Conqueror International Limited v Mach's Gladiator Limited
[2018] NZHC 265
•27 February 2018
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2015-409-000638
[2018] NZHC 265
BETWEEN CONQUEROR INTERNATIONAL LIMITED
PlaintiffAND
MACH’S GLADIATOR LIMITED
First Defendant
ROSS JOHN LE BRETON
Second Defendant
Hearing: 13 – 16 February 2018 Appearances:
L J Taylor QC and S Armstrong for Plaintiff M J Logan for First and Second Defendants
Judgment:
27 February 2018
JUDGMENT OF GENDALL J
CONQUEROR INTERNATIONAL LTD v MACH’S GLADIATOR LTD [2018] NZHC 265 [27 February 2018]
Table of Contents
Para No
Introduction [1] Issues [9] Background facts [11] The Heads of Agreement [14] The Agreement for Sale and Purchase [19] A. Oral Variation Claim [31] Legal Principles [39] Defendants’ Evidence – Mr Le Breton’s Evidence [48] Plaintiff ’s Evidence – Mr Bills’ Evidence [57] – Mr Noone’s Evidence [63] My decision on the Oral Variation Claim [65] B. EFAFLEX Debt Claim [68] C. Disputed Stock Claim [72] Overall Quantum [86] Thermal Coatings Issue [89] Mr Le Breton’s Guarantor and Covenantor Liability [95] Interest [99] Costs [106] Result and Orders [112]
Introduction
[1] This proceeding involves a dispute arising from the sale of a commercial door business. The parties to the Agreement for Sale and Purchase (ASP) of the business were the plaintiff, Conqueror International Limited (Conqueror), as purchaser, the first defendant, Mach’s Gladiator Limited (under its previous name High Speed Doors Limited (HSD)), as vendor, and the second defendant, Ross Le Breton (a principal shareholder of HSD), as covenantor.
[2] Conqueror is a company ultimately controlled and owned by Trevor Bills (Mr Bills). He and Mr Le Breton were fully involved in the business purchase negotiations and implementation of the transaction.
[3] Under the arrangements reached, Mr Le Breton had an option of taking up a significant shareholding in Conqueror, representing part of the purchase price of the business. He chose to do so. In addition, under the ASP he was employed in a senior management role in Conqueror post-settlement.
[4] It seems that initially both Mr Bills and Mr Le Breton regarded the future of the business as a type of partnership where they would work closely together. Unfortunately, that partnership quickly fell apart, significant acrimony developed and all this led to the disputes which are the subject of this proceeding.
[5] The parties have resolved between themselves some of the various claims and counterclaims between them, but they have been unable to resolve three of those claims. These remaining claims now fall to be determined in this proceeding.
[6] It is Conqueror’s contention that the outstanding matters are resolved simply by applying the specific terms recorded in the ASP. HSD and Mr Le Breton, however, dispute this. They contend that the terms of the ASP were varied by the parties by an oral agreement reached, according to their pleadings, in mid-January 2015. The effect of that agreement, according to the defendants, is that a sum of about $480,000 which would otherwise have been due to be paid by HSD to Conqueror post-settlement, under wash-up arrangements pursuant to the ASP, was instead to be retained by HSD.
[7] This is the primary issue for me to determine. Essentially, it involves the contention from HSD and Mr Le Breton that the terms of the ASP regarding contracts for the sale of doors not completed at settlement were varied. Instead of Conqueror receiving the benefit of those contracts as the ASP provided, HSD would retain both the benefit and the burden of the contracts. The defendants say this oral variation was initiated by Mr Bills on behalf of the purchaser. He did so, it is claimed, out of concern for Conqueror’s possible exposure in the future under extended warranties relating to the doors supplied or if the doors proved otherwise not to be fit for purpose (for example, if they were the wrong size). Mr Le Breton says that he accepted this oral variation on behalf of HSD when it was offered by Mr Bills, and that the variation, although not in any way reduced to writing, remained effective throughout.
[8] Conqueror’s position is that no such mid-January 2015 meeting or discussion took place and no oral variation of the ASP, was discussed or agreed. Conqueror says the contention from HSD and Mr Le Breton of an oral variation to the ASP is entirely inconsistent with the documentary record and inherently improbable in all the circumstances.
Issues
[9] As this proceeding developed, there was a considerable narrowing of the issues originally in dispute between these parties. Only three issues remain to be determined by the Court. These are:
(a)whether there was a meeting on or about 20 January 2015 during which an enforceable oral variation to the ASP as alleged by the defendants was agreed (the Oral Variation Claim);
(b)whether, under the terms of the ASP, the defendants are required to reimburse Conqueror for an EFAFLEX debt of €37,692 paid by Conqueror but arising from the supply of parts before the business sale settlement date (the EFAFLEX Debt Claim); and
(c)what (if any) sum Conqueror owes HSD in respect of certain “used/obsolete” EFAFLEX stock (the Disputed Stock Claim).
[10] Before turning to consider these issues it is useful to set out some additional facts by way of background.
Background facts
[11] HSD was established in 2003 and carried on business importing, manufacturing and supplying commercial roller doors to the New Zealand market. Mr Le Breton was its sole director.
[12] Conqueror carries on business manufacturing and supplying residential, commercial and industrial garage doors. Mr Bills is its sole director.
[13] Around October/November 2014 Mr Le Breton and Mr Bills began negotiating Conqueror’s purchase of HSD’s business and assets. Both parties had legal representation throughout these negotiations and engaged their own professional accounting advice.
The Heads of Agreement
[14] On or about 27 November 2014, the parties entered into a Heads of Agreement (HOA). This document recorded that Conqueror had agreed in principle to purchase HSD’s business, subject to Conqueror carrying out a commercial due diligence exercise within 14 days of entering into the HOA.
[15] The HOA went on to set out the purchase price for the business and its assets at $5 million plus stock on hand at valuation. If the due diligence condition was satisfied then the parties were to enter into an Agreement for Sale and Purchase to record the terms set out in the HOA and other standard business sale agreement terms. Settlement date was to be 1 February 2015. Conqueror, as potential purchaser, was to pay an initial deposit of $500,000 with a further cash payment of $2 million on settlement.
