Flight Park Tandems Limited v Club Flying Kiwi Ltd HC Invercargill CIV 2003-425-000443
[2005] NZHC 1734
•27 April 2005
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
CIV 2003-425-000443
BETWEEN FLIGHT PARK TANDEMS LIMITED
First Plaintiff
AND PEAK PARAGLIDING LTD
Second Plaintiff
AND CLUB FLYING KIWI LTD
Defendant
CIV 2004-425-000590
AND BETWEEN KOICHI YASUDA
Plaintiff
AND FLIGHT PARK TANDEMS LIMITED
Defendant
Hearing: 7 March 2005
8 March 2005
9 March 2005
(Heard at Christchurch)
Appearances: ARJ Bowers for Flight Park Tandems Limited and Peak Paragliding Limited
M C Stevenson and N H Soper for Club Flying Kiwi Ltd & Mr Yasuda
Judgment: 27 April 2005
JUDGMENT OF FOGARTY J
FLIGHT PARK TANDEMS LIMITED And Anor V CLUB FLYING KIWI LTD HC INV CIV 2003-425- 000443 [27 April 2005]
Introduction
[1] Flight Park Tandems Limited (FPT) provides commercial tandem paragliding flights. These are flights of two people, one of whom is a pilot, the other is a paying customer. The flights are from the Coronet Skifield down to a field called the “Flight Park”.
[2] The shares of FPT are held equally by two companies, the second plaintiff Peak Paragliding Ltd (PP) and the first defendant Club Flying Kiwi Ltd (CFK).
[3] The shares of PP are held by Mr Angus Tapper and his wife Mrs Brigette Tapper. The shares of CFK are held by Mr Koichi Yasuda and his partner, Ms Miwako Kuramoto. The two couples were friends when they entered into this business relationship. They have now fallen out.
[4]In the first proceedings (443) FPT and PP seek the following relief:
(a)Declaring the exclusive licence agreement binding on the first defendant.
(b)An injunction restraining either the first defendant (CFK) or the proposed second defendant (Mr Yasuda) or both of them from permitting competitors of FPT to operate commercial tandem paragliding flights into the Flight Park.
(c)Appointing Mr Ross Jackson or Mr Donald Bennett to be sole signatory to the National Bank accounts numbered 100640060949 010758400 and 100143060949 013011900 for the purpose of paying accounts on behalf of FPT reasonably incurred in the furtherance of business of FPT.
(d)Directing a valuation of the shares of FPT and sale of the shares owned by CFK to PP.
(e)Removal of the proposed second defendant as director of the first plaintiff.
(f)Such further and other consequential relief as the Court deems fit.
(g)Costs and disbursements.
[5] For relief in paragraphs (c), (d) and (e), PP relies on s 174 of the Companies Act 1993 which provides:
174 Prejudiced shareholders
(1) A shareholder or former shareholder of a company, or any other entitled person, who considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity, may apply to the Court for an order under this section.
(2) If, on an application under this section, the Court considers that it is just and equitable to do so, it may make such order as it thinks fit including, without limiting the generality of this subsection, an order—
(a) Requiring the company or any other person to acquire the shareholder's shares; or
(b) Requiring the company or any other person to pay compensation to a person; or
(c)Regulating the future conduct of the company's affairs; or
(d)Altering or adding to the company's constitution; or
(e)Appointing a receiver of the company; or
(f) Directing the rectification of the records of the company; or
(g)Putting the company into liquidation; or
(h) Setting aside action taken by the company or the board in breach of this Act or the constitution of the company.
(3) No order may be made against the company or any other person under subsection (2) of this section unless the company or that person is a party to the proceedings in which the application is made.
[6] As well as defending the first set of proceedings by raising a number of affirmative defences challenging the enforceability of the exclusive licence
agreement, Mr Yasuda has responded with the second set of proceedings (590). In these proceedings he seeks an order that FPT be put into liquidation, relying on the breakdown in personal relations between he and Mr Tapper. He argues that it is now just and equitable that FPT be wound up. He relies on s 241 of the Companies Act which provides:
241 Commencement of liquidation
(1) A company may be put into liquidation by the appointment as liquidator of a named person or of an Official Assignee for a named district.
(2)A liquidator may be appointed by—
(a) Special resolution of those shareholders entitled to vote and voting on the question; or
(b) The board of the company on the occurrence of an event specified in the constitution; or
(c) The Court, on the application of the company, or a director or shareholder, or other entitled person, or a creditor of the company (including any contingent or prospective creditor), or the Registrar.
(3) An Official Assignee may be appointed liquidator of a company only—
(a) If the special resolution passed in accordance with paragraph (a) of subsection (2) of this section is passed by reason of the Official Assignee exercising voting rights attaching to shares in the company of—
(i) A person who has been adjudged bankrupt; or
(ii)Another company of which the Official Assignee is liquidator; or
(b)By the Court.
(4)The Court may appoint a liquidator if it is satisfied that—
(a)The company is unable to pay its debts; or
(b) The company or the board has persistently or seriously failed to comply with this Act; or
(c)The company does not comply with section 10 of this Act; or
(d)It is just and equitable that the company be put into liquidation.
(5)The liquidation of a company commences on the date on which, and at the time at which, the liquidator is appointed.
(Emphasis added to (4)(d))
[7] The issues between the parties pose the question of what it is just and equitable to do as a consequence of the impasse between CFK and PP or substantively between Mr Angus Tapper and Mr Yasuda.
[8] The leading authority on the considerations underlying the standard “just and equitable’ is the House of Lords decision in Ebrahimi v Westbourne Galleries Ltd and Ors [1973] A.C. 360.
[9] In that case their Lordships were considering the application of the then UK equivalent of s 241(4)(d), being s 222(f) of the Companies Act 1948. Section 222 provided:
222. A company may be wound up by the court if-
(a) the company has by special resolution resolved that the company be wound up by the court;
(b) default is made in delivering the statutory report to the registrar or in holding the statutory meeting;
(c) the company does not commence its business within a year from its incorporation or suspends its business for a whole year;
(d) the number of members is reduced, in the case of a private company, below two, or, in the case of any other company, below seven;
(e) the company is unable to pay its debts;
(f) the court is of opinion that it is just and equitable that the company should be wound up.
[10] In that case, since about 1945, two men carried on partnership in a business as carpet dealers. As partners they had equal shares. In 1958 they formed a company to take over the business. They split the shares 50/50. Later one of the partner’s sons was appointed a director and acquired some shares. The appellant, Ebrahimi fell out with his partner and his partner’s son.
[11] The trial Judge had rejected allegations by Ebrahimi of oppression and misconduct that would have justified an order under s 210 of the Companies Act 1948. It may be noted that s 210 is the then equivalent to our s 174. Section 210 provided:
210.
(1) Any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members (including himself) or, in a case falling within subsection (3) of section one hundred and sixty-nine of this Act, the Board of Trade, may make an application to the court by petition for an order under this section.
(2)If on any such petition the court is of opinion –
(a) that the company’s affairs are being conducted as aforesaid; and
(b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up;
the court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company’s affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company’s capital, or otherwise.
(3) Where an order under this section makes any alteration in or addition to any company’s memorandum or articles, then, notwithstanding anything in any other provision of this Act but subject to the provisions of the order, the company concerned shall not have power without the leave of the court to make any further alteration in or addition to the memorandum or articles inconsistent with the provisions of the order; but, subject to the foregoing provisions of this subsection, the alterations or additions made by the order shall be of the same effect as if duly made by resolution of the company and the provisions of this Act shall apply to the memorandum or articles as so altered or added to accordingly.
