Judgment is entered for the appellant against the respondents in CA786/2008 in the sum of $137,914.07 together with interest from 20 July 2008 at the Judicature Act rate.

Judgment is entered for the appellant against the respondents in CA785/08 in the sum of $54,151.50 together with interest from 20 July 2008 at the Judicature Act rate.

The respondents must pay the appellant costs for a standard appeal on a band A basis, plus usual disbursements.

REASONS OF THE COURT

(Given by Venning J)

Introduction

[1] The appellant (Bromley) supplied solid surface bench tops to the first respondents (MFL and Lagoon) pursuant to distribution agreements. The second respondents guaranteed payment of money owing by MFL and Lagoon under the agreements.
[2] Bromley brought summary judgment proceedings against the respondents to recover the price of product supplied. In the case of MFL Bromley claimed $137,914.07 and in the case of Lagoon, $54,151.50.
[3] In the High Court Associate Judge Christiansen accepted Bromley had supplied product to the value claimed: Gran-Marbello International Ltd v Martin and Judith Fitzsimmons Ltd HC CHCH CIV-2008-409-1406 9 December 2008. He also accepted that MFL and Lagoon had arguable cases for equitable set-off against Bromley’s claims but found that the provisions of the distribution agreement precluded the respondents from raising the claims as a defence to Bromley’s claim for payment. Despite that finding, in the exercise of the Court’s residual discretion, the Associate Judge declined to enter summary judgment. Bromley appeals from that decision.

Background

[4] Under the distribution agreements Bromley appointed MFL and Lagoon as distributors, within their respective territories, to sell Bromley’s product, which was described as “premium quality residential and commercial solid surface bench tops”. MFL commenced business in the Christchurch area on 31 May 2005. Lagoon commenced business in the Queenstown area on 25 August 2007.
[5] Bromley’s business relationship with the respondents and other distributors was not successful from its point of view. Bromley sustained substantial losses from the outset. When Mr Bills reviewed the position on behalf of Bromley he concluded the problems related to the auto-quoting system (which had led to Bromley seriously underpricing the products it supplied to its distributors) and the distributors’ mark-up.
[6] In May 2008 Mr Bills moved to change the quoting system. He also remained concerned whether the distributor model was sustainable for Bromley. In his regular updates to the distributors, particularly during May 2008, he expressed his concerns bluntly. For example, he said that with the competition in the market:

there just may not be the opportunity or room for a fully fledged distributor as such

and that:

we will in fact, be forced to price these jobs direct and employ local specialist installers.

(Original emphasis)

[7] In the case of MFL the matter culminated in a meeting on 3 June 2008 between Mr Fitzsimons for MFL and Messrs Bills and Foster for Bromley. At the meeting Mr Bills told Mr Fitzsimons that he could either walk away or work for Bromley.
[8] Correspondence then followed between MFL and Bromley’s solicitors. MFL considered Bromley had repudiated the distributor agreement. Its solicitors ultimately purported to accept the repudiation and cancel.
[9] In Lagoon’s case, Mr Lees concluded that by the end of May 2008 Bromley’s communications evidenced an intention by it to rid itself of the distributor network. Lagoon did not pursue fresh business from June 2008. It effectively closed its doors shortly thereafter.
[10] Bromley issued summary judgment proceedings against MFL and Lagoon, seeking payment for product supplied prior to termination of the distribution agreements. As the proceedings raised similar issues they were heard together.
[11] Both MFL and Lagoon consider they would have made a profit if the distribution agreement had run for the initial period of five years as was contemplated by their agreements. They seek to set-off their claims for lost profit against Bromley’s claim against them.

Issues

[12] The issues raised on this appeal are:

(a) Is there an arguable case Bromley repudiated the distribution agreement?

(b) Is there an arguable case MFL and Lagoon cancelled the distribution agreements?
(c) Are MFL and Lagoon’s claims for equitable set-off excluded by the provisions of the distribution agreement?
(d) Was the Associate Judge wrong to decline summary judgment in the exercise of the Court’s residual discretion? And
(e) Is Mr Lees bound by the guarantee?

