Fakir Halal Donners v Taylor Preston Ltd HC Auckland CIV-2010-485-1530 [2011] NZHC 8; [2011] NZCCLR 17 (31 January 2011)

Last Updated: 7 February 2011

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

_{CIV-2010-485-1530}

BETWEEN FAKIR HALAL DONNERS Plaintiff

AND TAYLOR PRESTON LIMITED First Defendant

Hearing: 13 December 2010

Appearances: J.D. Haig - Counsel for Plaintiff

K. Johnston - Counsel for Defendant

Judgment: 31 January 2011 at 3.00 pm

_{JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL}

This judgment was delivered by Associate Judge Gendall on 31 January 2011 at

3.00 pm under r 11.5 of the High Court Rules.

Solicitors: Greenwood, Roche, Chisnall, Solicitors, PO Box 25501, Wellington

Crengle, Shreves & Ratner, Solicitors, PO Box 10236, Wellington

FAKIR HALAL DONNERS V TAYLOR PRESTON LIMITED HC WN CIV-2010-485-1530 31 January 2011

Introduction

[1] The defendant, Taylor Preston Limited (TPL), applies for a number of interlocutory orders against the plaintiff, Fakir Halal Donners (FHD). In particular, TPL seeks:

(a) An order striking out FHD’s entire statement of claim on the basis that it is an abuse of process;

(b) Orders striking out the second, third, fourth and seventh causes of action on the basis that they cannot succeed; and

(c) An order for security for costs.

[2] FHD opposes the applications for strike-out, but as I understand the position, it is willing to consent to an order for security for costs provided it does not exceed

$20,000.00. A sum of $20,000.00 has already been paid into Court by FHD.

Background

[3] FHD is a partnership between two brothers, Mr F.M. Minhas and Mr K. Minhas which operates from Birmingham, United Kingdom carrying on business first, as a processor of Halal meat products in the UK and secondly, as an importer and seller of Halal meat products into the UK, Pakistan and the United Arab Emirates.

[4] TPL is a New Zealand company carrying on business in Wellington as an abattoir, meat processor and exporter.

[5] On 31 August 2006, TPL and FHD entered into a contract for the sale and purchase of white lambs’ trotters (“the contract”), which FHD sought to import and sell as a delicacy in the UK Halal market. The contract was for 1.5 million trotters per annum. TPL had not previously produced any lambs’ trotters, but was willing to

enter into the contract on the condition that FHD would install the required processing machinery at TPL’s abattoir at its own cost. FHD then purchased and installed these processing machines at a cost of around €115,000. The contract apparently included an additional term that TPL had an option to purchase these machines from FHD.

[6] Various visits to and inspections of TPL’s abattoir by the FHD partners then took place. There, the specifications and processes for the white lamb trotters were discussed. After the contract was entered into, in April 2007 photographs showing the correct specification for the white lamb trotters were supplied by FHD to TPL. Production then commenced and the first shipment under the contract was sent to FHD on 23 May 2007 which, in accordance with its terms, also marked the date of commencement of the contract.

[7] The written specifications for the lambs’ trotters included in the contract required TPL to supply “frozen edible certified white lambs trotters, wool removed, skin on and toenails off”. In addition, FHD alleges that the parties’ agreement required that the trotters be cut at the knuckle joint and that the shank be covered by skin up to the first joint. TPL’s position is that, while the plaintiff proposed the introduction of “additional specifications”, these were never agreed to.

[8] On 11 February 2010, TPL purported to cancel the contract, based on an alleged failure by FHD to pay for shipments. FHD then brought proceedings against TPL. FHD’s primary cause of action is that TPL breached the contract by failing to provide lambs’ trotters in accordance with contractual “specifications”. This meant that the trotters were inedible and could not be sold to FHD’s customers. For example, FHD alleges that TPL supplied white lambs’ trotters cut below the knuckle joint; black lambs’ trotters; trotters that were not properly cleaned of wool; and trotters that were not covered by skin. FHD also relies on causes of action under the Sale of Goods Act 1908 and the Fair Trading Act 1986.

