Nylex (New Zealand) Ltd ((in Receivership) & (in Liquidation)) v Independent Timber Merchants Co-Operative Ltd Hc Ak
| Jurisdiction | New Zealand |
| Judge | Heath J |
| Judgment Date | 15 October 2010 |
| Court | High Court |
| Docket Number | CIV-2010-404-002207 |
| Date | 15 October 2010 |
CIV-2010-404-002207
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
Summary judgment application for outstanding sum based on a running account between the parties — respondent maintained the debt had been extinguished through set-off — members of the respondent co-operative company would place orders directly with the applicant, invoices were collated at the end of the month and sent to the respondent for payment — whether respondent could use member loyalty points to set-off the debt; whether a debt could be set-off when one party had entered into a formal insolvency regime.
M J Tingey and N F D Moffatt for the Plaintiff
P R Cogswell for the Defendant
JUDGMENT OF Heath J
Nylex (New Zealand) Limited (In Receivership,& In Liquidation) (Nylex) seeks summary judgment against Independent Timber Merchants Co-operative Limited (ITM). Nylex contends that the sum of $181,672.09 is owing, based on a running account between the two companies. ITM maintains that the debt has been extinguished through its exercise of a right of set-off.
Two issues arise. The first is one of contractual interpretation. Is the amount that ITM seeks to set-off one available to it under the relevant contract? The second concerns the circumstances in which set-off can be effected, once one of the parties has entered a formal collective insolvency regime. If any right of set-off were equitable in nature, does that right survive Nylex's liquidation?
The application for summary judgment is brought under r 12.2 of the High Court Rules:
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.
(2) The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff's statement of claim can succeed.
The onus of establishing that a defendant “has no defence” to a plaintiff's claim rests on the plaintiff. Other than the need to raise an evidential foundation for a defence in respect of matters within the exclusive knowledge of the defendant, 1 the Court must be satisfied that the plaintiff has established that there is no fairly arguable defence available. 2
In cases involving the interpretation of contractual provisions, the Court must be mindful of extrinsic evidence that might be admissible to establish the meaning of relevant provisions. 3 Where the summary judgment application turns on legal questions (including one of contractual interpretation), the Court is entitled to determine the point on a summary judgment application, even if the questions are difficult. 4
ITM is a co-operative company. Its role is to provide benefits to its shareholders, through bulk purchasing and distribution of hardware and other building products. The shareholders are owner-operators of various ITM stores, throughout New Zealand. They are known as “transacting shareholders”.
On 9 March 2008, Nylex and ITM entered into a Supplier Agreement (the Agreement) by which Nylex agreed to supply its products on terms set out in the Agreement. The terms of the Agreement supplant Nylex's ordinary conditions of supply.
The way in which the Agreement was implemented is described in an affidavit from Mr Ryan-Kidd, the General Manager, Finance and Technology, of ITM. In summary:
In short, Nylex was the creditor and ITM the debtor in respect of all goods supplied by Nylex to individual transacting shareholders during the relevant month. ITM was the creditor and each transacting shareholder the debtor, in relation to obligations owed by the transacting shareholders to ITM.
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a) The individual transacting shareholders placed orders with Nylex, for particular products. Nylex then arranged for the physical delivery of those goods to the premises of the particular transacting shareholder.
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b) Nylex raised an invoice in favour of the transacting shareholder. Although that invoice was sent to the transacting shareholder (but not to ITM), the transacting shareholder was not expected to pay on that
invoice. Rather, the invoice operated as a record of Nylex's dealings with the transacting shareholder, during the relevant month. -
c) At the end of each month, Nylex would collate all invoices and send those to ITM for payment. ITM acted as a central purchasing agency, on behalf of each of the transacting shareholders.
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d) On receipt of the collated invoices, ITM would raise its own invoices in favour of each transacting shareholder for purchases made by that particular entity during the month. The transacting shareholder's obligation was to pay ITM, on those invoices.
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e) ITM paid Nylex directly for the total amount of the collated invoices, less accrued rebates.