[16] A balance of $2 million which was called the “Deferred Settlement” was not to be payable until three years after 1 February 2015. With regard to this $2 million the vendor had the right to elect to be paid this sum in cash on that third anniversary
or in shares in Conqueror. In the event that HSD made an election to take Conqueror shares in full settlement of the deferred consideration there was a detailed mechanism set out for valuing those shares.
[17] This was to be a going concern sale and, significantly, clause 2.0 of the HOA provided:
2.0 Work in Progress
The Vendor agrees to transfer and assign the benefit of all work in progress (and the right to invoice in respect of the work in progress) to the Purchaser. The value of this is within the agreed Purchase Price.
[18] The $500,000 deposit under the HOA was paid. On 1 December 2014 Conqueror confirmed that the due diligence condition was satisfied and, on 24 December 2014, the parties entered into the ASP.
The Agreement for Sale and Purchase
[19] The ASP was a comprehensive document negotiated between the parties and their respective legal (and accounting) advisers. The purchase price payable by Conqueror under the ASP was again recorded at $5 million (apportioned as to $4.3 million for goodwill, including “Business Contracts”, and $700,000 for fixed assets and plant) and 50 per cent of the determined stock value.
[20] The business was sold as a going concern for GST purposes. The ASP also provided specifically for the detailed treatment of both ongoing sales, uncompleted “Business Contracts” and “Pre-Payments” which had been made by purchasers.
[21] Essentially, the ASP included uncompleted doors and supply contracts as part of the goodwill and assets of HSD. The definition of “Business Contracts” in para 1.1 of the ASP makes this clear.
“Business Contracts” means deeds, contracts, arrangements, agreements and understandings relating to or connected with the Business to the extent that those contracts, arrangements or agreements are in existence and have not been fully performed at the completion date including those listed in Schedule 6 but excluding:
1.1.8Related party loans or advances;
1.1.9Lease(s) of the leasehold property; and
1.1.10Any insurance policies.
[22]The completion date under the ASP was 1 February 2015 (completion).
[23] As the HOA envisaged, arrangements were reached for Mr Le Breton to be offered and take up employment with Conqueror as Commercial Door Division General Manager at a base salary of $150,000 per annum (reviewable annually), plus a further possible performance bonus of $50,000 per annum.
[24] It is not disputed that the ASP envisaged an apportionment process by which, after completion, various payments or credits to be made by both Conqueror and HSD would be dealt with in a wash-up arrangement. HSD’s stock on hand at completion was also to be valued. Various other payments were envisaged including, for example, sums due by Conqueror under licences to occupy various commercial premises previously occupied by HSD.
[25] It seems that post-completion, the parties discussed and sought to agree these various matters to an extent. Documents were produced in the course of that reconciliation exercise headed “Reconciliations Between the Parties”.
[26] The first of these reconciliation documents prepared on behalf of Conqueror was dated 6 June 2015. It was produced by Morris Noone who was then a partner of PWC accountants advising and assisting Conqueror in the business acquisition, and Joanne Murphy, a former employee of HSD who, after completion, had transferred to Conqueror and was working for it under the ASP.
[27] According to this June 2015 reconciliation, the net amount owing to Conqueror by HSD was recorded at a figure of $383,676.
[28] Conqueror maintains that in response to this June 2015 reconciliation HSD, through Mr Le Breton, raised the allegation of the oral agreement varying the ASP (for the first time). He suggested that, rather than HSD owing a significant wash-up sum to Conqueror, Conqueror actually owed HSD a substantial amount.
[29] A later detailed reconciliation document followed from Conqueror which simply adjusted the $383,676 figure upwards to an amount of $417,104. The difference was largely due to further sums which it seems had been paid to HSD and arguably it should have held these in trust and then paid them to Conqueror.
[30] HSD and Mr Le Breton, however, did not accept either of these reconciliations and, although a number of minor matters that had been referred to in the reconciliation documents have now been resolved, the principal issue affecting matters concerning the claim to the oral variation of the ASP remains outstanding.
A. Oral Variation Claim
[31]I turn now to consider this major issue, the suggested oral variation.
[32] The claim by HSD and Mr Le Breton to an oral variation of the ASP is described at para [57] of the defendants’ pleading as follows:
57. [The defendant] denies para 57 and says further that in or around mid- January 2015, Mr Trevor Bills (on behalf of Conqueror) and Mr Le Breton (on behalf of HSD) orally agreed that all Pre-Payments to HSD for sales with respect to EFAFLEX sales and Roller Shutter invoices would be retained by HSD without the need for payment to be made to Conqueror.
[33] Effectively, therefore, the defendant’s position is that HSD and not Conqueror retained both the benefit and burden of these uncompleted sale contracts.
[34]The amount at issue relating to this oral variation was conceded at
$438,006.26. Thus, the parties agreed that, if the Court determines that no such enforceable oral variation of the ASP was reached, then this payment of $438,006.26 is due from HSD to Conqueror.
[35] As I have noted above, Mr Le Breton contends that the oral variation was initiated by Mr Bills out of concern for possible exposure to Conqueror under extended warranties, which Mr Le Breton says were required for some of the doors sold pre- completion.
[36] It is the defendant’s position that Mr Le Breton, on behalf of HSD, accepted the variation offered by Mr Bills and thereafter it remained effective throughout. The defendant says clear consideration was given for this variation in that HSD assumed liability for any issues with respect to the doors supplied post-completion which otherwise would have rested with Conqueror.
[37] Lastly, the defendants contend that, while the variation was not recorded in writing at any time (and clause 20.4 of the ASP requires variations to be written) this does not allow Conqueror to escape from the oral agreement it made, given all the circumstances here.
[38] Shortly, I will turn to the evidence which was presented to the Court regarding this oral variation issue. But, first it is useful to note the legal principles to be applied when considering alteration of written terms of an agreement by oral variation.
Legal principles
[39] It is clear that in New Zealand a contract, once made, can be varied by agreement between the parties by way of adding, omitting or altering specific terms.1 However, a variation of a written contract is only to become operative when it contains all the elements necessary in the particular circumstances for formation of an enforceable contract.2
[40] A key enquiry in determining whether there is an enforceable oral variation of a contract is always the intention of the parties.3 The burden of proof in establishing an enforceable oral variation rests on the party alleging that variation, in this case HSD.4
[41] To establish an oral variation, the evidence of it in the factual matrix of the contract and all the other surrounding circumstances must be clear and unambiguous.