[9] FHD further claims first that TPL was wrong to purport to exercise an option to purchase FHD’s processing machinery provided for in the contract and thus off-

set amounts claimed by it against the value of the machinery, and secondly that in any event TPL was not entitled to cancel the contract for non-payment.

Application for Strike-out: Abuse of Process

[10] Turning now to consider TPL’s first application noted at [1](a) above, here TPL complains that FHD’s statement of claim amounts to an abuse of process on the basis that it is prolix and contains objectionable evidence. Rule 15.1(1)(d) High Court Rules provides that the Court may strike-out all or part of a pleading if it is “otherwise an abuse of the process of the Court”. The present statement of claim is

23 pages and 120 paragraphs long and alleges the existence of nine causes of action. It includes a significant body of factual material, including references to 24 separate emails.

[11] TPL submits that it is elementary that pleadings must set out the factual allegations necessary to establish the right to a remedy, but must not go further than that, referring to Russell v Taxation Review Authority (2000) 19 NZTC 15,924 (at [40]):

It should not be necessary to state that there are only three possible reasons for including an allegation in a pleading. The primary reason is that the allegation forms one of the essential factual planks upon which judgment depends. Whether an allegation is justified under this heading is easily tested. The question is whether, in the absence of proof of the pleaded fact, the plaintiff would be entitled to judgment. The second is that the pleaded fact is critical to the quantum or nature of the remedy sought. The third is that contextual facts may be pleaded if without them it would not be possible to understand the more critical factual allegations. In addition, it will be helpful to set out the statement of claim in a way which concisely shows the legal nature of classification of each cause of action.

[12] TPL claims that much of the evidence that is pleaded is prejudicial, disputed and “simply irrelevant”. It points out that FHD does not in fact allege that the contract is ambiguous, which would require the Court to look more closely at the matrix of facts in interpreting the contract, and that the parties’ objective mutual intention will have to be assessed against the general factual background, and within the four corners of the document itself. As such, TPL contends that much of the evidence pleaded is objectionable and “cannot possibly be relevant”.

[13] As an example, TPL refers to paras 5 to 8 of the statement of claim, which plead that FHD started selling edible white lambs’ trotters as a product into the UK Halal market in 2000; that white lambs’ trotters are eaten as a delicacy by Muslims; that for FHD to be able to sell the trotters they must have certain characteristics; and that “... [t]raditionally white lambs’ trotters are prepared for eating by cooking in liquid with spices and herbs for 2-4 hours...”. In particular, TPL objects to paras 4-

25, 29-38, 47, 49, 51-52, 64-67 of the statement of claim. It submits that, because striking out of those paragraphs would render the statement of claim incomprehensible, FHD should be required to re-plead the whole of its claim in a way which does not include objectionable evidence. However, TPL does acknowledge that the statement of claim is capable of “repair” and that FHD should be given an opportunity to amend the pleading in order to cure the alleged deficiencies.

[14] FHD, on the other hand, contends that TPL’s concerns are not sufficiently serious to make out any of the grounds under r 15.1. In particular, FHD argues that this is not a case where the statement of claim makes it difficult or impossible for TPL to plead in response (see, for example, McCready v Attorney-General HC Wellington CIV-2010-485-1625, 9 November 2010 and Teinangaro v Fastway Couriers (NZ) Ltd HC Napier CIV-2009-441-751, 7 July 2010), and points out that TPL does not suggest that it had any difficulty in filing a statement of defence and counterclaim.

[15] FHD also disputes that the pleading of evidence in the specified paragraphs is objectionable. It submits that the paragraphs are relevant, as they provide contextual facts to inform the Court and TPL of its claim and to render the claim comprehensible: see Russell v Taxation Review Authority at [6]. FHD contends therefore that, in substance, its statement of claim complies with r 5.26.

