Harris v GTV Holdings Ltd

[2016] NZHC 3123

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2014-404-3037 [2016] NZHC 3123

BETWEEN

JOHN EVAN HARRIS AND SARAH

LOUISE JONES First Plaintiffs

JOHN EVAN HARRIS Second Plaintiff

AND

GTV HOLDINGS LTD First Defendant

MICHAEL ALAN HEINRICH CORDELL

Second Defendant

NICHOLAS HARVEY MURRAY Third Defendant

GREENSTONE TV LIMITED Fourth Defendant

Hearing:	13, 14, 15, 16, 17, 20, 21 and 23 June 2016
Counsel:	M A E Sullivan and M A Greenwood for Plaintiffs A J Horne and A Simkiss for Defendants
Judgment:	19 December 2016

JUDGMENT OF HEATH J

This judgment was delivered by me on 19 December 2016 at 11.00am pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:
Jackson Russell, Auckland

Minter Ellison, Auckland

HARRIS AND JONES v GTV HOLDINGS LTD [2016] NZHC 3123 [19 December 2016]

CONTENTS

The dispute      [1] Background  [3] The issues  [9] Interpretation issues

(a)      Introductory comments  [13]

(b)      Principles of interpretation  [14] (c)      The “entire agreement” provision  [24] Interpretation of the Highway Cops 2 Adjustment

(a)      Introductory comments  [33]

(b)      Factual context  [38]

(c)      Analysis

(i)       Interpreting the HC2 Adjustment  [59] (ii)      Implied term  [75] (iii)     Conclusion  [81]

The counterclaims

(a)      The issues  [82]

(b)       The contractual warranties: the caretaker period  [85] (c)  The general warranties  [100] (d) The Fair Trading Act claims  [113] Result                [121]

The dispute

[1]      This proceeding is about an agreement for sale and purchase of shares in a company.  The purchase price was fixed at $6,050,000.  The sum of $4,800,000 was to be paid on settlement, with the balance being payable six months afterwards.  The deferred portion of the purchase price ($1,250,000) was subject to an adjustment which, if applied in full, had the effect of reducing the amount payable by $554,750.

[2]      The vendors of the shares contend that they were entitled to receive the whole of the deferred portion of the purchase price, whereas the purchasers assert that it should be reduced by the sum of $554,750, to reflect that adjustment.  The vendors seek judgment for the balance of the purchase price, $554,750, which they contend is payable.   Interest calculated in accordance with the contract is also sought.   In response, the purchasers counterclaim for an amount that would extinguish or exceed the amount payable by them, if I were to hold that the adjustment did not apply.

Background

[3]      Between  1994  and  2014,  Mr John  Harris  operated  a  business  known  as “Greenstone Pictures”.  From 30 March 1998, that enterprise was carried on by an incorporated entity, Greenstone Pictures Ltd.   In 2011, its name was changed to Greenstone TV Ltd (Greenstone).  The trustees of a family trust associated with Mr Harris owned 99 percent of the shares in Greenstone.  Mr Harris held the remaining share.  I refer to those shareholders collectively as the “Harris interests”.  Mr Harris was the sole director of Greenstone until 9 December 2013.

[4]      Greenstone  operated  in  New  Zealand  as  the  largest  producer  of  reality television shows, as well as some documentaries.   Primarily, it received funding from “New Zealand on Air”.   Its programmes were, generally, commissioned by television networks in New Zealand, such as Television New Zealand (TVNZ) and TV3.     Its  core  business  was  the  production  and  sale  of  factual  television programmes, for broadcast in New Zealand and overseas.   Some of Greenstone’s more popular productions were known as Border Patrol, Serious Crash Unit and Highway Cops.  TVNZ screened those programmes in New Zealand.  Many of its programmes were licensed for broadcast in Australia, primarily through Seven Network (Seven).

[5]      The reality shows used a repetitious formula which could be adapted for overseas’ markets.   Greenstone retained intellectual property in the programmes it produced.  The programmes tended to act as “fillers” for the networks; for example, during the summer period when television audiences customarily reduce.

[6]      In 2011, the Harris interests decided to sell Greenstone’s business.   After marketing and negotiation processes, the Harris interests agreed to sell their shares to GTV Holdings Ltd (GTV), a company nominated by interests associated with an Australian entity, Cordell, Jigsaw Zapruder.  They carried on a similar business in Australia.  I refer to the purchasers as the “GTV interests”.

[7]      An agreement for sale and purchase of the shares (the Agreement) was signed on 13 November 2013.   All obligations of the Harris interests, as vendors, were guaranteed by Mr Harris.   GTV’s obligations as purchaser were guaranteed by its

two shareholders, Messrs Michael Cordell and Nicholas Murray.  The initial portion of the purchase price was paid on 9 December 2013,  when the executed share transfers were conveyed in return.  For the purposes of the Agreement, 9 December

2013 was “Completion Date”.  I shall refer to it as the “settlement date”.

[8]      In late October 2013, an issue had arisen about the entitlement of each party to benefits that Greenstone expected to obtain from the licensing of a second series of Highway Cops to Seven.  In the period leading up to execution of the Agreement, the parties negotiated  a  solution,  which  was  reflected in  a specific term  of the Agreement.  It was designed to provide an adjustment to the purchase price to reflect

any licensing arrangements with Seven that had a “start date” before 30 June 2014.1

The  provision  is  known  as  the  “Highway  Cops  2  Adjustment  Amount”  (HC2

Adjustment).2

The issues

[9]      The Harris interests contend that the HC2 Adjustment requires the deferred portion of the purchase price to be paid in full.3    If that contention were accepted, Mr Sullivan, for the Harris interests, submits that GTV is required to pay to the Harris interests the amount in dispute, $554,750, together with contractual interest and costs.   Judgment is sought against Messrs Murray, Cordell and Greenstone as guarantors.4

[10]     The GTV interests meet that claim in three distinct ways:

(a)      First, they say that the HC2 Adjustment has been triggered.  On that basis, a reduction to the deferred purchase price is required.  The legal issue is one of contractual interpretation.

(b)Second,  if  they were wrong on  the  first  point,  the GTV interests counterclaim for breaches of warranties given by the Harris interests

1      See the definition of “Episodes Acquired” in cl 1.1 of the Agreement, set out at para [36] below.

That term was used in the adjustment provision: see para [35] below.

2      That term is defined in cl 1.1 of the Agreement and is set out at para [35] below.

3      Clause 4 of the Agreement deals with the purchase price, and cl 9.1 defines the term “Deferred

Payment Amount”. The relevant parts of cl 4 and cl 9.1 are set out at paras [33] and [34] below.

4      Greenstone guaranteed GTV’s obligations following settlement on 9 December 2013.

in  the Agreement.    If  the  counterclaim  were  successful,  it  would extinguish or exceed the amount claimed by the Harris interests.  The legal issue concerns the interpretation of various warranties contained in the Agreement.

(c)      Third, the GTV interests allege that the conduct of the Harris interests, in relation to the circumstances in which the HC2 Adjustment works in their favour, amounted to misleading or deceptive conduct in trade, so as to give rise to a claim by the GTV interests under s 9 of the Fair Trading Act 1986.5

[11]     The GTV interests’ fundamental complaint relates to the timing of receipt of the payment to be made by Seven to Greenstone under a licence granted in its favour (the Licensing Agreement).  Although there is some disagreement as to the date on which the Licensing Agreement became enforceable, I shall adopt the date for which the GTV interests contend, 6 December 2013.

[12]     Broadly speaking, that complaint is grounded on allegations that Greenstone and Seven entered into the Licensing Agreement on unusual or abnormal terms.  In his written submissions, Mr Horne, for the GTV interests, particularised the reasons why that allegation was made:

(a)      The Licensing Agreement was for a period of four years; one year longer than licences customarily entered into between Greenstone and Seven.

(b)A licence of four years was granted because Seven did not want to screen the second series of Highway Cops until December 2014.  At that time, Seven had not screened the whole of the first series. Ordinarily, Seven would not acquire a licence for a second series until

it had completed broadcasting the first.  It obtained an extension to its

5      See paras [113]–[120] below. An additional counterclaim based on the Contractual Mistakes Act

1977 was abandoned in closing submissions.

licence  for  the  first  series  at  the  same  time  that  the  Licensing

Agreement was entered into.

(c)      As a result, the prospects that Seven would wish to purchase a third series of Highway Cops (or a similar programme) in 2015 were low.

(d)Entry into the Licensing Agreement on those terms had a material adverse effect on Greenstone’s sustainable earnings and financial position for the financial year’s ended 30 June 2014 and 2015 respectively.

(e)      The  contemporary extension  of  licences  for  two  other  shows,  the seventh series of Serious Crash Unit and Border Patrol for periods of

15 and 16 months respectively, precluded Greenstone from obtaining further earnings from the relicensing of those programmes.  In effect, no additional consideration flowed from those extensions.

(f)      The Licensing Agreement was in breach of Greenstone’s contract with TVNZ (or TVNZ’s expectations) because it involved a first screening of a show commissioned by TVNZ in Australia by another network.

Interpretation issues

(a)      Introductory comments

[13]     As  previously  indicated,  the  Harris  interests’ claims  for  payment  of  the balance of the purchase price and the GTV interests’ counterclaim under contractual warranties each involve questions of contractual interpretation.  In order to determine those questions, I consider the approach to contractual interpretation and implication of terms as well as the extent of extrinsic evidence to which I am entitled to refer as part of the interpretation exercise, in light of an entire agreement clause.

(b)      Principles of interpretation

[14]     In a number of places in Mr Horne’s written submissions, the interpretation question was defined as: “What a reasonable person in the … position [of the GTV

interests] would have expected in terms of compliance with” the Agreement.  With respect, that is not the correct approach as it gives too much emphasis to the subjective intentions of the GTV’s interests.  Interpretation of a contract is based on an objective reading of its words interpreted in light of their context.6    The Court’s task is to ascertain the meaning of a contract from the position of a reasonable person with the same background knowledge as the parties possessed.7

[15]     These key principles were highlighted by Lord Neuberger P, for the Supreme

Court of the United Kingdom, in Arnold v Britton:8

[15]     When  interpreting  a  written  contract,  the  court  is  concerned  to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, para 14. And it does so by focussing on the meaning of the relevant words … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions.

