Hunter Grain Limited v J Swap Contractors Limited HC Tauranga CIV-2008-470-837
[2011] NZHC 1058
•12 September 2011
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2008-470-837
BETWEEN HUNTER GRAIN LIMITED First Plaintiff
ANDHUNTER GRAIN (NZ) LIMITED Second Plaintiff
ANDJ SWAP CONTRACTORS LIMITED Defendant
Hearing: 7,8,9,10,11,14,15,16,17,18,21,22,23,24,25,28 February 2011
1,2,4,7,8,9,14 and 15 March 2011 (Heard at Hamilton)
Appearances: L J Taylor, I W Thorpe and S B Kellett for First and Second Plaintiffs
M J Fisher, P M Hardie and K S Muston for Defendant
Judgment: 12 September 2011
JUDGMENT OF COOPER J
This judgment was delivered by Justice Cooper on
12 September 2011 at 11.00 a.m., pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors:
Izard Weston, DX SP 27002, Wellington
Jones Howden, DX GA 27017, Matamata 3440
Copy to:
L J Taylor, PO Box 5537, Lambton Quay, Wellington 6145
M J Fisher, PO Box 3236, Shortland Street, Auckland 1140I Thorpe, PO Box 10048, Wellington
HUNTER GRAIN LIMITED V J SWAP CONTRACTORS LIMITED HC TAU CIV-2008-470-837 12
September 2011
Table of Contents
Para No
Introduction [1]
The facts
Background [2]
Commencement of PKE importation - Intelact [9]
A relationship between Hunter Grain and J Swap [14] The relationship in practice [32] Incorporation of Hunter Grain Ltd [56] A scheme involving Toepfer [62] The PKE market booms [81] Furtherance of the Toepfer scheme [84] Hunter Grain’s Board Meeting of 18 September 2007 [95]
Change in trading terms [108] Mr Price gives notice [123] The wash out proceeds [137
A relationship between Toepfer and J Swap develops [143] Mr Price’s affairs [175] A meeting on 18 December 2007 [188] The “Action Plan” [195] Arranging the first cargo [202] The trip to Singapore in January 2008 [211] Mr Price finally goes [213] James Wynn-Williams takes over [217]
The relationship between J Swap and Hunter Grain unwinds
[249]
Price Commodities Ltd [258]
An injunction against Mr Price and PCL [284] Liability [286] Breach of contract [289]
Accessory liability [326]
Conspiracy [344]
Damages
[349]
The New Plymouth lease [400]
Result [415]
Introduction
[1] The plaintiffs sue the defendant under various causes of action that allege breach of contract, breach of fiduciary duty, conspiracy and accessory liability to breaches of fiduciary duty owed to them by the first plaintiff‟s Chief Executive and director, Richard Price. The context of the dispute was a relationship which the plaintiffs say was contractual pursuant to which they imported palm kernel expeller (PKE) and J Swap sold and distributed it. That relationship foundered when J Swap essentially took its business elsewhere, without giving notice. The result is the present claim, in which the plaintiffs seek damages in the sum of $9,590,075.
The facts
Background
[2] The first plaintiff, Hunter Grain Ltd, was incorporated in 2006. It traded as an importer of stock food into New Zealand and was an important developer of the market in New Zealand for PKE. The second plaintiff, Hunter Grain (NZ) Ltd, was incorporated in 1997. It was Hunter Grain Ltd‟s predecessor in business in New Zealand. Little turns on the separate identity of these two companies and, except where it is necessary to distinguish between them, I will refer to them both as “Hunter Grain”.
[3] Both companies were controlled by Mr David Dossor. Mr Dossor was born in New Zealand but moved to Australia with his father when he was relatively young. In 1975 he established an Australian company called Hunter Grain Pty Ltd (“Hunter Grain Australia”), which traded in grain in the Hunter Valley region of New South Wales. In the early 1980s that company expanded into an imports and exports business in grain and protein meals. It established major bulk storage facilities and bulk handling services for the products in which it traded. It had its own transport division, including company owned vehicles as well as sub-contractor trucks. By
2007, Hunter Grain Australia had become Australia‟s largest distributor of imported
protein meals, operating from Newcastle, Brisbane, Geelong and Perth.
[4] Mr Dossor eventually sold his shares in Hunter Grain Australia for about AUD$26.5 million in late 2007. At the time, it had a turnover of AUD$250 million and employed over 30 staff with trading offices in Sydney. According to Mr Dossor, over the 15 years prior to the sale the company chartered 222 ships carrying cargo with a CIF invoice value of AUD$1.75 billion.
[5] Hunter Grain Australia began to operate in New Zealand in about 1992. About that time, the company began importing soya meal in bulk. The meal was supplied to Inghams who used it for feeding chickens. Originally, these activities were based on importations through the port of Auckland, with the company engaging an Auckland based trucking company to handle the product from ship to store in Auckland and then trucking it to mills in Hamilton and Mt Maunganui. Faced with rising warehousing costs in the mid-1990s the company‟s attention turned to Tauranga. The manager of Ingham‟s New Zealand operation introduced Mr Dossor to Mr David Swap, the chief executive of the defendant company, J Swap Contractors Ltd, (“J Swap”). With his brother Lewis Swap, David Swap ran what was a family business. J Swap had developed a reputation as a good provider of warehousing and trucking services and was able to provide an efficient service from facilities in close proximity to the port. The companies entered into an arrangement for the storage and handling of soya meal to be imported through the Port of Tauranga and stored there before distribution.
[6] Anticipating that development, and the ongoing growth of business in New Zealand, Mr Dossor incorporated Hunter Grain (NZ) Ltd in 1997. Initially, the company was run out of Sydney, but later it established a presence in New Zealand. That company then conducted the Hunter Grain business activities in New Zealand.
[7] Mr Dossor said that when he met Mr David Swap in the mid-1990s, Mr Swap impressed him as a dedicated and hard working person, who ran what appeared to be a substantial family business. In due course Mr Dossor met all the Swap family members who were involved in that business, and formed a close relationship with Stephen Swap, David Swap‟s son, who was in charge of the defendant‟s activities in respect of grain and meal handling.
[8] Stephen Swap introduced Mr Dossor to Richard Price. Mr Price and Stephen Swap had been at school together. They were close friends. Stephen Swap became a trustee of Mr Price‟s family trust. Mr Dossor recognised the importance of the relationship between Mr Price and Mr Stephen Swap. Its strength was something which would be of benefit to Hunter Grain in an ongoing business relationship. Hunter Grain initially employed Mr Price as a commission agent, but later, in about
2001, Mr Price became its Chief Executive on a salary of about $100,000. He was also given a ten per cent profit share. Although the title of Chief Executive was used, in fact the organisation in New Zealand was very small. The staff initially comprised only Mr Price. Between 2003 and 2006 he was assisted by Carol Dossor, the wife of Mr David Dossor‟s brother Peter. Later, Mr Michael Carey was employed as financial controller down to mid 2007 and in February 2007
Ms Jennifer White became the office manager.
