and Aden Electrical agreed on a credit limit and fixed it at $1.8 million.   But he expressly denied that at any time it was subsequently extended to $2.5 million.  Indeed, he denies that Aden Electrical was ever offered a credit limit higher than the $1.8 million first agreed on.

c)        The defendant, in his reply affidavit, deposed again that the credit limit was extended to $2.5 million by verbal agreement.  But in any case, he deposed, it was extended to $2.4 million in writing.   He placed in evidence an email of 26 May 2009 in which Mr Offord states “the credit limit is what we agreed at $2.4 million”.

d)        Mr Offord for the plaintiff, in his second reply affidavit, belatedly acknowledged the credit limit was extended to $2.4 million.   He deposed, however, that it was temporary, to enable completion of a discrete project.   He placed in evidence two emails of 3 June 2009.

The tenor of these is that additional credit was extended to enable completion of a discrete project in expectation of additional payments. Those additional payments did not eventuate and it was by reference to the same that the plaintiff ultimately ceased supply.

[38]     The above serves to further illustrate the inadequate manner in which the plaintiff  has  advanced  its  case.    Counsel  for  the  defendant  charitably  confined himself to the submission that the discrepancies in Mr Offord’s evidence suggest he may have glossed over material issues.   I accept that submission.   In light of the irregularities in the plaintiff’s evidence I am disinclined to adopt a robust approach to the defendant’s.  In the event, I am not prepared to resolve the material conflict in the evidence as to the amount of the credit limit agreed between the plaintiff and Aden Electrical.  I am therefore not prepared to find the defendant has no arguable defence in that that the plaintiff unjustifiably ceased supply on the false premise that the credit limit had been exceeded.  I accept, also, that there is a material conflict in the evidence as to the quantum of rebates, invoices held and otherwise disputed invoices that goes to this question.

The monthly payments

[39]     The  plaintiff,  similarly,  did  not  rely on  this  breach  (and  again  made  no reference  to  this  term)  in  its  original  documents.    It  became  clear  from  the defendant’s evidence that Aden Electrical did indeed assume an obligation to make monthly payments of $40,000 in reduction of non-current debt.   But this was to exclude rebates, invoices held and otherwise disputed invoices.   The defendant deposed that in early May, in frustration with these not being promptly addressed and “as the agreed rebates would more than cover the $40,000 per month”, Aden Electrical ceased its monthly payments.  This statement may be somewhat glib, but it was not challenged by Mr Offord for the plaintiff in either his first or second reply affidavit, nor by the plaintiff’s counsel at hearing.  I am not prepared to disregard it summarily.  I am not, therefore, prepared to find that the defendant has no arguable defence in that the plaintiff unjustifiably ceased supply on the false premise that the payments were not made when they should have been.

Conclusion

[40]     I find that the performance by the plaintiff of the terms and conditions on which  it  agreed  to  supply Aden  Electrical,  and  whether  breach  of  the  same  in unjustifiably ceasing supply may have discharged the guarantee, remain real questions to be tried.   The plaintiff has not satisfied me that the defendant has no defence.

Result

[41]     The plaintiff’s application for summary judgment is declined.

[42]     I reserve costs in accordance with the decision of the Court of Appeal in NZI Bank Ltd v Philpott [1990] 2 NZLR 403.

[43]     The case is to be listed in the chambers list on 17 November 2010 at
2.15pm for further directions.  Memoranda should be filed at least two days prior with proposed directions.

Associate Judge Sargisson