1 John Burrows, Jeremy Finn and Stephen Todd, The Law of Contract (5th ed, Lexis Nexis, Wellington 2016) at 747.
2 Bell v BDO Spicers Manawatu Ltd [2012] NZHC 1598 at [46].
3 Beneficial Finance Ltd v Brown [2017] NZHC 964 at [77].
4 Beneficial Finance Ltd v Brown, above n 3 at [77].
[42] Clause 20.4 of the ASP is an important feature of the factual matrix in this case. It sets out the intention of the parties in reaching their agreement that “no amendment to the agreement will be effective unless it is in writing and signed by all parties”.
[43] Notwithstanding this, however, there are cases in the United Kingdom which establish that, in principle, a contract containing a clause that any variation of it must be in writing, can be varied by an oral agreement or by conduct – Globe Motors Incorporated v TRW Lucas5 and MWB Business Exchange Centres Ltd v Rock Advertising Ltd.6 They are clear, however, that the enforceability of any such oral variation of a contract must rest on the intention of the parties, given all the available surrounding evidence.
[44] In New Zealand, it seems there have been few reasoned cases on this subject. In the decisions of Stevens v ASB Bank Ltd7and Air New Zealand Ltd v Nippon Credit Bank Ltd,8 the Courts simply determined that the existence of a no oral variation clause operated to preclude an enforceable oral variation of a contract.
[45] Recently, however, in Beneficial Finance Ltd v Brown9, Associate Judge Osborne considered the matter at some length. He noted that the English approach was likely to be applicable in New Zealand and emphasised that the key enquiry turns on the intention of the parties in light of all relevant evidence relating to their contractual dealings.
[46] In the present case, the fundamental issue is whether HSD has established on the balance of probabilities that, subsequent to entering into the ASP, the parties intended to bind themselves by the alleged oral agreement, notwithstanding the contractual requirement that any variations to the ASP must be in writing. The clear intention of the parties in the present case was expressed in the no oral variation clause, such that strong compelling evidence will be required to displace this. In a recent decision in this Court, MacFarlane v Independent Real Estate Ltd,10 Muir J upheld a
5 Globe Motors Incorporated v TRW Lucas [2014] EWCA Civ 396.
6 MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553.
7 Stevens v ASB Bank Ltd [2012] NZCA 611.
8 Air New Zealand Ltd v Nippon Credit Bank Ltd [1997] 1 NZLR 218.
9 Beneficial Finance Ltd v Brown, above n 3.
10 MacFarlane v Independent Real Estate Ltd [2016] NZHC 404.
finding in the District Court that the plaintiff had failed to discharge the onus of proving an alleged variation as there was no independent documentary evidence to support the plaintiff’s contention that an alleged variation conversation took place.
[47] I turn now to the evidence in the present case and consider whether it demonstrates that there was an intention by the parties to vary the ASP.
Defendants’ Evidence – Mr Le Breton’s Evidence
[48] Mr Le Breton and HSD asserted in the defendants’ pleadings that, in mid- January 2015, the terms of the ASP, as they applied to contracts not completed at settlement, were varied so that HSD retained both the benefit and burden of those contracts. In addition, Mr Le Breton contended in his evidence that all this began with earlier discussions in November 2014.
[49]In this regard, Mr Le Breton stated:
I do have very strong recollections of discussions with Trevor Bills during this period [around November 2014] where he made it very clear that he did not want anything to do with jobs that we had just started, or were in the middle of, because it would make things messy at takeover (his words). For example, he thought the payment situation might get messy, particularly regarding retentions. We had these discussions in October or November 2014. Trevor Bills said that HSD should complete jobs started because he did not wish to get involved with jobs half done. We agreed that after the end of January CIL (Conqueror) would carry out the installation of jobs not completed and that Conqueror would charge installation costs to HSD.
[50] Later, in cross-examination, Mr Le Breton claimed that he recalls clearly the terms of these discussions with Mr Bills as the main discussion took place at the Speights Ale House in Ferrymead, I understood, around November 2014. He says that this confirmed the matters noted above and was the agreement with Mr Bills before the HOA was signed. Mr Bills emphatically denied that these discussions or any such meeting took place.
[51] This still leaves the fact that both the HOA and the ASP said something quite different from this. Mr Le Breton acknowledged that he had legal and accounting advice before signing these agreements but he claimed that he hardly read the
agreements, relied entirely on his legal and accounting advice, and did not understand the legal jargon and complexity included in the agreements.
[52] When questioned on the HOA and ASP in cross-examination, Mr Le Breton acknowledged that he had been advised in what seemed to be a comprehensive way on these contracts by his lawyer at the time, Mr Bill Dwyer, for whom he had some regard. Significantly, he testified that Mr Dwyer advised him that the HOA was a “balanced agreement and fair to both sides” and he accepted this. That it contained provisions entirely inconsistent with Mr Le Breton’s assertion of his important discussions with Mr Bills some time earlier was not in any way explained.
[53] Later, in his evidence Mr Le Breton suggested that a further meeting with Mr Bills took place in late January 2018 where both he and a Mr Chris Arps were present. Mr Le Breton contended that at this January 2015 meeting Mr Bills was informed that five year warranties had to be given on some of the uncompleted contracts and Mr Bills said in response:
F… that, we don’t give five year warranties, these doors are yours, let’s shake hands on it as I do everything on a handshake.
[54] Again, all this was quite contrary to the detailed and specific provisions in the ASP signed earlier on 24 December 2014. Mr Bills in his evidence, as I note later, denied, first, that this meeting took place and, secondly, that, in any event, an oral agreement to vary the terms of the ASP was reached then or at any other time.
[55] Despite Mr Le Breton’s evidence that Mr Arps was present at this late January 2018 meeting and would confirm this, Mr Arps was not called as a witness and did not give evidence before the Court.
[56] Lastly, in cross-examination before the Court, Mr Le Breton acknowledged one further matter. This was the fact that, although the oral agreement he described specifically provided that Conqueror was to carry out the door installations for uncompleted contracts post-settlement and be paid by HSD for this, Conqueror did not bill HSD or receive payment of anything for such installations from HSD. No cogent explanation of why this should have occurred was provided by Mr Le Breton.