Commencement of PKE importation - Intelact
[9] Prior to the incorporation of Hunter Grain (NZ) Ltd and the employment of Mr Price, Hunter Grain Australia had begun importing PKE into New Zealand. That activity was initially carried out in conjunction with Intelact Nutrition Ltd (“Intelact”).1 Intelact‟s principal, Mr Warren Morritt, had established that PKE was suitable as a supplementary feed for dairy cows. Hunter Grain began to fund, import and store container loads of PKE. The storage occurred in warehouses which were owned or leased by the company. The containers were discharged at Mt Maunganui. Intelact marketed the PKE to farmers.
[10] Between 1997 and 2003, growth of PKE sales rose from small beginnings to about 40,000 tonnes per annum. Mr Dossor was not challenged on his evidence that Hunter Grain was initially one of very few companies involved in importing PKE and was effectively a pioneer in the field. Mr Price was crucially involved in
growing the market in New Zealand.
1 Intelact later traded as SourceNZ.
[11] In the meantime, Mr Dossor had established a new source of supply of PKE from a company called Kuok,2 based in Borneo. Hunter Grain Australia purchased PKE from Kuok using a broker based in Singapore called Touton. Hunter Grain Australia arranged and paid for a hammer-mill to be installed at the Kuok processing plant at Bintulu. Hunter Grain Australia also arranged to pay a processing fee of US$3.00 per tonne for the hammer-milling process, which would be carried out prior
to the product being loaded on board. The hammer-milling of PKE resulted in an end product which had a smaller and more even particle size. The process also involved the removal of metal-based foreign material. Hammer-milled PKE was a superior product to PKE that had not been processed in that way.
[12] Mr Price was heavily involved in growing the market for PKE in New Zealand. He formed the view that Intelact, and its principal Mr Warren Morritt, were not doing all they could to sell and market PKE. Tensions grew between Mr Price and Mr Morritt. Mr Morritt raised a number of concerns, but the principal one was the fact that Hunter Grain would not give an assurance that it would not sell PKE directly in the market. While that had not happened up to that point, Mr Morritt said it had been “a daily battle with Richard to stop him doing this” and it was clear that Mr Price would not be happy unless Hunter Grain was able to do so. Eventually, on
9 August 2004 Mr Morritt wrote to Mr Dossor and Mr Price advising them that Intelact had contracted to buy its next shipment of PKE from ABB Grain Ltd, one of Hunter Grain‟s competitors.
[13] A dispute ensued that had to be taken to arbitration, and the commercial relationship between them came to an end.
A relationship between Hunter Grain and J Swap
[14] Mr Dossor then needed to consider what steps should be taken to expand further what appeared to be a growing market in New Zealand for PKE, exploiting the source of supply that he had established in Borneo. He thought that there was the
potential for a further major expansion of the market. He considered the possibility
2 The evidence did not disclose the full corporate name of Kuok. Later, Kuok merged or was taken over by Wilmar.
of Hunter Grain providing warehousing and retail functions from its own resources. That would have been attended by considerable cost and would have required some time. On the other hand, the desired outcomes could be achieved through a stable long term relationship with a third party. There was already an established arrangement with J Swap in relation to the soya meal business. While other companies might provide trucking services, not many could provide the combination of trucking, warehousing and retailing functions able to be provided by J Swap.
[15] Mr Price sent Mr Dossor an e-mail on 12 August 2004 in which he said:
I would favour a business model of Hunter Grain and J Swap Contracters [sic] together. We would clearly lead the market in cost efficiencies, and would be a team very difficult to underprice. … my preference after thinking long and hard would be to go our own way with Swap. Swap‟s book/deliver and invoice product. And I get out a [sic] promote the backside off of PKE to dairy farmers everywhere.
[16] Mr Dossor concluded that expanding the existing relationship with J Swap would be the best basis on which to proceed. He considered terms to be proposed to J Swap and met with Mr David Swap and Stephen Swap at J Swap‟s premises in Matamata to discuss them in the week of 16 August 2004.
[17] In that meeting he outlined the state of the PKE market and spoke of its potential for growth and increased profits. He proposed that the companies work together to exploit the opportunity. The key terms which he proposed were:
(a) The companies would work together to exploit the potential for growth in the PKE market.
(b) Hunter Grain would fund and arrange the importation of shipments of
PKE.
(c) J Swap Contractors Ltd would provide the warehousing and distribution, being paid for it by Hunter Grain.
(d)Generous credit terms would be offered to J Swap from the date of sale of product to farmers.
(e) Hunter Grain would “bank” J Swap‟s debtors.
(f) Hunter Grain would run an open book, disclosing openly all of its costs to J Swap.
(g)Net profits (after Hunter Grain had already paid J Swap for haulage and storage) would be shared 50/50 and Hunter Grain would “cover J Swap for $10”). That meant that if J Swap made less than $10 per ton net margin when on-selling from Hunter Grain, J Swap‟s net margin of $10 per tonne would be covered by Hunter Grain reducing its own margin. It was Mr Dossor‟s evidence that, at the time, he envisaged that the net margin on sales would be around $20 per ton.
[18] Mr Dossor said that there was no discussion of the duration of the arrangement at the meeting, but that the discussions had been about an arrangement between the companies to exploit market growth over the long term. It was his evidence that David and Stephen Swap agreed with the proposals that he made, that he and David Swap “shook on it there and then”, and that the arrangement commenced at that point.
[19] There was an issue on the pleadings as to the consequences of this meeting. The plaintiffs claim that at the meeting the parties decided to embark on a collaborative venture for their mutual benefit in relation to the importation, purchase, warehousing, sale and distribution of PKE, which was said to be a “trading partnership”. It was claimed that over time a substantial contractual relationship developed. J Swap denied that was so and essentially said that what happened subsequent to the meeting was that the parties from time to time entered into individual contracts for the handling, transportation and storage by the defendant of PKE imported by Hunter Grain and subsequently on-sold by J Swap to its customers.