[16] Rule 5.26 provides:

5.26 Statement of claim to show nature of claim

The statement of claim—

(a) must show the general nature of the plaintiff's claim to the relief sought;

and

(b) must give sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the

court and the party or parties against whom relief is sought of the plaintiff's cause of action; and

(c) must state specifically the basis of any claim for interest and the rate at which interest is claimed; and

(d) in a proceeding against the Crown that is instituted against the Attorney- General, must give particulars of the government department or officer or employee of the Crown concerned.

[17] FHD also rejects TPL’s suggestion that the meaning of the contract will be largely determined from within the four corners of the document, referring to Vector Gas Ltd v Bay of Plenty Energy Limited [2010] NZSC 5, [2010] 2 NZLR 444, and submits that evidence of further facts is necessary to establish the real meaning of the contract.

[18] In relation to this latter point, it is important to note that TPL does not submit that evidence of surrounding circumstances would generally be irrelevant or inadmissible. The real issue in dispute seems to be the degree to which the body of facts that is set out in the statement of claim could be material to the interpretation of the contract. It seems likely, for example, that some of these facts will be relied upon to interpret the use of the word “edible” in cl 6 of the contract. In that context, pre- contractual negotiations between the parties could be relevant if, construed objectively, they tended to establish background facts known to both parties, or if they cast light on the contract’s meaning: see I-Health Ltd v iSoft NZ Ltd HC Auckland CIV-2006-404-7881, 8 September 2010 at [41].

[19] The inclusion of factual material could also not be regarded as objectionable if the facts were “contextual facts [without which] it would not be possible to understand the more critical factual allegations” (see Russell at [6]), as suggested by FHD.

[20] I now turn to the paragraphs which form the subject of TPL’s particular complaint. On this, it needs to be noted at the outset that TPL does not argue here that the statement of claim is misleading, or so confusing as to make it impossible to form an appropriate response. Indeed, a detailed statement of defence and

counterclaim from TPL was filed some 3 weeks after FHD’s statement of claim was issued.

[21] Paras 4-11 set out the “background”, which seems to consist mostly of information of marginal relevance, namely a description of FHD’s business and its history in selling white lambs’ trotters. However, para 7 also includes “the specification”, setting out the requirements for edible lambs’ trotters. As I see it, this is material information, in that it clearly forms part of FHD’s claim, but it might be that ideally it should be included in a different part of the pleadings. There is little in this however.

[22] Paras 12 to 25 set out “pre-agreement negotiations”. It seems unlikely to me that all of the details set out would be strictly relevant, but some of them might be material in establishing the true meaning of the contract (in addition, they might also be relevant in terms of the causes of action under the Sale of Goods Act 1908 and the Fair Trading Act 1986).

[23] Paras 29 to 37 describe an “inspection” by FHD of TPL’s abattoir and the machines in February 2007, and set out further communications regarding the specifications. It might be that these facts could be relevant as “subsequent conduct” in interpreting the contract, but this was not specifically argued by FHD.

[24] Para 38 refers to an email sent to TPL confirming the correct specifications by way of photographs, which are relied on as “samples” for the purposes of s 17 of the Sale of Goods Act 1908. This paragraph would be relevant if the s 17 cause of action is not struck out.

[25] Para 47 pleads that in August 2007 FHD’s customers complained that the white lambs’ trotters were distasteful and inedible because, when they were cooked, the wool trapped in the hollow bone was released. It might be that it would be sufficient to allege that the trotters were inedible because they were not produced in accordance with specifications but in my view there is little in this.

[26] Para 49 states that FHD could not on-sell trotters that did not conform with the specification and that they had to be “dumped”. Again, this might be relevant here to quantum of the alleged loss.

[27] Paras 51 and 52 plead that FHD notified TPL that “incorrect specification trotters” were shipped, and that TPL issued credit notes in response and apologised. This may turn out to be directly relevant on issues before the Court here, including quantum questions.

[28] Paras 64 to 67 describe an alleged attempt by TPL to vary the contract (ie requests for a higher price, lower volume etc). This may well be irrelevant but again little turns on this in my view.

