Beacham Parts & Service Limited v Jaguar Land Rover Limited
[2019] NZHC 1137
•23 May 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-002842
[2019] NZHC 1137
BETWEEN BEACHAM PARTS & SERVICE LIMITED
Applicant
AND
JAGUAR LAND ROVER LIMITED
Respondent
CIV-2018-404-002844 BETWEEN
BEACHAM SPECIAL VEHICLES LIMITED
Applicant
AND
JAGUAR LAND ROVER LIMITED
Respondent
Hearing: 14 May 2019 Appearances:
T Bowler for the Applicants
J Learner and L Harrison for the Respondent
Judgment:
23 May 2019
JUDGMENT OF HINTON J
This judgment was delivered by me on 23 May 2019 at 11.30 am pursuant to Rule 11.5 of the High Court Rules
………………………………………………………………… Registrar/Deputy Registrar
Solicitors:
Neilsons Lawyers, Auckland Simpson Grierson, Auckland
BEACHAM PARTS & SERVICE LIMITED v JAGUAR LAND ROVER LIMITED [2019] NZHC 1137 [23 May 2019]
[1] Jaguar has issued two statutory demands for debts allegedly payable by Beacham Parts & Service Ltd and Beacham Special Vehicles Ltd (together called Beacham).
[2] Beacham has applied to set the demands aside under s 290 of the Companies Act 1993 (the Act).
Background
[3] Back in 2012, Jaguar sued Beacham for infringement of intellectual property rights.
[4] In May 2015, the parties entered a deed of settlement. Beacham agreed to make a contribution of $150,000 towards Jaguar’s damages and legal costs.
[5]In addition, clause 3 of the deed imposed continuing obligations on Beacham.
[6] Clause 6 of the deed sets out a dispute resolution procedure which Jaguar can commence in the event it believes Beacham has breached its obligations under clause 3. This process allows Jaguar to elect to refer its complaints to an “Independent Lawyer” for determination.
[7]Clause 6.5 materially provides:
If the Independent Lawyer determines in favour of JLR, Beacham will immediately and permanently withdraw the offending promotional or advertising material. Unless the Independent Lawyer determines that the breach is purely technical with no prospect of damage to JLR or its distribution channels, Beacham will also pay to JLR liquidated damages of $2,000 per day for each day or part of the day for the first 10 days that offending promotional or advertising material is available to the public. After the first 10 days and continuing until three days after the Independent Lawyer’s decision, Beacham will pay to JLR liquidated damages of $500 per day or part of the day that the offending promotional or advertising material is available to the public. From three days after the Independent Lawyer’s decision, if the offending promotional or advertising material is still available to the public, and without prejudice to JLR’s other rights such as to apply for an injunction, Beacham will pay to JLR liquidated damages of $2,000 per day or part of the day that the offending promotional or advertising material is available to the public. While the parties acknowledge that damages attributable to the availability of the material may be greater, JLR and Beacham agree that the liquidated damages of $2,000 per day is a genuine pre-estimate of damages.
[8] On 24 September 2018, Simpson Grierson, as solicitors for Jaguar, wrote to Beacham regarding alleged breaches of the deed. Receiving no reply, Simpson Grierson appointed Mr Gavin as an Independent Lawyer under the deed to determine if there had been breaches. Five complaints were referred to him.
[9] On 23 October 2018, Mr Gavin issued a determination. He expressly found there were breaches of the deed in respect of three of the complaints, and in respect of a fourth, he found Beacham was in breach of the Fair Trading Act 1986 and that its actions amounted to trademark infringement and passing off. The fifth complaint had been remedied and no finding was made.
[10] Following issue of the determination, by letter of 25 October 2018, Simpson Grierson on behalf of Jaguar demanded payment of liquidated damages in the sum of $122,000.00, said to be calculated in accordance with clause 6.5 of the deed, plus legal costs in the sum of $15,485.29 in accordance with clause 8.2 of the deed. The legal costs were calculated on a pro-rata basis, representing four-fifths of the actual costs incurred by Jaguar.
[11] Beacham did not pay the sum when demanded. On 30 November 2018, Jaguar served statutory demands on Beacham for the claimed liquidated damages and costs, in the combined sum of $137,485.29.
[12]Beacham then filed this application to set aside.
Relevant law
[13] Under s 290(4) of the Act, the Court may grant an application to set aside a statutory demand if it is satisfied that:
(a)there is a substantial dispute whether or not the debt is owing or is due (s 290(4)(a)); or
(b)the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the
counterclaim, set-off, or cross-demand is less than the prescribed amount (s 290(4)(b)); or
(c)the demand ought to be set aside on other grounds (s 290(4)(c)).
[14] Where a statutory demand is issued and application is made under s 290 to set it aside, the onus is on the applicant to show that there is a genuine and substantial dispute as to the existence of the debt. A mere assertion of a dispute will not be sufficient to establish a genuine dispute. Where the dispute is a factual one, evidence is required to demonstrate its existence.1
Summary of Beacham’s position
[15] Beacham relies on s 290(4)(a) of the Act. It accepts that it has to show a substantial dispute as to whether the debt is owing such that the demand should be set aside. Beacham also pleaded a set-off or counterclaim in terms of s 290(4)(b), but that argument is not pursued.