[20] Given the pleadings, it was surprising that Mr Dossor was not directly cross- examined on what took place at the August 2004 meeting in Matamata. It was not put to him that his account of what had occurred, that what he said was proposed by him and agreed by Messrs David and Stephen Swap, was incorrect. In cross-
examination Mr Fisher referred Mr Dossor to an e-mail that he had sent to Mr Price on 25 August 2004 which was headed “Hunter Commodities NZ Ltd” and continued:
As you know we have just had a major change in the way we are doing biz in NZ and with Intelact now dealing with our competitor we are faced with lifting our profile and marketing in a more direct fashion to end users. I propose to form a new company as above using the word commodity which identifies our protein meals as distinct from just grain. Could you please plan the office side on the basis that we will invoice and run all activities from NZ for the new company. I have asked Dom Zame to organise the new company with above name if available asap. Given we no longer have a distributor for our PKE we need to move promptly.
[21] Mr Fisher put it to Mr Dossor that the e-mail showed that at the time Mr Dossor must have been uncertain as to what the arrangements would be with J Swap. Mr Dossor responded by saying that it was clear in his mind that Hunter Grain would be going ahead with J Swap unless they objected that it would be too difficult for them to do so in which case they would continue with using J Swap simply as carrier and provision of warehousing facilities. Mr Dossor said that the focus of his e-mail had been in relation to administrative services. A subsequent question from Mr Fisher effectively assumed the position was as Mr Dossor put it. There was the following exchange:
Q. So do I take it then that the position was that you had made a decision that you were willing and interested in continuing importing PKE and using J Swap as the retailer and J Swap had indicated to you that they were willing to participate in the supply chain as the retailer?
A. When I made that arrangement with J Swap, David Swap and Stephen Swap in particular, I was very clear in my mind on the – at that meeting at my visit, and I offered what I thought was a very good proposal which included long term credit, thinking that that‟s the fastest, most efficient way to get, continue on our import programme, or programmes. At the same time I made it clear that if it was going to be a concern to them, we would set up our own scene, but that we already have of course, a particularly long relationship with that organisation, right from soya meal years back and renting warehouses, leasing warehouse from them, integrating into a supply system.
[22] Mr Fisher also referred Mr Dossor to an e-mail that he had sent at this time to Mr Price and others employed by Hunter Grain Australia. Mr Fisher relied on the e- mail as showing that there had been no agreement as to exactly how the relationship between Hunter Grain and J Swap was going to function in terms of the various roles
that each would play and in particular, as to whether J Swap would be willing to contract on the basis that it would assume responsibility for price fluctuations on unsold product or whether Hunter Grain would carry that risk. Mr Dossor agreed that although the detail of how the parties would transact business had not been resolved by 27 September 2004, there had quite clearly been a deal made at the meeting in August 2004.
[23] I am satisfied that the matters that Mr Fisher put to Mr Dossor should not lead to the rejection of Mr Dossor‟s evidence of what took place at the Matamata meeting in August 2004, especially when the evidence in chief of Messrs Stephen and David Swap did not contradict Mr Dossor‟s evidence that agreement had been reached at that meeting. Mr Stephen Swap did not even refer to the meeting, referring simply to “discussions” with David Dossor and Richard Price. He said:
9.In mid 2004 Intelact made a decision to source its stock food from ABB Grain Ltd rather than from Hunter Grain NZ. Intelact also decided to change its logistics and storage contractor and stopped using J Swap. This seriously put at risk J Swap‟s investment in stock food logistics. It left J Swap with two choices: either we scaled down substantially our operations and investments in the stock food industry or we established a retail stock food business of our own supplying PKE directly to farmers.
10.We felt that J Swap had a clearly visible presence with dairy farmers in that it was J Swap‟s trucks which carted the PKE through the farm gate. So, after discussions with Richard Price and David Dossor of Hunter Grain NZ, we decided to set up our own retail business.
[24] This effectively ignored Mr Dossor‟s evidence about the agreement he claimed was made at the August meeting. Mr David Swap also failed to focus on Mr Dossor‟s evidence about the August meeting in his evidence in chief. He said:
6.I recall meeting David Dossor with my son Stephen after Intelact Nutrition Ltd (“Intelact”) had decided to buy its Palm Kernel Expeller (“PKE”) from ABB Grain instead of Hunter Grain and to replace us as its cartage contractor. The discussions were about whether J Swap would become a retailer of PKE and how we would conduct the business generally.
[25] That evidence was at least consistent with Mr Dossor‟s that there had been a discussion about how the parties would proceed in the future. But it completely failed to confront the detail of what Mr Dossor had said had taken place at the
meeting. That is perhaps not surprising given that it emerged during cross- examination that Mr David Swap had not in fact read Mr Dossor‟s brief. In Mr Swap‟s cross-examination by Mr Taylor there was the following exchange:
Q. Now before you‟ve given your evidence here today were you shown a copy of a brief of evidence that Mr David Dossor had prepared?
A. Never. Never seen any briefs of evidence. Q. You‟ve never even looked at any of those – A. Never –
Q. – briefs of evidence.
A. – never looked at them.
Q. So you wouldn‟t know whether anything that has been said by Mr Dossor as to what took place at that meeting was right or wrong, would you?
A. I would not, no, no.
[26] Later Mr Taylor pursued the brief reference that Mr David Swap had made in his evidence in chief to the discussions that had taken place in the meeting that he and his son Stephen had had with Mr Dossor.
Q. Well Mr Swap, … , you say in your evidence that you had discussions with David Dossor. Are you now saying you had no discussions with him?
A. I had discussions with David Dossor, but I do not say that I had contractual discussions. I had a discussion with him like I did on the odd occasion he came. He would blow in, “How is it going?” I would say, “Well, we got a boat coming over at the end of the week. I‟m just trying to get three front-end loaders and 25 men and 10 truck and trailers and all the other infrastructure ready to do the job,” and that‟s what I looked after.
Q. But his evidence, Mr Swap, is that he came and discussed a specific proposal with you in respect of a proposed long term relationship?
A. No, no. We, we – that‟s – we, we wanted a long term relationship absolutely. We want, anybody wants long term relationships. Nothing‟s short term. I mean we‟re talking about a lot of, a lot of commitment here.
[27] I endeavoured at this point to clarify Mr Swap‟s evidence as follows:
THE COURT:
Q. So, was that what you discussed with Mr Dossor?
A. Mr Dossor would not have – I have never discussed, Your Honour, with Mr Dossor, um, anything about the contractual side of that product.
Q. Well that‟s not what I asked you. Did you have a discussion with
Mr Dossor about a long term relationship?
A. I don‟t think you would have said it was a long term relationship. I can‟t remember that. I, I can‟t understand that well, what we were – what you‟re getting at, but I, I can‟t see that we – I can‟t remember ever discussing a long term relationship.