(emphasis added)

[16]     All interpretation issues are informed by the context in which an agreement is reached.  In considering the extent of contextual evidence to which I am entitled to refer, I adopt and apply what was said by Arnold J, for a majority of the Supreme Court, in Firm PI 1 Ltd v Zurich Australian Insurance Ltd:9

[60] Given the issues in the case, it is not necessary that we discuss the approach to contractual interpretation in any detail. It is sufficient to say that the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While

6   Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [4] per

Blanchard J, at [23] per Tipping J, at [64] per McGrath J and at [151] per Gault J.

7   See my summary of the Privy Council’s judgment in Attorney-General of Belize v Belize Telecom

Ltd [2009] 1 WLR 1988 (PC) at para [19] below.

8   Arnold v Britton [2015] UKSC 36, [2015] AC 1619. Lord Sumption and Lord Hughes concurred

in Lord Neuberger’s judgment.

9   Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2015] 1 NZLR 432 (SC) at paras [60], [61] and

[63] (McGrath, Glazebrook and Arnold JJ).

there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly,  the  context  provided  by  the  contract  as  a  whole  and  any relevant background informs meaning.

[61] The requirement that the reasonable person have all the background knowledge known or reasonably available to the parties is a reflection of the fact that contractual language, like all language, must be interpreted within its overall context, broadly viewed. Contextual interpretation of contracts has a  significant  history  in  New  Zealand,  although  for  many  years  it  was restricted to situations of ambiguity. More recently, however, it has been confirmed that a purposive or contextual interpretation is not dependent on there being an ambiguity in the contractual language.

…

[63]      While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.

(Emphasis added; footnotes omitted)

[17]     In making those observations, Arnold J drew on a decision of the Privy Council in Attorney-General of Belize v Belize Telecom Ltd.10   That case dealt both with the proper approach to interpretation of a contract and the circumstances in which terms might be implied into a written instrument.  As to the latter, the Privy Council considered the approaches previously taken by both the Privy Council and the House of Lords, in BP Refinery (Westernport) Pty Ltd v Shire of Hastings11 and Equitable Life Assurance Society v Hyman.

[18]     After the hearing of this proceeding had been completed, the Supreme Court released its decision in Mobil Oil New Zealand Ltd v Development Auckland Ltd.12

William Young J, in giving reasons for the Court, noted that the methodology of implying terms as a matter of interpretation has been significantly qualified by the

recent decision of the Supreme Court of the United Kingdom in Marks & Spencer

10     Attorney-General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127 (PC).

11     BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC) at 282–283 (Lord Simon of Glaisdale) and Equitable Life Assurance Society v Hyman [2000] 3 All ER 691 (HL) at 970 (Lord Steyn).

12     Mobil Oil New Zealand Ltd v Development Auckland Ltd [2016] NZSC 89.

plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd.13   He went on to state that there was scope for argument about whether adoption of Lord  Hoffmann’s interpretation approach in its entirety was still appropriate, but declined to address the issue further.14   Given the obiter nature of those comments, I continue to regard myself as bound by the Supreme Court’s earlier decision in Nielsen v Dysart Timbers Ltd.15

[19]     The  advice  of  the  Privy  Council  in  Belize  Telecom  was  given  by  Lord Hoffmann.  Before discussing the particular interpretation issues before the Board, His  Lordship  made  a  number  of  observations  about  interpretation  principles generally and implication of terms in particular.   I endeavour to summarise the essence of Lord Hoffmann’s comments:

(a)      The Court has no power to improve upon the instrument which it is called upon to construe.  It cannot introduce terms to make a contract “fairer or more reasonable”.  The Court’s function is “only to discover what the instrument means”.16

(b)That meaning is not necessarily (or always) what the parties to the document might have intended.  Rather, it is “the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the

audience to whom the instrument is addressed”.17

(c)      The  question  of  implication  arises  when  the  instrument  does  not expressly  provide  for  what  is  to  happen  when  a  particular  event

occurs:18   The most usual inference in such a case is that nothing is to

13     Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2015] 3 WLR 1843.

14 Ibid, at para [81].

15     Nielsen v Dysart Timbers Ltd [2009] NZSC 43, [2009] 3 NZLR 160 at para [25] per Tipping and

Wilson JJ and at paras [62] and [64] per McGrath J.  See paras [21] and [22] below.

16     Attorney-General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127 (PC) at para [16].

17 Ibid, at para [18].

18 Ibid, at para [17].

(d)	happen.     If  the  parties  had  intended  something  to  happen,  the instrument would have said so.19 If no term is to be implied, the express provisions continue to operate
“undisturbed”.20   If the event in issue “has caused loss to one or other of the parties, the loss lies where it falls”.21
(e)	There may be some cases in which a reasonable addressee would
understand the instrument to mean something else.  That conclusion
could  only  be  reached  if  the  meaning  were  consistent  with  other
provisions of the instrument, read in the context of the information
available to both parties at the time the instrument was executed.  In
such a case, a term may be implied, but “the implication of the term is
not  an  addition  to  the  instrument.     It  only  spells  out  what  the instrument means”.22
(f)	It is permissible, when construing a written agreement, not only to
take account of the commercial context known to the parties but also
the commercial consequences of deciding the interpretation point one way or the other.23
(g)	The implication of a term is an exercise in the construction of an
instrument as a whole.   A term may only be implied if “from the
language  of  [the  instrument]  read  in  its  commercial  setting”  a
reasonable person would take that meaning as the intention of the parties.24
[20]	Lord	Hoffmann  approved  a  passage  in  which,  as  long  ago  as  1889,

Bowen LJ, in The Moorcock, had said:25

19     Ibid.

20     Ibid.

21     Ibid.

22 Ibid, at para [18].

23 Ibid, at para [22].

24     Equitable Life Assurance Society v Hyman [2000] 3 All ER 961 (HL) at 970 (per Lord Steyn).

25     The Moorcock (1889) 14 PD 64 (CA) at 68.

In business transactions …, what the law desires to effect by the implication is  to  give  such  business  efficacy  to  the  transaction  as  must  have  been intended at all events by both parties who are business men.

[21]     Lord Hoffmann identified shortcomings in some of the factors identified in the Privy Council’s earlier decision in BP Refinery.   He observed that there were “dangers in treating … alternative formulations of the question as if they had a life of their own”.26    Although BP Refinery has been applied on many occasions in New Zealand, the Supreme Court more recently approved the approach articulated by Lord Hoffmann in Belize Telecom.  For example, in Nielsen v Dysart Timbers Ltd,27

Tipping J (delivering the judgment of himself and Wilson J) confirmed that:

[25]      … When there is a suggestion a term should be implied in the case of a bilateral transaction, the question is what a reasonable person would consider both parties must have meant to happen in circumstances not expressly addressed by the contract. The conventional concepts (officious bystander and business efficacy) are built on that underlying premise. ….

[22]     In a footnote to that passage, Tipping J wrote:28

For an illuminating recent discussion of the general subject of implication of terms  into  contracts  see  the  decision  of  the  Privy  Council  in  Attorney- General of Belize v Belize Telecom Ltd [2009] UKPC 11 at paras [16] – [27] per Lord Hoffmann. Their Lordships indicated that an implied term is not a term which the court adds to the contract; it is already in the contract as a matter of construction. The court is simply recognising it. There is no difference in this respect between a contract and an offer.

[23]     A similar approach was taken by the Court of Appeal, in Hickman v Turn and Wave Ltd.29     Delivering the judgment of the Court of Appeal, Randerson J, with reference to both BP Refinery and Belize Telecom, said:

[248] We agree that the approach adopted in the BP Refinery case should not necessarily be regarded as a cumulative list of elements all of which must be satisfied before a term may be implied. However, each element is a useful indicator relevant to the ultimate question of what a reasonable person would have understood the contract to mean. This is to be construed objectively by a notional reasonable person with knowledge of the relevant background.

26     Attorney-General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127 (PC) at para [22].

27     Nielsen v Dysart Timbers Ltd [2009] NZSC 43, [2009] 3 NZLR 160 at [25] per Tipping and

Wilson JJ and at [62] and [64] per McGrath J. However, see para [18] above.

28     Ibid, at fn 12 to the joint judgment of Tipping and Wilson JJ.

29     Hickman v Turn and Wave Ltd [2011] 3 NZLR 318 (CA).

(c)      The “entire agreement” provision

[24]     An attempt by the GTV interests to imply a term into the Agreement that the HC2 Adjustment had to be based on a licence from Greenstone to Seven “on usual terms” led Mr Sullivan to invoke cl 28 of the Agreement in response.  He contended that cl 28 operated to prevent the GTV interests from going outside the terms of the Agreement.  Clause 28.8 is what is known as an “entire agreement” provision.

[25]     Clause 28.8 of the Agreement provides:30

28.      Miscellaneous

…

28.8     Entire agreement

This agreement together with the other Transaction Documents constitutes the entire agreement between the parties in connection with its subject matter and supersedes all previous agreements or understandings between the parties in connection with its subject matter.   The Confidentiality Deed terminates and ceases to be of force or effect on the date of this agreement.

[26]     Generally speaking, an entire agreement clause will take effect according to its terms.  However, s 4(1) and (2) of the Contractual Remedies Act 1979 identifies limited circumstances in which the Court is not precluded by an entire agreement provision from enquiring into whether some extra-contractual representation or conduct may give rise to the implication of a term, or a collateral obligation.  Section

4(1) and (2) provides:

4 Statements during negotiations for a contract

(1) If a contract, or any other document, contains a provision purporting to preclude a court from inquiring into or determining the question—

(a)       whether a statement, promise, or undertaking was made or given, either in words or by conduct, in connection with or in the course of negotiations leading to the making of the contract; or

(b)      whether, if it was so made or given, it constituted a representation or a term of the contract; or

30     The term “Transaction Documents” is defined by cl 1.1 of the Agreement to mean both the Agreement itself and a contemporaneous “Asset Purchase Agreement”.  No issue arises out of the provisions of the Asset Purchase Agreement.