(4) An office copy of any order under this section altering or adding to, or giving leave to alter or add to, a company’s memorandum or articles shall, within fourteen days after the making thereof, be delivered by the company to the registrar of companies for registration; and if a company makes default in complying with this subsection, the company and every officer of the company who is in default shall be liable to a default fine.
(5) In relation to a petition under this section, section three hundred and sixty-five of this Act shall apply as it applies in relation to a winding-up petition, and proceedings under this section shall, for the purposes of Part V of the Economy (Miscellaneous Provisions) Act, 1926, be deemed to be proceedings under this Act in relation to the winding up of companies.
[12] In Ebrahimi (unlike here), the relevant shareholders were not companies but persons. I will return to consider whether that is a material difference, infra at [17].
[13] The issue before the House of Lords as to whether there should be a winding up on the just and equitable ground relying on s 222(f). The leading speech is by Lord Wilberforce.
[14] He noted that the power to wind up on this ground had been unaltered since the first major Companies Act being the Companies Act 1862. He pointed out it existed also in the Joint Stock Companies Winding up Act of 1848. He pointed out that in the early years the words “just and equitable” were interpreted so as only to include matters ejusdem generis in the preceding clauses of the section. He now said that limitation has been discarded. Relevantly Lord Wilberforce said:
No doubt, in order to present a petition, he must qualify as a shareholder, but I see no reason for preventing him from relying on any circumstances of justice or equity which affect him in his relations with the company, or, in a case such as the present, with the other shareholders.
(375 A-B)
[15]Lord Wilberforce went on:
One other signpost is significant. The same words “just and equitable” appear in the Partnership Act 1892, section 25, as a ground for dissolution of a partnership and no doubt the considerations which they reflect formed part of the common law of partnership before its codification. The importance of this is to provide a bridge between cases under s 222 (f) of the Act of 1948 and the principles of equity developed in relation to partnerships.
(375 B-C)
[16] That in turn led Lord Wilberforce on to this important finding in favour of substantive analysis:
The winding up order was made following a doctrine which has developed in the courts since the beginning of this century. As presented by the appellant, and in substance accepted by the learned judge, this was that in a case such as this the members of the company are in substance partners, or quasi-partners, and that a winding up may be ordered if such facts are shown as could justify a dissolution of partnership between them. The common use of the words “just and equitable” in the company and partnership law supports this approach.
(375 C-D)
[17] The following passage is the classic statement by Lord Wilberforce of how the standard ‘just and equitable’ should be applied:
The words [just and equitable] are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The “just and equitable” provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.
(379 A-E)
The phrase “or amongst it”, justifies looking past the fact that the individuals concerned hold their share of FPT via PP and CFK.
[18] Lord Wilberforce went on to note that the circumstances in which these considerations may arise are impossible and wholly undesirable to define. But he did say where an association is purely commercial it may be that the basis of the association is adequately and exhaustively laid down in the Articles. He then went on to say:
The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence–this element will often be found where a pre-existing partnership has been converted into a limited company;
(ii) an agreement, or understanding, that all, or some (for there may be “sleeping” members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members’ interest in the company–so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.
(379 E-F)
[19] He went on to recognise that some such companies may be described as quasi partnerships or in substance partnerships. Naming them that way he said:
… may be convenient because it is the law of partnership which has developed the conceptions of probity, good faith and mutual confidence, and the remedies where these are absent, which become relevant once such factors as I have mentioned are found to exist: the words “just and equitable” sum these up in the law of partnership itself. And in many, but not necessarily all, cases there has been a pre-existing partnership the obligations of which it is reasonable to suppose continue to underlie the new company structure.
(399G – 380A)
[20] Here the underlying relationship driving the company structure was a partnership formed between Mr Angus Tapper and Mr Koichi Yasuda. This is a case where it is necessary to examine the reliance of that partnership on mutual confidence and to examine the breakdown of that partnership, in order to form a judgment as to the application of the just and equitable ground for the purposes of considering both Mr Yasuda’s application for a winding up, and PP’s application for relief under s 174.
[21] Section 174 and s 241 overlap as did ss 210 and 222 of the Companies Act 1948 (U.K.). For example a Court may appoint a liquidator under s 241(4)(d) on the just and equitable ground or exercise powers under s 174(2)(g).
[22] However, the outcomes are quite different to Mr Yasuda and Mr Angus Tapper depending on whether this Court orders Mr Yasuda’s company, CFK, to sell its shares effectively to Mr Angus Tapper’s company, PP; or whether Mr Yasuda succeeds in persuading the Court that FPT should be wound up.
[23] The difference in outcomes is substantially this: if FPT is wound up it will inevitably lose the benefit of the non-assignable licence that it has to land at the Flight Park. This means that if Mr Angus Tapper continues his occupation as a tandem paragliding pilot he will not be able to rely on a licence to land on Mr Yasuda’s field. On the other hand, if Mr Yasuda is forced to sell his shares in FPT, but FPT continue as an entity he may be forced to endure the daily sight of Mr Angus Tapper and his employees landing their customers on his landing field. This could carry on for 20 years. Under this scenario it becomes a very real consideration as to whether this Court should make orders which maintain some kind of business
relationship between Mr Yasuda and Mr Tapper, when that relationship had originally been found on friendship and then mutual confidence, both of which have gone.
[24] Against these preliminary considerations the history of their relationship is examined. As the standard “just and equitable” is broad, it calls for a detailed examination of the relationship between the parties.
The relationship of mutual confidence and trust
[25] Mr Yasuda and Ms Kuramoto met Mr Angus Tapper, as paragliders. They attended various paragliding competitions together. Through their mutual passion for flying they became friends with Mr Tapper and his wife Brigette. They later met and became friends with Mr Angus Tapper’s father Mr Jules Tapper. Mr Angus Tapper was a pilot for a commercial paragliding enterprise called Queenstown Commercial Pilots or QCP.
[26] In 2001 the two couples decided to form a company, Flight Park Tandems Limited (FPT), which they would hold 50% by Club Flying Kiwi (CFK) and 50% by the Tapper Company, Peak Paragliding Ltd. (PP). FPT then purchased CFK’s commercial tandem hang-gliding and paragliding business. This was on 14 November 2001. CFK continued to be the owner of the Flight Park.
[27] As a schedule to the purchase of the business the parties entered into a licence agreement on the same day. By this agreement CFK licensed FPT to use the Flight Park for landing. The initial term of the licence is five years with three rights of renewal, each of five years. The final expiry date is 20 years if the rights of renewal are exercised. FPT agreed to pay CFK a fee of $8 for each landing. There were provisions for reviewing the landing fee. One of the express clauses of this licence is as follows:
This agreement does not confer any exclusive or sole rights or other privileges upon FPT.
Another clause is as follows:
FPT will maintain public liability insurance of no less than NZ $1,000,000.00.
[28] The practical consequence of this transaction is that the Yasudas and the Tappers are partners, particularly Mr Tapper and Mr Yasuda. In the early stages Mr Yasuda assisted with the cashflow of FPT by way of interest free loans. There was a need for such cashflow because the tradition was to pay the commercial pilots flying the paragliders for their services more or less straightaway. However, those passengers who were booked through agents did not pay FPT directly and upfront. The cashflow from those flights took up to and over a month to arrive.