Q. You told me that you would have wanted a long term relationship? A. We would want a long term relationship –
Q. So that‟s what I was –
A. Yes, but that‟s what we would hope to get.
Q. Well that‟s what I‟m getting at. Did you discuss that with him?
A. We would have talked about a long term relationship –
Q. All right.
A. – if I was there, but not about the contractual side of it.
[28] Mr David Swap‟s insistence that discussions that he had with Mr Dossor were not “contractual” was essentially a conclusionary assertion which is not of assistance. In the end he accepted (reluctantly, as the above passages show) that there had been discussion about a long term relationship with Mr Dossor. This, at least to that extent, supports Mr Dossor‟s evidence about what took place at the August 2004 meeting. I infer that it was in fact that meeting to which Mr Swap had referred in paragraph 6 of his evidence in chief, which I have quoted above. His attempt, in responding to Mr Taylor‟s questions, to suggest that there had simply been a number of casual discussions from time to time as Mr Dossor “would blow in” was unconvincing. I had the impression that was something that occurred to him to say as he gave his evidence. I am not satisfied that Mr Swap‟s evidence on this issue was reliable.
[29] In the end, there is no reason to reject Mr Dossor‟s account of what took
place at the August 2004 meeting in Matamata and I accept it. His evidence about
the agreement reached in August 2004 is supported in fact by the conduct of the parties shortly thereafter. A lengthy article appeared in the New Zealand Dairy Exporter3 for October 2004 alongside a photograph of Mr Dossor, David Swap, Stephen Swap and Mr Price. The article included the following:
A Matamata-based partnership plans to import and deliver on-farm up to 45,000 tonnes of palm kernel meal this dairy season.
J. Swap Contractors and Hunter Grain (NZ) joined forces several years ago to import and supply soya bean meal to key buyers, including Inghams and Harvey Farms, as the protein source for the NZ pig and poultry industries.
Stephen Swap, who runs the company‟s port-related activities, and Hunter Grains‟ manager Richard Price, saw an opportunity to import dairyfeed byproducts using J. Swap‟s expertise in warehousing and distribution, and Hunter Grains‟ expertise in procuring global commodities, chartering and importing.
“As a team we were well positioned to offer significant tonnages of imported byproduct feeds at competitive prices to NZ dairyfarmers,” Mr Price says.
The concept was sold to David Swap (head of J. Swap) and David Dossor (head of Hunter Grains). Swaps funded the infrastructure and Hunter Grains provided the funding, shipping and risk management to land product in New Zealand.
Stephen and Richard have been friends since primary school days at
Matamata.
[30] Then, after giving an account of Mr Dossor and Hunter Grain and describing the business of J Swap the article referred to Mr Stephen Swap as a farmer as well as a businessman servicing hundreds of farms. After referring to the attractiveness of PKE as a supplement dairy feed, the article concluded:
The Australian-NZ partnership of the Swap family and Hunter Grain NZ has geared itself to grow the dairy market and maintain it for the long term.
[31] Mr David Swap was cross-examined about that article, and said he had never approved it. He accepted however that the article had correctly described what in fact happened, namely that the two companies had joined together for the purposes of marketing PKE and that they had had a business arrangement, although he denied
it was a partnership. The article, of course, cannot be relied on to establish the
3 The publication asserts on its front page that it is “NZ‟s leading dairy farming journal”.
nature of the relationship of the parties at the time. Its significance lies in the fact that, in October 2004, they were prepared to portray themselves in the marketplace as involved in a joint endeavour involving the importation and sale of PKE.
The relationship in practice
[32] Mr Dossor gave evidence about how the arrangements that had been agreed at the August 2004 Matamata meeting worked in practice over the ensuing years. Hunter Grain funded the purchase of PKE from its supplier and arranged for its shipment to New Zealand having arranged the substantial amounts of credit required to import PKE in bulk. Funding was arranged through the ANZ Bank and, when Hunter Grain Ltd was incorporated, Mr Dossor provided a substantial personal guarantee to support the provision of bank funding.
[33] For its part, J Swap provided warehousing and distribution facilities. Although individual farmers were able to purchase PKE from one of J Swap‟s stores, in practice this seldom occurred. Generally the PKE was transported to the farmer by J Swap and it charged a fee for the cartage. Until October 2007 Hunter Grain maintained ownership of the PKE in J Swap‟s stores. When the PKE was trucked out for delivery to individual farmers, the trucks were weighed and it was at that point that property passed to J Swap. Hunter Grain invoiced J Swap and J Swap invoiced the individual customers. It will be recalled that Mr Dossor‟s evidence was that he had said in the Matamata meeting that Hunter Grain would “bank” J Swap‟s debtors. This meant that he would allow J Swap time for the purchasers to pay J Swap before J Swap had to pay Hunter Grain. In practice the period allowed was to the end of the month in which delivery was made to the customer plus 60 days. This meant that J Swap did not need to establish a credit facility to fund the trading.
[34] Whereas Hunter Grain had previously imported PKE by the container-load, following establishment of the relationship with J Swap they began importing bulk shipments of product. According to Mr Dossor the parties did not compete with each other with respect to either risk or profit. Hunter Grain would know and disclose the price at which it had imported particular quantities of PKE. He said that Hunter Grain would run an “open book” and the price would be set so that “Hunter Grain
and J Swap would share more or less equally in the profits”. The margins available to both were good because of the strategic positioning of J Swap warehouses which made it difficult for other importers to compete. The relationship between Hunter Grain and J Swap effectively meant that they were collaborating for mutual benefit. Mr Dossor‟s evidence was that Hunter Grain and J Swap would routinely share confidential information about pricing, margins, availability, stock and demand for PKE.
[35] A price setting mechanism was agreed whereby Hunter Grain would set a “spot price” to all of its usual wholesale customers but charge J Swap $5 per metric tonne less than that rate. It appears that this arrangement applied from at least February 2005 when Carol Dossor sent two e-mails to Stephen Swap the first of which advised the price per tonne and the second referred to a $5 discount for J Swap. Stephen Swap agreed that this was the approach taken, although he did not accept Mr Dossor‟s evidence that Hunter Grain had consistently adopted an “open book” approach.
[36] At paragraph 14 of his brief of evidence he described the arrangements in the following terms:
The way that PKE price was usually set was that Hunter Grain NZ would notify us of the spot price and the contract price of PKE until further notice. Because of the significant volume of PKE J Swap purchased from Hunter Grain NZ (about 80% of its business), J Swap‟s prices were agreed to be $5 below the prices offered to other customers of Hunter Grain NZ. If after adding our target margin of $15 per tonne Hunter Grain NZ‟s prices was out of line with the market price then I or Morgan Swap would talk to Richard about his pricing, as J Swap had to meet the market price to be competitive. The outcome of such discussions might have been to change the spot price or the contract price initially proposed by Hunter Grain. There was no profit sharing arrangement. J Swap was focussed on its own profitability. Richard did try to bring transparency to Hunter Grain‟s pricing by occasionally sending me through what he called his Pricemaker pricing model. But, Richard never disclosed to me the actual costs incurred by Hunter Grain NZ and at times I suspected there was some inbuilt padding of costs as disclosed in the Pricemaker.
