Mjn McNaughton Ltd v Thode Hc Rot

JurisdictionNew Zealand
CourtHigh Court
JudgeDuffy J
Judgment Date10 May 2012
Neutral Citation[2012] NZHC 982
Docket NumberCIV-2011-404-001590

[2012] NZHC 982

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV-2011-404-001590

Under the District Courts Act 1947

BETWEEN
MJN Mcnaughton Limited
Appellant
and
Richard James Thode
Respondent
Counsel:

S J Ropati for the Appellant

G P Blanchard for the Respondent

G P Blanchard P 0 Box 1235 Shortland Street Auckland 1140 for the Respondent

COPY To:

Macky Robelton Limited (M A Robelton) Po Box 37622 (DX CP31503) Parnell Auckland 115 1

Appeal against District Court decision rejecting claim that appellant had right to recover contract price for timber delivery from director of company in liquidation — company went into liquidation after timber joinery delivered — under agreement appellant retained security interest over goods but there was no express retention of title clause — seized/repossessed goods on default but did not sell them — sought to recover cost of timber from director (respondent) as was guarantor under terms of supply — whether retaining of security interest over the goods manifested an intention against the passing of property on delivery — whether default rules under s20 Sale of Goods Act 1908 (“SOG”)(rules for ascertaining intention) applied — whether placing of restrictions on how the property was to be use damounted to retention of right of disposal under s21 SOG (reservation of right of disposal) and if not, when did the property pass to the buyer (respondent) — whether director was liable to pay the contract price — whether appellant had the right to sue for the contract price despite repossession of the joinery

The issues were: whether retaining of security interest over the goods manifested an intention against the passing of property on delivery; whether the default rules under s20 Sale of Goods Act 1908 (“SOG”) (rules for ascertaining intention) applied; whether placing of restrictions on how the property was to be used on delivery amounted to retention of a right of disposal under s21 SOG (reservation of right of disposal) and if not, when did the property pass to the buyer; whether T was liable to pay under the contract; and whether McNaughton had the right to sue for the contract price despite repossession of the joinery

Held:The restriction on Nikau from parting with the possession, selling or disposing of the goods until the goods and services were paid for in full and McNaughton's right to seize goods for default in payment showed that the intention of the parties was more like granting credit rather than retaining the title. As the parties did not clearly manifest an intention as to when property was to pass, as required under s19 SOG (property passed when intended to pass and intention of parties ascertained from terms of the contract, conduct of the parties and the circumstances of the case), the default rules under s20 SOG applied.

For property to pass under rule 5 s20 SOG:

  • 1. the goods had to be in a deliverable state;

  • 2. there had to be an unconditional appropriation to the contract by one of the parties;

  • 3. there had to be express or implied assent to the appropriated goods; and

  • 4. there was to be no reservation of right of disposal of goods by the parties.

The joinery was in a deliverable state after it's manufacture (goods were assembled and in such a state the buyer was bound to take delivery of them). It was custom-made to N's specifications and so was appropriated to the contract as soon as it was produced. Further, there was an implied assent that the joinery, once manufactured, would be appropriated to the contract. Although McNaughton placed restrictions on how the property was to be used once it was delivered, McNaughton did not maintain the right to dispose of the goods in its own way. The trade clause was to be interpreted so as to enable McNaughton to enforce its security interest if N defaulted and did not amount to reserving a “right of disposal” under s21 SOG; s21 therefore, did not apply. The property passed on completion of the manufacturing process and the joinery was ready to be delivered.

Even where there was wrongful neglect or refusal to pay, the seller had to remain in the position to perform his side of the contract so as to maintain that the contract was still alive ( Chatfield v Jones). Nikau did not perform the payment obligation under the contract and so, wrongfulness was established. The joinery which was seized still remained with McNaughton and was not sold. McNaughton was still in position to return the joinery if contract price was paid. The requirements for an action for the contract price were met. As T had guaranteed to cover payment of the contract price, T was liable for the full payment of the joinery.