[29] Essentially here, what is alleged for TPL is that FHD has over-particularised its claim. But, in striking out the paragraphs from FHD’s statement of claim noted at [21] to [28] above, TPL suggests this would render the entire document incomprehensible. On that basis, TPL argues that the whole statement of claim should be struck out, and that FHD should be required to re-plead its entire claim in a way which does not include objectionable evidence.

[30] I reject this contention however. Imperfections in FHD’s overall pleading here in my view are not fatal. The threshold required under r 15.1 High Court Rules for striking out a plaintiff’s claim is a high one and, in my view, in this case TPL has fallen short of reaching that threshold.

Application for Strike-Out of Second, Third, Fourth and Seventh Causes of

Action

[31] TPL applies for orders striking out FHD’s second, third, fourth and seventh causes of action, on the basis that these pleadings do not disclose viable claims. The applications are opposed on the grounds that the causes of action are reasonably arguable, and that the applications raise “disputed questions of fact” that should be determined at trial.

[32] The criteria for striking out a cause of action were summarised as follows by the Court of Appeal in Attorney-General v Prince [1998] 1 NZLR 262:

A striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true. That is so even although they are not or may not be admitted. It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed (R Lucas & Son (Nelson Mail) Ltd v O'Brien [1978] 2 NZLR 289 at pp

294 – 295; Takaro Properties Ltd (in receivership) v Rowling [1978] 2 NZLR

314 at pp 316 – 317); the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material (Gartside v Sheffield, Young & Ellis [1983] NZCA 37; [1983] NZLR 37 at p 45; Electricity Corporation Ltd v Geotherm Energy Ltd [1992] 2 NZLR 641); but the fact that applications to strike out raise difficult questions of law, and require extensive argument does not exclude jurisdiction (Gartside v Sheffield, Young & Ellis).

[33] These principles were endorsed by the Supreme Court in Couch v Attorney- General [2008] NZSC 45, [2008] 3 NZLR 725 at [33], where it was said that it is “inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed”. Moreover, where a defective cause of action is capable of effective repair by amendment, the Court will usually permit amendment rather than striking the pleading out.

The second and third causes of actions

[34] In its second and third causes of actions, FHD claims that the additional statutory warranties under s 16 of the Sale of Goods Act 1908 were applicable, and that the defendant was in breach of an implied warranty as to fitness for purpose (para (a)) and merchantable quality (para (b)). The causes of action are pleaded in the alternative, if the Court rejects the plaintiff’s claim that the parties agreed on the alleged specifications.

[35] TPL submits that FHD’s case here will turn on three issues, namely the terms of the contract entered into between the parties; the interpretation of those terms; and whether TPL has breached the terms. For the purposes of the present application, TPL acknowledges that it is required to accept that goods falling short of the alleged specifications could not be sold in the plaintiff’s “specialist market” and that, if TPL contracted to provide goods in accordance with these “additional” specifications, it breached its contractual obligations.

[36] However, TPL submits that FHD cannot rely on ss 16(a) or 16(b) of the Sale of Goods Act 1908 to claim that there were implied warranties in the written contract that, in order to be fit for purpose or to be of merchantable quality, the products had to meet the (“additional”) specifications.

[37] Sections 16(a) and 16(b) Sale of Goods Act 1908 provide as follows:

[16] Implied conditions as to quality or fitness

Subject to the provisions of this Act and of any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:

(a) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply (whether he is the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose:

Provided that in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose:

(b) Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality:

...

[38] In relation to para (a), FHD claims that it expressly made known to TPL the purpose for which the trotters were required (presumably that they were to be used for human consumption in the Halal meat market), and that it relied on TPL’s skill and judgment in supplying trotters that were reasonably fit for that purpose.