Is there an arguable case Bromley repudiated the distribution agreement?

[13] In support of the appeal, Mr Paulsen argued the Associate Judge was wrong to find the respondents had an arguable case for set-off. He submitted Bromley had not repudiated the agreement and the respondents were not entitled to cancel. If he succeeded on these points, Mr Paulsen submitted there was no need to consider the other issues, as the right to set-off would not arise.
[14] The starting point is the distribution agreements. Under the agreements Bromley gave MFL and Lagoon the right to distribute its products throughout the defined territories. Bromley agreed it would not appoint additional distributors within those territories but reserved the right to itself, or through an affiliate, to distribute products to “wholesalers, retail chains, existing distributors and the general public”.
[15] Importantly for present purposes the agreements provided for pricing as follows at cl 9.2:

[Bromley] will provide retail-selling prices to the Distributor. There will also be National Packages and Promotional Campaigns arranged by [Bromley] where [Bromley] reserves the right to set maximum retail selling prices. Standard retail prices are to be set by [Bromley] at a rate, which is extremely competitive with other similar products sold in the Territory by competing organisations.

(Emphasis added)

[16] Initially Bromley used an auto-quoting system to price jobs. This system seems to have led to Bromley undercharging the distributors for its product. The margin charged by the distributors also created difficulties for Bromley.
[17] As early as October 2007 Mr Bills had raised concerns with Mr Fitzsimons about Bromley’s ability to be competitive. In a letter dated October 2007 Mr Bills advised that after close to three years of operation Bromley was still in a loss situation. The letter invited Mr Fitzsimons to reflect on why competitors appeared able to make inroads into the market. Mr Bills then suggested:

No doubt, you have also thought about this and why these guys have been able to penetrate the market so quickly.

I suspect you have probably [come] up with the same obvious answer as me, which is that unlike our business model, “they are all direct manufactures [sic] and retailers”!

...

I therefore have come to the inescapable conclusion, that if we don’t move fast and change our role model, we will have no choice other than to shut our entire operation down.

...

Principally because, I don’t give in easy, I am going to give it one last decent shot, but I’m afraid that also means, to compete and to use your phrase “on a level playing field” we have no choice, other than going direct.

[18] Despite that letter nothing appears to have changed significantly from MFL’s point of view. Mr Fitzsimons said that, while he was upset by it, he decided to take no action and just carried on business under the distribution agreement. Bromley continued to supply MFL as in the past.
[19] In a series of updates to distributors during May 2008 Mr Bills again reverted to the losses Bromley was sustaining and to the uncompetitive nature of the distributor business model. In a 5 May update he expressly identified the problem as the auto-quoting system. He described it as:

essentially in all, other than basic jobs “completely inaccurate and has been seriously under-pricing for god knows how long.”

(Original emphasis)

The update said that from that day on a different quotation system would apply:

[3] Any processed and accepted quotations already in our system as of 5.00 pm on the 04/05/08 will be honoured at [Bromley’s] cost.

[4] Any live quotations, [other than standard shapes as stated earlier] but not confirmed at your end, that have been given in the last 90 day period, will be subject to a re-quote from [Bromley] – [90 days being the period of 04/02/08]. Any quotes prior to the February date are of course, now null and void.

(Original emphasis)

[20] Mr Bills followed that up when on 8 May 2008 he wrote to the distributors:

The reality of the situation is however exactly as I have portrayed it; reality is something, that I can do very little about. I also hear from the jungle drums that our new real cost pricing, is going to price us out of the market.

...

We therefore either continue together, or we may just have to go our separate ways. My first preference is of course to see if we can make the status quo work, if we can’t then, I’m afraid there are very few choices left.

(Original emphasis)

[21] On 14 May 2008 he wrote again:

Given some of the current competitor’s quotes, we believe that in some situations, there just may not be the opportunity or room for a fully fledged distributor as such.