(c)      whether, if it was a representation, it was relied on—

the court shall not, in any proceedings in relation to the contract, be precluded by that provision from inquiring into and determining any such question unless the court considers that it is fair and reasonable that the provision should be conclusive between the parties, having regard to all the circumstances of the case, including the subject matter and value of the transaction, the respective bargaining strengths of the parties, and the question whether any party was represented or advised by a solicitor at the time of the negotiations or at any other relevant time.

(2) If a contract, or any other document, contains a provision purporting to preclude a court from inquiring into or determining the question whether, in respect of any statement, promise, or undertaking made or given by any person, that person had the actual or ostensible authority of a party to make or give it, the court shall not, in any proceedings in relation to the contract, be precluded by that provision from inquiring into and determining that question.

…

(Emphasis added)

[27]     Section 4(1) and (2) was considered by the Court of Appeal in PAE (New Zealand) Ltd  v Brosnahan.31      Delivering the judgment  of the Court  of Appeal, Harrison J said:32

[14]      Section  4(1)  applies  where  a  contractual  provision  excludes  the scope for a factual inquiry into any one of the three qualifying elements of liability for misrepresentation – i.e. (1) whether a statement was made during the negotiation period, (2) whether if made it constituted a representation or term, and (3) whether it was relied upon. [The entire agreement clause] concerned the second element. It acknowledged the existence of the first element,   preceding   representations   by   the   directors,   but   they   were superseded or replaced by the terms of the agreement. Only the nine representations  listed  in  cl  7  “and  no  others”  were  to  be  operative  or effective; they were elevated accordingly to the status of express warranties. To reinforce the emphatic nature of this provision, “any and all implied waivers [were] expressly excluded”.

[28]     As Harrison J pointed out, s 4(1) “recognises a wide judicial discretion to determine” whether an entire agreement clause should be regarded as conclusive in any given case.  He added:33

[15]     …     Section  4(1)  is  a  mechanism  for  striking  balances,  both individually between parties and conceptually between freedom of contract

31     PAE (New Zealand) Limited v Brosnahan [2009] NZCA 611.

32 Ibid, at para [14].

33 Ibid, at para [15].

and  unfair  or  unreasonable  commercial  conduct.  (See  also  Dawson  and

McLauchlan The Contractual Remedies Act 1979 (1981) at 36-40.)

[29]     The touchstone is whether it is “fair and reasonable that the provision should be conclusive”.   That determination is to be made “having regard to all the circumstances of the case”, with specific criteria focussing on an inquiry into “an assessment of the relative positions of the parties and their access to independent legal advice”.

[30]     The Agreement was negotiated between sophisticated business parties.  Each party was represented by experienced commercial solicitors.  Each had financial and taxation advisers to address fiscal implications of the agreement.   There was no imbalance in the respective bargaining positions of the parties.

[31]     In PAE, the Court of Appeal was dealing with an entire agreement clause that stated expressly that all pre-contractual representations were “superseded” by the express terms.   Similar words are used in cl 28.8.34    In PAE, the Court of Appeal

adopted what McKay J had said in Brownlie v Shotover Mining Ltd:35

There can be nothing inherently unfair in such an exclusionary clause. It is highly desirable that written contracts should be so drawn as to state all the terms of the intended contract, and so avoid the uncertainties which can arise from allegations of verbal representations or collateral warranties. If parties have not agreed to include express warranties in their written contract, then it is reasonable for them to state expressly that verbal warranties are excluded.

…

It would be a matter of concern if commercial people acting in good faith could not, in entering into a transaction such as this, achieve certainty by a written contract excluding liability for prior statements by one of them if that is what they wished to do.

[32]     There is no reason to disapply cl 28.8.  Its intended ambit is consistent with the  degree  of  predictability expected  by  commercial  parties  when  entering  into complex  transactions of this type.   The clause “supersedes” any pre-contractual understandings that may have existed, “in connection with” the subject matter of the agreement and the transaction documents.   It is designed to ensure that a Court is

limited to the written terms of the contract for interpretation purposes.

34     Set out at para [24] above.

35     Brownlie v Shotover Mining Ltd CA181/87, 21 February 1992 at 31–33.

Interpretation of the Highway Cops 2 Adjustment provisions

(a)      The contractual provisions

[33]     The Agreement provided for payment in two tranches.  They were known as the “Initial Purchase Price”36 and the “Deferred Payment Amount”.37   The “Deferred Payment Amount” took account of the HC2 Adjustment.   The purchase price was fixed by cl 4 of the Agreement.  Relevantly, it provides:38

4.        Purchase Price

4.1      Amount

(a)      the Purchase Price for the Shares is:

(i)       the Initial Purchase Price, plus (ii) the Deferred Payment Amount, subject to adjustment under clause 4.3.

(b)       Subject  to  Completion  occurring,  title  to,  possession  of, property in and the benefit and risk of the Shares until Completion remains solely with the Vendors, and passes to the Purchaser on and from Completion.

…

4.4      Payment of the Initial Purchase Price

The purchaser must pay the Initial Purchase Price on Completion in accordance with clause 7.3(a).

4.5      Payment of Deferred Payment Amount

The Purchaser must pay the Vendors the Deferred Payment Amount in accordance with clause 9.

…

[34]     The terms “Initial Purchase Price” and “Deferred Payment Amount” were

defined to mean:

36     Defined in cl 1.1 of the Agreement, set out at para [34] below.

37     Defined in cl 9.1 of the Agreement, set out at para [34] below.

38     The definitions of “Initial Purchase Price” and “Deferred Payment Amount” are set out at para

[34] below.

1.1      Defined terms & interpretation

…

Initial Purchase Price means $4,800,000.00.

…

9.1      Deferred Payment Amount

(a)      The  Deferred  Payment  Amount  is  $1,250,000  less  the

Highway Cops 2 Adjustment Amount.

(b)       The Purchaser must pay the Vendors the Deferred Payment Amount and the Deferred Payment Interest Amount on (or before) the  date that  is  six  months  from the  Completion Date.

(Emphasis added)

[35]     The HC2 Adjustment provided a formula to determine the amount to be paid

as the “Deferred Payment Amount”:

Highway Cops 2 Adjustment Amount means the amount determined in accordance with the following formula:

2 x ((20 – a) x $13,868),

Where a equals the Episodes Acquired.

[36]     The only variable in the HC2 Adjustment formula is the number of “Episodes Acquired”.  That term was incorporated into the Agreement, for the sole purpose of calculating the HC2 Adjustment.  Clause 1.1 defined the term “Episodes Acquired” to mean:

Episodes  Acquired  means  the  number  of  Highway  Cops  2  episodes acquired by Seven Network (Operations) Limited as a full price First Run New  Series  or  First  Run Existing  Series  under  the Program Acquisition Agreement on or before the date that is six months from the Completion Date and which acquisition has a licence period start date on or before 30

June 2014.

[37]     The term “Episodes Acquired” incorporates two other defined terms: “First Run New Series” and “First Run Existing Series”.  Those definitions are taken from the Program Acquisition Agreement entered into between Greenstone and Seven, the

relevant version of which ran for a period of three years from 1 July 2013, and was annexed to the Agreement as Schedule 13. Those terms mean:39

Licensed Programs:

·    First Run Existing Series – first run series of Serious Crash Unit (NZ) or an alternate program to be reasonably agreed by the parties if Serious Crash Unit (NZ) is not produced, Border Patrol and Coastwatch (NZ), namely series produced after Border Patrol Series Five and Coastwatch (NZ) Series Five.

·    First Run New Series – first run series of any new television series (excluding dramas and any series commissioned by Seven) produced by [Greenstone] and made available to Seven for licence by it in [Australia] in each year of the Term.

(b)      Factual context

[38]    Negotiations between the Harris interests and the GTV interests for the acquisition of Greenstone’s business began in earnest in December 2012.  It is clear that the GTV interests were anxious to ensure they were basing their decision about the purchase price on accurate representations of Greenstone’s financial position.

Their primary focus was on sustainable earnings.  The EBITDA40  calculation took

on particular significance for them.

[39]     Mr Harris understood that the GTV interests were assessing the amount they were prepared to pay by reference to “sustainable EBITDA”.    However, understandably, his aim was to obtain the value for the shares that he believed was justified by the successful business that he had developed over many years.   The basis on which the GTV interests were making their decision about the purchase price they would pay is relevant only if the Harris interests deliberately attempted to mislead the GTV interests on that topic.  Whatever factors may have informed the amount that the GTV interests were prepared  to pay,  I am  satisfied that, when negotiations got to the “sharp end”, the parties were bargaining on the basis of what one was prepared to pay and the other prepared to receive.

[40]     On 25 October 2013, a draft disclosure letter was circulated by the Harris interests for comment, in anticipation of completion of the sale documents.   Mr

39     More generally, see para [53] below.

40     Earnings Before Income Tax, Depreciation and Amortisation.

Harris said that the draft letter “generated a reaction” from Mr Murray, one of GTV’s directors.  That involved the timing of income from Seven.  Mr Harris disclosed that if a licence did not fall within the financial year covered by the Program Acquisition Agreement, it would be accounted for in the following year.

[41]     Of critical concern to the GTV interests was any licensing of the second series of Highway Cops.41    It is clear that Mr Harris (on the one hand) and Messrs Murray and Fraser, (a director and Chief Financial Officer of GTV respectively)42 (on the other) had differing expectations about the way in which any such licence should be treated on the sale of the shares to GTV.   I summarise aspects of the evidence that satisfy me that each was negotiating the HC2 Adjustment from a

different perspective.

[42]     By late October 2013, the second series of Highway Cops was in production. In the draft disclosure letter, Mr Harris had indicated that a licence with Seven had not  been  signed,  but  was  expected.     Estimated  income  was  included  in  the projections provided for the 2014 financial year.  Mr Harris took the view that the GTV interests should pay for the value of the expected licence.   In discussions between representatives of the Harris and GTV interests respectively, it was agreed that a clause should be inserted into the Agreement to specify the way in which that licence income would be treated.