[37] The reference to the “pricemaker” was to a spreadsheet that Mr Price would regularly send to J Swap setting out the estimated costs that would be incurred by Hunter Grain in acquiring and shipping individual shipments of PKE to New Zealand and placing it in J Swap‟s stores. I was not referred to any particular
instance where the “pricemaker” contained what Mr Swap referred to as “inbuilt padding”. Although Mr Swap said that the pricemaker was sent through “occasionally”, it appears from the evidence that the practice was more common than that. For example, the evidence contained pricemaker spreadsheets forwarded on 27 March, 31 March, 13 April, 26 April, 1 May, 30 May, 6 June and 6 September
2006, and 26 March, 31 May and 31 July 2007.
[38] In any event Mr Stephen Swap accepted in cross-examination that there were regular discussions and negotiations about the prices which would be charged to J Swap on the basis of the pricemakers. And that one of the purposes of those discussions was to ensure that J Swap regularly achieved a margin that was acceptable to it:
Q. … It is correct, isn‟t it, that Mr Price and you would negotiate and discuss what the prices were going to be, when they were going to change.
A. Yes.
Q. And he in doing that, would do that in an open way in the sense that he would provide you with these pricemaker documents which indicated the estimated cost of supply for the period ahead?
A. Yes, that‟s correct.
Q. And that‟s the sort of open relationship that you would expect in a close and trusting –
A. Yes.
Q. – trading partnership of that kind and although you wouldn‟t tell him necessarily what your margin was going to be, you were always in a position weren‟t you to ensure that you got a margin that was acceptable to you?
A. That was always there, the idea to get, yes to get an acceptable margin.
[39] In 2005 the parties co-operated so as to ensure that warehousing facilities were available near New Plymouth. It was agreed that J Swap would purchase a warehouse at Corbett Road, Bell Block which Hunter Grain (NZ) Ltd would agree to lease, thereby assisting J Swap to obtain bank funding. In this connection, Mr Price wrote to Stephen Swap on 26 July 2005 in a letter which reflected Mr Price‟s breezy and somewhat unusual style of business communication:
I am writing to confirm as discussed Hunter Grains intent on making a storage commitment on your new storage facility at 88 Corbett Road, New Plymouth.
Please draw up documents based on a 3 x 3 year lease on this facility. Thanks for your great support in making this initiative happen. It is truly great to work with such a progressive organisation such as yourselves. You are the man Swapie, you are the man!!
[40] Under the terms agreed, Hunter Grain was to pay J Swap $200,000 per annum calculated on an estimate that about 30,000 tonnes would be stored in the warehouse annually at a cost of $7 per tonne.
[41] In the period from 2004 to 31 March 2008 Hunter Grain sold a total of
576,000 tonnes of PKE to J Swap. Mr Dossor was not challenged on his evidence
that over the same period Hunter Grain‟s sales of PKE to J Swap had a value of over
$100 million. It is clear also that although there were no formal lease arrangements pursuant to which Hunter Grain stored product in J Swap‟s premises (except in the case of the New Plymouth warehouse), J Swap stored the PKE, charging a fee for doing so, on the basis that it would accept into its warehouses whatever quantity of PKE Hunter Grain imported. In the circumstances there was no need for Hunter Grain to establish and maintain its own warehousing facilities.
[42] For its part, Hunter Grain agreed to keep the stores full of PKE so that J Swap would be able to meet the needs of the customers that it supplied. It is clear on the evidence that, over the period in which the relationship was in place, J Swap did not obtain PKE from any other supplier in other than trivial amounts.
[43] Hunter Grain effectively gave J Swap unsecured lines of credit. In December
2007 the total indebtedness of J Swap to Hunter Grain peaked at $26,309,647. As at
22 April 2008 the indebtedness was $19,992,734. Mr Dossor gave a breakdown of that figure showing the 30, 60 and 90 day positions as being respectively $8,673,176,
$6,830,061 and $4,489,496.
[44] There was a joint marketing campaign based on the idea that the companies were collaborating together for the purposes of importation and sale of PKE. Hunter Grain produced advertisements that were taken from the publication New Zealand
Dairying Today, in 2005 and 2006 in which the names and logos of both Hunter Grain and J Swap were prominently displayed with text extolling the virtues of PKE. The advertisements treated both companies as if together they were “New Zealand‟s leading supplier” of PKE. Typical was an advertisement that appeared in the April
2005 issue of the magazine which included a photograph of a dairy farmer said to be from Tirau. He was quoted as saying:
I get 120 grams of milk solids per kg of Hunter Grain Palm Kernel feed. That has to be a good investment at around $200 per tonne delivered on farm. This returns in milk about $540 per tonne of palm kernel. With a cost of around $200 per tonne you don‟t need to be a rocket scientist to work out whether its worthwhile doing. To me, using Hunter Grains Palm Kernel meal has to be a good business decision.
[45] Under the quotation was Hunter Grain‟s logo and a reference to Hunter Grain (NZ) Ltd, and at the base of the advertisement was an invitation to call J Swap, followed by an 0800 number to be phoned “for Palm Kernel today …”.
[46] Hunter Grain called evidence from Ms Jennifer White, who was employed from February 2007 as its officer manager. When Michael Carey, who was the financial controller, left in mid-May 2007 Ms White‟s functions expanded to cover some of the matters that Mr Carey had previously been involved in. She worked closely with Mr Price as well as liaising with Staples Rodway, an accountancy firm whose services were contracted at about this time. Ms White‟s evidence was that Hunter Grain paid for the advertising and promotional material that jointly marketed the Hunter Grain and J Swap activities with respect to PKE. She was not challenged on her evidence that Hunter Grain acquired monthly prime advertising slots in the major dairy farming magazines and she emphasised the joint appearances of representatives of both companies at the Mystery Creek Field Days near Hamilton, at the Southern Field Days and at the “Large Herds” Conference.
[47] It was Ms White‟s evidence that from approximately March 2007 Hunter Grain continued to fund the advertisements, but the words “Hunter Grain” were dropped. The J Swap logo was retained but it incorporated Hunter Grain‟s wheat insignia logo. This change was discussed between Mr Stephen Swap and Mr Price in February 2007 and the changes apparently occurred with Mr Price‟s agreement.
[48] Mr Morritt, who was called by J Swap, stated that as a competitor he had noted that both J Swap and Hunter Grain‟s names appeared together on advertising material “as a united front”. In cross-examination, there were the following questions and answers:
Q. So do I take it then that your comments about the relationship between Hunter Grain and J Swap are based simply on your observations as another competitor in the market?