[29] Mr and Mrs Tapper did all the administration and management of the business. Mr Yasuda and Ms Kuramoto were essentially the silent partners. Both couples had different financial circumstances. Mr Yasuda is wealthy. In Mr Yasuda’s words:
I have been involved in a number of successful business enterprises over the years and by the time I arrived in New Zealand, I had attained a high level of financial security.
The purchase of the land at Malaghans Road and the Flight Park business was out of my love for the sport, rather than purely for financial gain. Of course, we wanted the business to operate so that it could cover all expenses and make a profit, but our main motivation was to further the sport in New Zealand, and to provide a safe and common landing park for participants of the sport in the Queenstown area.
[30] By contrast Mr and Mrs Tapper are a young couple making their start in life. They are hard working and naturally ambitious. Mrs Tapper was a primary school teacher, but with the arrival of two young children she has given up that occupation, at least for the time being. Both have worked in the business, and Mrs Tapper also worked directly for Mr Yasuda, for CFK.
[31] Mr Tapper’s father, Mr Jules Tapper, is in the background. He became a friend of Mr Yasuda and Ms Kuramoto. He has a background in aviation and is semi retired. He increasingly began to assist Mr Yasuda in the operation of the Flight Park. Often his work was unpaid, sometimes it was rewarded by contra deals. Mr Jules Tapper is a paraglider as well. Plainly Mr Jules Tapper is also an important
background influence to his son and daughter-in-law. There is no evidence that he was a financial supporter of them.
[32] While the parties remained on friendly terms the business side of the relationship was characterised by mutual trust and confidence. For example, Mr Yasuda would sign upwards of 20 blank cheques to be completed by Mr Tapper in order to pay the accounts of the company.
The breakdown of the relationship
[33] The breakdown in the relationship has its origins in concerns Mr Angus Tapper had about Queenstown Commercial Parapenters (QCP). This was one of the main competitors of FPT. QCP also operate commercial tandem paragliding flights. Normally they take off from Bob’s Peak, which is the site of the gondola above Queenstown and land on some playing fields in Queenstown. However, sometimes when weather conditions dictate QCP also operate from Coronet Peak.
[34] QCP has a monopoly effectively on the Bob’s Peak takeoff point. This is because that area is under the control of the Department of Conservation (DOC). DOC has limited to about 20 the number of licences to commercial pilots to take off from that site. The licensees banded together to form the company, QCP. Mr Angus Tapper used to be a QCP pilot. He endeavoured unsuccessfully to obtain his own licence from DOC to take off from Bob’s Peak. It was when he failed to do so that he and Mr Yasuda entered into a business alliance.
[35] Some time during October 2002 Mr Angus Tapper started talking to Mr Yasuda about concerns he had that QCP might transfer their operations more to the Coronet Peak area. A few days prior to 17 October 2002 Mr Angus Tapper was at Mr Yasuda’s house where the subject of QCP was discussed with Mr Yasuda and Ms Kuramoto. Later Mr Jules Tapper joined the meeting. While Mr Jules Tapper was present the subject of exclusive commercial tandem landing rights at the Flight Park was brought up. Both Messrs Tapper, father and son, argued for the merits of FPT having exclusivity.
[36] There is a dispute as to the outcome of this discussion. Mr Jules Tapper said that Mr Yasuda was quite happy to provide exclusivity to FPT and that he fully understood the ramifications. Mr Yasuda said that during October Mr Angus Tapper had been repeatedly talking about QCP and saying he wanted Mr Yasuda to stop QCP landing at the Flight Park. He had always said “no”. For one thing he did not see there was any need for such a prohibition because QCP was based at the Skyline Gondola Restaurant (at Bob’s Peak), and used Coronet Peak comparatively rarely. He also wanted to keep the Flight Park open to all. He said Mr Angus Tapper was saying that QCP pilots who were landing at the Flight Park were not properly reporting all their landings and were cheating him out of landing fees.
[37] Mr Yasuda says at this meeting he had by this stage got tired of listening to Mr Angus Tapper’s remonstrations and agreed that QCP would be prevented from landing at the Flight Park for a trial period. He wanted to do this without any conflict and asked Angus how this could be done. Mr Angus Tapper said he would draft a letter to send to QCP. Mr Yasuda said he specifically stated that he wanted to see the draft letter first and told Angus that once he approved the letter he could distribute it to QCP.
[38] A few days later, on 17 October, Mr Angus Tapper popped into the Yasuda household with a new licence agreement for signature. The contents of this agreement were very similar to the existing licence, but with a critical difference, clause 4 provides:
4.Subject to the terms and conditions contained in this Agreement, CFK hereby grants to FPT the following rights (“Licence Rights”):
(a) The exclusive right to conduct Commercial Tandem Paragliding Flights and Landings at the Flight Park.
(b) The right, together with others lawfully permitted so to do, to conduct Commercial Hang-gliding Flights and Landings at the Flight Park.
(c) …
(Emphasis added)
[39] This new agreement had been drafted on Mr Angus Tapper’s instructions by a solicitor, Mr Bob Craigie. In Mr Tapper’s mind it reflected what he and
Mr Yasuda had discussed previously at the previous meeting a few days before. Mr Tapper said:
It was the whole reason that previous meeting why that document was drafted by Bob Craigie.
[40] Mr Tapper says that he can remember putting the document down in front of Mr Yasuda, turning to page 2, putting his finger on the exclusivity clause in the agreement. He says the reason why he did that was because that was the main change to the licence agreement. “That was the whole reason why, it was the main reason for replacing the previous agreement.” He said Mr Yasuda looked at it. He said that Ms Kuramoto asked him what was meant by exclusive and he explained that only FPT could do commercial paragliding landings at the Flight Park. He says she acknowledged that. Mr Tapper said he said to Ko (MrYasuda) that he did not have to sign the agreement that night. Mr Tapper was aware that the Yasudas were going to dinner. He advised him that he should see a lawyer before signing the document. He said he gave those two pieces of advice because his solicitor had advised him to do so. It was Mr Tapper’s evidence that there was no shadow of doubt in his mind that Mr Yasuda knew exactly what he was signing.
[41] Mr Yasuda said that in the earlier discussions concern had been raised by Mr Angus Tapper as to the potential liabilities of the Flight Park should there be accidents. He said on 17 October Mr Angus Tapper popped in. This was not unusual. But his visit did hold them up as they were preparing to leave for dinner. Mr Tapper had a document with him and he asked Ms Kuramoto and he to sign it. He said that Mr Angus Tapper said the document was just a renewal and that he, Mr Yasuda, understood it as a renewal of the previous licence with the change being to protect Miwako (Ms Kuramoto) and himself as landowners. He said he trusted Mr Tapper, as he had complete confidence in him. He said Mr Tapper was only in the house approximately five to ten minutes. Mr Tapper did not go through the document or explain it any further rather than saying it was just a renewal. Mr Yasuda said he did not read it. He trusted what Angus said it was and believed he would not be asking them to sign something that was not in their interests. He said Mr Angus Tapper did not say that they should get independent legal advice or
say anything to make him think that he was signing anything having any great impact.
[42] Ms Kuramoto’s evidence was similar. She also said he said it was just a renewal and that we just needed to sign it. She also said she understood it was a document to do with protecting themselves from liability as landowners and that Mr Angus Tapper simply turned to the last page and pointed with his finger where Ko (Mr Yasuda) and she needed to sign. She said they both signed the agreement without reading it as they both trusted Angus and did not think anything more of it.