[39] TPL submits that FHD cannot assert that it relied on TPL’s skill or judgment in relation to the particular requirements of its “specialist market”, and FHD must therefore be assumed to have relied on its own skill or judgment in that area. Reference is here made to Hamilton v Papakura District Council [2002] 3 NZLR

308, where the Privy Council adopted the principles set out in Ashington Piggeries Ltd v Christopher Hill Ltd [1971] 1 All ER 847 in determining that there was no assumption of reliance by the buyer that the water it purchased was of a higher quality than the drinking water standard. In Ashington, the buyer purchased animal

feed from the seller for the mink farming market, which turned out to be toxic. The Court held that the buyer partially relied on the skill and judgment of the seller to see that the ingredients were of a quality suitable for compounding animal feeding stuffs. However, the seller would not have been liable if the contaminated feed had been toxic only to mink, for the seller’s sphere of expertise did not relate to mink specifically.

[40] TPL referred to the following passage from the judgment of Lord

Wilberforce in Ashington (at 872-3)

I do not think it is disputed, or in any case disputable, that a particular purpose was made known by the buyers so as to show that they relied on the sellers' skill and judgment. The particular purpose for which 'King Size' was required was as food for mink. Equally I think it is clear (as both courts have found) that there was reliance on the respondents' skill and judgment. Although the Act makes no reference to partial reliance, it was settled, well before Cammell Laird & Co Ltd v Manganese Bronze and Brass Co Ltd was decided in this House, that there may be cases where the buyer relies on his own skill or judgment for some purposes and on that of the seller for others. This House gave to that principle emphatic endorsement. The present is certainly such a case. In the words of Milmo J ([1968] 1 Lloyd's Rep at 480):

'On the one hand Mr. Udall was relying on his own judgment as to what his formula should contain and the levels at which the various ingredients in it should be included. On the other, he was relying, and had no alternative but to rely, upon the [respondents] to obtain the ingredients, to see they were of good quality and not to use ingredients which, as a result of contamination, were toxic.'

The word 'toxic' will require some examination but, subject to this, I consider that this passage correctly states the position as regards reliance.

The field thus left to the respondents can be described in terms of their responsibility as merchants, to obtain and deliver ingredients, and relevantly herring meal, not unfit by reason of contamination, to be fed to animals, including mink. The field reserved to the appellants, on the other hand, was that of particular or specific suitability for mink. There was no doubt that herring meal, as such, was suitable for mink; on the other hand, the particular consignments supplied in 1961 were unsuitable because of the presence of DMNA. What, then, was the nature of this unsuitability?

If mink possessed an idiosyncrasy, which made the food as supplied unsuitable for them though it was perfectly suitable for other animals, this would be the buyers' responsibility, unless, as is not the case here, they had made this idiosyncrasy known to the sellers so as to show reliance on them to provide for it.

[41] TPL argues that FHD was not entitled to rely on TPL’s skill or judgment to produce goods with the characteristics required for FHD’s market because, on its own pleading, FHD had extensive knowledge and experience of the particular requirements of lambs’ trotters for that market, and FHD was aware that TPL had never produced lambs’ trotters and had no knowledge or experience of the

requirements of lambs’ trotters for FHD’s market. TPL seeks to distinguish Ashington on the basis that, in that case, the feed was toxic generally as well as for mink, while the plaintiff here makes no allegation that TPL’s products were not generally fit for human consumption.

[42] FHD contends that, contrary to TPL’s submission, the statement of claim clearly alleges that the products were “inedible”. FHD argues that it relied on TPL’s skill and judgment to produce trotters that met the specifications so as to render the trotters fit for human consumption, and rejects TPL’s suggestion that it had a “specialised market”.