A. Once the split occurred, absolutely, and when I‟m talking about how, ah, business was conducted I‟m talking about from a farmer perspective or an end client perspective as to how they saw their product being delivered et cetera.
Q. Well just from your perspective, given the advertising and things like that, was it your perception that Hunter Grain and J Swap had teamed together to compete against you?
A. Absolutely. Yep.
Q. And if you had to describe that relationship, would it be something like two parties joined at the hip and coming after you?
A, I think that‟s a term that I‟ve used before, yes. Not necessarily coming after us, but determined to take the market, well actually coming after us would be pretty fair. I mean they rang every single one of our clients, they had our database because they were doing the deliveries, um, and while – in discussions with David Dossor, Swaps were ringing our clients saying that they were going to be delivering on their – basically this was – they were cutting us out of the deal and we‟d been taking fat margins I believe was the, um, what they were telling our clients.
Q. Right, so you saw them together as a competitor against you? A. Yes.
Q. And was it the terms, “joined at the hip”, that you thought you
might‟ve used previously?
A. I‟ve definitely used it, yeah.
[49] Another witness called by J Swap was Christine Young, who was employed by Staples Rodway. Ms Young was involved in the preparation of new trading terms between Hunter Grain and J Swap in September 2007. She described the relationship between the two companies as that of a “trading partnership” and she explained in cross-examination by Mr Taylor why she had used that term:
Q. Just to be fair to you Ms Young, if you go to the top of that document at 241, you describe the background as being to put in place key trading terms for the trading partnership. Do you see that?
A. Yes.
Q. And was that your words that you used at the time to describe the relationship?
A. Ah, yes. Um, partnership has a legal meaning and partnership, these days, are used in commercial terms to reflect a mutually, I guess, agreeable co-operation in terms of supplier/retailer or wholesaler/supplier relationship. So partnership in the lay term.
Q. And certainly, from your experience of Hunter Grain and J Swap to date, that was how you saw it, a mutually co-operative relationship. Is that right?
A. That‟s correct.
[50] Ms White gave evidence that, consistently with other aspects of the co- operative arrangements already discussed, Hunter Grain had extensive access to J Swap‟s computerised database in respect of its stock management and ordering system. By this means, Hunter Grain could place orders in the J Swap system for supply to customers that Hunter Grain was supplying directly and it could also query the system to find out how much PKE was held in the J Swap stores so as to be able to order replacement stock when necessary. Ms White stated that Hunter Grain had provided some funding so as to ensure that J Swap‟s system could provide for Hunter Grain‟s needs. There was some difference on the evidence as to the extent to which Ms White was able to access J Swap‟s computer system, and Mr Cameron Swap, brother of Stephen Swap, and the manager of J Swap‟s information technology systems, said that Ms White‟s ability to access the system was more extensive than it was intended to be.
[51] However, Mr Cameron Swap‟s evidence underlined the co-operative approach that was taken by J Swap. He explained that although Hunter Grain had initially had its own separate website based ordering system for its customers, J Swap‟s systems were more efficient and as time wore on Hunter Grain began directing its customers to J Swap‟s site in order to place their orders. When Michael Carey started at Hunter Grain he and Richard Price raised the possibility of Hunter Grain being able to access J Swap‟s system to enter orders, keep track of stock and
provide information recorded by J Swap to Hunter Grain for Hunter Grain‟s own business purposes. He referred to a meeting that he had in August 2006 with Mr Price and Mr Carey and to an e-mail that Mr Price sent to him, Stephen Swap and a Mr Rodney Lake, who J Swap employed as an information technology consultant. In an e-mail dated 28 August 2006 Mr Price wrote:
Gents,
Following our meeting last week I guess it‟s a good time now to start down the path of the integration discussed. First step is to establish a new branch on your access/invoicing order system called Hunter Grain Ltd and giving myself and Micky Carey access. Is this able to be done now Cam? Do you see any problems in moving to this stage now?
[52] Mr Cameron Swap replied on the same day that there would be no difficulties in proceeding with the integration. Mr Lake later prepared and circulated recommendations for an integrated system but his work was not completed. The matter was advanced directly by Cameron Swap and Mr Carey. As the work progressed, there were “two sides” established, one being the Hunter Grain side (which was customised to fit with Hunter Grain‟s “Prophet” accounting system) and a “J Swap” side. Mr Swap explained that all users logged onto the J Swap server with each user having a log-in password giving that person defined access and privilege rights that were specific to them. It was not the intention that Hunter Grain users could have access to all of the information held in J Swap‟s system or for J Swap users to have access to Hunter Grain‟s system.
[53] Nevertheless, the integration was such that Mr Price was able to write to
Hunter Grain customers on 31 October 2006 in the following terms:
Dear Valued Customer,
As from 1st November 2006, we are changing the way we take orders.
From Wednesday, the online ordering function on our website will not be used. We are then simplifying our system by integrating into Swap‟s existing system. You will have the following options to place orders:
Fax J Swap office (07) 888 4294
Phone J Swap office (07) 888 7024
Fax Hunter Grain (07) 574 3486
Email Hunter Grain on [email protected]
Phone the Hunter Grain Office (07) 574 3484
Orders against contracts
When placing orders against a contract, please quote the contract number. This initiative is being taken to eliminate double handling of orders and load
information. Shortly we will be introducing an online interface with the new
system. We are doing this to better service your needs, and appreciate your business and support. I hope this will bring immediate benefits in dealing with us. From now on ourselves and Swap‟s will be working off one set of data which should simplify things for us all.
Please note if you have any concerns or issues with above we want to hear from you and will accommodate your demands accordingly.
[54] Cameron Swap said in evidence that the system did not work as well as had been intended and that there were ongoing difficulties in terms of the interaction with Hunter Grain‟s Prophet accounting system. Nevertheless, down to a change that occurred in October 2007, the system in place meant that contracts to supply customers were raised by Hunter Grain and entered into J Swap‟s database as well as Hunter Grain‟s accounting system against the relevant customer code. J Swap in turn would advise Hunter Grain of contracts they had raised direct with their customers. Typically, Ms White would be advised of these transactions by e-mail and the relevant details would then be converted into a contract which would be sent out to J Swap. The contract would refer to the quantity of PKE, the price per metric tonne and the month or months in which the PKE was to be supplied to the customer. J Swap would then act on the contract and supply the customer. When the PKE left the J Swap store Hunter Grain would be able to log into the database and download the outgoing deliveries into an excel spreadsheet format. Ms White would then liaise with J Swap staff to reconcile the tonnes delivered and produce invoices for each load ex store.