[43]     Mr Harris believed that Greenstone’s General Manager, Mr Hall, would be able to negotiate a licence to start before the next financial year.   In agreeing to a potential adjustment to the Deferred Payment Amount, Mr Harris was confident that a licence could be granted within the stipulated time.  He “decided to take on that risk”.  In his written evidence, Mr Harris added:

5.11     I appreciated that I would have to get Greenstone … to approach Seven  and  get  a  licence  in  place  within  6  months  from  the completion date and with a start date before 30 June. To be honest, I was not interested in [the GTV interests’] explanations or attempts to justify why they wanted it that way.  I felt that imposing a time limit was very arbitrary.  As far as I was concerned, the purpose of the

41     See para 105 of Mr Fraser’s written evidence, set out at para [47] below.

42     Mr Fraser is employed as Chief Financial Officer of Cordell Jigsaw Productions Pty Ltd, the parent company of GTV.

adjustment was to deal with the risk that Seven did not take HC2.  I saw this as yet another attempt by [the GTV interests] to lever down the price.

5.12As I have said, I had no control over Seven.  If I agreed to [the GTV interests’] request and Seven … then dictated that the licence period start on 1 July 2014 or later, then I would lose the entire $554,720. That seemed very arbitrary and unfair to me … as Greenstone would still receive the benefit of the licence.

[44]     Mr Murray’s version of events is much the same, though his perspective is (understandably) very different.   Mr Murray was concerned that the projected net earnings would not be delivered in the 2014 financial year if Seven did not purchase a licence to broadcast the second series of Highway Cops.  The factor that dominated Mr Murray’s approach to this issue was Greenstone’s ability to bring the income from the licence to account within the 2014 financial year.  By contrast, Mr Harris

was unconcerned with timing.43

[45]     Mr Murray was prepared to take the risk that no licence would be entered into before 30 June 2014.   He had formed the view that TVNZ was unlikely to broadcast all of the series before the end of the 2014 financial year, and worked on the basis of an “understanding” that TVNZ would not permit Seven to broadcast the series in Australia if TVNZ had not screened it in New Zealand.  Mr Murray based that view on his “understanding … that Greenstone would not and did not violate its agreements and understanding with TVNZ including TVNZ’s rights to broadcast its commissioned works first”.

[46]     Mr  Fraser  gave  evidence  to  similar  effect.    By  reference  to  the  draft disclosure letter of 25 October 2013, Mr Fraser was aware that licence start dates for the fifth series of Dog Squad and the seventh series of Border Patrol had been deferred until 15 April 2014, meaning that income from those series would fall within the 2015 financial year.  That was on the basis of a financial year ended 31

March 2014.  In the same context, the Harris interests had disclosed that they were

“expecting” a licence agreement for the second series of Highway Cops “in the near future” and were “advocating for a start date pre 31 March 2014”.

43     See para 5.12 of his written evidence set out at para [43] above.

[47]     Of those programmes, the GTV interests had the most concern about the second series of Highway Cops.  Mr Fraser, in his written evidence, said:

105.The Highway Cops 2 delay had the most impact because it was the largest earner in the production slate – it was a series of 20 episodes for which Seven would pay AUD$18,000 per episode or AUD$360,000.   I understood that the gross income impact of Highway Cops 2 was $418,000.   Net of commission and the commissioning broadcaster’s share I understood this was worth approximately NZD$313,000 of EBITDA to Greenstone.    If Highway Cops 2 was not sold to Seven in FY2014, the impact on FY2014 EBITDA would be a reduction of approximately NZD$313,000.

[48]     A combination of two solutions was proposed.   The first, uncontroversial, was for Greenstone’s financial year to be changed from 31 March to 30 June.  By doing  that,  its  balance  date  was  aligned  with  entities  associated  with  the  GTV interests in Australia, and more time was available for licensing income to be booked to the 2014 financial year.  The second was the HC2 Adjustment.  Like Mr Murray, Mr Fraser was concerned about the question of timing.

[49]     When the Agreement was signed on 13 November 2013, it was accompanied by a Disclosure Letter of the same date, which was in the same form as the draft provided on 25 October 2013.  The term “Disclosure Letter” was defined by cl 1.1 of the Agreement to mean:

Disclosure Letter means the letter from the Vendors to the Purchaser dated on or before the date of this agreement, entitled Disclosure Letter and containing disclosures of matters relating to the Warranties.

[50]     Relevantly, the Disclosure Letter stated:

(a)      There had  been  a  change in  recognition  of income from  sales  of completed programmes.  After explaining the way in which income was treated in prior years, the vendors disclosed that “In FY2013 the balance of income due from sales contracted prior to year end was accrued in the accounts”.

(b)      TVNZ had chosen not to commission a further series of Serious Crash

Unit.

(c)      The licence dates  for two programmes,  Dog Squad  5  and  Border Patrol 7, had been deferred until 15 April 2014, meaning that “income will be recognised in FY2015”.

(d)The Harris interests were “expecting a licence agreement  for [the second series of Highway Cops] at some stage in the near future and advocating for a start date pre-30 June 2014, but it has not yet been agreed”.

[51]     The agreement for the production of the second series of Highway Cops had been entered into between TVNZ and Greenstone on 23 November 2012.   That agreement provided for production of 20 episodes.   The amount payable for the “rights and other benefits” acquired by TVNZ was $1,168,319 plus GST.  Although the GTV interests assert that Greenstone would have breached its agreement with TVNZ by allowing Seven to screen the second series before it had been premiered in New Zealand, there is no clause to that effect in the agreement of 23 November

2012.  The evidence from TVNZ’s General Manager of Acquisitions, Production and Commissioning, Mr Andrew Shaw, was that while he would have had an expectation that  the  first  screening  was  on  TVNZ,  no  contractual  obligation  to  do  so  was imposed   on   a   production   company   until   TVNZ   revised   the   form   of   its commissioning contracts in 2014.44

[52]     In those circumstances, while it was clear from Mr Shaw’s evidence that TVNZ was likely to have taken seriously any attempt to undermine its expectation, the first screening by Seven of a TVNZ commissioned programme produced by Greenstone would not have resulted in Greenstone being in breach of its contract with  TVNZ.     The  fact  that  TVNZ  later  changed  the  terms  of  its  contract demonstrates the difference between an expectation and a contractual obligation.

[53]     In the period between the execution of the Agreement (13 November 2013)

and settlement (9 December 2013), there were a number of discussions between

Mr Angus  Ross,  Seven’s  Director  of  Programming  and  Mr  Bryan  Hall,  of

44     The TVNZ commissioning agreement of 23 November 2012 gave no contractual entitlement to a first screening of this type but cl 1.2 of Schedule E to the commissioning agreement of 1

November 2014 introduced such a right.

Greenstone, about the grant of a licence for the second series of Highway Cops under the operative Program Acquisition Agreement between Seven and Greenstone.

[54]     Following an exchange of emails between Mr Hall and Mr Ross, a licence was entered into between Greenstone and Seven for the latter to broadcast the series in Australia.  The licence was signed by Mr Hall on 9 December 2013 (the date of settlement of the Agreement) and by Mr Ross on 11 December 2013.   The GTV interests did not learn of the existence of the licence until after settlement had been completed.  It was accepted that one of the reasons why Mr Ross was prepared to enter into the Licensing Agreement on its terms was to do a “favour” for Mr Harris. Mr Ross knew of the pending sale of the shares to the GTV interests.

[55]     I accept Mr Hall’s evidence, on this point largely corroborated by Mr Ross, that  the parties, from  time to  time, entered  into  negotiated  arrangements  which differed from the manner in which the Program Acquisition Agreement was expressed.  As with any form of negotiation, the outcome depended on economic benefits  to  each  party.    Mr  Ross  had  a  budget  that  he  could  use  to  acquire programmes each year.  If he went over that budget, he had to find the money to pay for the programme from some other source.  It is not unusual for business people to enter into side arrangements to achieve particular business goals.  The structure of a deal may not matter, as long as adequate consideration is given for the product that has been acquired.  In context, it is important to add that there is no allegation that either  Mr  Harris  or  Mr  Hall  acted  fraudulently.    Nor  is  there  any  evidential foundation for such an allegation.

[56]     The HC2 Adjustment has all the hallmarks of a clause that was designed to enable the parties to conclude a final agreement but was, almost inevitably, going to lead to a dispute.  It was the last major point to be negotiated.  The Harris interests (on one side) and the GTV interests (on the other) saw the need for the clause through very different eyes.  Each believed it would get the benefit it sought.  Putting it colloquially, the clause was drafted to secure the deal.  It was its lack of precision that gave rise to the inevitability of a dispute.   If either side had insisted on its position being spelt out explicitly the deal may or may not have proceeded.

(c)      Analysis

(i)        Textual interpretation of the HC2 Adjustment

[57]     The  HC2  Adjustment  can  be  seen  as  a  form  of  risk  allocation.    As Mr Sullivan submitted, it provided for the risk that Seven might have entered into a licence for the second series of Highway Cops before completion of the 30 June

2014 financial year.  If it did, the Harris interests expected to get the benefit agreed, by way of the full adjustment amount.  On the other hand, the GTV interests were working on the assumption that any consideration from Seven for a licence would not manifest itself before the end of the 2014 financial year, so that they would not need to pay the full adjustment amount.

[58]     Mr Horne put forward three aspects of the definition of “Highway Cops 2

Adjustment Amount” to support his contention that the amount calculated by reference to that definition should be deducted from the deferred payment otherwise required by cl 9.1(a) of the Agreement.45   On his argument the questions are:

(a)       What   interpretation    should    be    given    to   the    term    “Episodes

Acquired”?46

(b)What interpretation should be given to the terms “First Run Existing Series”  and  “First  Run  New  Series”  as  used  in  the  Program Acquisition Agreement?47

(c)      What impact on interpretation do the words “full price” have, in the definition  of  “Episodes Acquired”,  in  relation  to  “First  Run  New Series” or “First Run Existing Series”?48

[59]     A further issue arises as to whether it is necessary to imply a term that any

licence entered into between Greenstone and Seven undertaken on “usual terms of business”.  I deal with that separately.49

45     Clause 9.1 is set out at para [34] above.

46     Set out at para [36] below.

47     Set out at para [37] above.

48     Set out at para [36] above.

[60]     The  content  of  the  pre-contractual  negotiations  in  relation  to  the  HC2

Adjustment are not helpful, for interpretation purposes.  They demonstrate that each party decided to proceed on the basis of different imperatives.   There was no consensus as to the means by which a licence might be procured, or the time at which income from a licence was likely to be received.  The Harris interests were prepared to take the risk that they could negotiate a “start date” that required the full purchase price to be paid, whereas the GTV interests took the view that the risk that the HC2 Adjustment would not take effect was minimal.  Those differing viewpoints highlight the risk allocation nature of the provision.