Plaintiff ’s Evidence – Mr Bill’s Evidence
[57] Mr Bills gave evidence in this proceeding principally in a detailed brief of evidence amounting to some 19 pages and a reply brief of evidence of approximately two pages.
[58] On the principal issue before the Court, Mr Bills referred first to what he describes as a significant meeting between the parties in late November 2014. It is useful to outline here his evidence relating to this meeting:
2.9By November 2014 [before the HOA was signed] our negotiations were at a reasonably advanced stage. We agreed to his nominated price and Mr Le Breton, Mr Noone an accountant from Ainger Tomlin, and I held a meeting at [Conqueror’s] premises in Christchurch in November 2014 to discuss the position we had reached.
2.10At this meeting, Mr Le Breton asked for clarification around the status of orders that had already been placed by customers with HSD but were due to be fulfilled at a later date (i.e. forward orders). Mr Noone explained to Mr Le Breton that any forward orders by customers of HSD that were to be fulfilled after the date of completion would become the property of [Conqueror], effectively as “work in progress”, and [Conqueror] would keep the benefit (and take on the obligations) of these orders.
2.11Following Mr Noone’s explanation, Mr Le Breton commented that [Conqueror] had chosen an ideal time to buy HSD because there were a number of large forward orders in place (in the order of $400,000 to
$600,000) which go to [Conqueror]...
2.12I reminded Mr Le Breton of this conversation later, on 3 March 2015, in which I referred to jobs to which Mr Le Breton had made specific reference in our November 2014 meeting.
[59]Later in his evidence, Mr Bills went on to further explain this issue:
4.3It is important to understand the context in which this issue arises. In broad terms, it relates to forward customer orders and transactions that were ongoing at the time of completion. The issue was this: HSD might have paid, up front, for goods that it had not yet received. Those goods or services might then be received after completion. If [Conqueror] did not have to pay for them, it would benefit from the goods or services at HSD’s expense. On the other side of equation, HSD might itself have been paid by customers in respect of goods and services that it had not yet supplied (or in fact paid their supplier). When [Conqueror] took over those supply contracts on completion, it would be liable to perform the work and deliver the goods but would not receive any payment for that.
4.4The question of how to deal with these situations was considered and discussed between Mr Noone, Mr Le Breton and me at meetings held at [Conqueror’s] premises before we entered into the [ASP]. At one of our initial meetings Mr Le Breton asked for clarification around the status of orders that had been received by HSD but that might not be finished at completion. Mr Le Breton was told that all such orders not completed at the date of completion would be for the benefit of [Conqueror]. However, work in progress partially finished at the date of completion would be apportioned as appropriate between [Conqueror] and HSD.
4.5During this discussion, and in the context of this issue, Mr Le Breton commented that [Conqueror] had chosen an ideal time to buy HSD because there were a number of large forward orders in place (including some large EFAFLEX doors, up north, with a combined value of $400,000 to $600,000, which would not have been finished at completion and would therefore go to Conqueror. I made reference to this initial conversation in an email I sent to Mr Le Breton on 3 March 2015 which I also refer to at paragraph 2.12.
4.6I therefore entered into the [ASP] in the clear expectation that substantial sums would be due to [Conqueror] in respect of these large forward orders for which no work would likely have been carried out prior to completion. [Conqueror] purchased the business and assets of HSD as a going concern and the purchase price reflected not only the value of assets but also the goodwill (which included, importantly, future business orders).
[ASP]
4.7This expectation is reflected in the drafting of the [ASP], which sets out how ongoing transactions are to be dealt with at clause 5.3 (or, as appropriate, clause 9). It provides for a netting off process so the sums received by HSD in respect of goods and services not yet supplied are set off against sums paid for goods and services not yet received, all as at the date of completion. Under clause 5.3: “The vendor must pay to the purchaser, or the purchaser must pay to the vendor, as the case may be, an amount equal to the net vale of Prepayments”. “Prepayments” is the name given by the parties to these sums received or paid for in respect of ongoing transactions (it is a defined term under clause 1.1.34).
…
4.9 If the sum is not due as a “Prepayment”, then it is due because it qualifies as a Business Contract acquired under clause 9 and/or 2.
[60] Mr Bills denies Mr Le Breton’s contentions, stating that there was no such agreement.
[61] Mr Bills strongly refutes any suggestion from Mr Le Breton that any meeting took place at the Speights Ale House Ferrymead in November 2014, or indeed at any other time, or that at such a meeting an understanding was reached that the benefit of uncompleted contracts at completion would remain with HSD and not pass as part of the goodwill on the sale to Conqueror.
[62] Further, Mr Bills questions the veracity and honesty of Mr Le Breton in a number of areas, both with regard to the business sale transaction generally and with respect to his evidence before the Court. Suggestions are made that Mr Le Breton endeavoured to hide an uncompleted Waikato Doors contract from Conqueror post- settlement and that he was at the very least “deceptive” in his dealings with Mr Bills and Conqueror both when negotiating and when he was employed by Conqueror post- settlement. Mr Le Breton denied all of this before me. Mr Bills suggested too that many of the allegations Mr Le Breton now makes only arose long after the event from, at the earliest, June or July 2015.
Mr Noone’s Evidence
[63] I turn now to the evidence of Mr Noone. It is useful to note that Mr Noone’s evidence provides some confirmation of certain aspects of Mr Bills’ earlier evidence. Specifically, he deposes:
2.2In order to gain a full understanding of the benefits and drawbacks of the proposed transaction, I had several meetings with Mr Bills, Mr Le Breton and Chris Mawer (HSD’s accountant at the time). During these meetings Mr Le Breton provided me with financial information with regard to HSD, including the sales figures for HSD in the previous six months.
2.3In late November 2014 I attended a meeting with Mr Le Breton, his accountant, and Mr Bills at [Conqueror’s] premises in Christchurch. During this meeting, we talked about the state of the business generally and customer forward orders/sales. I was asked by Mr Le Breton what would happen with orders that had been placed with HSD but that had not been delivered by the time of completion (“forward orders”). I explained that, as is the case in most acquisitions of businesses as a going concern, the forward orders from customers and sales still to be completed and installed would pass to the purchaser, in this case [Conqueror]. This is an important part of the goodwill of a business which the purchaser is buying.