When a creditor took possession of the collateral, it had to either sell it under s109 Personal Property Securities Act 1999 (“PPS”) (secured party may take possession of and sell collateral) or retain it and apply it in satisfaction of the debt under s120 PPS (proposal of secured party to retain collateral). Both of these required further action including the giving of notice to interested parties. Although McNaughton seized possession of its security interest, it had not done anything to satisfy the debt and the debt was still owed despite repossession. McNaughton retained a right to sue for the contract price under s50(1) SOG (seller to maintain action against buyer for price of goods where buyer neglected or refused payment when goods passed to buyer).

Appeal succeeded.

JUDGMENT OF Duffy J

Facts
1

The appellant, MJN McNaughton Limited (McNaughton), is a manufacturer of timber joinery. The respondent, Richard James Thode, was a director of Nikau Living Ltd (Nikau), a building company currently in liquidation. In March 2008, McNaughton delivered timber joinery, which it had manufactured, to a building site of a residential building that was being constructed by Nikau. McNaughton was not paid for this joinery.

2

As Nikau then went into liquidation, McNaughton brought proceedings in the District Court against Mr Thode claiming that it was entitled to recover the cost of joinery from him, as he was a guarantor under the terms of supply between McNaughton and Nikau. McNaughton was unsuccessful and appealed to this Court.

3

In the District Court, Mr Thode had successfully denied that there was a contract between McNaughton and Nikau to supply the joinery that was delivered in March 2008.

4

On 21 October 2011, I delivered an interim judgment in which I found at [26] that there was a contract to supply the joinery which McNaughton had delivered to Nikau's building site. At [31] of the interim judgment, I found as follows:

The joinery was delivered some time in March 2008, but Nikau did not pay for the joinery. It was stored on site in a garage and none of it was used in the building project. The appellant discussed with Mr Lamb, who was buying the Victoria Avenue property, the possibility of him purchasing the joinery, but the price he was prepared to pay was not acceptable to the appellant. The sale of the property was to settle in May 2008, but shortly before the settlement date, the appellant removed the joinery from the site. It remains with the appellant.

5

At [32]–[35] of the interim judgment, I identified what I described as outstanding issues that had not been addressed, either in the District Court or by the parties in the appeal to this Court. I saw those issues as pivotal to the outcome of the appeal. I provided the parties with the opportunity to address those issues. They were also given the opportunity of inviting me to refer the case back to the District Court for rehearing. The parties chose to continue with the appeal and to address the outstanding issues by way of written submissions. Having considered their submissions, I am now in a position to deliver a final judgment. This has been done on the papers. This judgment should be read together with the interim judgment which sets out the factual context in which the dispute between the parties arose.

Application of the Sale of Goods Act 1908
6

At [32] of the interim judgment, I found that the first outstanding issue the parties needed to deal with was whether the contract for the supply of the joinery was governed by the Sale of Goods Act 1908 (the SOG Act). The parties now concede that it does; thus, they impliedly accept that the joinery constitutes “goods” for the purpose of that Act.

7

They also concede that the guarantee given by Mr Thode only covers liability for the contract price and not liability for damages for non-acceptance.

8

The next question is how to characterise the nature of the breach by Nikau and the liability that arises therefrom. Here, it is important to determine whether property has passed under the SOG Act.

Passing of property
9

Section 19 of the SOG Act states that property in specific or ascertained goods is transferred to the buyer at such time as the parties to the contract intend it to be transferred, having regard to the terms of the contract, the conduct of the parties and the circumstances of the case. Where the parties have not shown a specific intention, the default rules in s 20 apply.

10

Usually, if there is an express retention of title clause, that would show an intent for property not to pass until payment were made. Here, the terms of trade under which the joinery was supplied do not contain an express retention of title clause. But they did give McNaughton a security interest over the joinery.

11

The question, therefore, is whether something less than a retention of title clause could still be interpreted to show the same intent; in particular, whether retaining a security interest over the goods is considered to be reserving a right to the goods so as to manifest an intention...

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1 cases
  • Mjn Mcnaughton Ltd v Thode HC Rot
    • New Zealand
    • High Court
    • 10 May 2012
    ...HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY CIV-2011-404-001590 [2012] NZHC 982 UNDER the District Courts Act 1947 BETWEEN MJN MCNAUGHTON LIMITED Appellant AND RICHARD JAMES THODE Respondent Hearing: 10 May 2012 (On the Papers) Counsel: S J Ropati for the Appellant G P Blanchard for the Resp......

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