Certainly, at the unrealistic margins and installation charges, some distributors have been applying, which are now coming to light, there is no show in hell of any continuance of the status quo.

...

We are not going to sit here with our mammoth investment, being busy fools, lowering our margin to get work and then watch us miss the job or witness the distributor loading the price so that he gets the big hit! If this is going to happen, then in these situations, we will in fact, be forced to price these jobs direct and employ local specialist installers.

And:

Attached to this update, for the record, is our original recommended install prices, “these figures were not arrived at by guesswork.”

We can in fact, get local specialist installers to install for “less than this guide”[.]

None of our major competitors have a distribution network as such!

What all our competitors do have in common is that in the main, they either sub contract the installation or do it themselves.

Naturally, this means there is no middle man with an extra margin!

(Original emphasis)

[22] In the case of MFL the next significant event was that Mr Fitzsimons was called to a meeting with Mr Bills and Mr Foster of Bromley on 3 June 2008. Mr Bills opened the conversation by saying:

I’ve got to be direct Marty, we are going to have to go direct.

Mr Bills then said he had found another firm in Christchurch that would be able to install bench tops for significantly less than MFL were charging. Mr Bills suggested there were two options for MFL and Mr Fitzsimons, first Mr Fitzsimons could walk away, and if he chose that option that would be the end of the matter. The second option was for Mr Fitzsimons to start working for Bromley.

[23] It was following that meeting that Mr Fitzsimons and MFL took advice. Correspondence between the parties’ solicitors followed.
[24] Repudiation occurs where a party makes it clear that it does not intend to perform or complete performance of the obligations under the contract: s 7(2) Contractual Remedies Act 1979 (the Act). Repudiation may occur by words or conduct. Repudiation may be inferred from conduct if a reasonable person would believe the actions evidenced an intention not to perform the obligations of the contract. In each case it is a question of fact to be determined after consideration of the surrounding circumstances taken in context.
[25] It is unnecessary for the resolution of this appeal to make a definitive finding as to whether the actions of Bromley amounted to a repudiation of the distribution agreement or not. That finding should more properly be made by a Court following a substantive hearing on the respondents’ claims. For present purposes it is sufficient to accept that, particularly having regard to the meeting on 3 June 2008, MFL has an arguable case that Bromley had repudiated the distribution agreement by making it clear that it no longer intended to perform its obligations under that agreement.
[26] Lagoon’s argument that Bromley had repudiated the agreement in relation to it is more difficult. Despite Mr Bills’ rather strident observations in the distribution updates, Bromley continued to supply product to Lagoon, albeit under the different pricing system. There was nothing equivalent to the meeting of 3 June 2008 in Lagoon’s case. Mr Lees said that increased pricing caused one customer to cancel a job, and one complained. He also became aware of another email dated 26 May 2009 from Bromley to the Wanaka distributor stating:

We have already established and recently advised that with the real costs applied, there is no room for a middle man, which is exactly why our competitors don’t have them.

[27] As a result of all this, Mr Lees and Lagoon took the view Bromley was not willing to comply with its obligations under the distribution agreement and effectively cancelled the agreement.
[28] While Lagoon’s case for repudiation by Bromley is not as strong as MFL’s, for present purposes it can be accepted as at least arguable.

Is there an arguable case MFL and Lagoon cancelled the distribution agreements?

[29] MFL and Lagoon say that by reason of Bromley’s repudiation they were entitled to and did cancel the distribution agreements with Bromley. In response, Bromley says that MFL and Lagoon were not entitled to cancel under s 7 of the Act because they had contracted out of the cancellation provisions of that section by cl 13 of the distributor agreement and, in the case of MFL, had affirmed the agreement.
[30] Clause 13.1 provides:

If either party hereto shall breach the terms of this Agreement then the party not in breach may give notice to the other of such breach and if that breach is a material breach and is not remedied within 30 days of such notice being given then the party giving such notice may terminate this Agreement by notice to the other to that effect.