[55] The system was radically changed in October 2007. Reference will be made to the change later, but it had the consequence that Hunter Grain simply sold to J Swap from the ship and any dealings that then took place after that were between J Swap and its customers. For present purposes the important conclusion which can be drawn is that as the relationship developed from small beginnings in 2004 there was a very high degree of co-operation with respect to the manner in which the
supplies of PKE were made and accounted for with strong linkages between the accounting systems of the parties.
Incorporation of Hunter Grain Ltd
[56] As noted above Hunter Grain Ltd was incorporated in February 2006. It essentially took over the conduct of the business from Hunter Grain (NZ) Ltd. Mr Dossor explained that the company‟s operations in New Zealand had been very successful. In large part that was due to the activities of Mr Price and the efforts that he made to market PKE. In Mr Dossor‟s opinion Mr Price had actively explained the benefits of PKE and other protein stock foods to dairy farmers and had been a very successful marketer. Mr Price was not a good administrator and did not prepare reports which were either comprehensive or timely enough for Mr Dossor‟s purposes. However, Mr Dossor thought that Mr Price‟s good points outweighed his negative attributes and in view of the success of the business Mr Dossor decided that a new company should be incorporated with Mr Price receiving the reward of a substantial shareholding.
[57] Hunter Grain (NZ) Ltd had been owned as to 80 per cent by Mr David Dossor and as to 20 per cent by his brother, Michael. Following discussions among the three of them it was agreed that a new company should be formed in which Mr Price would have a 20 per cent shareholding. He would also be the managing director. Mr David Dossor took an initial 75 per cent shareholding (decreased to 70 per cent in September 2006), and Mr Michael Dossor began as a five per cent shareholder with his shareholding increasing to ten per cent in September 2006 because of the extent to which he was contributing as a member of the Board resident in New Zealand.
[58] These changes were made after negotiations that Mr David Dossor said were at times “tense” because of Mr Price‟s high expectations and a degree of impatience on his part. Apart from Mr Price‟s skills as a marketer, Mr Dossor also appreciated the significance of Mr Price‟s relationship with Stephen Swap. He thought that structuring the new company so that Mr Price had a stake in it, with an opportunity to increase his shareholding over the years, would keep him focused while
cementing the relationship with J Swap as Hunter Grain‟s key trading partner. Eventually, the agreement reached by the parties was recorded in a shareholder agreement, executed on 27 January 20064 which the parties drafted themselves, without the benefit of legal advice. Included in the agreement was acknowledgement that Mr Price would be employed as managing director at a salary of $200,000. It was provided in the agreement that Mr Price‟s 20 per cent shareholding was “in consideration for his contribution of expertise and relationships”. It was provided also that Mr Price would increase his shareholding
by five per cent per annum over five years to 45 per cent, “through share options between David Dossor and Richard Price”. A valuation formula was provided so as to enable calculation of the amount to be paid for shares when they were traded. Another provision of the agreement provided:
c) It is noted by both David Dossor and Richard Price that in the spirit of this agreement Richard will look to pick up his share of the funding responsibilities over time with the bank as his shareholding increases through his contributions toward the retained earnings of the business, whilst dividend policy will be friendly for purposes of exercising options, in the early years it is agreed in principal that Richard will try to maximise his retained earnings in the business to reflect his shareholding status, and thus funding contributions directly. The board will set the dividend policy year by year at the scheduled directors meetings or anytime after the Annual Report has been finalised.
[59] When Hunter Grain Ltd was incorporated those employed apart from
Mr Price were Carol Dossor and an office administrator, Ms Carlyle. In March 2006
Mr Carey was employed as an accountant, when Mrs Dossor ceased to be involved. Thereafter, the employees comprised Mr Carey who left in May 2007 and Ms White. When Mr Carey left the accounting function was assumed by Staples Rodway. Over the following period and until the present dispute arose, Mr Price had day to day control of all aspects of Hunter Grain‟s operations, and he was trusted by the Dossors to perform his function as managing director. He was, however, subject to a degree of control through regular directors‟ meetings attended by the Dossors. The business continued to operate successfully, despite Mr Price‟s shortcomings as an
administrator.
4 The agreement was signed by David and Michael Dossor and Richard Price.
[60] The joint advertising campaign continued, although from March 2007 only J Swap‟s brand appeared on the advertisements and there was no reference to Hunter Grain despite the fact that it continued to fund the advertising. Marketing efforts also included jointly branded beanies,5 golf umbrellas, promotional DVDs and articles in industry publications. Mr Dossor gave evidence that Hunter Grain (NZ) Ltd spent approximately $120,000 from 2004 to 2006 on joint advertising and that
Hunter Grain Ltd spent approximately $225,000 from 2006 to 2008.
[61] Mr Dossor also referred to J Swap‟s website which included the following commentary under the heading “Stock Feeds”. After referring to the abundant grass growth in Matamata and the surrounding region, the article continued:
However, beef cattle and dairy cows with a substantial feed input of imported stockfoods – palm kernel meal (PKM), copra and soya bean meal – were found to benefit in key aspects including conditioning to milk production and ease of calving.
However there were practical difficulties in bring[sic] these products to New
Zealand farms.
J Swap was able to provide a solution, using its transport fleet and bulk storage capability around the country, in association with Hunter Grain. Initially PKM, copra and soya bean meal were imported at the Port of Tauranga, and distributed from J Swap‟s bulk stores at Mt Maunganui and Matamata.
A scheme involving Toepfer
[62] Underlying the various causes of action advanced by Hunter Grain is a core allegation that Mr Price and Mr Stephen Swap planned and executed a scheme in conjunction with Toepfer International Asia–Pte Ltd (“Toepfer”) which was designed to remove, and had the effect of removing, Hunter Grain from the PKE supply chain in New Zealand.
[63] Toepfer was a Singapore commodity trading and logistics company which was a subsidiary of Archer Daniels Midland, one of the largest global agricultural
processors. The dealings on which Hunter Grain relied took place with a Mr Simon
5 One of these was produced in evidence as Exhibit 1.
Murphy, who at the relevant times was employed by Toepfer as an Executive Vice
President. Mr Murphy gave evidence for J Swap.
[64] Mr Murphy said that Toepfer had identified New Zealand as an emerging market for PKE in 2004. As the tonnage shipped to New Zealand increased Toepfer was keen to participate in the market. In fact, there was a transaction between Toepfer and Hunter Grain Ltd in April 2006 as a result of which a shipment of PKE was arranged to load in Sandakan in June 2006. Mr Murphy‟s e-mail to Mr Price of
25 April 2006 noted:
Richard, we are very excited to get some PKE business running with you. We can stem at least 10,000 mt May, shipment in Sandakan, and can probably increase that figure if you need. Our price idea today is $57.00 pmt FOB.