2.4I recall that Mr Le Breton then commented that there were a large number of forward orders, and as a result the new business would get off to a “great start”.
[64] In his oral evidence, Mr Noone added that at this November meeting Mr Bills had said to Mr Le Breton specifically that “he couldn’t have it both ways”, on the basis, first, that the benefit of uncompleted work at settlement would pass to Conqueror and, secondly, that in any event this represented part of the goodwill of the business which was being sold.
My decision on the Oral Variation Claim
[65] Having considered and weighed up all the evidence and material which is before the Court on this issue, I have no hesitation in finding that HSD and Mr Le Breton have been unable to satisfy the burden of proof on them to establish that there was an alleged oral variation to the ASP as they contend and outline in their pleadings. I reach this conclusion for the following reasons:
(a)The ASP is a comprehensive and detailed document which, together with the HOA it followed, set out clearly the agreed term that uncompleted contracts, and particularly those for the sale and supply of EFAFLEX doors, were to be assets of the business and part of the goodwill which passed to Conqueror on completion.
(b)I accept that the first time the defendants formally raised with Conqueror any suggestion of an oral variation to the ASP was in July or August 2015. This was in response to the initial Reconciliation Agreement completed on behalf of Conqueror in June 2015 and following what I understand to be a formal payment demand issued to HSD’s solicitors by Conqueror’s solicitors.
(c)In his evidence, Mr Le Breton put forward a number of different versions of the alleged oral agreement and the discussions during which this agreement or understanding was reached. First, he said that an agreement was reached in late 2014, likely in the November 2014 discussion at the meeting he had with Mr Bills at the Speights Ale
House. This is denied emphatically by Mr Bills who says no such meeting took place, nor was any oral understanding reached. The evidence of Mr Bills and, in particular that of Mr Noone, clearly negate Mr Le Breton’s contentions to the contrary. Mr Noone stated that, at the late November 2014 meeting he attended with Mr Le Breton and Mr Bills, in response to Mr Le Breton’s specific question, he made it clear that forward orders were included in the sale to Conqueror and would become that company’s property post completion. On all these aspects there is no question that the clear and supported evidence before the Court advanced by Mr Bills and Mr Noone must be preferred to the uncorroborated claims put forward by Mr Le Breton.
(d)A second version of the alleged oral agreement advanced by Mr Le Breton related to his suggested meeting at around 20 January 2015, where he says Mr Bills and Mr Arps were present. Mr Arps, however, as I have noted, gave no evidence before me in this proceeding. Mr Bills denies too that any such meeting took place or that any enforceable oral agreement was reached. On these aspects I am satisfied that his evidence is to be preferred to that of Mr Le Breton.
(e)In addition, the date and time of this alleged 20 January 2015 meeting was only revealed for the first time in Mr Le Breton’s evidence. His testimony on this aspect was that the crucial conversation outlining the oral variation agreement took only about one minute in total. If Mr Le Breton’s contention was to be accepted, this would require that only one week before completion, Mr Bills committed his company to give up some $480,000 in forward order remuneration post-completion on the strength of only a one minute conversation on the matter. Mr Le Breton’s allegation must be seen as simply inconceivable.
(f)Mr Le Breton contended in his evidence that, as part of the oral agreement, post-completion Conqueror was to carry out installation under the uncompleted contracts. He said that Conqueror was to invoice HSD and to be paid by it for these installation costs. But at no
stage, as Mr Le Breton confirmed in his evidence, was any invoice or request made by Conqueror for such installation charges, nor any installation payments made by HSD. Therefore, it is difficult to accept that any such installation charge arrangement was reached.
(g)Perhaps surprisingly, Mr Le Breton for the defendants has also been unable to draw the Court’s attention to contemporaneous documentation of any kind making reference to the alleged oral agreement or any meeting minutes or notes where this was discussed.
(h)The sale of HSD’s business to Conqueror followed a significant due diligence process. This included, I understand, an exchange of 2015 budgets and projected sales figures. It is normal, and no doubt the case here, that such budget and sales projections would have included revenue from uncompleted sales, which was precisely the position envisaged under the written ASP. Again, it is inherently improbable that what was a normal arrangement under business sales of this type would have been varied only one week prior to completion, as Mr Le Breton contends.
(i)As to the issue over extended warranties, which Mr Le Breton claimed was the reason Mr Bills rejected any interest in these uncompleted contracts, the evidence before the Court was that in the rare situations where five year warranties were given, these were normally accompanied by five year service contracts which the installer, in this case Conqueror, would have the benefit of. Mr Bills’ evidence is that, even had the discussions Mr Le Breton alleges taken place, there would have been limited incentive for Conqueror to give HSD the benefit of uncompleted contracts estimated to be worth about $480,000 for the sake of a few outstanding potential warranties.
(j)Leaving aside evidentiary matters, there is also one additional, although relatively minor, factor which might well militate against the enforceability of any alleged oral variation that had been reached here.
This is the requirement that for any such variation consideration must be given.11 Before me, no real evidence of consideration for this oral variation was provided to the Court. HSD suggests consideration was provided because it assumed liability for issues with doors supplied post-settlement which might otherwise have rested with Conqueror. The provisions of the ASP regarding customer claims however clearly create a bright line distinction between liabilities assumed by Conqueror as purchaser post-completion and liabilities assumed by HSD as vendor prior to completion. There is a reasonable argument here, in my view, that this may well negate any contention advanced for the defendants on this consideration aspect.
(k)Lastly, the only evidence advanced by the defendants in support of their oral variation contention is that of Mr Le Breton. There is no documentary or other corroborative evidence of any kind to support this. In his evidence too, I find that, Mr Le Breton proved to be significantly evasive and inconsistent at times. In many respects he was conveniently forgetful and even in denial of matters which were unequivocally supported by both written contemporaneous and independent evidence before the Court. Where Mr Le Breton’s evidence differed from that of Mr Bills and Mr Noone, I prefer their evidence to his by some margin.
[66] For all these reasons, the defendants’ claim to an oral variation of the ASP must fail.