[31] Mr Paulsen submitted that even if Bromley was in breach of the distribution agreements and its actions amounted to a material breach of the agreement then s 5 of the Act applied so that MFL and Lagoon’s rights to cancel were to have effect subject to cl 13 of the agreement. As neither MFL nor Lagoon had given 30 days notice of the breach to Bromley he submitted they were not entitled to cancel.
[32] The relationship between express contractual remedies providing for default and the provisions of the Act were considered by this Court in MacIndoe v Mainzeal Group Ltd [1991] 3 NZLR 273.
[33] Mainzeal entered contracts with MacIndoe and others who had agreed to buy units in a building to be constructed by Mainzeal. The purchase price was to be paid by instalment, the dates for payment corresponding to stages in the construction. Some of the purchasers were unable to meet the instalments when due. Mainzeal gave notice to the purchasers making time of the essence for payment. On the failure of the purchaser to pay, Mainzeal cancelled the contracts and sought and obtained summary judgment for damages. On appeal the issue was whether Mainzeal was entitled to cancel the contract after making time of the essence or whether that right was excluded by cl 8 of the contract which provided for remedies on default, in particular cl 8.3 which provided a right to the vendor to give notice calling up the unpaid balance.
[34] In the High Court Gault J had concluded that cl 8 did not expressly provide a remedy for breach in the circumstances that prevailed so that s 5 of the Act could not prevent the plaintiff from pursuing its remedies under s 7. In this Court Cooke P stated at 280:

In the circumstances of such a case as this, it is immaterial, in my opinion, whether cancellation is described as for repudiation under s 7(2) or as for breach under s 7(4)(b). ...

... the case can also be described as falling within s 7(2), since failure to comply with a term that has been made of the essence by notice can properly be seen as repudiation.

He then later noted at 281:

Mr Craddock's concession that cancellation for repudiation [under s 7(2)] is not affected by cl 8 was, I think, rightly made; and cancellation for breach cannot be in a materially different position.

[35] In rejecting the submissions for the purchasers that Mainzeal was not entitled to cancel without first resorting to cl 8.3 this Court held that the clause gave Mainzeal remedies additional to those under the Act rather than precluding Mainzeal from the remedies available to it under that Act.
[36] Mainzeal confirms that the right of repudiation under s 7(2) of the Act can exist alongside, and in addition to, contractual rights. In each case it must be a question of interpretation whether the contractual provision excludes the operation of s 7, or whether the contractual rights exist alongside those rights.
[37] In the present case, to the extent MFL and Lagoon’s complaint is that Bromley had changed its pricing structure and was in breach of the obligation under cl 9.2 to set standard retail prices at “extremely competitive” rates, Bromley may have a good argument that cl 13.1 applies. The change in quoting practice led to pricing by Bromley that was arguably no longer extremely competitive. That would be a material breach of cl 9.2. Clause 13.1 required MFL and Lagoon to give notice of such a material breach before terminating.
[38] However, MFL and Lagoon’s claim that they are entitled to cancel is more fundamental than reliance on a breach of cl 9.2. They say that, by its actions, Bromley made it plain that it did not intend to continue with the distribution agreement at all. If that argument is made out, that is not a material breach contemplated by cl 13, but rather is a repudiation of the entire agreement under s 7(2). Clause 13 would either not apply or, at the least, would not preclude the application of s 7(2). In the case of repudiation of the entire agreement, MFL and Lagoon would have been entitled to cancel in reliance on s 7(2) without reference to cl 13. Again, however, for present purposes it is unnecessary to make a determinative finding on that issue.
[39] Mr Paulsen raised an additional ground to support his argument MFL was not entitled to cancel. He submitted that the effect of the correspondence from MFL’s solicitors was to affirm the distribution agreement so that even if MFL had any right to cancel, it had lost the right.
[40] Where one party to a contract has repudiated it the innocent party may choose either to affirm the contract by treating it as still in operation or to cancel it and treat it as discharged: s 7(5). If the innocent party affirms the contract in full knowledge of the other’s repudiation, the innocent party is no longer entitled to cancel the contract.
[41] Mr Paulsen submitted that the correspondence in the present case from MFL’s solicitors was inconsistent with cancellation and amounted to affirmation. He referred to the following passages in the first letter from MFL’s solicitors following the 3 June meeting:

Marty considered the document [the agreement presented at the meeting of 3 June 2008] to reflect nothing more than Bills’ expression of the general direction future discussions would have to go, if a resolution on [Bromley’s] terms was to be secured.