[61]     I focus on the words of the relevant provisions, and in the absence of helpful contextual evidence in relation to the HC2 Adjustment itself, consider which interpretation should be given in light of the commercial context and consequences that would flow from any particular interpretation.50

[62]     A number of arguments advanced by the GTV interests are premised on the notion that the terms of the Program Acquisition Agreement were incorporated by reference into the Agreement.  In one sense, that is true.  It was attached as Schedule

13 to the Agreement.  But, for the purpose of interpreting the HC2 Adjustment, only the defined terms “First Run Existing Series” and “First Run New Series” assume significance.  I hold that the relevance of the Program Acquisition Agreement to the interpretation of the HC2 Adjustment lies only in those two definitions.

[63]     The definition of “First Run Existing Series” in the Program Acquisition Agreement does not refer specifically to Highway Cops.  But, it comes within the scope of a series produced after Border Patrol 5 and Coastwatch NZ 5. Alternatively, the second series of Highway Cops can be viewed as a “First Run New Series” produced by Greenstone and made available to Seven for licence to broadcast in Australia.  Whichever approach is taken, I have no difficulty in concluding that the

second series of Highway Cops fell within the scope of one or other of the defined

49     See paras [75]–[80] below.

50     See para [19](f) above, citing Attorney General of Belize v Belize Telecom Ltd [2009] 2 All ER

1127 (PC) at para [22]. See also paras [15] and [16], citing Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [15]; and Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2015] 1 NZLR

432 (SC) at paras [60] and [61].

terms.  The fact that the series is mentioned explicitly in the definition of Episodes Acquired means that the parties understood it would fall within the ambit of one or other of those definitions.

[64]     The more difficult issue revolves around the qualifying words “full price” in the definition of Episodes Acquired.  Those words do not appear in the definitions of First Run Existing Series or First Run New Series contained in the Program Acquisition Agreement.

[65]     Mr Horne put the “full price” argument on the basis that, applying the terms

of the Program Acquisition Agreement, the consideration payable by Seven was

$18,000 per episode for a period of three years, assuming that receipt of the series was not treated as a replacement for Serious Crash Unit.  Mr Horne’s complaint was that Mr Hall granted a licence on behalf of Greenstone for a consideration that did not match $18,000 per episode for three years.   It also involved what Mr Horne described as “lengthy extensions of licence periods for two other programmes”, the first series of Highway Cops and Dog Squad, and an additional year “for no consideration”.  The submission is that the three licence agreements, including the extensions, were not “full price” and therefore in breach of the Agreement.

[66]     The  term  “Episodes  Acquired”  was  specifically  chosen  for  the  HC2

Adjustment.  It has no other function in the Agreement.  Viewed in that context, I find that the words “full price” were used to ensure that any licence that was granted by Greenstone in favour of Seven was for market value; in other words, the consideration provided in return for the licence was as valuable to Greenstone as Seven.  That seems to be the only commercial imperative of such a provision.  The words are not referable to the value of the price to the GTV interests.  Further, the wording is inapt to cover the timing of receipt of income by Greenstone, as opposed to the equality of value given and received.

[67]     When assessing the relative exchange of value in relation to the Licensing Agreement, it is important to bear in mind that the agreement was reached between Seven and Greenstone.  By contrast, the HC2 Adjustment formed part of the contract between  the  Harris  interests  and  the  GTV  interests  in  relation  to  the  sale  and

purchase of the shares.   This was not a case of the Harris interests, on behalf of Greenstone, giving away property rights in order to prejudice the GTV interests. They entered into the arrangement as a (they believed legitimate) means of securing payment of the full deferred payment amount to which Mr Harris considered his interests were entitled.

[68]     The question of “full price” must be addressed by reference to the ability of those with authority to bind Greenstone and Seven respectively to enter into agreements on terms other than those alleged by the GTV interests.   Mr Hall’s evidence to that effect was, in summary, that:

(a)      If Seven had not wanted to sign the licence in December 2013, or did not have the money in the budget then it would not have done so; there was no way he could have pushed the deal though.

(b)It was not unusual for extensions to be asked for, and given.  Had the extensions been asked for independently of the Highway Cops 2 licence, Mr Hall would have agreed to do that.  This is in recognition of the fact that networks often hold series “on the shelf”.

(c)      The licence start dates were flexible.  Greenstone would do its best to deliver by the start date, but delays were easily dealt with and Seven never  expressed  issues  with  that.    Delays  could  be  caused  for  a number of reasons, and by either party.  So, over the long relationship between the parties it was “very much swings and roundabouts”.  The parties accommodated each other’s needs.

[69]     The evidence of Mr Hall represented a pragmatic and commercial approach to  the  long  term  relationship  between  Greenstone  and  Seven.    There  was  no indication that the deals were not in the interests of either party, nor that they were at undervalue when viewed in context. Market value is a robust term that encompasses not only financial considerations, but the wider matrix of a continuing business dynamic.

[70]     Although  Mr  Ross  signed  the  licence  on  11  December  2013,  the  GTV interests assert that an enforceable contract was concluded on 6 December 2013, following the exchange of emails.  Whatever the correct legal position may be on that issue, the GTV interests do not dispute that Mr Hall had authority to bind Greenstone to the Licensing Agreement with Seven, and that an enforceable contract was the end result.   No steps were taken by the new management of Greenstone, after they learnt of the Licensing Agreement, to cancel or re-negotiate it.

[71]     Importantly, there is nothing in the HC2 Adjustment to suggest that the GTV interests required income from any licence to be available to Greenstone by its proposed new balance date of 30 June 2014.  The definition of “Episodes Acquired” focussed on the “start date” for a licence, not the timing of receipt of any payments made under it.

[72]     Having regard to the number of episodes to be produced, the GTV interests may well have thought (as I think they did) that there was little risk that the Harris interests could secure a licence to Seven in a form that complied with the HC2

Adjustment.  However, it was open to the GTV interests to insist upon a clause that focussed on the timing of receipt of the income from the Licensing Agreement, so that if not received within the 2014 financial year they would not have been obliged to pay that part of the deferred purchase price to which the HC2 Adjustment applied. Whether the Harris interests would have agreed to such a term is open to debate. Mr Harris’ primary concern was with his ability to be paid for the work he had done

in producing the second series of Highway Cops 2.51

[73]     The GTV interests do not dispute that the licence start date was before 30

June 2014.   Nor do they directly taken issue with the proposition that Greenstone received the full price for the licence granted in favour of Seven for the second series of Highway Cops.   The consideration may have encompassed more than just the licence but the question is whether the overall consideration was sufficient.

[74]     Had the timing issue been so important to the GTV interests, they ought to have insisted on the inclusion of an explicit term to protect them.   They did not.

51     See the extract from Mr Harris’ written evidence, set out at para [43] above.

Applying what was said by the Privy Council in Attorney General of Belize v Belize Telecom Ltd,52 the Court has no power to improve upon the agreement into which the parties have entered.  It is no function of the Court to make a contract “fairer or more reasonable,” even if it took the view that the contract was unreasonable.   In the absence of any implied term favourable to the GTV interests, the Harris interests prevail on the interpretation point in relation to the HC2 Adjustment.

(ii)      Implied term

[75]     The starting point is that the meaning of a contractual document may not necessarily reflect what each of the parties thought they were achieving.   The interpretation  exercise  is  undertaken  from  the  perspective  of  a  hypothetical reasonable person with relevant background knowledge.  The assumption is that, had the parties intended to address the issue, they would have done so expressly.53   The more so, I add, when an agreement has been executed after both parties have been advised fully by competent solicitors and financial advisers, and the agreement goes to some length to set out all agreed points.  The existence of the entire agreement clause emphasises that point.54

[76]     The  GTV  interests  contend  that  a  term  should  be  introduced  into  the definition of “Episodes Acquired” to make it clear that any licensing agreement with Seven would need to comply with the usual terms on which Greenstone and Seven did business.   The position taken by the GTV interests, in respect of its alleged “usual terms of business” obligation is set out in para 34 of the most recent version of the statement of defence. That states:

34.      Pursuant  to  the  usual  terms  of  business  between  Seven  …  and

Greenstone since the First Program Acquisition Agreement until 2014:

(a)      Greenstone did not enter into licence agreements with Seven

…  before the relevant  series  was  delivered  to Television

New Zealand (TVNZ) which was in breach of clause 11.7 of the production agreement with the commissioning broadcaster;

52     Attorney General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127 (PC) at para [16].

53 Ibid, at para [17].

54     See paras [24]–[32] above.

(b)       Greenstone complied with the requirement and expectation of TVNZ that Greenstone not treat programmes as available for license or secondary broadcast on Seven Network until after TVNZ had completed broadcasting the relevant series;

(c)      Licence periods granted by Greenstone to Seven … were no

longer than 3 years;

(d)       Seven … did not knowingly accept licence start dates that would be before the series was delivered and available for broadcast;

(e)       Licensed  programmes  were  delivered  by  Greenstone  to Seven … at or shortly before the beginning of the relevant licence period; and

(f)       Seven … did not broadcast licensed series until after the commissioning broadcaster had completed broadcasting the relevant series.

[77]     Although, Mr Sullivan made it clear that the Harris interests had prepared their case based on the pleaded defence, Mr Horne did not seek leave to amend para

34. Accordingly, I shall consider this aspect of the defence solely by reference to the live pleading.

[78]     Whatever may be the position with regard to the GTV interests’ rights to sue for breach of warranty, I am not prepared to hold that a term should be implied into the HC2 Adjustment to the effect that any licence entered into with Seven had to comply with “usual terms of business”.  My reasons for taking that view are:

(a)      The parties to the Agreement were sophisticated business people who had access to experienced and competent commercial solicitors, as well as financial and taxation advisers when negotiating its terms.