The Agreement envisaged two types of rebates. One was based on turnover for the month and was referable to particular percentages for administration, indemnity and marketing support costs. The second related to “Platinum Supplier Events”, “Gold Sponsorship”, the “Member Marketing Fund”, and the “Member Loyalty Programme”.
The interpretation question concerns the “Member Loyalty Programme”. Was this a benefit that accrued to ITM (as opposed to individual transacting shareholders), which provided ITM with a right to set-off the value of those benefits against moneys it owed to Nylex, for the purchase of product?
In the Agreement:
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a) ITM was described as “ITM Support Office”b) Transacting shareholders were described as “ITM Transacting Shareholders”.
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c) When used collectively, “ITM Support Office” and “ITM transacting shareholders” were described as the “ITM Group”.
The trading terms and conditions were set out in cl 5 of the Agreement. Modifying its terms to reflect the entities to which descriptors were assigned, cl 5 provided:
5. TRADING TERMS AND CONDITIONS:
ITM GROUP PURCHASE TRANSACTIONS;
a) This Agreement covers all purchases made by [ITM and the transacting shareholders] from [Nylex].
b) For this Agreement [Nylex] will charge all accounts by Central Billing, i.e. invoicing all transactions direct to [ITM].
c) All invoices must clearly show the [transacting shareholder] to which the invoice relates.
d) [ITM and the transacting shareholders] expect [Nylex], to deliver every order in full and on time.
e) [Nylex] guarantees the goods supplied meet specification, all relevant standards and legislation required for sale in New Zealand and are of acceptable quality, fit for their intended purpose.
f) [Nylex] agrees to meet all valid claims against [ITM and the transacting shareholders] where product failure occurs. This also covers claims on [ITM and transacting shareholders] under the current agreements and Acts including, but not limited to, the Fair Trading Act, the Consumer Guarantees Act, Sales of Goods Act, durability and failure under the Building Act.
g) Product recalls shall be at [Nylex's] expense.
h) All cost prices are free into store based on an agreed minimum order value as recorded in [Nylex's] Information Sheet.
i) All invoices are required to be received at [ITM] no later than midday on the third (3rd) working day of the month following the month of the transaction.
j) Suppliers, or their reps, who call on [ITM and the transacting shareholders] must resolve request for credits (RFC) within 7 days of receiving the claim.
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Clause 1 of the Agreement contained part of the agreed rebate structure. Those amounts are calculated as a percentage of specified turnover; the applicable percentage increases as the volume of product supplied grows.
Clause 2 of the Agreement referred to “other rebates”, specifically stated to be in addition to those in cl 1. They were “Platinum Supplier Events”, “Conference Sponsorship”, “Member Marketing Fund” and “Member Loyalty Programme”.
ITM's case is based on the notion that the Member Loyalty Programme rebate could be calculated at 2.75% of total sales. Mr Ryan-Kidd deposes that “the rebates are fully paid to [transacting shareholders]” but “still accrued to [ITM]” rather than the individual transacting shareholders”. His view was that the distribution of rebates was a matter between ITM and its transacting shareholders.
The critical question is whether benefits accruing under the “Member Loyalty Programme” can be used by ITM to off-set the amount claimed from it by Nylex. If, as a matter of law, that is not permissible, there is no defence to Nylex's claim.
Mr Ryan-Kidd referred to marketing material from Nylex, in which the loyalty scheme was explained. By way of background, it was said that the “Loyalty Points Scheme is mutually beneficial” to both Nylex and ITM. It added that:
For Nylex it means that ITM stores have an added incentive to purchase [as] many products as they can from [Nylex]. For ITM stores it means they can accumulate points based on their spending which they can then redeem for a selection of vouchers and even travel. (my emphasis)
The notion that the loyalty scheme was referable to transacting shareholders rather than ITM itself is confirmed by the nature of the scheme. It referred specifically to an “ITM store”. It said:
HOW DOES IT WORK?
For every $1,000 spent with Nylex on any of our products 1 point is awarded.
When 10 points are achieved the ITM store can redeem them for $100 worth of Farmers, Progressive Enterprises...
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