Muollo v Creative Engineering Design Limited CA240/04 [2005] NZCA 403; (2006) 8 NZBLC 101,675 (8 December 2005)

Last Updated: 22 January 2014

IN THE COURT OF APPEAL OF NEW ZEALAND

_CA240/04

BETWEEN JUSTINE MUOLLO Appellant

AND CREATIVE ENGINEERING DESIGN LIMITED

Respondent

Hearing: 30 November 2005

Court: Anderson P, Chambers and Robertson JJ Counsel: B A Gibson for Appellant

No appearance for Respondent

Judgment: 8 December 2005 at 10am

_{JUDGMENT OF THE COURT}

The appeal is allowed and all orders against the appellant in the High Court are

_quashed.

REASONS

_{(Given by Robertson J)}

Introduction

[1] Ms Muollo appeals against that part of the decision of Keane J, delivered in the High Court in Auckland (Creative Engineering Design Ltd v Muollo & Ors HC AK CP509-SD02 29 July 2004), in which judgment was entered against her

_{personally in favour of the respondent Creative Engineering Design Ltd (CEDL) in}

MUOLLO V CREATIVE ENGINEERING DESIGN LIMITED CA CA240/04 8 December 2005

the sum of $53,276.00 for misleading and deceptive conduct in breach of the

Fair Trading Act 1986, plus interest of $7,906.88 and costs and disbursements of

$74,959.47.

[2] Ms Muollo was a director of Giusti’s Limited and Giusti’s (2002) Limited (jointly referred to as GL), companies which carried on business as producers and distributors in Wellington. By the time judgment was entered, Giusti’s (2002) Limited had changed its name to Unibic Limited. CEDL obtained judgment against Unibic Limited for $200,187.57 including interest and costs independently, but concurrently, with the judgment against Ms Muollo for $136,142.35.

[3] Although identifying the exact details of the contract or arrangements between GL and CEDL was far from easy, it was always common ground that Ms Muollo could only be answerable directly to CEDL under the Fair Trading Act

1986.

The background

[4] The case (which involved a seven day hearing in the High Court) concerned a claim made by CEDL in respect of the design and manufacture of a machine for making biscuits in the shape of spoons. Although there were issues about who owned the intellectual property, the significant issue before the High Court was whether the trays and press which CEDL designed to form the biscuits for baking, were designed and manufactured on time, to price and were fit for the purpose intended.

[5] During the late 1990s, Ms Muollo conceived the idea of an edible spoon. She sketched a design and experimented with recipes. She employed a Palmerston North company to improve her design, to manufacture some hand-operated moulds and subsequently a rudimentary manual machine.

[6] Having tested the market and satisfying herself that there was potential, Ms Muollo had various contacts with a number of companies about advancing the

project until eventually, in February 2002, she was introduced to Mr Scheib of

CEDL. A business relationship developed.

[7] The terms of the contract between the respective companies could only be inferred from the conduct and numerous statements of the parties both in written and oral form since they never concluded a comprehensive agreement. As things panned out, the contractual arrangements evolved in conjunction with the various steps in developing the machine.

[8] Included in the evidence about the contractual arrangements was an email of

27 July 2002 from Ms Muollo to Mr Scheib:

Great seeing you yesterday! I think we made progress and covered heaps. Further to our conversation yesterday you will need to cancel invoice 621 and re-issue with all details please of a new invoice to be for 31 July for

$40,000 which is to include press etc as I want it to be on one invoice so it will be straight forward knowing what I have paid for rather than being

separated ie part press etc. I can then pay you $40,000 on 20 August. I need this done please asap. I can then confirm a new order for another 20 trays

which will be paid in September once you have informed me of the discounted price from Supreme. Thanks and I am disregarding invoice 621 and await the replacement. Justine.

[9] CEDL complied with the request. There was an invoice issued which included items previously contained in invoice 621 but no payment was made.

High Court findings

[10] Keane J found, on the balance of probabilities, that there was an intent to contract between CEDL and GL. He further found that time for delivery was never fixed definitively, that the work done by CEDL did meet design function and was fit for purpose and merchantable. The Judge accordingly concluded that CEDL was entitled in contract to look to GL for the sum it claimed on its outstanding invoices. He found also that liability would have existed in any event on a “quantum meruit” basis. None of that is subject to appeal.

[11] However, CEDL submitted, and the Judge accepted, that the promise in the

27 July email was Ms Muollo’s and hers alone and this was misleading and deceptive conduct contrary to s 9 of the Fair Trading Act which caused loss.

[12] The Judge rejected the submission that it could not be misleading and deceptive conduct because when Ms Muollo sent the email she meant it. In respect of the $40,000, he concluded at [169]:

In that context, I am unable to see how Ms Muollo could begin to be entitled to resile from her undertaking. I can only conclude that when she gave it she was intent on an immediate advantage only, and not intent on honouring it. She was, I consider, misleading, and CEDL was misled to its detriment: AMP Finance Ltd v Heaven (1997) 8 TCLR 144 (CA).