(b)      There was no imbalance in the bargaining position of the parties.

(c)      The parties agreed that the written terms of the Agreement would comprise all of its terms.55

55     See cl 28.8 of the Agreement (the “Entire Agreement” clause), set out at para [24] above.  I have held that cl 28.8 applies: see para [32] above.

(d)The HC2 Adjustment was something of importance to both parties, and was negotiated against the background of risk that each was prepared to take that the event  contemplated  would or would not occur.

(e)      The GTV interests  took  a  risk  that  the  Harris  interests  could  not procure a licence with a start date before 30 June 2014, primarily because they used false assumptions as to the basis on which such a licence might be negotiated.

(f)       To imply the term proposed changes the whole thrust of the HC2

Adjustment, by focussing on the timing of receipt of the price rather than its market value.

[79]     In the absence of a specific provision in the Agreement which dealt with the question of timing of receipt of income, the GTV interests must accept the loss they have suffered.  As Lord Hoffmann observed in Attorney General of Belize v Belize Telecom Ltd, in the absence of an implied term, the express provisions of the contract operate “undisturbed” and if the event in issue “has caused loss to one or other of the parties, the loss lies where it falls”.56

[80]     In my view, given the detailed way in which the Agreement was drafted,

there is no room to imply a “usual terms of business” obligation into the HC2

Adjustment.

(iii)     Conclusion

[81]     On their claim, I find in favour of the Harris interests.  They are entitled to judgment in the sum of $554,750, plus contractual interest.  Their right to recover that amount will only be defeated if a counterclaim can succeed which is sufficient to

extinguish the amount otherwise payable by the GTV interests.

56     Attorney General of Belize v Belize Telecom Ltd [2009] 2 All ER 1127 (PC) at para [17].

The counterclaims

(a)      The issues

[82]     The counterclaims advanced by the GTV interests fall into two categories:

(a)      The first alleges that the Harris interests breached various warranties provided in the Agreement on sale. There are two types of warranties:

(i) general obligations assumed by the Harris interests during the caretaker period and

(ii)specific warranties on which the GTV interests relied to enter into the agreement.

(b)The second is premised on the existence of liability under the Fair Trading Act 1986.  These allegations are based on conduct which is also said to be captured by various warranties.

[83]     The  counterclaims  are  brought  in  respect  of  both  the  second  series  of Highway Cops 2 and what (in the pleadings) are called “additional series”.   The latter involve secondary licence agreements entered into between Greenstone and Seven, for both Border Patrol (Series 7), and Serious Crash Unit, (Series 7).   A similar complaint to that involving the second series of Highway Cops is made in respect of the claim based on the “additional series”.

[84]     The GTV interests allege that the seventh series of both Border Patrol and Serious Crash Unit were sold to Seven earlier than was appropriate, with the consequence that they were not completed and available for broadcast within the 30

June 2014 financial year.  Their contention is that the licensing of these additional series artificially inflated the projected earnings of Greenstone for that financial year, on which the GTV interests had relied to calculate Greenstone’s EBITDA, for the purpose of fixing a purchase price that it was prepared to pay.

(b)      The contractual warranties: the caretaker period

[85]     My starting point for analysis is the contractual basis on which the Harris interests were to manage Greenstone’s business during the caretaker period.  I use that as a starting point because the licence authorising Seven to screen the second series of Highway Cops in Australia was entered into during that time.

[86]     Clause 5 of the Agreement sets out the obligations cast upon the Harris interests  during  caretaker  period.    The  specific  provisions  on  which  the  GTV interests rely are:

5.        Obligations prior to Completion

5.1      Continuity of Business

Until Completion, the Vendors will carry on the Business in the ordinary course.

…

5.4      Prohibited actions

Without limiting clause 5.1, except as expressly contemplated in this agreement,  the Vendors must  ensure that  the  Company does  not before Completion without the prior written consent of the Purchaser (not to be unreasonably withheld):

…

(c)       enter  into  any  abnormal  or  unusual  transaction  which materially adversely affects the Business;

…

(e)       enter into any contract with a value of $50,000 or more;

…

(n)       do anything that would have a material adverse effect on the goodwill of the Business, including the relationship of the Company with customers, suppliers and employees;

…

(r)       grant any licence, assignment or other right or interest in respect of intellectual property;

(x)       authorise, commit or agree to take any of the steps or actions in [clause 5.4(c), (d), (n) and (r)]

…

[87]     The GTV interests submit that cl 5.457  was breached because the licence for the second series of Highway Cops:

(a)      Was   an   “abnormal”   or   “unusual”   transaction   which   was   not undertaken in the “ordinary course of business”, in terms of cl 5.4(c).

(b)      Was a contract with a value of $50,000 or more, in terms of cl 5.4(e). (c)      Was a licence of intellectual property, in terms of cl 5.4(r).

(d)Would have a material adverse effect on the goodwill of the business, including Greenstone’s relationship with its customers, in terms of cl 5.4(n).

[88]     The GTV interests rely on cl 5.4(x) to sheet home liability to the Harris interests for breach of those provisions.  That clause prohibited the Harris interests, in the absence of written consent from the GTV interests to “authorise, commit or agree to take any of the steps or actions in clauses 5.4(a) to 5.4(w) inclusive”.

[89]     Clause 5 of the Agreement is headed “Obligations prior to Completion”.  As one would expect, the vendors were required to continue operating the business in the same way that it had done before the contract to sell shares was entered into. Hence,  the primary promise given by the Harris interests was  to “carry on the Business in the ordinary course”.58

[90]     The list of “prohibited actions” in cl 5.4 of the Agreement represent non- exhaustive  illustrations  of the type of  action  that  would  contravene the  general requirement of cl 5.1 to carry on business “in the ordinary way”.   If any of the

prohibited actions were to be contemplated, the Harris interests had an obligation to

57     The relevant parts of which are set out at para [86] above.

58     Clause 5.1 of the Agreement, set out at para [86] above.

obtain the prior written consent of the GTV interests before anything was done. That consent was not to be unreasonably withheld.59

[91]     I am prepared to assume that the licence agreement was entered into before settlement occurred on 9 December 2013.  I do so because there may be doubt as to Mr Hall’s ability to commit the GTV interests to a licence entered into after the Agreement  had  been  settled.   The fact  that  the GTV interests  have not  caused Greenstone to assert that the licence was entered into unlawfully supports that view. Nor has Greenstone taken any steps to terminate that licence and renegotiate another. The GTV interests have been content to accept the benefits that flowed to them from the Licensing Agreement, albeit that they contend that greater benefits should have been received.

[92]     In challenging the licences entered into through the Harris interests on 13

September 2013, in relation to the seventh series of Border Patrol and the seventh series of Serious Crash Unit, the GTV interests rely on the retrospective application of cl 5.4 to the date of the trading period ended 30 June 2013 for this purpose. Those series were in production but subject to delivery delays at the time the licences were signed.  Particular problems frequently occurred in relation to these series as often final  production  would  be  delayed  by  the  need  for  Court  proceedings  to  be completed, so that viewers could be told about the outcomes of the events they had witnessed. An example is a delay for four out of seven episodes of the seventh series of Serious Crash Unit because decisions of the Coroner’s Court were not then available to complete the narrative of a particular story.  Those types of delays had been clearly signalled in the due diligence period.

[93]     In my view, the warranties governing the caretaker period do not apply to the way in which the licence between Greenstone and Seven for the second series of Highway Cops  was  negotiated.    It  is  implicit  in  the Agreement  that  the Harris interests had the ability, during the caretaker period, to negotiate a licence with Seven in respect of the programmes in issue.  As long as those negotiations were

undertaken  and  any  agreement  reached  in  the  ordinary  course  of  Greenstone’s

59     Clause 5.4 of the Agreement.

business, there is no reason to apply the prohibited transaction provisions.  Entry into arrangements of that type was expressly contemplated by the parties.

[94]     That reason is supported by the existence of the HC2 Adjustment itself. Unless the GTV interests can establish that the arrangements  were entered into outside the ordinary course of business it was, in my view, unnecessary for consent to be given to a particular transaction in terms of cl 5.4 of the Agreement.   The licensing of programmes for screening in Australia was part of the core business of Greenstone.

[95]     A focus on the “ordinary course” of business requirement of cl 5.1 of the Agreement is consistent with the purposes of other prohibited actions listed in cl 5.4. Transactions that (putting it in various ways) were not in the ordinary course of business or were abnormal or unusual,60  are antithetical in nature to the concept of “ordinary course of business”.  In my view, to come within the warranties given in respect of the caretaker period, the GTV interests must establish that the Harris

interests entered into transactions other than in its ordinary course of business.

[96]     Although  widely  used  in  contracts,  and  sometimes  in  statutes,  the  term “ordinary course of business” has always been interpreted in a specific, rather than abstract, context.   A good illustration is Countrywide Banking Corporation Ltd v Dean.61    That case involved the voidable transaction provisions of the Companies Act 1955.  At that time, a transaction was not voidable if it were undertaken in the ordinary course of business.   Delivering the judgment of the Privy Council, Sir Thomas Gault referred to the notion of “ordinary course of business”.  He said:62

There are difficulties in drawing upon formulations in different words of statutory tests and treating them as applicable in all circumstances. Such difficulties  are  increased  where  those  formulations  originate  in  different legal or factual contexts. This is particularly so where the test is essentially one of fact in any event. For these reasons, as presently informed by the argument in this case, Their Lordships do not adopt any particular formulation. Nor is it necessary for this case to make any comprehensive statement, suitable for all cases, of the criteria for determining when a transaction  is  to  be  held to  have  taken  place  in  the  ordinary  course  of

60     See the relevant provisions of cl 5.4, set out at para [86] above.

61     Countrywide Banking Corporation Ltd v Dean [1998] 1 NZLR 385 (PC).

62     Ibid, at 394.

business for the purpose of s 266 and the corresponding section in the 1993

Act.

Their Lordships do not accept, as submitted for the appellant, that the test is general in the sense that it would be satisfied so long as it can be said that the transaction  is  one  which  might  reasonably  take  place  in  some  business setting. To abstract the particular business setting and inquire (in effect) merely whether it is possible to envisage a setting in which the transaction would be an ordinary one is not what the statute requires. In that situation the intent and purpose of the company would never have relevance yet s 266(4) specifies circumstances in which they are to be taken into account.