[43] In my view, it would be overly premature – in the context of the present application - to engage in an analysis of TPL’s alleged “sphere of expertise”. It is clear that there is a dispute as to whether FHD’s requirements in fact related to a “specialised market”, as suggested by TPL, or whether the trotters were generally unfit for human consumption. These are matters that will have to be determined at trial. FHD’s overall assertion seems to be that, in order to be edible in the circumstances prevailing here, white lambs’ trotters have to be produced in the described manner, and that TPL’s trotters fell short of these requirements. I would therefore reject TPL’s contention that FHD makes no allegation that the trotters were not generally fit for human consumption. On that basis, it is clearly arguable that FHD relied on TPL’s skill and expertise to produce white lambs’ trotters fit for human consumption. Moreover, even if the particular requirements were somehow specific to FHD’s market, it might well be arguable that these “idiosyncrasies” had been made known to TPL “so as to show reliance on [TPL] to provide for them” (see Ashington at 873).

[44] In relation to s.16(b) Sale of Goods Act 1908, which forms the basis of the third cause of action, FHD claims that the lambs’ trotters were goods bought by description, and that there was an implied condition that the trotters be of merchantable quality. It claims that the trotters were not of merchantable quality because they did not meet the specifications.

[45] TPL submits that the real issue here is the “contractual description” of the goods, which in turn will inform what is merchantable. TPL refers to the test set out in Henry Kendall & Sons Ltd v William Lillico & Sons Ltd [1969] 2 AC 31 at 77, where Lord Reid said goods are of merchantable quality “if of use for any purpose for which goods which complied with the description under which they were sold would normally be used”: see Nesbit v Porter CA165/99, 30 May 2000 at [52].

[46] TPL submits that it was FHD who provided the description, because it was FHD who had knowledge and experience of the relevant requirements; that the description was contained in the relevant clause of the contract; that a description of the alleged requirements of FHD’s specialised market was not included in the contract; and that there is no assertion that the products were unfit for human consumption, or that they could not be used for any purpose (as opposed to FHD’s “specialised purpose”). In essence, TPL’s submission is that FHD cannot “go beyond” the cause of action for breach of contract.

[47] FHD again contends that the statement of claim clearly alleges that the products were not fit for human consumption, and rejects TPL’s suggestion that it had a “specialised market”. It argues that TPL failed to fulfil the requirements of “the description”, which rendered the trotters inedible due to release of wool from the bone, and which meant that they were not of merchantable quality. It submits that the issue of merchantable quality is a question of fact and must be determined at trial.

[48] It might well be here that TPL is right that the s 16(b) Sale of Goods Act

1908 cause of action adds little to FHD’s contract claim, given that cl 6 of the contract expressly provides that the trotters must be “edible”. However, this hardly provides a sufficient reason for strike-out, and the two causes of action are not identical. Again, I agree with FHD that the issue here is largely a factual one. The question is whether the supplied lambs’ trotters were of merchantable quality, namely whether they could be used for any purpose for which lambs’ trotters of the relevant description would normally be used.

[49] For these reasons, TPL’s application to strike out FHD’s second and third causes of action must fail.

Fourth cause of action

[50] FHD’s fourth cause of action is based on s 17 of the Sale of Goods Act 1908, which provides as follows:

17 Sale by sample

(1) A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect.

(2) In the case of a contract for sale by sample there is an implied condition— (a) That the bulk shall correspond with the sample in quality;

(b) That the buyer shall have a reasonable opportunity of comparing the bulk with the sample; and

(c) That the goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.

[51] FHD claims here that it provided samples to TPL to show the required specifications for the trotters, and that there was an implied condition that the trotters would be in accordance with the samples. However, TPL contends that the case does not involve a “sale by sample” and that s 17 is therefore irrelevant. It accepts that a sale by sample may involve either party producing the sample, but submits that in this case no sample was produced by either party prior to the contract being entered into.

[52] FHD accepts that a physical sample was not provided, but submits that the photographs that it provided to TPL were sufficient to amount to such a sample because they were intended to fill any gaps or to resolve any ambiguity that may have existed in the written specifications. FHD submits that it must at least be reasonably arguable that a photograph can constitute a sample, arguing that a photograph is capable of fulfilling the object of “present[ing] to the eye the real meaning and intention of the parties with regard to the subject matter of the contract

which owing to imperfections of language, it may be impossible to express in words”: Drummond v Van Ingen [1887] 2 App Cas 248 at 297. FHD seems to rely on photographs that were provided subsequent to entering into the contract, but prior to commencement of the contract submitting that it tendered the photographs to TPL to clarify exactly the specifications it required, and that it was relying on TPL to produce the trotters as shown.