[67] That being said, one matter that necessarily followed was acknowledged before me by counsel for both parties. This was the fact that, given my decision that no enforceable oral agreement existed here, agreement on quantum had been reached, and an undisputed amount of $438,006.26 was now due from HSD to Conqueror. An order to this effect therefore is to follow.
11 Teat v Willcocks [2013] NZCA 162 at [54].
B. EFAFLEX Debt Claim
[68] Conqueror’s claim with respect to this second issue is a simple one. It is that the terms of the ASP require HSD to reimburse it for an EFAFLEX debt it paid amounting to €37,692. This arises from the supply of parts to HSD before the business sale settlement date, the undisputed invoice for which HSD simply neglected to pay.
[69] Conqueror’s position is that this EFAFLEX debt due from HSD had been outstanding for some considerable time. Pressure for payment was being applied by EFAFLEX and, to maintain an ongoing relationship with that critical supplier, Conqueror had no choice but to itself make payment of the debt, which it did. Conqueror confirms that this debt clearly arose for the supply of material and parts to HSD prior to the completion date. It is undisputable therefore, that it is a clear HSD debt.
[70] Before me there was no reliable evidence of any kind from HSD in response to Conqueror’s claim.
[71] Mr Le Breton, in his evidence, endeavoured with a manifest lack of success to touch on this issue. Quite unhelpfully, he simply maintained that Conqueror “made the choice to pay this debt” and that was a matter for them. Nothing from his evidence, however, could cast any doubt on the fact that this HSD debt was incurred prior to completion, and was paid by Conqueror after 1 February 2015 simply to preserve its ongoing relationship with EFAFLEX. I have no hesitation in finding that this debt is due from HSD to Conqueror. An order to this effect will follow.
C. Disputed Stock Claim
[72] Under this claim the issue arises as to what, if any, amount Conqueror owes HSD in respect of certain EFAFLEX stock which is described as “used or obsolete/redundant”.
[73] HSD claims that Conqueror owes it a total sum of $49,826.83 for “used” stock identified in the joint EFAFLEX stocktake as having “nil” value. HSD’s pleadings
contend that this total sum of $49,826.83 is made up of $42,253.50 for laths (slat sections for doors), $3,640.65 for other door sections and $3,932.68 for parts.
[74] So far as the amount claimed for laths is concerned, no documentary evidence or breakdown of the figure has been provided to the Court. Mr Le Breton has simply arrived at this value himself based on what he says is approximately 40 laths being available at a rate of $1000 per lath.
[75] Similarly, Mr Le Breton has provided no documentary evidence to demonstrate the basis of the valuation with respect to the other items claimed. The only evidence he has supplied with respect to any of this stock is a statement he makes that he recollected paying $15,000 at auction for five damaged second-hand doors previously owned by an HSD customer, Westland Milk. These doors were purchased following the Canterbury earthquake sequence. He says the doors in question were then broken down and some parts had already been re-used on different jobs. No invoices, however, have been provided in support of this claim. Nor was this alleged payment of $15,000 ever referred to as part of the reconciliation exercise undertaken by the parties and their accounting and legal advisors in June/August 2015.
[76] Of the five Westland Milk doors Mr Le Breton says he purchased, he accepts that only around one third of the removed laths were present at the time of the May 2015 stocktake. The remainder, he said, had been used in other prior jobs, for which HSD had received the benefit.
[77] Given this acknowledgment on his part, if I am now to accept that Mr Le Breton is accurate when he says HSD did pay $15,000 at auction for the Westland Milk doors, it must follow that the maximum sum payable by Conqueror under the ASP for these laths would be only one third of the $15,000 cost at the agreed stock rate under the contract of 50 per cent. This amounts to a total of $2500. Before me, Mr Logan for the defendants confirmed that this was a proper conclusion to reach here and that the maximum claim for these laths could only be this $2500.
[78] Notwithstanding this, it is also a contractual requirement under the ASP that suppliers’ invoices must be produced for valuations of stock to be taken by Conqueror.
No such invoices were available at any time. Nor was Mr Le Breton able to produce them for the Court. Conqueror also complains that it has been put to some trouble in preparing a defence to this particular claim without HSD volunteering any evidence at all and then only by way of a bald claim by Mr Le Breton. Accordingly, Conqueror contends that HSD should not be entitled to any payment in respect of this particular stock.
[79] Finally, and in any event, Mr Bills notes that contractually Conqueror was not obliged to purchase obsolete or slow-moving stock. This particular stock, he contended, was obsolete or slow-moving and of little value. Accordingly, he says Conqueror was not required to purchase it.
[80] The ASP addresses this issue. It provided that Conqueror was not obliged to purchase any “obsolete stock”, which was defined at cl 1.1 as:
Stock which is damaged or is otherwise not able to be used for the purpose it was purchased or, in the case of finished goods, is not saleable for the vendor’s usual gross profit margin.
[81] Mr Bills’ evidence was that this particular stock simply could not be used for the purpose for which it was purchased. Also, he said a number of the items were damaged due to poor storage. In any event, Mr Bills confirmed that Conqueror was not prepared to take on this stock due to the low chance of finding a door the same size, colour and configuration for it to be of use as a reasonable replacement.
[82] These items too were identified specifically in the May 2015 EFAFLEX stocktake as falling within the cl 1.1 definition. Thus, they were regarded as “obsolete”.
[83] Other evidence before the Court confirms that at most these items had in the past been used only for temporary repairs on damaged customers’ doors, awaiting the arrival of new replacement parts from Germany.
[84] The listing of these items as “used” on the stocktake sheets was clear. These sheets were provided to Mr Le Breton and his team for review at the time. No issue was taken with the final stocktake figures which were agreed then. As I understand
the position, it was only some years later when this proceeding was brought that these issues were raised.
[85] In all these circumstances, I am satisfied that Conqueror is not required to purchase this “obsolete” stock. All parties, until relatively recently, acted consistently with the terms of the ASP in recording this stock as having a nil value. In this respect, I rely upon the evidence advanced in this matter on behalf of Conqueror. I reject Mr Le Breton’s unsubstantiated contentions on this stock issue which are sketchy at best, unsubstantiated in any way, and appear to have arisen and been pursued very much at the eleventh hour.