Plainly the transaction must be examined in the actual setting in which it took place. That defines the circumstances in which it is to be determined whether it was in the ordinary course of business. The determination then is to be made objectively by reference to the standard of what amounts to the ordinary course of business. As was said by Fisher J in the Modern Terrazzo Ltd  case,  the  transaction  must  be  such  that  it  would  be  viewed  by  an objective observer as having taken place in the ordinary course of business. While there is to be reference to business practices in the commercial world in general, the focus must still be the ordinary operational activities of businesses   as   going   concerns,   not   responses   to   abnormal   financial difficulties.

…

[97]     The production of television series and their licensing to Seven in Australia were  fundamental  parts  of  Greenstone’s  business.     It  could  not  seriously  be suggested  that,  by entering into  the licence  with  Seven,  Greenstone was  acting outside of the scope of its usual business.  While the negotiators might have agreed different terms for that arrangement than were usual (the term of four years being one example), that does not take the transaction itself outside of the ordinary course of Greenstone’s business.

[98]     The Program Acquisition Agreement between Seven and Greenstone did not contain fixed terms on which the parties had to contract.  As both Mr Ross and Mr Hall acknowledged, it was possible for particular arrangements to be made in circumstances where to do so benefited both companies.  There is no suggestion of any inequality of bargain.   Greenstone received payment for the licence.   The complaint is only as to timing, something that affected the GTV interests, as shareholders, rather than Greenstone itself.

[99]     For those reasons, I reject the submission that the Harris interests undertook any prohibited transactions during the caretaker period.

(c)      The general warranties

[100]   The purpose of the warranties provided by the Harris interests was to confirm relevant factual foundations on which the GTV interests had agreed  to buy the shares.  Clauses 11.1–11.3 explained the basis on which the warranties were given:

11.      Warranties

11.1     [The Harris interests] represent and warrant to the [GTV interests] that the Warranties are true and accurate at the date of this agreement and will be true and accurate on the Completion Date.

11.2     Reliance of the [GTV interests]

[The Harris interests] acknowledge that the [GTV interests] enters into  this  agreement  and  will  complete  the  sale  and  purchase  of Shares under this agreement in reliance on the Warranties.

11.3     Acknowledgements

[The Harris interests] acknowledges and agrees that:

(a)       It enters into this agreement and will complete the sale and purchase of Shares under this agreement in reliance on the Warranties; and

(b)       It  has  had  the  opportunity  to,  and  has,  conducted  due diligence investigations in relation to the Company and the Business before the date of this agreement and has had the opportunity to raise such enquiries as it considered necessary with the Vendors in relation to the Company and the Business;

(c)       The Warranties are the only warranties that the Purchaser requires, and on which the Purchaser has relied, in entering into this agreement; and

(d)       No  warranty  or  representation,  expressed  or  implied,  is given in relation to any expression or statement of intention, opinion, belief or expectation nor any forecast, forward looking statement, budget, projection or any fiscal or economic matters contained or referred to in the Due Diligence Materials.

[101]   The term “warranties” was defined by cl 1.1 of the Agreement to mean “each of  the  representations  and  warranties  given  under  clause  11  and/or  set  out  in Schedule 8”.  The accuracy of warranties contained in Schedule 8 is vouchsafed by cl 11 of the Agreement.

(a)      Clause 11.2 contains an acknowledgement that the GTV interests have entered into the Agreement and will complete the sale and purchase of the shares in reliance on the warranties given.

(b)Clause 11.3(b) provided an acknowledgement on the part of the GTV interests that it had “had the opportunity to, and [had], conducted due diligence investigations” and had had “the opportunity to raise such enquiries  as it  considered  necessary” with  the  Harris  interests  “in relation to [Greenstone] and” its business.

(c)      Clause  11.7  gave  the  GTV  interests  an  ability  to  terminate  the Agreement in circumstances where a material breach of warranty had had or “in the reasonable opinion” of the GTV interests, was “likely to have, either individually or when aggregated with other facts, matters or circumstances, a material adverse effect on [Greenstone] or the Business or the financial or trading position, liabilities, revenue, earnings,  financial  condition,  profitability  or  prospects  of [Greenstone] or the Business.  That obligation was one that did refer

specifically to the EBITDA calculation.63

[102]   Clause 11.15 confirmed that cl 11 remained in full force and effect after the date on which the Agreement was settled.

[103]   The particular warranties on which the GTV interests rely are set out in

Schedule 8:

Warranty 6 – The Accounts

6.1      The Accounts:

(a)      give a true and fair view of:

(i)       the assets, liabilities, financial position and state of affairs of the Company as at the Accounts Date; and

(ii)      the financial performance of the Company for the year ended on the Accounts Date;

63     Clause 11.7 is set out in full at para [109] below. See also, paras [110]–[111] below

(b)      were prepared in accordance with:

(i)       the Accounting Standards, Financial Reporting Act

1993 (NZ), the Companies Act and all other applicable laws including qualifying for differentia reporting; and

(ii)     the  same  accounting  policies,  practices  and procedures (and method of application of them) as were applied in the corresponding accounts for the previous three years;

(c)       contain proper and adequate provision for and full disclosure of all liabilities, whether actual, continent or otherwise, of the Company at the Accounts Date; and

(d)       are not affected by any abnormal, extraordinary, exceptional or non recurring items.

6.2      Since the Accounts Date:

(a)       there  has  been  no  material  adverse  change  in the assets, liabilities, turnover, earnings, financial condition, trading position, affairs, performance or prospects of the Company and  no  fact,  matter,  event or  circumstances  has  occurred which is likely to give rise to a change;

…

(c)       the Company has carried on the Business in the ordinary and usual course and has not entered into any contracts or arrangements other than in the ordinary and usual course of carrying on business of the Business;

…

(e)       the Company has not acquired or disposed of or dealt with any assets, nor has it entered into any agreement or option to acquire or dispose of any assets other than in the normal course of business for full market value;

….

Warranty 8 – Commitments

8.1As  far  as  the  Vendors  are  aware,  there  are  no  agreements, arrangements or understandings affecting the Company or the Business that:

…

(b)       are outside the ordinary and proper course of the business of the Business or otherwise contain any unusual, abnormal or onerous provisions;

…

Warranty 20 – Information

20.1The Vendors have disclosed to the Purchaser all material information relating to the Company and the Business or otherwise in relation to the subject matter of this agreement which might, if disclosed, reasonably be expected to affect the decision of a prospective purchaser to enter into this agreement,

20.2No information has been omitted from the Due Diligence Materials that would render the Due Diligence Materials misleading in any material respect.

[104]   The counterclaims based on breach of warranty are all focussed on the means by which the Harris interests were able to reach a licensing agreement with Seven for the second series of Highway Cops.  The applicability or otherwise of the various contractual warranties on which the claims are based fall to be determined against the interpretation that I have given to the HC2 Adjustment.

[105]   All warranties were represented to be “true and accurate” as at “Completion Date”, 9 December 2013.64     In general terms, the complaints made by the GTV interests may be summarised as follows:

(a)      The Harris interests’ breached Warranty 6.2(a)65  because the unusual nature of the licence represented a “material adverse change” of Greenstone since the financial statements of 31 March 2013.   The argument  seems  to  be  that  the  way  in  which  the  licence  was structured, so as to give the Harris interests the benefit of the HC2

Adjustment without the GTV interests receiving the financial benefits of it within the 2014 financial year, represented a “material adverse change” in the financial position of Greenstone, contrary to Warranty

6.2(a).

(b)      The  nature  and  structure  of  the  licence  was  such  as  to  take  the

transaction outside of the “ordinary and usual course” of Greenstone’s

business.    By  structuring  the  transaction  in  that  way,  the  Harris

64     Clause 11.1 of the Agreement, set out at para [100](a) above.

interests are said to have breached the warranties set out in Warranties

6.2(c) and (e) of the Agreement.66

(c)      The way in which the licence transaction was structured meant that the Harris interests breached Warranty 8.1(b).67   The allegation is that the arrangement entered into between Greenstone and Seven was “outside the ordinary and proper course of business” of that company or did “otherwise contain any unusual, abnormal or onerous provisions”.

(d)Warranty  20.168    required  the  Harris  interests  to  make  material disclosure in relation to anything that might “reasonably be expected to affect the decision of a prospective purchaser” to enter into the Agreement.  Taken in conjunction with cl 11.1 of the Agreement,69 the GTV interests assert that this warranty extended through to the date on which the Agreement was settled: 9 December 2013.

[106]   The warranties were given subject to two qualifications.  Clause 11.5 of the

Agreement provided:

11.5     Qualifications

The Warranties are given subject to and are qualified by the matters that are: (a)     Fairly  disclosed  in  the  Due  Diligence  Materials,  the  Disclosure

Letter, or in this agreement; or

(b)      Within  the  actual  knowledge  of  the  Purchaser  or  any  of  its

Representatives as at 15 September 2013.

[107]   I find:

(a)      The GTV interests knew that there were 20 episodes of the second series of Highway Cops 2 in production at the time the Agreement

was signed on 13 November 2013.

66     Set out at para [103] above.

67     Set out at para [103] above.

68     Set out at para [103] above.

(b)The GTV interests knew that there had been a change in accounting policies so that income due from sales contracted prior to year end was accrued in the accounts.  That meant that any licence entered into with Seven in relation to the second series of Highway Cops was likely to be accounted for in the 2015 financial year.

(c)      The Harris interests intended to enter into a licence agreement with Seven for the second series of Highway Cops “at some stage in the near future”.   The term “near future” was used in the context of a disclosure letter dated 13 November 2013.  They also disclosed that they were “advocating for a start date pre 30 June 2014”, but no agreement had been reached at that time.

(d)The GTV interests made assumptions in relation to the way in which the Harris interests might negotiate a licence agreement with Seven.70

Those assumptions proved to be erroneous.

(e)      The Harris interests disclosed that the seventh series of Border Patrol had been deferred until 15 April 2014, meaning that income would be recognised in the 2015 financial year.

(f)       The Agreement was negotiated with that common knowledge in mind.