[43] There is another document dated 17 October 2002. This document is a disclosure of interest by Mr Yasuda as a director and shareholder of CFK and signed by him and Mr Angus Tapper. Neither of them had referred in their briefs to that document being signed that evening. Mr Angus Tapper did not rule that out. It is more likely on the probabilities to be signed at a later date. The fact that neither of them can recall signing the document tends to reinforce Mr Yasuda’s evidence that the “renewal” of the licence agreement in October 2002 was in his mind a minor matter of no particular consequence and Mr Angus Tapper’s evidence that the second licence simply recorded what had been earlier agreed.
[44] In cross-examination Mr Angus Tapper agreed that he and Mr Yasuda had developed a business practice, in the context of their relationship of confidence whereby he prepared the business documentation.
q.My point is Mr Tapper, is that you provided the instructions to Mr Craigie. There was no draft document prepared by yourself and Mr Yasuda that went to Mr Craigie for him to prepare the document that was signed that night.
a.Never was. It was never the case when documents were sorted out. It was always me that was doing it.
[45] There is much common ground in these two versions of what happened. The meeting was short. There was very little discussion about the content of the document. Mr Yasuda and Ms Kuramoto did not read it. They were asked by Mr Angus Tapper to sign it. Mr Angus Tapper presented it as reflecting matters they had previously agreed. Mr Tapper was fulfilling his usual role in the relationship of
doing the documentation, knowing that Mr Yasuda did not like to be bothered by that kind of detail.
[46] The next day Mr Angus Tapper sent two letters, one to QCP and the other to another company, Hire Adventure.
[47] This letter was written on the letterhead of Flight Park. That is Mr Yasuda’s business. It said:
Club Flying Kiwi Ltd is the owner and operator of “The Flight Park” on Malaghan Road. The Company has decided that as from 20/1002 the only commercial paragliding operators authorised to operate to and from the Flight Park will be ‘Elevation Paragliding’ the existing flying school and ‘Flight Park Tandems Ltd’.
Yours faithfully The Flight Park
[48] By way of parenthesis, in June 2002 there was a licence given to Elevation Paragliding. This licence was for the purpose of operating a flying school, not for the purpose of providing casual commercial tandem flights.
[49]It is common ground that Mr Yasuda did not see this letter before it was sent.
[50] This letter caused a ruckus amongst the hang-gliding and paragliding community in Queenstown. It was misunderstood as being some blanket policy stopping landing at the Flight Park.
[51] Mr Angus Tapper became aware that there was a rumour about that solo pilots were being told they could not land at the Flight Park. A week later, on 25 October, Mr Angus Tapper sent an email to a large number of flyers in the community.
It reads:
At the recent AGM of the Southern Club there were several issues discussed relating to the Flight Park. As the Flight Park does not have a representative present, it is felt that these issues needed to be clarified.
Firstly, the Flight Park is very happy to have recreational pilots landing at the Flight Park and encourages them to do so in future.
Secondly, the Flight Park has never tried to restrict pilots from landing on other properties around the Flight Park.
There has been an issue of exclusivity for commercial paragliders using the Flight Park for some time now. This in no way affects recreational pilots and it is worth noting that the Flight Park is not the only landing place for commercials at Coronet Peak. We hope that this goes some way to clarifying the situation and to put to rest any doubts that solo pilots may have about landing there.
Looking forward to the summer. Regards
The Flight Park
(Bold in the original)
[52] Again Mr Angus Tapper did not obtain Mr Yasuda’s consent for sending this email, apparently from Flight Park. Mr Yasuda took exception to the use of the bold in the email. Mr Angus Tapper shortly after apologised to Mr Yasuda for sending the email without asking his consent.
[53] It was Mr Yasuda’s evidence that the majority of hobby pilots stopped using the Flight Park. He thought that he was being subject to a form of ostracism known in Japanese culture as “mura-hachibu”. He said there if you are seen to be acting in a way which is detrimental to the community, whether deliberately or inadvertently, you will be shunned from within the community. He said when all the operators stopped landing, and even the hobby pilots turned away from the Flight Park, he thought he was receiving mura-hachibu treatment because of their decision to stop QCP landing at the Flight Park. Mr Yasuda’s evidence was that the hostility of local pilots continued after this email. As to the extent, he was not clear.
[54] Mr Yasuda said he also received complaints from farmers in surrounding properties to the Flight Park complaining the paragliders were landing on their farms.
[55] Between 7 and 17 March 2003 Mr Angus Tapper was away in Australia for the New Zealand Paragliding Nationals. Mr Angus Tapper’s evidence was that while he was away Mr Yasuda allowed QCP to land at the Flight Park. When he got back he “confronted” Mr Yasuda over this. Mr Angus Tapper said Mr Yasuda said he had changed his mind about other tandem paraglider operators landing at the Flight Park and it would be trouble for Mr Angus Tapper if he did not agree to go back to the original licence agreement, which did not have the exclusivity clause. Mr Yasuda disputes this. He says the landings were due to adverse weather conditions. He refers to an April email to Mr Tapper explaining that.
[56] Mr Angus Tapper marks Mr Yasuda’s change in their relationship from this time. However, Mr Angus Tapper said that this had nothing to do with the Flight Park tandem business but rather involved a young Japanese woman, called Noriko, who stayed at the Flight Park. She had a dispute with Mr Yasuda over the purchase of a paraglider. Mr Tapper had given her a lift in his car to a paragliding competition on 22 November. Mr Yasuda had been unhappy that he had given her a lift and had thought people would talk. Mr Angus Tapper said he was not used to people telling him what he could or could not do and took offence to this.
[57] Mr Yasuda said that that break-up in relationship had nothing to do with the young woman. Rather the hostility between them started in February or March 2003 over the question of QCP landing at the Flight Park. He said that Mr Angus Tapper had behaved quite aggressively on the subject: bringing a copy of the second licence to their home, waving it in his partner’s face, pointing to the words “exclusive rights’, and dropping it in front of his partner, Ms Kuramoto, saying: “Ko knew about that” and leaving.
[58] Whichever version of this story is true, there is much common ground. There is no doubt that the relationship of both mutual business confidence and friendship broke down in March 2003. Mr Angus Tapper was angry that QCP were landing at the Flight Park. Mr Yasuda was angry about the way Mr Tapper was reacting to that and treating his partner and himself.
[59] From March 2003 Mr Yasuda changed his mind about exclusivity. He was not prepared to continue to keep QCP out. He did not want FPT to have ongoing exclusivity. The relationship was further embittered by Mr Yasuda saying he had changed his mind, for Mr Angus Tapper thought Mr Yasuda had agreed at the meeting before 17 October, and on 17 October to a 20 year period of exclusivity.
[60] The seeds in the breakdown of the relationship were sown in the correspondence immediately after the execution of the second licence being a combination of the reaction of the flying community to the ban against QCP, the unauthorised email, and the incident with the young woman.