Overall Quantum
[86] Given my findings outlined above, the overall quantum position reached in the various outstanding disputes between these parties results now in HSD owing to Conqueror a final sum of $492,322.33.
[87] This figure takes into account various amounts, some of which had already been agreed, owing on the one hand to Conqueror by HSD, balanced on the other hand by agreed amounts owing by Conqueror to HSD.
[88] A final calculation of those amounts is attached in Schedule 1. That Schedule sets out in detail the final calculations to reach the end position of $492,322.33, for which judgment in favour of Conqueror is to follow. Overall, Mr Logan confirmed before me that HSD and Mr Le Breton could take no issue with these quantum figures.
Thermal Coatings Issue
[89] At about the time that Conqueror acquired HSD’s business, it also purchased a separate powder coating business known as Thermal Coatings. This purchase was from a company Thermal Coatings Limited (TCL). Mr Le Breton was also a director of this company and, like HSD, his family interests were its sole shareholders.
[90] It is accepted that Conqueror still owes TCL the $95,000 purchase price of this business, but throughout Conqueror has taken the position that this amount is to be set
off against the final $492,322.33 which HSD and Mr Le Breton owe Conqueror under the HSD business sale settlement wash-up.
[91] As I understand the position, Mr Le Breton and his interests on behalf of TCL have issued separate proceedings against Conqueror for this outstanding purchase price of $95,000 including a claim for interest and costs.
[92] TCL is not a party to this proceeding. Whilst I accept that from a pragmatic viewpoint it makes sense for the $95,000 purchase price of Thermal Coatings (due to be paid for the benefit of Mr Le Breton’s family interests) to be offset against the
$492,322.83 which HSD (and, as we will see, Mr Le Breton as convenantor) owe to Conqueror, it is not appropriate in this proceeding to make orders in relation to TCL, a separate legal entity, without an opportunity to hear from it.
[93] No such offset order relating to the $95,000 is therefore to be made at this point.
[94] Having said that, I express the view that when the debt of $492,322.33 is paid to Conqueror by HSD and/or Mr Le Breton, the sum of $95,000 (and any other amounts found to be due to TCL by Conqueror) should be set off and held apart. Set off orders from this Court in my judgment may well be appropriate at that point, but that is a matter for consideration then.
Mr Le Breton’s Guarantor and Covenantor Liability
[95]Clause 21.1 of the ASP provides:
21.1 Guarantee:
In consideration of the Purchaser [Conqueror] entering into and executing this Agreement at the request of the Covenantor [Mr Le Breton], the Covenantor hereby irrevocably and unconditionally guarantees to the Purchaser the due and punctual performance, observance and compliance by the Vendor [HSD] (at the times and in the manner agreed upon) of all of its obligations under this Agreement (the “Guaranteed Obligations”).
[96] Standard guarantee provisions follow in the ASP. These include the usual guarantee provision that, as between Mr Le Breton and Conqueror, Mr Le Breton is to
be liable as a principal party and any default by HSD is to be remedied by Mr Le Breton. Further, Mr Le Breton in cl 21.8 of the ASP agrees to pay all Conqueror’s costs and expenses, including solicitor and own client costs, incurred by Conqueror in obtaining enforcement of the Guaranteed Obligations and any remedy or power expressed or implied in the ASP.
[97] It is not open to question therefore that Mr Le Breton here is personally liable along with HSD for all the obligations of HSD under the ASP determined in this judgment.
[98] And, before me, Mr Logan, on behalf of HSD and Mr Le Breton, took no objection to this and acknowledged that it was indisputably the case. The orders that follow will therefore be against both HSD and Mr Le Breton as Guarantor and Covenantor.
Interest
[99] Clause 5.3 of the ASP requires that any wash-up amount paid after completion for Apportionments and Pre-payments is to bear interest at the default interest rate of 10 per cent per annum until paid.
[100] Here, Conqueror claims contractual interest at 10 per cent per annum on the net amounts unpaid to it for Apportionments and Pre-payments amounting to $438,006 due under the ASP. This contractual interest for the period 2 February 2015 to the hearing date of 16 February 2018 amounts to $133,321.82. Interest will continue to run thereafter.
[101] The remainder of Conqueror’s successful claims here are to bear interest at the Judicature Act rate of 5 per cent per annum up to the hearing date.
[102] The calculation of all these interest amounts is attached as Schedule 2. From that Schedule it will be apparent that the total amount sought by way of interest up to 16 February 2018 is $133,321.82 for contractual interest and $50,897.29 and €913.90 for the statutory interest.
[103] Before me Mr Logan indicated that he could take no issue with both the requirement for interest to be paid and as to the amounts sought by Conqueror in Schedule 2.
[104] Given that there is effectively no opposition now to this total interest claim, orders follow for payment of these interest amounts.
[105] One possible issue does arise relating to the $50,897.29 portion of the statutory interest claim. This is the fact that, as noted in Schedule 2, this represents interest on outstanding default payments totalling $340,605.54 due from HSD, but with no set- off for any interest that might be claimed by HSD on adjusting payments which, I understand. total $359,293.05 that Conqueror was due to pay to HSD. No submissions of any kind were advanced to me at trial on this aspect. If this is indeed a live issue, counsel may file memoranda soon after issue of this judgment for me to consider and leave to this effect will follow. In the meantime, however, this judgment will include liability on the part of the defendants for the full statutory interest claimed that Mr Logan effectively consented to before me.
Costs
[106] Conqueror, as the successful party, seeks an order for indemnity costs against both HSD and Mr Le Breton.
[107] The ASP provides that in the event of default under any of the provisions in the contract, the defaulting party/parties is/are to pay the indemnity solicitor/client costs of the other party.
[108] Mr Logan, on behalf of both HSD and Mr Le Breton, confirmed to me that he could take no issue with his clients’ liability as the unsuccessful parties for such indemnity costs here.
[109] An order requiring HSD and Mr Le Breton to be jointly and severally liable for Conqueror’s reasonable indemnity costs in this proceeding follows.
[110] The amount of those indemnity costs, however, is still to be calculated. Given this, counsel requested that memoranda on costs might now be filed with a final decision on the quantum of costs to be awarded to Conqueror to follow.
[111]A direction to this effect is set out below.