[108]  The same criticism can be made in relation to the claims based on the warranties as those addressing the caretaker period.   All try to bring within their ambit conduct which falls specifically within an agreement directed to an adjustment of the deferred purchase amount based on the licensing of the second series of Highway Cops to Seven.  For similar reasons to those I have given with regard to the caretaker period warranties, I find that the GTV interests cannot establish liability on any of those grounds.

[109]   The GTV interests also refer to cl 11.7 of the Agreement.71  That provides:

11.7      Rights of termination

If, before Completion the [GTV interests] identifies a material breach of any of the Warranties where, for the purpose of this clause 11.7, a material breach means a breach which has, or, in the reasonable opinion of the [GTV interests] is likely to have, either individually or when aggregated with other facts, matters or circumstances, a material adverse effect on [Greenstone] or the  Business  or  the  financial  or  trading  position,  liabilities,  revenue, earnings, financial condition, profitability or prospects of [Greenstone] or the Business by:

(a)       diminishing the net assets of [Greenstone] as at 30 September 2013 by an amount of $250,000 or more; or

(b)       reducing  the  forecasted  EBITDA  generated  by  [Greenstone]  in respect of the financial year ending 2014 (as compared to that disclosed to [the GTV interests] prior to execution of this agreement) by $250,000 or more the [GTV interests] may (without prejudice to any other remedy available to it) immediately terminate this agreement by giving written notice to the [Harris interests].

[110]   I deal with this separately as it raises a different point.  Although cl 11.7(b) refers specifically to EBITDA (and is the only clause in the Agreement that does so) it is a provision that entitled the GTV interests to terminate the contract in circumstances where it believed there would be “a material adverse effect” on Greenstone’s business activities.

[111]   But, cl 11.7 only applies to the period before “Completion”, 9 December

2013.  The intention of cl 11.7 was to provide an opportunity to the GTV interests, as purchaser, to identify transactions undertaken at that date and to extract themselves from the Agreement if (for example) the forecasted EBITDA was reduced materially. No steps were taken to terminate the Agreement once the terms of the Licensing Agreement were made known to the GTV interests.   In my view, cl 11.7 does not assist the GTV interests.

[112]   It follows that the counterclaim based on general warranties also fails.

(d)      The Fair Trading Act claims

[113]   Section 9 of the Fair Trading Act 1986 provides:

9 Misleading and deceptive conduct generally

No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

[114]   In  Red  Eagle  Corporation  Ltd  v  Ellis,72   the  Supreme  Court  provided guidance on the approach that a first instance Court should take in determining whether an actionable claim exists under s 9 of the Fair Trading Act.   While the Court indicated that its approach might not be appropriate in all cases, I see no reason why I should depart from it in the circumstances of this particular case.

[115]   Delivering the judgment of the Supreme Court in Red Eagle, Blanchard J identified “the characteristics of the person or persons said to be affected” as one of the circumstances to be considered.  He added:

[28]      …  Conduct towards a sophisticated businessman may, for instance, be  less  likely  to  be  objectively  regarded  as  capable  of  misleading  or deceiving such a person than similar conduct directed towards a consumer or, to take an extreme case, towards an individual known by the defendant to have intellectual difficulties. Richardson J in Goldsbro v Walker [[1993] 1

NZLR 394 (CA)] said that there must be an assessment of the circumstances in which the conduct occurred and the person or persons likely to be affected

by it. The question to be answered in relation to s 9 in a case of this kind is

accordingly whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or of which the defendant

ought to have been aware – would likely have been misled or deceived. If so,

a breach of s 9 has been established. It is not necessary under s 9 to prove that  the  defendant’s  conduct  actually  misled  or  deceived  the  particular plaintiff  or  anyone  else.  If  the  conduct  objectively  had  the  capacity  to mislead or deceive the hypothetical reasonable person, there has been a breach of s 9. If it is likely to do so, it has the capacity to do so. Of course the fact that someone was actually misled or deceived may well be enough to show that the requisite capacity existed.

(Emphasis added and footnotes omitted)

[116]   I adopt the way in which O’Regan P paraphrased that approach in Poplawski v Pryde:73

A breach [of section 9] will only occur where it is objectively reasonable for the claimant to be misled in all the circumstances.

72     Red Eagle Corporation Ltd v Ellis [2010] 2 NZLR 492 (SC).

73     Poplawski v Pryde (2013) 14 NZCPR 528 at para [45].

[117]   Section 43 of the Fair Trading Act provides a smorgasbord of remedies for a breach of s 9.   In Red Eagle, Blanchard J emphasised the need for a causal nexus between the conduct of which complaint is made and the loss or damage alleged to have been suffered.  His Honour said:74

[29]     … The language of s 43 has been said to require a “common law practical or common-sense concept of causation”. The court must first ask itself whether the particular claimant was actually misled or deceived by the defendant’s conduct. It does not follow from the fact that a reasonable person would have been misled or deceived (the capacity of the conduct) that the particular claimant was actually misled or deceived. If the court takes the view, usually by drawing an inference from the evidence as a whole, that the claimant was indeed misled or deceived, it needs then to ask whether the defendant’s conduct in breach of s 9 was an operating cause of the claimant’s loss or damage. Put another way, was the defendant’s breach the effective cause or an effective cause? Richardson J in Goldsbro spoke of the need for, or, as he put it, the sufficiency of, a “clear nexus” between the conduct and the loss or damage. The impugned conduct, in breach of s 9, does not have to be the sole cause, but it must be an effective cause, not merely something which was, in the end, immaterial to the suffering of the loss or damage. The claimant may, for instance, have been materially influenced exclusively by some other matter, such as advice from a third party.

(footnotes omitted)

[118]   In their counterclaim, the GTV interests identified the conduct that it alleged was misleading or deceptive. Their pleading states:

73.In entering into the Agreement and completing the Agreement at all relevant times [Cordell Jigsaw Productions] and GTV relied on the accuracy and completeness of the statements, representations, warranties  and  information   provided  to  them  by  [the  Harris interests].

74.      [The Harris interests’] conduct in:

(a)      negotiating the [HCA2 Adjustment]

(b)      failing  to  disclose  that  Greenstone  would  be  unable  to license any episodes of Highway Cops 2 on usual terms;

(c)      attempting to circumvent the parties’ agreement by entering

into the HC2 Licence Agreement on unusual terms;

(d)      omitting to obtain [the GTV interests] consent to the HC2

Licence Agreement

74     Red Eagle Corporation Ltd v Ellis [2010] 2 NZLR 492 (SC) at para [29].

(e)       entering into the HC2 Licence Agreement in breach of its obligations to TVNZ without TVNZ’s consent and failing to disclose those facts to the [GTV interests];

(f)       Failing  to  disclose  the  HC2  Licence  Agreement  before

Completion or at all;

(g)       entering into the Additional Series Licences in breach of its obligations to TVNZ without TVNZ’s consent and failing to disclose those facts to [the GTV interests];

(h)       failing to disclose, before completion or at any time, that the Additional Series would not be delivered or that there was a significant risk the Additional Series would not be delivered and available to Seven Network at or around the beginning of their respective licence periods;

(i)        failing to disclose before Completion or at any time that the Additional Series would not be delivered or that there was a significant risk the Additional Series would not be delivered and available to Seven Network before 30 June 2014 and income from the Additional Series Licences would not be attributable to FY14;

was misleading, and/or deceptive.

[119]   There is an inconsistency inherent in the pleading in paras 73 and 74 of the counterclaim.   The primary allegation (para 73), of which para 74 provides particulars, refers to affirmative statements provided by the Harris interests.  Yet, the bulk of the particulars relate to omissions.75   The others refer to conduct involved in entering into the Licensing Agreement76  or some form of conduct in the process of negotiating the HC2 Adjustment that is said to give rise to a s 9 breach.77   The notion that a sophisticated commercial entity should be able to sue another party for breach

of s 9, in relation to its own failure to insist upon a contractual provision dealing with the question of timing of receipt of a payment is puzzling, to say the least.

[120]   In short, there are two reasons why the Fair Trading Act claim fails.  The first is that the allegations are not of a type that could amount to “misleading or deceptive conduct in trade” for the purposes of s 9.  The second is that the GTV interests were

sophisticated commercial entities that, applying the approach taken by the Supreme

75     See paras 74(b), (f), (h) and (i) of the counterclaim, set out at para [118] above.

76     See paras 74(b), (c), (e) and (g) of the counterclaim, set out at para [118] above.

77     See paras 74(a) and (d) of the counterclaim, set out at para [118] above.

Court  in  Red  Eagle,  could  not  be  regarded,  on  an  assessment  by a  reasonable bystander, as likely to be misled or deceived by the type of conduct alleged.78

Result

[121]   For those reasons:

(a)       Judgment is entered in favour of the first and second plaintiffs against the first, second, third and fourth defendants

(i)in  the  sum  of  $554,720,  being  the  outstanding  deferred payment amount, and

(ii)for interest pursuant to the Agreement at a rate of 5 percent per annum from 9 June 2014, being the date on which the deferred payment amount should have been paid.

(b)Judgment is entered in favour of the first and second plaintiffs against the first, second, third and fourth defendants on the counterclaims.

[122]   Questions  of  costs  are  reserved.    I  understand  the  Harris  interests  will advance a claim for indemnity costs under cl 21 of the Agreement.

[123]   The Registrar is directed to allocate a telephone conference before me at 9am on the first available date after 3 February 2017.  If agreement were not reached by that time as to costs, I will make directions for the hearing of any application. Whether  an  oral  hearing  is  required  can  be  considered  at  that  time.    A joint memorandum shall be filed no less than two working days prior to the conference

setting out the directions sought by each party.

78     Red Eagle Corporation Ltd v Ellis [2010] 2 NZLR 492 (SC) at para [28], set out at para [115]

above.

[124]   In the event that there is any disagreement as to the quantification of interest payable to the first and second plaintiffs, that issue may also be raised with me at the telephone conference, so that further direction may be made.

[125]   I thank counsel for their assistance.   I regret the delay in delivery of this judgment. While the delay has been unavoidable, I apologise to the parties for that.

P R Heath J

Delivered at 11.00am on 19 December 2016