[53] Before me, no authority was cited as to whether a photograph either can or cannot amount to a “sample” for the purposes of s 17. Nevertheless, I have no doubt that a sample must be a physical example of the bulk, given that a sample must generally be in exact correspondence with the bulk: see Trelise Cooper Ltd v Cooper Watkinson Textiles Ltd HC Auckland CIV-207-404-4308, 20 June 2008 at [51]. The literal meaning of the word “sample” supports that conclusion. For example, the Oxford English Dictionary (OED Online, November 2010, Oxford University Press) defines “sample” as:

A relatively small quantity of material, or an individual object, from which the quality of the mass, group, species, etc. which it represents may be inferred; a specimen. Now chiefly Comm., a small quantity of some commodity, presented or shown to customers as a specimen of the goods offered for sale.

[54] In the present case, a photograph was supplied but no physical sample was provided. That is insufficient to engage s 17 Sale of Goods Act 1908. It must follow that FHD’s fourth cause of action should be struck out. An order to this effect is to follow.

Seventh cause of action

[55] FHD’s seventh cause of action is based on s 9 of the Fair Trading Act 1986. In a draft statement of claim provided to the Court at this hearing which FHD proposes to file, it alleges that TPL’s actions constituted misleading and deceptive conduct, in that it falsely represented that it could and would supply a minimum of

1.5 million white lambs’ trotters per annum in accordance with the specifications that would be fit for the purpose for which they were supplied, and that would be of merchantable quality and/or in accordance with the samples. FHD further alleges

that TPL induced it to enter into the contract on the basis of these false representations.

[56] However, the current version of the plaintiff’s statement of claim does not plead the making of misrepresentations by TPL, but alleges that it behaved in a misleading and deceptive manner when it purported to take ownership of FHDs processing machines and cancelled the contract for non-payment. TPL, in response, contends that these actions could not possibly constitute misrepresentations.

[57] Before me, however, TPL made no further submissions in relation to this aspect of FHD’s proposed amended statement of claim. I can only assume therefore that TPL does not continue its application insofar as it concerns TPL’s amended seventh cause of action. That application accordingly is dismissed.

Security for Costs

[58] TPL applies for an order for security for costs. The ground relied upon in its application is that the plaintiff is a partnership which has its place of business outside New Zealand (see r 5.45(1)(a)(i)). However, TPL now also seems to allege that the plaintiff will be unable to pay TPL’s costs if its proceeding is unsuccessful (see r

5.45(1)(b)). FHD has agreed to pay into Court a sum of $20,000 (and has now done so) on the basis that it is not resident in New Zealand, but it is opposed to any further payment of security. It rejects the suggestion that if unsuccessful, it would be unable to pay TPL’s costs. Before me, TPL disputed this and sought security in the order of

$50,000.

[59] In A S McLachlan Ltd v MEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747, the Court of Appeal provided the following summary of the general approach to be taken to applications for security for costs:

[13] Rule 60(1)(b) High Court rules provides that where the court is satisfied, on the application of a defendant, that there is reason to believe that the plaintiff will be unable to pay costs if unsuccessful, “the court may, if it thinks fit in all the circumstances, order the giving of security for costs”. Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing “principles” from the facts of previous cases.

[14] While collections of authorities such as that in the judgment of Master Williams in Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430, can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of going through a check list of so-called principles. That creates a risk that a factor accorded weight in a particular case will be given disproportionate weight, or even treated as a requirement for the making or refusing of an order, in quite different circumstances.