Result and Orders
[112] For all the reasons I have outlined above, Conqueror’s remaining claims against the defendants here effectively succeed in their entirety.
[113] Judgment is now entered in favour of Conqueror against both HSD and Mr Le Breton and orders are now made whereby HSD and Mr Le Breton are jointly and severally liable to Conqueror and are to pay to Conqueror forthwith:
(a)The net amount owing to Conqueror (set out in Schedule 1) totalling
$492,322.33;
(b)Interest on the outstanding amount of $438,006 at the contractual interest rate of 10 per cent per annum:
(i)From 2 February 2015 to 16 February 2018 (as set out in Schedule 2) totalling $133,321.82; and
(ii)From 16 February 2018 to the final date of payment of this amount calculated on a 10 per cent per annum daily rate; and.
(c)Interest on the outstanding $340,605.54 and €37,692 amounts at the statutory interest rate of 5 per cent per annum for the relevant periods (as set out in Schedule 2) totalling $50,897.29 and €913.90 respectively.
[114]As to costs on this proceeding:
(a)Judgment is entered in favour of Conqueror against both HSD and Mr Le Breton and an order now made whereby HSD and Mr Le Breton
are jointly and severally liable to Conqueror and are to pay (once determined by this Court) indemnity lawyer/client costs and disbursements;
(b)Counsel for Conqueror is within 10 working days of the date of this judgment to file and serve his memorandum as to the quantum of indemnity costs and disbursements that are appropriately to be awarded here;
(c)Counsel for HSD and Mr Le Breton is within a further 10 working days of that date to file and serve his costs memoranda in reply;
(d)These costs memoranda are to be no more than 10 pages in length; and
(e)The costs memoranda are to be referred to me and, in the absence of any party indicating they wished to be heard on this costs issue, I will give my decision as to the quantum of indemnity costs and to be awarded to Conqueror based on all the material then before the Court.
...................................................
Gendall J
Solicitors:
Russell McVeagh, Auckland Pitt & Moore, Nelson
Copy to:
L J Taylor, QC, Barrister Wellington
SCHEDULE 1
| Conqueror – HSD | ||
| Statement of Amounts Owing Between the Parties As at 15 February 2018 | ||
| Claimed | Summary of Claim | |
| $ | $ | |
| Amounts owing to Conqueror by HSD | ||
| Debtors payments paid into High Speed Doors Limited due to Conqueror International | 279,600.54 | First Cause of Action – Mistaken payment |
| R C MacDonald settlement sum | 33,530.00 | Third Cause of Action – R C MacDonald |
| Motor recondition of Christchurch Truck as agreed and Vehicle repairs required in order to bring vehicles up to COF/WOF standards | 20,000 | Fourth Cause of Action – Motor Vehicle expenses |
| Rent invoices issued to Magnum Limited for share of Blenheim Road premises | 7,475.01 | Fifth Cause of Action – Licence Fees |
| Net Amount Owing to Conqueror International Limited by High Speed Doors Limited | 13,175.00 | Sixth Cause of Action – Expenses paid by CIL |
| Efaflex Account paid by CIL €37,692 | 59,828.57 | Sixth Cause of Action – Expenses paid by CIL |
| Efaflex monies received/receivable by High Speed Doors from customers due to Conqueror Less: Efaflex monies paid by High Speed Doors for sales made by Conqueror due to be refunded | 482,705.02 209,756.19 | |
| 272,948.83 | ||
| Roller Shutter invoicing in January for work performed in February Less: Roller Shutter WIP at 31 January | 183,875.20 18,817.77 | |
| 165,057.43 | ||
| Total amounts claimed under apportionment | 438,006.26 | Eighth Cause of Action – Prepayment apportionment |
| Total Amount Owing to Conqueror International Limited by High Speed Doors Limited | $851,615.38 | |
| Less: Amounts Owing to HSD by Conqueror | ||
| Inventory: Roller door inventories | 219,760.47 | |
| Inventory: Efaflex inventories | 49,827.16 | |
| 269,587.63 | First Cause of Action – Stock | |
| Client payments received by Conqueror belonging to High Speed Doors | 49,747.42 | Second Cause of Action – Mistaken payments |
| Amounts Owing to High Speed Doors Limited by Conqueror International Limited | 39,958.00 | Fourth Cause of Action – Assumption of Liabilities |
| Total Amount Owing by Conqueror International to High Speed Doors Limited | $359,293.05 | |
| Net Amount Owing to Conqueror by HSD | $492,322.33 | |
SCHEDULE 2
CONQUEROR – HSD TABLE OF INTEREST
| Cause of action | Date period | Judgment sought | Total interest | Interest rate |
| First or second-mistaken payment or unjust enrichment | 2 February 20152 to 16 February 20181 | $279,600.54 | $42,552.90 | 5.0%8 |
| Third – R C MacDonald | 31 March 20153 to 16 February 20181 | $33,530 | $4,841.18 | 5.0%8 |
| Fourth – motor vehicle expenses | 20 September 20154 to 16 February 20181 | $20,000 | $2,413.70 | 5.0%8 |
| Fifth – licence fees | 20 March 20155 to 16 February 20181 | $7,475 | $1,089.51 | 5.0%8 |
| Sixth – expenses paid by CIL | 24 August 20176 to 16 February 20181 | €37,692 (Efaflex debt) | €913.90 | 5.0%8 |
| Seventh – provision of documents | - | Not pursued | - | - |
| Eighth – prepayment apportionment | 2 February 20152 to 16 February 20181 | $438,006 | $133,321.82 | 10.0%7 |
| Total | Judgment for Judicature Act Statutory Interest = $50,897.29 and €913.90 Judgment for Contractual Interest = $133,321.82 |
All date periods end on 16 February 2018, being the completion of the hearing.
ASP completion date.
Amended Statement of Defence and Counterclaim of First and Second Defendants to Second Amended Statement of Claim, 28 September 2017, at [21].
Common Bundle of Documents at page CB956.
Third amended statement of claim at [34]; Common Bundle of Documents at page CB817.
Brief of Evidence of Trevor James Bills at [6.2].
Definition of “Default Interest Rate” in clause 1.1 of the SPA.
Judicature Act interest rate.
2
5
0