[16] Beacham raises a number of points, which I consider below. Mr Bowler, for Beacham submits the two key points are:
(a)The breaches were technical only and no damages are due.
(b)The amount is wrongly calculated or not properly established by Jaguar.
Preliminary - no damages award or finding
[17] Throughout his submissions, Mr Bowler points out that that there is no damages award, or any finding as to whether Jaguar was entitled to damages, made either by the Independent Lawyer or a Court. The suggestion is that the matter should be referred back for such a ruling, or Court proceedings issued. Ultimately, though, Mr Bowler accepts that such rulings are not required for a statutory demand to issue.
1 Paramoor 11 Ltd v Pramb Wong Enterprises Ltd HC Auckland M1434/94, M1460/94, 10 April 1995; Insolvency Law & Practice (Online Looseleaf ed, Thompson Reuters) at [290.03(2)].
A party can claim a debt due, and it is then a matter for the party served with the demand to raise a dispute.
[18] For completeness, I note that the Independent Lawyer’s role in terms of clause 6 of the deed was to determine whether advertising or promotional activity by Beacham breached the deed or was otherwise likely to mislead or deceive the public. Subject to Mr Gavin’s clear ability to make a “technical breach” finding under clause 6.5, it was not within his jurisdiction to make any finding as to damages, or any damages award. Rather, the parties had agreed a damages formula to apply following any finding of a breach.
“Technical” breaches only
[19] Beacham says that the breaches were purely technical and therefore no damages flowed under clause 6.5 of the settlement deed.
[20] The Independent Lawyer made no finding as to whether the breaches were technical or not. Beacham says it was incumbent on Jaguar to seek such a determination, or at least such a determination is required.
[21] However, I agree with Jaguar that the wording of clause 6.5 is such that damages flow following the Independent Lawyer’s determination unless the Lawyer determines that “the breach is purely technical with no prospect of damage to Jaguar or its distribution channels”. Given that drafting, it was not incumbent upon anyone to seek a determination that the breach is purely technical. Rather, in the absence of such a determination, damages flow.
[22] Obviously, if Beacham were contending that the breaches were technical, it would say so in the correspondence that took place before the determination. The actual point raised by Mr Beacham in the pre-determination correspondence was that the Google searches on which Jaguar relied were out of Beacham’s control.2 Mr Gavin responded to that by disagreeing and finding that the problems related to Beacham’s website, which was within its control.
2 Beacham seems to have been acting without legal representation until after the determination.
[23] I note that Mr Beacham swears in his 14 December 2018 affidavit that he asked Mr Gavin for a ruling on the question of whether “the breach is purely technical or not”. He seems to be referring to a request made after Mr Gavin’s determination of 23 October 2018. However, there is no documentary evidence to support such a request having been made, and correspondingly, there is no response from Mr Gavin.
[24] Mr Bowler suggests I could refer the matter back for a further ruling. But even if it were possible to do so after the event, I do not consider it appropriate to allow time to do so now, some seven months afterwards, especially in the face of the issue having been clearly raised by Mr Beacham in December 2018. I can only infer that he decided the exercise would be futile and did not progress it.
[25] I also agree with Jaguar that the breaches do not appear to be technical. They seem to fall squarely within the things that Beacham agreed in the settlement deed it would not do.
[26] Mr Bowler submits that the breaches were technical because they were easily remedied. For example, the first finding was that the breach could be remedied by adding the word “independent”. As Mr Bowler put it, all Beacham had to do to comply was to add one word. By way of another example, the third complaint was that Beacham had failed to include on its website the explanatory statement required under the deed. All it had to do was add that statement. However, these were the very things addressed by the deed, in respect of which Beacham had agreed to damages. I do not consider ease of remedy in any way demonstrates a technical breach. Rather, a technical breach would arise where there is duplication, or a breach of a very minor nature.
[27] As I say, there is no finding by the Independent Lawyer and in the absence of that, the breaches have to be deemed non-technical.
Basis and method of calculating damages under clause 6.5
[28] Beacham submits that Jaguar has not provided any evidence as to the number of days of breach, to justify its liquidated damages claim.
[29] Beacham also submits that Jaguar has claimed for liquidated damages for each breach, when arguably liquidated damages would only be payable per day because there was significant cross-over between each of the breaches. Mr Bowler says that the clause pertaining to liquidated damages does not set out any mechanism for damages to be calculated for each complaint, as opposed to per day.
[30] Neither of these points seems to have been raised in Mr Beacham’s correspondence following receipt of Jaguar’s damages claim, nor apparently raised in Mr Beacham’s affidavit, other than indirectly in that I note Mr Beacham consistently refers to “the” breach in his affidavit.
[31] Dealing with the point of the number of days involved, Beacham puts Jaguar to the test, rather than making a submission as to how the calculation is wrong, let alone providing evidence as to how the calculation is wrong. I accept that additional evidence would not always be required, but the problem remains that it is for Beacham to demonstrate there is some genuine dispute. It has not. In fact, the correspondence from Simpson Grierson to Beacham, to which Ms Learner for Jaguar took me, suggests strongly that the calculation in terms of the number of days allowed for is correct.