[60] Insofar as TPL seeks to rely on FHD’s alleged impecuniosity, it must adduce credible evidence of surrounding circumstances from which it may be reasonably inferred that FHD will not be able to pay the costs: see McGechan on Procedure at HR5.45.02. TPL asserts that FHD’s own affidavit shows that the partnership is in a negative cash flow position and there is no independent verification of FHD’s assets. However, the affidavit clearly states that the partnership remains profitable. Accounts for 2009 show that it made a net profit of €38,931.00 for that year, and that it has net assets of €130,322. In addition, the affidavit deposes to the fact that, between them, the partners of FHD have net assets exceeding $NZ1.3 million. On the basis of this information, I am not satisfied that there is reason to believe that FHD would be unable to pay TPL’s costs. FHD’s financial position, therefore, is not a factor in my determination.

[61] However, in terms of r 5.45(1)(a)(i), FHD’s partners being resident out of New Zealand, it is clear that the threshold test for security for costs is met here. In addition, FHD is clearly not opposed to an order for security for costs. The only issue left to be determined is quantum, and whether the sum of $20,000 paid into Court is sufficient in the circumstances.

[62] There is no inflexible principle that a plaintiff resident outside New Zealand should normally be ordered to give security, but the ease, convenience and the expenses of enforcing a costs award in the country of residence are important considerations: Aquaculture Corporation v McFarlane Laboratories (1984) Ltd (1987) 1 PRNZ 467. An associated consideration is whether the plaintiff has property within New Zealand that is of a fixed and permanent nature, and not under threat or subject to enforcement procedures: Jalfox Pty Limited v Motel Association of NZ Inc [1984] 2 NZLR 647.

[63] FHD submits that any costs award could be easily enforced pursuant to the Foreign Judgments (Reciprocal Enforcement) Act 1933 (UK). It also contends that account should be taken of its allegation, which forms part of the proceeding, that TPL has taken wrongful ownership of its machinery, this machinery having a value of some €80,000. FHD argues that further security is unnecessary because the value of the machinery would be sufficient to cover TPL’s costs. TPL, of course, contends that it is the rightful owner of the machinery. In these circumstances, I do not consider that the fact that the machinery is located in New Zealand should be given any weight here.

[64] As to quantum here, TPL contends that interlocutory applications in this case will be extensive, that expert evidence will be necessary, and that the case will raise relatively complex factual and legal issues. TPL estimates that the trial will last five days. On that basis, TPL seeks security in the order of $50,000 - $20,000 before the filing of an amended statement of claim (which as I have noted has already been paid) and a further $30,000 before allocation of a fixture. It submits that costs on a

2B basis are likely to amount to between $50,000 and $100,000.

[65] Balancing the parties’ respective submissions, I have come to the conclusion that it is unnecessary to order any security beyond the sum that has already been paid into Court. The partners of FHD are resident overseas, but it appears that a costs award against them (over and above the $20,000.00 already paid) could be enforced by relatively simple means. While the trial might take up to five days, will raise some complex matters and like most cases the outcome will be heavily fact- dependent, I have gained a very preliminary impression here that, at its core, there may well be some substance in aspects of FHD’s overall claim. In these circumstances, I do not consider that an order for further security is needed here.

Conclusion

[66] For all the reasons outlined above, TPL’s first application to strike-out FHD’s entire claim on abuse of process grounds fails and is dismissed. Its second application in so far as it attempts to strike out FHD’s second, third and seventh

causes of action also fails and is dismissed but that application succeeds in relation to the fourth cause of action.

[67] An order is now made that FHD’s fourth cause of action pleaded in its statement of claim is now struck out.

[68] TPL’s third application this one for further security for costs (over and above the $20,000.00 already paid by FHD) also fails and is dismissed.

[69] A direction is made, however, that by 14 February 2011 FHD is to file and serve their amended statement of claim a copy of which has been provided in draft to the Court.

Costs

[70] Costs on these applications are reserved. If counsel are unable to agree this question between themselves they may file memoranda on costs (sequentially) and I will decide the issue based on the material before the Court.

‘Associate Judge D.I. Gendall’