[13] The Judge also found that the penultimate sentence of the email amounted to a promise by Ms Muollo to pay for a further 20 trays. The cost of those trays was

$25,000, but the Judge found that Ms Muollo should not be liable for all that sum as CEDL was able to mitigate its loss by stopping manufacture. CEDL’s loss in regard to this aspect was fixed by the Judge at $13,276: see [171].

[14] With respect to the loss on the 20 tray order, the Judge found at [172]:

I have found that the evidence is lacking that Ms Muollo did confirm this order on 26 July. She did confirm it on 27 July. This seems to me a facet of the conduct, which I have just described as misleading. Ms Muollo must be made independently liable for any resulting loss, $13,276.

The appeal

[15] The principal issue on the appeal was whether there was an evidential foundation for the Judge’s conclusion that Ms Muollo intended to gain immediate advantage in the email and had no intent to honour the promise. Ms Muollo submitted there was no indication in the judgment of the process of reasoning to come to that conclusion. Rather it was submitted the evidence supported Ms Muollo’s position throughout that when she sent the email she meant what it said and, although payment did not occur, that is credibly explained by the dispute which arose.

[16] Complaint was also made that in the finding at [169], cited above at [12] Keane J elevated the promise to pay to an undertaking which wrongly focused the inquiry on the conduct of the appellant at the time payment was due rather than whether the email misled CEDL.

[17] Mr Gibson relied particularly on the Australian decision Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 55 ALR 23 which supports the proposition that the time the email was sent is the relevant time for assessing her conduct and intention for the purposes of legislation like the Fair Trading Act.

[18] Similarly in respect of the last 20 trays, counsel submitted that the evidence supported the opposite conclusion to the one reached by the Judge, namely that when these orders were made there was a genuine intention to pay and no misleading or deceptive conduct in terms of the Act.

[19] Mr Gibson raised a secondary issue concerning the costs award. That issue is relevant only if his argument on the principal issue fails. In view of the finding we reach on liability, we do not need to discuss the costs point.

[20] CEDL elected not to be represented on the appeal.

Discussion

[21] We are satisfied that the appeal must succeed.

[22] While we accept that making a promise can involve misleading conduct (see Heydon Trade Practices Law (looseleaf ed) at [11.180]), a promise under the Fair Trading Act does not equate to a contractual promise or undertaking. The first sentence of [169] is the language of contract law, not of the Fair Trading Act. The only contractual promise Ms Muollo made was in her capacity as a director of GL. The pervasive error in the High Court judgment is the unjustified assumption that the statement in the 27 July email was in the nature of a contractual promise or undertaking by Ms Muollo personally.

[23] There is no evidence to support that conclusion, and Ms Muollo was not challenged on her assertions that she acted always on behalf of the company.

[24] A second error emerges in the Judge’s reasoning when he held that Ms Muollo, having given an undertaking and later having resiled from it, must never have intended to honour the promise: it was, the Judge says, the only conclusion able to be drawn. It does not follow that, because at some later stage a person wrongly decides not to carry out the promise, he or she never intended to do so. Such a line of reasoning fails to recognise the possibility that the decision to resile from the promise may have been made subsequently.

[25] There may be occasions when, on the evidence in a particular case, it is clear that a person in trade never intended to deliver on the promise (see, for example, Gunton v Aviation Classics Limited [2004] 3 NZLR 836 at [236]-[246]). In such circumstances, liability for misleading conduct arises because the innocent party is able to show that the promisor did not, at the time of making the promise, have any intention to deliver on it: James v Australia and New Zealand Banking Group (1986)

[1986] FCA 41; 64 ALR 347 at 372. The circumstances where a plaintiff is able to prove that will be rare. The important point to be stressed is that the mere fact that representations as to future conduct do not come to pass does not of itself make them misleading or deceptive.

[26] The only evidence as to the intention of Ms Muollo when she sent the

27 July 2002 email is what she herself said. She gave evidence that at the time she sent that email she intended to make the payments referred to. She was not cross- examined on that. She did not ultimately make the payments because she later concluded that CEDL had failed to deliver on its promises. The fact that the Judge disagreed with her assessment of CEDL’s later performance does not mean that the original representations as to future conduct were misleading or deceptive. We accordingly find that there was no evidential foundation for a finding that there was an undertaking by Ms Muollo personally, or that she was intent upon immediate advantage only.

Conclusion

[27] We are satisfied that the judgment against Ms Muollo cannot stand. There is no evidential basis for the finding of a personal breach of the Fair Trading Act.

[28] It necessarily follows that the appeal must be allowed and all orders made against Ms Muollo in the High Court are quashed. The orders against CEDL are undisturbed.

[29] Ms Muollo did not seek costs in respect of the hearing in the High Court or on this appeal.

Solicitors:

B A Gibson, Wellington, for Appellant