The dysfunctional relationship
[61] From March 2003 on the relationship became dysfunctional. Mr Yasuda began to demand much more information than before upon being asked to sign cheques to pay bills. In particular he began to ask information as to the bookings which lay behind the commercial pilot fees. Mr Angus Tapper took the view that Mr Yasuda should not have this information. Mr Angus Tapper thought that Mr Yasuda was now favouring FPT’s competitors and was seeking this information so that he could ascertain from which agents the pilots of FPT were obtaining business. Mr Angus Tapper refused to provide this additional commercial information about the bookings. Initially Mr Yasuda’s accountant, Mr Jackson, was prepared to sign some of the cheques. By way of background, when the cheque signing authorities were originally set up there were four signatories: Mr Angus Tapper and his father, Jules; Mr Yasuda and his accountant, Mr Jackson. It was Mr Yasuda’s evidence that the original concept had been that Mr Jules Tapper was an alternate to Angus and Mr Jackson was his alternate in the event that either he or Mr Angus Tapper were out of town. Mr Angus Tapper said it was understood that any two could sign. I prefer Mr Yasuda’s evidence in this regard.
[62] After initial co-operation Mr Jackson received instructions from his client not to co-operate. There were then even more problems with cheque signing. On a few rare occasions there were some cheques signed by Mr Angus Tapper and his father.
[63] As a result of these problems, in February 2004, Mr Tapper took the matter into his own hands by setting up a separate bank account with the same bank under the name and style of Flight Park Tandems, to which account he was a sole signatory. He began to bank receipts from the business in this account. His solicitor advised Mr Yasuda’s solicitor that the bank account was opened on the same day.
[64] Before that, on 19 September 2003 the proceedings 443, were commenced by FPT seeking an injunction preventing CFK from selling the Flight Park land during the term of the licence agreement. This was accompanied by an application for interim relief restraining CFK from selling or otherwise disposing of the land until further order of the Court. That interim injunction was granted by consent.
[65] Since then the business of FPT has continued, although the turnover has declined. While it has continued there have been three personal confrontations: between Mr Yasuda and Mrs Tapper, Mr Yasuda and Mr Jules Tapper, and Mr Yasuda and Mr Angus Tapper, all at the Flight Park. Clearly the relationship between everybody concerned is now bitter. Mr Yasuda called as a witness in support of his case a senior pilot of QCP, from which the Court infers that he now favours a relationship with QCP.
The enforceability of the second licence
[66] FPT and PP seek a declaration that the exclusive licence agreement is binding upon CFK. CFK responded to this with a statement of defence and counter claim on 28 October 2003. This pleaded, by way of affirmative defence, that Mr Yasuda did not have the language skills to fully comprehend the written licence agreement and would rely on the verbal representation made by Mr Tapper who took unconscientious advantage of the situation. It pleaded a second defence that Mr Yasuda was influenced to enter the contract by a material mistake, namely he was unaware the contract would grant exclusive rights. The pleading then goes on to seek relief
“… pursuant to the Contractual Remedies Act refraining the plaintiff from enforce the terms of the agreement dated 17th of October 2002”.
[67] This somewhat unsatisfactory document was replaced by an amended statement of defence of 12 August 2004 which pleaded in a more orthodox fashion five affirmative defences being:
1.Exercise of undue influence
2.Unconscionable bargain
3.No consideration for the second licence
4.Material mistake
5.Misrepresentation
But in respect of the misrepresentation pleading it did not seek any relief by way of counter claim. However, this amended statement of defence, (in paragraph 3), did refer to the defendants’ counter claim in 2003 as though it was still in existence. On 20 August 2004 the plaintiff filed a statement of defence to the counter claim. Then the plaintiff filed an amended statement of claim on 12 November 2004 to which there has been no statement of defence and/or counter claim. I also note that this amended statement of claim cited Mr Yasuda as “proposed second defendant”.
[68] These pleadings have some deficiencies, to put it mildly. There was brief mention of these deficiencies by counsel for both sides at the start of the trial. To the credit of counsel neither side sought to take particular advantage from the deficiencies, except as to the joinder of PP, which has been the subject of a separate ruling. In the course of the trial it was clarified that there was no pleading of fraud by CFK and/or Mr Yasuda against PP and/or Mr Angus Tapper.
[69] The legal issues as to the effect of the second licence agreement are difficult as they pose a tension between the basic principle that a person cannot deny the content of a document that he or she has signed on the one hand with the relief that the common law, the Contractual Remedies Act 1979 and the Contractual Mistakes Act 1977 provide in exceptional situations, where it is manifestly unjust that a person be held to a contract. It is important to the certainty of commercial life that
those exceptional doctrines providing relief be applied carefully. In the long run it is important that persons who sign contracts should take care to know the consequences of the execution before they sign. That said, it is also a fact of life in New Zealand that long term commercial contracts often flow from and only because of relationships of trust and confidence that are established before contracts are formally entered into. In that respect New Zealand commercial life has some similarities with that of Japan, as represented to me by counsel.
[70] I find that on 17 October Mr Angus Tapper did point to the new clause and did answer Ms Kuramoto’s question as to what exclusivity meant. However, I am not persuaded that Mr Yasuda would have either paid attention to Ms Kuramoto’s question and the answer or understood it. Mr Yasuda can clearly understand conversational English and speak conversational English. However, his command of the language has limitations. He could easily not follow a short oral discussion on exclusivity. Mr Yasuda did, at the earlier meeting, agree that QCP would not land in future at the Flight Park. However, this agreement did not have a term on it. There is no evidence that on 17 October Mr Tapper explained not only that the licence provided exclusivity but that the exclusivity remained while Flight Park Tandems had the benefit of the licence. On the probabilities I find that Mr Tapper did not say the licence was a renewal. He may have used some other similar sounding term such as a new licence as discussed. It is common ground that the question of protection of he and his partner’s property rights in respect of accidents was not discussed. Mr Tapper did advise that they should see a lawyer and did not need to sign that night. But he did not pursue that advice and allowed Mr Yasuda and Ms Kuramoto to sign. The Yasudas thought the document was of no moment.
[71] On 17 October Mr Tapper’s words and conduct, taken as a whole, were a representation of fact that the second licence reflected terms already agreed between he and Mr Yasuda. Mr Yasuda and Ms Kuramoto signed on this basis and on this basis alone. Had Mr Yasuda known the true contents of the second licence and the fact that it granted exclusive rights for up to 20 years to FPT he would not have executed it. Mr Tapper’s representation was innocent. However, it was a misrepresentation in fact. This is because there was no meeting of minds between he and Mr Yasuda and Ms Kuramoto in the previous meeting. There was a common
understanding reached at that meeting that QCP would not in the meantime be allowed to land commercial tandem flights at the Flight Park. But that is as far as it went. There was no oral agreement that FPT’s resultant exclusivity would be for the potential life of its licence, 20 years.
[72] Mr Tapper did not set out to deceive Mr Yasuda and Ms Kuramoto when instructing his solicitor to draft the second licence, and nor when popping in to have it signed. He did not set out to take advantage of Mr Yasuda’s limited grasp of the English language. He did not proceed on the basis of knowing that Mr Yasuda had not agreed with him that FPT should have exclusivity during the life of the licence. Mr Angus Tapper and his father mistakenly believed that Mr Yasuda had positively agreed at the previous meeting to his position of up to 20 years of exclusivity. It does not particularly matter how Mr Tapper got to that mistaken belief. It may well be the result of cultural differences. I am sure that at that earlier meeting Mr Yasuda and Ms Kuramoto would have been polite. Their politeness may have been misunderstood as agreement with the propositions being put to them.