...

Given these circumstances our clients wish to explore any opportunity there might be to identify the actual facts, discuss the issues properly and to determine the reasonable commercial options that might be open to the parties.

...

If such options do not exist then they would be prepared to consider negotiating an early termination of the Distribution Agreement on mutually acceptable terms. ...

...

Although these events show that [Bromley] perceives the Distribution Agreement to be at an end however, this letter serves to advise that our clients have not acquiesced in any such cancellation/termination by [Bromley].

If [Bromley] believes it has validly terminated the Distribution Agreement, we would be grateful for both early confirmation of that fact on the grounds upon which it asserts any such termination was lawful

[42] We agree the letter is confusing. On one view of it, the excerpts suggest that MFL was not accepting the repudiation and cancelling the agreement but rather was affirming an ongoing relationship between the parties.
[43] There are, however, other indications in the letter to the contrary effect. In conclusion the letter also contained the following passages:

Given these circumstances it is clear that [Bromley] has unilaterally terminated the Distribution Agreement with [MFL]. ...

...

[Bromley] has acted unilaterally and without lawful grounds in terminating [MFL’s] Distribution Agreement. ...

... the situation will be reassessed shortly and in [sic] certainly in light of your response to this letter.

[44] It is arguable that, read as a whole, the letter was an attempt by MFL to reserve its position pending further discussions. If that is the correct analysis, it would not amount to an affirmation of the contract.
[45] We conclude that there is an arguable case that both MFL and Lagoon have cancelled.

Are MFL and Lagoon’s claims for equitable set-off excluded by the provisions of the distribution agreement?

[46] On the basis that MFL and Lagoon have arguable cases that Bromley repudiated the distribution agreement and they were entitled to and did cancel the distributor agreement, both MFL and Lagoon make claims against Bromley calculated on the basis of Bromley’s wrongful repudiation of the distribution agreements. They seek to raise those claims by way of equitable set-off against Bromley’s claim for payment in relation to the product supplied.
[47] An equitable set-off so closely connected with the original claim that it impeaches the plaintiff’s claim to be paid and makes it unfair that a defendant should have to pay without deduction will prevent the entry of summary judgment: Grant v NZMC Ltd [1989] 1 NZLR 8 at 13 (CA). However, the parties may contract out of the right to raise an equitable set-off: Grant at 13.
[48] Clause 10 of the distributor agreement provides:

TERMS OF SUPPLY OF THE PRODUCTS

10.1 The following terms and conditions shall apply as regards any purchase of the Products by the Distributor from [Bromley], in the absence of any express agreement between the parties which varies such terms:

...