[32] In terms of Beacham’s argument that the damages should be on a per-day basis, rather than a per-infringement basis or per-breach basis, I acknowledge there is some ambiguity in the deed. Clause 6.5 could have been better worded in this regard. I also take into account, as Mr Bowler submits, that Simpson Grierson was the drafter, a point to be taken into account in Beacham’s favour.
[33] However, on a fair reading of the deed, taking into account the intentions of the parties and the evidence before me, I have concluded that damages are payable per breach and therefore that there is no substantial dispute in this regard.
[34] Clause 6.5 refers to “the breach” and to damages being payable, “per day for each part of the day that offending promotional or advertising material is available to the public”. While it could be said that the latter wording is referring to offending material generally, it is clear from elsewhere in the clause it is referring to “the offending material”, that is the material relating to the breach. Furthermore, as
Ms Learner submits, Jaguar could have referred each complaint separately to the Independent Lawyer and received separate awards for each breach. The answer should be no different where they are referred in combination.
[35] In a way the earlier point about technical breaches is relevant here. If the Independent Lawyer had ruled that one or more breaches was technical in terms of double-up, or otherwise, damages would not be available for that. In the absence of such a ruling, I find damages are payable for each breach.
[36] I also note, as I said earlier, that although correspondence did take place after the determination, Mr Beacham did not contend in that correspondence that the damages calculation was wrong. Rather, he sought further details of Jaguar’s legal costs, which were supplied.
No breach of deed regarding fourth complaint
[37] Mr Bowler also submits orally (although not raised in written submissions) that there is no finding by Mr Gavin of a breach of clause 3 of the deed in respect of complaint 4. He submits that, unless there is a breach found of clause 3, damages cannot be claimed.
[38] However, the language on which Mr Bowler relies is at the start of clause 6, which provides that, if Jaguar considers Beacham is “in breach of clause 3”, it may commence the dispute resolution procedure. Jaguar did so consider and therefore commenced the dispute procedure. But clause 6.3(b) says that Jaguar can refer a claim to an Independent Lawyer to determine whether (a) advertising activity breaches the deed, or (b) “is otherwise likely to mislead or deceive the public or amount to a misrepresentation in terms of the Fair Trading Act 1986”. The reference to breach in clause 6.5 can only fairly relate to both parts of clause 6.3(b). The express finding of Mr Gavin regarding complaint 4 included that it amounted to a breach of the Fair Trading Act, which falls under the second limb of 6.3(b).
[39] Also, as Ms Learner submits, Mr Gavin’s findings regarding complaint 4, although not expressly stated to be a finding of a breach of clause 3, amount to such because he finds that using Jaguar’s registered trademark JAGUAR to describe the
body of the Beacham CFE vehicle amounts to trademark infringement. This is a breach of clause 3.2(e) of the deed which provides that Beacham agrees not to “infringe any JLR intellectual property rights or intellectual property rights in which JLR has a legally enforceable interest”.
[40]I therefore do not consider there is a substantial dispute in this regard.
Penalty
[41] In written submissions, Beacham contended that the liquidated damages clause may constitute a penalty and therefore be unlawful.
[42] Mr Bowler did not directly address this point, referring to it only in a more tangential way. I do not consider there is any substantial dispute raised in this regard, and do not take Mr Bowler to contend as much.
[43] Given that the damages clause is contained in a settlement deed following a breach, as opposed to the more usual situation where such a clause is contained in a primary contract and given that the present quantum of $137,485.29 is for four breaches and on the face of it not disproportionate to the settlement payment under the deed of $150,000,3 I agree with Jaguar that strong indications are that the amount assessed is not a penalty.
Process followed by the Independent Lawyer
[44] Beacham also raised issues in its written submission around the process followed by the Independent Lawyer, but Mr Bowler conceded that this point could not be sensibly progressed. I agree. On the face of it, Mr Gavin did follow the process provided for in the settlement deed. In addition, this was not an arbitration. Rather, it was an expert assessment where the Independent Lawyer’s ruling is final.
3 I have no way of making any more relevant comparison, as some parts of the deed have been obscured by black highlighting.
Solvency
[45] Mr Beacham swears the company is solvent, but that alone would not change my conclusion. I have not been provided with any authority that would support solvency on its own justifying setting aside the demand in a case such as this. Mr Bowler accepts I would still need to find there was a dispute, which I have been unable to do.
Conclusion
[46] I therefore conclude that there is no substantial dispute in terms of s 290(4)(a) of the Act as to there being a debt of $137,485.29 owing, and there are no other grounds on which the demands should be set aside.
[47] Beacham’s applications to set aside Jaguar’s statutory demands are therefore dismissed.
[48] I make an order under s 291(1)(a) of the Act that Beacham must pay the debt in the statutory demands within a period of 10 working days and in default, Jaguar may make application to put the companies into liquidation.
[49] The parties accept that scale 2B costs would be appropriately awarded to the successful party, which I now order in Jaguar’s favour.
Hinton J
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