[73] Quite plainly Mr Tapper received wise advice from his solicitor to tell Mr Yasuda to get legal advice before signing. Mr Tapper did so tell Mr Yasuda. But what Mr Tapper’s solicitor may not have appreciated, he was not called, was that there was an established relationship whereby Mr Tapper did all the paper work. For example, Mr Tapper drew up the earlier licence agreement granted by CFK (that is the licence by Higher Adventure drawn up in June 2002). Mr Yasuda was accustomed to signing papers presented to him by Mr Tapper.
[74] Traditionally the common law remedy for relief for undue influence and for unconscionable bargain protects persons who are in a position to be influenced to the degree they can no longer freely enter into a contract or who are in special positions of disadvantage or ignorance. Mr Yasuda is an experienced businessman. Both he and Ms Kuramoto are well educated intelligent people. They are not at an economic disadvantage. It is a strained argument to try to fit the facts of this case into the common law and equitable remedies of undue influence or unconscionable bargain. Both undue influence and unconscionable bargain require an unconscientious use of power. See Contractors Bonding Ltd v Snee [1992] 2 NZLR 157, 165, as to undue
influence, and O’Connor v Hart [1985] 1 NZLR 159, 171, as to unconscionable bargain. On the facts here the conduct of Mr Tapper was not unconscionable.
[75] There is no merit in the argument that there was no consideration for the second licence. In Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 Baragwanath J said:
[93] … the law will seek to give effect to freely accepted reciprocal undertakings. The importance of consideration is as a valuable signal that the parties intend to be bound by their agreement, rather than an end in itself. Where the parties who have already made such intention clear by entering legal relations have acted upon an agreement to a variation, in the absence of policy reasons to the contrary they should be bound by their agreement.
(Pages 45, 46)
[76] The second licence is a variation of the first. It is common practice for business people to vary ongoing relationships with new terms. In this relationship there is ongoing provision of benefits on both sides. This is not a natural case for asserting lack of consideration as a justification for not being bound to the variation.
[77] I turn to the application for relief under the Contractual Remedies Act by CFK (Mr Yasuda). Mr Yasuda and so CKF were induced to enter into the variation by an innocent misrepresentation by Mr Angus Tapper on the part of PP. It is not necessary to make a positive finding in respect of Ms Kuramoto. The dominant signatory was Mr Yasuda. Once he signed Ms Kuramoto would and did sign.
[78] The problem posed in this case is not whether or not misrepresentation has been proved but as to the remedies. CKF and Mr Yasuda are not seeking damages. Rather, they are seeking a Court order that FPT and PP refrain from enforcing the second agreement. Section 7 of the Contractual Remedies Act 1979 provides:
Cancellation of contract
(1) Except as otherwise expressly provided in this Act, this section shall have effect in place of the rules of the common law and of equity governing the circumstances in which a party to a contract may rescind it, or treat it as discharged, for misrepresentation or repudiation or breach.
(2) Subject to this Act, a party to a contract may cancel it if, by words or conduct, another party repudiates the contract by making it clear that he does
not intend to perform his obligations under it or, as the case may be, to complete such performance.
(3) Subject to this Act, but without prejudice to subsection (2) of this section, a party to a contract may cancel it if—
(a) He has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made by or on behalf of another party to that contract; or
(b)A [term] in the contract is broken by another party to that contract; or
(c) It is clear that a [term] in the contract will be broken by another party to that contract.
(4) Where subsection (3)(a) or subsection (3)(b) or subsection (3)(c) of this section applies, a party may exercise the right to cancel if, and only if,—
(a) The parties have expressly or impliedly agreed that the truth of the representation or, as the case may require, the performance of the [term] is essential to him; or
(b) The effect of the misrepresentation or breach is, or, in the case of an anticipated breach, will be,—
(i) Substantially to reduce the benefit of the contract to the cancelling party; or
(ii) Substantially to increase the burden of the cancelling party under the contract; or
(iii) In relation to the cancelling party, to make the benefit or burden of the contract substantially different from that represented or contracted for.
(5) A party shall not be entitled to cancel the contract if, with full knowledge of the repudiation or misrepresentation or breach, he has affirmed the contract.
(6) A party who has substantially the same interest under the contract as the party whose act constitutes the repudiation, misrepresentation, or breach may cancel the contract only with the leave of the Court.
(7) The Court may, in its discretion, on application made for the purpose, grant leave under subsection (6) of this section, subject to such terms and conditions as the Court thinks fit, if it is satisfied that the granting of such leave is in the interests of justice.
[79] Subsection 3(a) enables CFK to cancel, subject to subs 4. Subsections 4(b)(ii) and (iii) apply in CFK (Mr Yasuda’s favour), as the exclusivity term in the variation imposes at the least significant social burdens on Mr Yasuda. It is not necessary to resolve the competing perspectives as to whether the exclusivity clause lessened revenue or not.
[80]Section 8 (1)(2) provides:
8 Rules applying to cancellation
(1)The cancellation of a contract by a party shall not take effect—
(a) Before the time at which the cancellation is made known to the other party; or
(b) before the time at which the party cancelling the contract evinces, by some overt means reasonable in the circumstances, an intention to cancel the contract, if-
(i) it is not reasonably practicable for the cancelling party to communicate with the other party; or
(ii) the other party cannot reasonably expect to receive notice of the cancellation because of that party's conduct in relation to the contract.
(2) The cancellation may be made known by words, or by conduct evincing an intention to cancel, or both. It shall not be necessary to use any particular form of words, so long as the intention to cancel is made known.
[81] Mr Yasuda for CFK has not formally sought cancellation. But that is implicit in CFK’s pleadings. The service of the first statement of defence and counter claim operated as notice, see Chatfield v Jones [1990] 3 NZLR 285, 290.
[82] The word “refrain” in the pleadings seems to have been picked up from s 9(1)(c) of the Act. Section 9 provides:
9 Power of Court to grant relief
(1) When a contract is cancelled by any party, the Court, in any proceedings or on application made for the purpose, may from time to time if it is just and practicable to do so, make an order or orders granting relief under this section.
(2)An order under this section may—
(a) Vest in any party to the proceedings, or direct any such party to transfer or assign to any other such party or to deliver to him the possession of, the whole or any part of any real or personal property that was the subject of the contract or was the whole or part of the consideration for it:
(b) Subject to section 6 of this Act, direct any party to the proceedings to pay to any other such party such sum as the Court thinks just:
(c) Direct any party to the proceedings to do or refrain from doing in relation to any other party any act or thing as the Court thinks just.
(3) Any such order, or any provision of it, may be made upon and subject to such terms and conditions as the Court thinks fit, not being in any case a term or condition that would have the effect of preventing a claim for damages by any party.
(4) In considering whether to make an order under this section, and in considering the terms of any order it proposes to make, the Court shall have regard to—
(a)The terms of the contract; and
(b) The extent to which any party to the contract was or would have been able to perform it in whole or in part; and
(c) Any expenditure incurred by a party in or for the purpose of the performance of the contract; and
(d) The value, in its opinion, of any work or services performed by a party in or for the purpose of the performance of the contract; and
(e) Any benefit or advantage obtained by a party by reason of anything done by another party in or for the purpose of the performance of the contract; and
(f) Such other matters as it thinks proper.
(5) No order shall be made under subsection (2)(a) of this section that would have the effect of depriving a person, not being a party to the contract, of the possession of or any estate or interest in any property acquired by him in good faith and for valuable consideration.
(6) No order shall be made under this section in respect of any property, if any party to the contract has so altered his position in relation to the property, whether before or after the cancellation of the contract, that, having regard to all relevant circumstances, it would in the opinion of the Court be inequitable to any party to make such an order.