(d) The Distributor may not set off against the price payable for any Products any claims, which the Distributor might have against [Bromley].
[49] Mr Paulsen submitted that cl 10.1(d) applied to MFL and Lagoon’s claims for set-off so the claims were no defence to the application for summary judgment.
[50] Mr Sissons submitted cl 10.1(d) was ambiguous. He submitted that, in context, cl 10 dealt with the supply of products and the context suggested that “any claims” in cl 10.1(d) meant and was intended to mean any claims in relation to the product itself such as late delivery, damaged products before risk had passed or defects in products supplied.
[51] We agree with Mr Paulsen’s response that the clause is not ambiguous. The language used is clear. All of the issues Mr Sissons identified are essentially dealt with in the remaining provision of cl 10.
[52] As we consider the clause is clear, it is strictly unnecessary to consider Mr Sissons’ submission that the clause should be construed contra proferentem. But the contra proferentem rule applying to exclusion clauses does not apply to a clause excluding the right of equitable set-off in any event: Dominion Breweries Ltd v Countrywide Banking Corporation Ltd CA314/91 18 August 1992 and Continental Illinois National Bank & Trust Company of Chicago v Papanicolaou (The “Fedora” “Tatiana” and “Eretrea II”) [1986] 2 Lloyd’s Law Reports 441 (CA).
[53] Next, Mr Sissons submitted that cl 10.1(d) was only intended to operate during the term of the contract, in respect of the parties’ day to day transactions, and not following repudiation. In support he relied on the decision of Fu Hao Construction Ltd v Landco Albany Ltd [2005] 1 NZLR 535 (HC). In that case Baragwanath J held that a “no caveat” clause was not effective as being contrary to public policy and that, even if valid, the clause must be construed as providing for the case where the parties contemplated performing the contract, not repudiating it.
[54] But Mr Sisson’s submission cannot stand alongside cl 14 of the contract. Clause 14 provides for the parties’ rights under the agreement following termination. In particular cl 14.6 provides:

The termination of this Agreement shall not terminate the rights and obligations of the parties in respect of continuing agreements or obligations hereunder and such agreements and obligations shall continue in full force and effect according to their terms.

[55] The obligation under cl 10.1(d) to pay for the product without raising set-off continues to apply following termination. Clause 14.6 also answers Mr Sissons’ related submission that s 9 of the Act applied and that the Court might, if ultimately accepting the contract was properly cancelled by MFL and Lagoon, direct Bromley to refrain from relying on cl 10.1(d). Taken to its logical extension, that submission would mean that a plaintiff would never be entitled to summary judgment where the defendant was able to raise an equitable set-off even if that set-off was excluded by contract. That would be a surprising result and contrary to authority. In the present case the submission is met in any event by the provisions of cl 14.6 which preserves Bromley’s ability to rely on cl 10.1(d) following termination. By providing for cls 10.1(d) and 14.6, the parties have provided their own remedy in the contract. Section 5 of the Act applies and s 9 must take effect subject to the provisions of the contract: Garratt v Ikeda [2002] 1 NZLR 577 at [43] (CA).
[56] The wording of cl 10.1(d) is general and non-restrictive. It makes sound common sense. There is no reason to read it down to restrict its application to claims relating to the products supplied as opposed to claims in the nature of the set-off now pursued. We agree with the Associate Judge that cl 10.1(d) excludes the right of set-off of MFL’s and Lagoon’s claims.

Was the Associate Judge wrong to decline summary judgment in the exercise of the Court’s residual discretion?

[57] Despite finding that cl 10.1.(d) excluded MFL and Lagoon’s claims by way of set-off against Bromley’s claim for payment for product, the Associate Judge exercised the discretion available to the Court under r 136 of the High Court Rules (now r 12.2) against Bromley and declined to enter judgment. The Associate Judge reviewed the obligations that MFL and Lagoon had assumed under the distribution agreements and noted their investment under the agreements was significant. He inferred that the changes brought about by the different quotation process significantly altered the nature of the parties’ trading relationship and in that context he accepted Mr Sissons’ submission that:

It would be an extraordinary result if [Bromley] was able to repudiate the agreement, but nevertheless be entitled to recover moneys owed to it under the contract, while denying the defendants the right to set-off claims for losses caused by that repudiation.

[58] The Associate Judge therefore exercised his discretion against entering summary judgment.
[59] Mr Paulsen accepted that this was an appeal against the exercise of a discretion, so that it was necessary to show that the Associate Judge acted on a wrong principle, failed to take into account some relevant matter, took account of some irrelevant matter or that he was plainly wrong: May v May (1982) 1 NZFLR 165 (CA); Harris v McIntosh [2001] 3 NZLR 721 at 724 (CA). But he submitted that in this case the Associate Judge was plainly wrong to exercise his discretion in favour of the respondents.
[60] The residual discretion in r 136 arises out of the wording of the rule which at the time read:

136 Judgment where there is no defence or where 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 claim in the statement of claim or to a particular part of any such claim.

...

[61] However, as stated by Casey J in Pemberton v Chappell [1987] 1 NZLR 1 at 5 (CA), the discretion is a limited one:

While the word “may” suggests a general discretion, I agree with the views of Robert Goff LJ in European Asian Bank AG v Punjab and Sind Bank [1983] 2 All ER 508, 515, on the corresponding provisions of Ord 14, r 3(1) — once the plaintiff has complied with the requisite formalities and has satisfied the Court there is no defence, “it is very difficult indeed to conceive of circumstances where the Court should not give judgment for the plaintiff... it can only be a discretion of the most residual kind”.

[62] The same point was made in the case of Berg v Anglo Pacific International (1988) Limited (1989) 1 PRNZ 713, where this Court allowed an appeal against the refusal of summary judgment in the exercise of discretion. In the course of the judgment this Court observed at 717:

This Court gave some consideration to the discretion under r 136 in Sudfeldt v UDC Finance Ltd [1987] NZCA 138; (1987) 1 PRNZ 205. Casey J, delivering the judgment of the Court, pointed out that the Rules are aimed at the just, speedy, and inexpensive determination of proceedings, and said that although the discretion is unrestricted, it was difficult to see how an application could be refused once the Court was satisfied there was no defence, unless there were circumstances suggesting that summary judgment might cause injustice.

[63] In Dominion Breweries Ltd v Countrywide Banking Corporation Ltd, where the principal matter in issue was the construction of a management contract and the parties’ performance under it, this Court observed at 7:

We turn to the exercise of the residual discretion to give or refuse summary judgment. On the facts of the case we are satisfied that there is no sufficient reason to refuse judgment. To do so would be to defeat the commercial purpose of the contractual exclusion, would be out of touch with business realities and would keep Dominion Breweries waiting for payments it was intended it should receive monthly while managing the hotel, whilst protracted proceedings on the counterclaim are litigated. Further there are no other parties involved and there is no reason to believe that if judgment is given Countrywide will be unable to prosecute its counterclaim or will be prejudiced in doing so.

[64] In the Dominion Breweries case, Countrywide had an arguable case for equitable set-off, but the Court still entered judgment and declined to exercise its discretion to refuse summary judgment. Mr Sissons sought to distinguish that case from the present on the basis the parties had an ongoing relationship that required Dominion Breweries to continue with the management of the hotel. But the case cannot be distinguished on that basis. The principle of the case was that once the Court accepted that the parties had contracted out of the right of set-off, to then use the residual discretion to defeat the application for summary judgment because of the potential claim for set-off would be to frustrate entirely the commercial purpose of the contractual bargain the parties had made. That is precisely the position in this case.
[65] Generally the exercise of the residual discretion not to allow summary judgment will only be invoked in limited cases, such as to avoid oppression or injustice, or where the proceeding involves the actions or possible liability of a third party not before the Court, or if the proceedings are of a particular nature that opportunity should be given to allow discovery, or where the circumstances of the case disclose very unusual features which support a conclusion that the entry of summary judgment would be oppressive or unjust.
[66] In circumstances where the set-off is excluded by an express contractual provision in an agreement between commercial parties, it cannot be said to be an injustice to give effect to the bargain the parties have made. There was, for example, no evidence before the Associate Judge and there is none before us to suggest that in the event MFL and Lagoon are required to pay they will not be able to pursue their unliquidated claims for damages against Bromley. Further, it can hardly be said to be an injustice to require MFL and Lagoon to pay Bromley for product which they have received and have had the benefit of.
[67] There is a difference between whether the entry of a summary judgment may be unjust and whether the subsequent execution of the judgment may lead to a miscarriage of justice. The High Court Rules provide for the latter situation in r 17.29. An application under that rule is the appropriate way to have the Court consider the effect of execution of the judgment on parties in the respondents’ position.
[68] The Associate Judge was clearly influenced by an assessment of the impact on the respondents of the termination of the distribution agreements but he failed to give effect to the commercial purpose of the bargain the parties had made.
[69] For those reasons the Associate Judge was plainly wrong to exercise his discretion against entry of summary judgment in this case.