(7)An application for an order under this section may be made by—
(a)Any party to the contract; or
(b)Any person claiming through or under any such party; or
(c) Any other person if it is material for him to know whether relief under this section will be granted.
(underlining of “refrain” added)
[83] The discretionary powers given by Parliament to the Court in s 9 are very broad. I particularly refer to subs (3).
[84] It may be noted again that the second licence agreement functioned as a variation of the first. It is not just that if the variation is cancelled the parties should be relieved from the terms of the first licence. The effect of the cancellation should only be to bring to an end the variation. In this respect I am applying subs (4)(a), (b) and (e) particularly. But I also have regard to the ability to take all factors into account as provided by paragraph (f) of subs (4). Accordingly, pursuant to s 9 of the Contractual Remedies Act this Court will order FPT and PP to refrain from seeking to enforce the variation of the licence executed on 17 October 2002; and, that hereafter the parties act according to the terms of the licence as originally executed in November 2001. (The orders are set out at the conclusion of the judgment.)
[85] The same outcome may well have been reached by this Court, and would have been considered seriously had it been pleaded, by way of estoppel. For it is unjust for PP and FPT to take advantage of the terms of the second licence which terms are contrary to the representation of fact.
[86] But for the constraining language of s 6 of the Contractual Mistakes Act it may also have been appropriate to grant relief by way of mistake. Section 6 of the Contractual Mistakes Act provides:
6 Relief may be granted where mistake by one party is known to opposing party or is common or mutual
(1) A Court may in the course of any proceedings or on application made for the purpose grant relief under section 7 of this Act to any party to a contract—
(a)If in entering into that contract—
(i) That party was influenced in his decision to enter into the contract by a mistake that was material to him, and the existence of the mistake was known to the other party or one or more of the other parties to the contract (not being a party or parties having substantially the same interest under the contract as the party seeking relief); or
(ii) All the parties to the contract were influenced in their respective decisions to enter into the contract by the same mistake; or
(iii) That party and at least one other party (not being a party having substantially the same interest under the contract as the party seeking relief) were each influenced in their respective decisions to enter into the contract by a different mistake about the same matter of fact or of law; and
(b) The mistake or mistakes, as the case may be, resulted at the time of the contract—
(i) In a substantially unequal exchange of values; or
(ii) In the conferment of a benefit, or in the imposition or inclusion of an obligation, which was, in all the circumstances, a benefit or obligation substantially disproportionate to the consideration therefor; and
(c) Where the contract expressly or by implication makes provision for the risk of mistakes, the party seeking relief or the party through or under whom relief is sought, as the case may require, is not obliged by a term of the contract to assume the risk that his belief about the matter in question might be mistaken.
(2) For the purposes of an application for relief under section 7 of this Act in respect of any contract,—
(a) A mistake, in relation to that contract, does not include a mistake in its interpretation:
(b) The decision of a party to that contract to enter into it is not made under the influence of a mistake if, before he enters into it and at a time when he can elect not to enter into it, he becomes aware of the mistake but elects to enter into the contract notwithstanding the mistake.
[87] In argument counsel for CFK (Mr Yasuda) relied on s 6(1)(a)(i). The problem, however, is that Mr Tapper did not know that Mr Yasuda was labouring under the mistaken fact that he was signing an agreement that did not materially disturb the terms of the licence as previously entered into in November of 2001.
[88] In a broad sense, Mr Tapper was mistaken as to the existence of a common intention as to exclusivity on the one hand and Mr Yasuda was mistaken as to the content of the second agreement on the other. Plainly, these are not the same mistake. Nor is it easy to say that they are different mistakes about the same matter of fact or of law.
[89] The problem now is that all relief for mistake has to be fitted somehow into these three categories or relief cannot be given. For s 5 of the Contractual Mistakes Act provides:
5 Act to be a Code
(1) Except as otherwise expressly provided in this Act, this Act shall have effect in place of the rules of the common law and of equity governing the circumstances in which relief may be granted, on the grounds of mistake, to a party to a contract or to a person claiming through or under any such party.
(2)Nothing in this Act shall affect—
(a)The doctrine of non est factum:
(b)The law relating to the rectification of contracts:
(c) The law relating to undue influence, fraud, breach of fiduciary duty, or misrepresentation, whether fraudulent or innocent:
(d) The provisions of the Illegal Contracts Act 1970 or of sections 94A and 94B of the Judicature Act 1908:
(e)The Frustrated Contracts Act 1944.
(3) Nothing in this Act shall deprive a Court of the power to exercise its discretion to withhold a decree of specific performance in any case.
[90]There is no order for relief under the Contractual Mistakes Act.
Competing claims for relief on just and equitable ground
[91] I turn now to the competing claims for relief under the Companies Act 1993 on the just and equitable ground. As a matter of fact that the relationship of mutual trust and confidence between Mr Yasuda and Mr Angus Tapper has broken down irretrievably. It is not realistic to contemplate that they remain equal partners in FPT, running the paragliding business. However, it is a separate issue as to whether or not the paragliding business, if under the sole control of Mr Tapper, can continue to land flights at the Flight Park.
[92] Putting aside for one moment potential constraints within ss 174 and 241, commercially Mr Yasuda and Mr Tapper could sever their equal partnership in FPT leaving Mr Angus Tapper to run the paragliding business with his wife but landing at Mr Yasuda’s Flight Park. The parties spent very little time in the trial addressing the practicality of FPT continuing to land in the Flight Park. Obviously Mr Tapper and his wife think this is practicable.
[93] As already noted, there have been at least three bitter confrontations between the parties, on the site at Flight Park. All three appear to be spontaneous and have occurred when the parties have run into each other at the Flight Park.
[94] The original licence agreement was built on friendship and mutual trust and confidence. It was built on a willingness of Mr Yasuda to make his landing field available to Mr Tapper, but without any exclusivity. At the time the first licence agreement was entered into there is no doubt that Mr Yasuda was committing himself to upwards of a 20 year relationship with Mr Tapper. By analogy, that was a partnership with a promised term.
[95] Counsel for Mr Yasuda submitted that FPT could do as others do, land in nearby properties. There was a dearth of evidence as to the long term practicability of this. There was enough evidence to indicate that nearby property owners do not mind the occasional landing on their land when required by wind conditions. There is no evidence that it is a commercial option to land willy nilly without prior consent from the landowners.
[96] Neither Mr Angus Tapper nor Mr Yasuda are wholly to blame for the breakdown in their relationship. Both contributed to it. Mr Angus Tapper did so by his confrontational approach in February, consequent upon QCP landing at the Flight Park, including his heavy-handed reliance on the written terms of his licence. Mr Yasuda contributed to it by changing his mind about excluding QCP, without discussing whether and when to change his policy with Mr Tapper first.
[97] Now that Mr Yasuda has succeeded in getting the exclusivity removed, he may find it possible to cordially allow Mr Tapper to land customers at the Flight Park, along with everyone else. He appears to have been offering that in the taped meeting.