Is Mr Lees bound by the guarantee?

[70] Although the point was not taken in the High Court, Mr Sissons sought to raise a new point on behalf of Mr Lees before us, namely that the personal guarantee relied upon by Bromley in relation to Mr Lees did not create an obligation on him to pay Lagoon’s debt.
[71] The submission arises out of the documentation. While the guarantee document was signed by Mr Lees, rather than referring to Lagoon Developments Limited as the principal debtor, the guarantee incorrectly referred to Mr Lees as the principal debtor rather than Lagoon. Apparently the point was only adverted to after the High Court hearing.
[72] The identity of the principal debtor in a contract of guarantee is a material term: Imperial Bank of Canada v Nixon [1926] 4 DLR 1052 at 1056 (Ontario CA); Whiting v Diver Plumbing & Heating Limited [1992] 1 NZLR 560 (HC). The document itself does not comply with s 2 of the Contracts Enforcement Act 1956.
[73] However, as was noted by Tipping J in Whiting at 561:

An oral contract coming within the scope of the Act is not void, simply unenforceable and a defendant who does not expressly plead the Act cannot invoke its terms; see Boviard v Brown [1975] 2 NZLR 694, 700 per Perry J; Dawkins v Penrhyn (1878) 4 App Cas 51, 58 per Lord Cairns; and Short v Graeme Marsh Ltd [1974] 1 NZLR 722 per Haslam J.

[74] The Contracts Enforcement Act must be expressly pleaded before its provisions may be relied upon. It was not pleaded in the High Court. If anything, the reverse was the case. The pleadings for summary judgment purposes are the statement of claim, application for summary judgment, affidavit(s) in support, the notice of opposition and affidavit(s) in opposition. In his affidavit in opposition Mr Lees annexed a draft statement of defence and counterclaim. He confirmed that the statements in it were true to the best of his knowledge. In that draft statement of defence and counterclaim Mr Lees admitted [10] of Bromley’s statement of claim, which pleaded that on 24 August 2007 Mr Lees personally guaranteed Lagoon’s obligations to Bromley.
[75] On the evidence the Court can properly draw an inference that Mr Lees had agreed to guarantee the obligations of Lagoon. That agreement to guarantee is enforceable and will only be defeated by the application of the Contracts Enforcement Act if that Act is expressly pleaded. It was not pleaded before the High Court.
[76] We are not minded at this stage to allow Mr Lees to amend the pleading to raise that technical issue. If, as required by the High Court Rules, that point had been taken in the notice of opposition to the application for summary judgment, it would undoubtedly have been met with an application to amend the application for summary judgment: Cegami Investments Ltd v AMP Financial Corporation (NZ) Ltd [1990] 2 NZLR 308 (CA). Such an amendment was permitted to include an application for rectification in Retail Trading Services Ltd v Beere (1997) 11 PRNZ 427 (HC) where the Court criticised technical defences. It is inevitable that in the circumstances of this case the amendment would have been allowed and rectification would have been granted in the High Court. As confirmed in Whiting’s case, rectification and enforcement are available in the same proceedings.

Result

[77] For those reasons the appeal is allowed and judgment entered for the appellant against the respondents in CA786/2008 in the sum of $137,914.07 together with interest from 20 July 2008 at the judicature rate. Judgment is entered for the appellant against the respondents in CA785/2008 in the sum of $54,151.50 together with interest from 20 July 2008 at the judicature rate.

Costs

[78] Bromley is to have costs against the respondents for a standard appeal on a band A basis, plus usual disbursements. Any issue relating to costs in the High Court should be decided by that Court.

Solicitors:
Cavell Leitch Pringle & Boyle, Christchurch for Appellant
GCA Lawyers, Christchurch for Respondents

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