[98] However, it is not realistic to contemplate that the two men can remain partners within FPT. It has long been an established principle of common law that the Court will not order the specific performance of a partnership which depends on relationships of confidence and trust. I adopt the opinion of Lord Lindley restated by
the learned editor of Lindley and Banks on Partnership, 18th Edition in paragraph 23- 45:
“If two persons have agreed to enter into partnership, and one of them refuses to abide by the agreement, the remedy for the other is an action for damages, and not, excepting in the cases to be presently noticed, for specific performance. To compel an unwilling person to become a partner with another would not be conducive to the welfare of the latter, any more than to compel a man to marry a woman he did not like would be for the benefit of the lady. Moreover, to decree specific performance of an agreement for a partnership at will would be nugatory, inasmuch as it might be dissolved the moment after the decree was made; and to decree specific performance of an agreement for a partnership for a term of years would involve the court in the superintendence of the partnership throughout the whole continuance of the term. As a rule, therefore, courts will not decree specific performance of an agreement for a partnership. Nor will specific performance be decreed of an agreement to become a partner and bring in a certain amount of capital, or in default to lend a sum of money to the [claimant].
[99] The learned editor of Lindley and Banks says generally of the just and equitable ground:
A complete breakdown in the relationship between partners will, in general, justify a dissolution, as will circumstances in which the applicant partner(s) have lost trust and confidence in the other partners.
(Paragraph 24-86)
The learned editor also says in the same paragraph:
If the applicant partner(s) have an extraneous motive for seeking a dissolution, e.g. a personal benefit to be derived therefrom, this will be taken into account and may militate against an order being made.
(See paragraphs 24-86)
[100] The second quote is not precisely on point. By analogy the promise by CFK (Mr Yasuda) of the 20 year licence requires a very strong case to be made out for winding up FPT on the just and equitable ground. In the absence of a substituted commercial agreement granting or assigning the same licence to PP or Mr and Mrs Tapper, a winding up releases Mr Yasuda from his promise of a 20 year licence to land at the Flight Park. It is not just and equitable that Mr Yasuda (CFK) be relieved of that contractual obligation because he and Mr Tapper have fallen out as business partners. If Mr Yasuda would agree to FPT assigning the licence to PP or to the
Tappers personally, that step would clear the way for this Court to wind up FPT on the just and equitable ground.
[101] As the Court of Appeal pointed out in Latimer Holdings Limited and Anor v SEA Holdings New Zealand Limited (2004) 9 NZCLC 263, 694 at 263,701 s 174 was introduced in United Kingdom Law as an alternative to winding up on the just and equitable ground. In paragraph 57 of the judgment the Court said:
[57] The oppression remedy originated in Britain in s210 of the Companies Act 1948 (UK), as an alternative to winding up on the just and equitable ground. The argument was that winding up was much too drastic a remedy to utilise in many cases, and that it would be desirable to give courts wider powers to intervene to set matters to right, whether by ordering one party to buy the other out or otherwise regulating the affairs of a company. The current UK provision is s459 of the Companies Act 1985.
[102] Mr Tapper is proposing that his paragliding business partnership with Mr Yasuda end by this Court using s 174 to require CFK to sell its FPT shares to PP. This is another way of achieving the same outcome just noted where FPT transfers the licence agreement to PP, with CKF’s consent, and then FPT is wound up.
[103] Another commercial possibility might be for Mr Yasuda directly or via CFK to purchase the extinguishment of the licence agreement from FPT.
[104] The parties need some time to consider these options and possibly other options. The parties have not done business together since October 2002 on the basis of any common understanding as to whether the licence is exclusive or not. There are some good reasons to hope that if Mr Tapper wants to stay in the paragliding business, landing at Flight Park, on a non-exclusive basis, and if Mr Yasuda is also content for Mr Tapper to be included among the clientele of the Flight Park in the future, then the two of them may be able to sort out the rest of their business relationship without the need of further intervention by the Court.
[105] Accordingly, there will not be a decision now as to whether there are grounds for winding up FPT under s 241(4)(d) or, under s 174, for directing a valuation of the shares of FPT and the sale of the shares owned by CFK to PP. These competing applications, and the consequential issues such as the removal of Mr Yasuda as
director of FPT, and Mr Yasuda’s application to wind up FPT will be adjourned for a minimum period of one calendar month from the date of this judgment, in order to give the parties a time to consider the prospects of making their own commercial arrangements.
[106] In the meantime the business of FPT operating commercial tandem paragliding flights into the Flight Park needs to continue. I have considered the relevance of continuation of interim orders and the need for other interim directions to enable the business of FPT to continue. There shall be no final injunction restraining CFK from selling the Flight Park. That remedy was not sought. The interim order of this Court restraining such sale comes to an end as of date of this judgment. Should CFK sell the land, such act may be a breach of the licence, if its effect is to defeat the licence. But that issue is not before this Court. The interim injunction preventing Mr Yasuda and CFK from authorising or permitting competitors of the plaintiff from landing to the Flight Park also comes to an end as of the date of this judgment.
[107] However, the order authorising Mr Ross Jackson of the firm McCulloch Partners, Accountants, to be the single authorised signatory of FPT’s National Bank accounts held at Queenstown (Account No’s 100640 060949 0107584 00 and 100143 060949 01301190 00) shall continue in effect as an interim order for the purpose of paying accounts on behalf of FPT reasonably incurred in the furtherance of the business of the FPT.
Judgment
[108]The judgment of this Court is as follows:
Proceedings 443
(a)The application by FPT (and PP) for a declaration that the second exclusive licence agreement be binding on the first defendant is dismissed.
(b)Pursuant to s 9 of the Contractual Remedies Act this Court orders FPT and PP to refrain from seeking to enforce the variation of the licence executed on 17 October 2002; and, that hereafter the parties act according to the terms of the licence as originally executed in November 2001.
(c)FPT’s (and PP’s) application for an injunction restraining either CFK or Mr Yasuda or both of them from permitting competitors of FPT to operate commercial tandem paragliding flights into the Flight Park is dismissed.
(d)FPT’s (and PP’s) application for the appointment of Mr Ross Jackson and Mr Donald Bennett to be a sole signatory of the aforesaid bank accounts, considered as a final order, is adjourned for a period of at least one calendar month from the date of this judgment. However, the order authorising Mr Ross Jackson of the firm McCulloch Partners, Accountants, to be the single authorised signatory of FPT’s National Bank accounts held at Queenstown (Account No’s 100640 060949 0107584 00 and 100143 060949 01301190 00) shall continue in effect as an interim order for the purpose of paying accounts on behalf of FPT reasonably incurred in the furtherance of the business of the FPT.
(e)FPT’s (and PP’s) application seeking a valuation of the shares of FPT and an order directing the sale of the shares owned by CFK to PP is adjourned for a period of one calendar month from the date of this judgment.
(f)FPT’s (and PP’s) application seeking removal of Mr Yasuda as director of FPT is adjourned for a period of one calendar month.
(g)The two interim injunctions restraining CFK from selling Flight Park, and from authorising competitors to land, are at an end.
Proceedings 590
(h)Mr Yasuda’s application for an order that FPT be put into liquidation on the grounds that it is just and equitable to do so is adjourned for one calendar month.
Both proceedings
(i)Upon the expiry of one calendar month the parties have leave to apply to the Court to consider further any one or more of the applications that have been adjourned. In this event that consideration would probably follow receipt of submissions, and not require a hearing.
(j)At any time from the delivery of this judgment there is leave to any party to apply for any interim orders considered necessary to maintain the viability of FPT pending consideration by the parties of this judgment and of the merits of the applications that have been adjourned.
[109]The costs of these proceedings are reserved.
Fogarty J
Solicitors:
Macalister Todd Phillips Bodkins, Queenstown, for Plaintiff Anderson Lloyd Caudwell, Queenstown, for Defendant
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