Again we have to state for clarity that we will be purely selling FOB, and you will need to take care of the required documentation for NZ.
Please let us know how this looks to you.
[65] Mr Murphy met with Mr Price and Mr Stephen Swap in June 2006. He discussed with them the market in New Zealand, who was involved in the market, its structure and potential for growth. He also said that he had asked whether there was a formal long term agreement between Hunter Grain and J Swap, to be told by Stephen Swap that there was no long term agreement. Mr Murphy said that this was useful information for Toepfer.
[66] By early 2007 Toepfer had decided to enter the New Zealand market. I was referred to an e-mail dated 10 January 2007 sent by Mr Price to Mr Murphy which implied that there had been earlier discussions about business dealings. In the e-mail Mr Price said that he was “still keen to progress all we‟ve discussed”. He referred to the possibility of working together on a long term basis in relation to PKE.
[67] On about 28 March 2007 Mr Murphy came to New Zealand and met with Mr Price and Mr Stephen Swap and other members of the Swap family at Matamata. The visit was arranged by Mr Price. He picked Mr Murphy up at the airport and arranged his accommodation in New Zealand. Mr Murphy accepted in cross- examination that the purpose of his trip to New Zealand was to discuss the entry of
Toepfer into the New Zealand market. Although he referred to his visit as exploratory in nature so as to better understand the New Zealand market, he also conceded in cross-examination that the only persons to whom he spoke were members of the Swap family and Mr Price.
[68] Mr Taylor was able to refer Mr Murphy to an e-mail that he wrote to Mr Stephen Swap on Friday 25 May 2007. There was some emphasis on this e-mail in evidence and I will shortly set it out. It was headed “RE: read and destroy…”. This heading establishes that it was part of an e-mail chain which had begun with Mr Murphy sending to Mr Stephen Swap a confidential memorandum that had been prepared by Hunter Grain Australia in conjunction with ANZ Investment Bank. Mr Dossor wished to sell Hunter Grain Australia. The memorandum was made available to various parties once they had executed a confidentiality deed. Alfred C Toepfer International (Australia) Pty Ltd had executed the confidentiality deed on
15 May 2007 and thus qualified itself to receive the memorandum.
[69] Mr Murphy said in evidence that the heading was an attempt by him at humour. I regard that statement as disingenuous. The heading was not of itself humorous and could only be seen as funny by persons aware of the context in which it was sent, which involved discussions significantly contrary to the interests of Hunter Grain Ltd which were being conducted behind its back.6 Having received the memorandum Mr Stephen Swap replied to Mr Murphy stating:
Simon,
We7 will look into maybe coming up there next week and I will let you know Monday. Is it possible for you to outline the points you want to discuss so I have thought about it all well before we get there.
Have a good weekend. Cheers
Stephen
6 Mr Murphy accepted in cross-examination that his purpose in forwarding the memorandum to Mr Stephen Swap was to endeavour to undermine Mr Swap‟s confidence in Hunter Grain in New Zealand. He said that the fact that Hunter Grain Australia was being sold had caused him to speculate on how committed Hunter Grain was to the business.
7 As subsequent events showed, “we” must have been a reference to Stephen Swap and Richard Price.
[70] Mr Murphy‟s e-mail of 25 May 2007 to Mr Stephen Swap read as follows:
Stephen,
Thanks. To be honest I don‟t have anything new over what I said to you both in NZ. We want to move forward and I have suggested one way to go; we put up Richard as an Agency co, with possibly yourself as part of that company as well. This gets around all the financing issues and represents the quickest way to start. We would give that company a guaranteed income level to give all involved sufficient comfort levels. Separately Toepfer would make warehousing agreements with J Swaps. Again we would be prepared to give guarantees over turn over. In short we are prepared to put our money where our mouth is as we intend to grow this business into another level, broadening the product range as we go. There are many other things that we trade which may feature down the road; we have a vibrant fertilizer business for instance.
[397] A comparison can then be drawn with Hunter Grain‟s historical margin of
$25 per tonne for the 17 months to September 2007. Reference can also be made to budgets prepared in March and April 2007 that assumed monthly margins of between
$10 and $14 per tonne for the 2008 financial year. I do not consider in the circumstances that application of Mr Jordan‟s approach results in unrealistic notional margins for the period in question and I reject this criticism of the damages claim.
[398] In the result I consider that Hunter Grain has established a proper claim for damages in the sum of $4,638,521. The preceding discussion has essentially dealt with the quantum properly attributable to J Swap‟s breach of contract by failure to give notice. The prayers for relief in the statement of claim did not differentiate between that claim and the other causes of action in so far as quantum is concerned. I did not understand Mr Taylor to argue that any greater amount in damages could be awarded under the accessory liability and conspiracy claims, and that accords with my view.
[399] For these various reasons, Hunter Grain will be entitled to damages in the sum of $4,638,521.
The New Plymouth lease
[400] There was one issue between the parties which stood somewhat apart from the other elements of the claim, and which has not so far been addressed. It concerned the lease of premises owned by J Swap at 88 Corbett Road, Bell Block near New Plymouth, which has been mentioned briefly earlier in the judgment.
[401] In this part of the judgment it is necessary to refer separately to the first and second plaintiffs. Hunter Grain (NZ) Ltd asserted that it had exercised a right of renewal to occupy the premises but that J Swap had wrongly claimed that the lease had been terminated with the consequence that it had no right of renewal. There was an alternative claim, advanced by Hunter Grain Ltd, in case the Court should hold that the lease had been assigned by Hunter Grain (NZ) Ltd to it. Hunter Grain Ltd asserted that, in that eventuality, the Court should hold that the notice exercising the right of renewal had been given on its behalf.
[402] These causes of action were based on a lease executed by Mr Dossor in August 2005 under which J Swap granted a lease of the premises to Hunter Grain (NZ) Ltd. It will be recalled that Hunter Grain (NZ) Ltd was incorporated in 1997 and Hunter Grain Ltd in 2006, when Mr Price acquired an interest in the Hunter Grain business. Thus the lease was executed prior to Hunter Grain Ltd coming into existence.
[403] It was David Dossor‟s evidence that at the time the lease was entered into Hunter Grain (NZ) Ltd was importing various types of stock food into New Zealand and doing a substantial amount of business with J Swap. It was strategically important for both companies to have a distribution centre in Taranaki: that would reduce costs that would otherwise be incurred carting product from the ports at Mt Maunganui and Auckland. Mr Dossor discussed the position with Stephen Swap, and the result was an agreement that the warehouse premises at Corbett Road should be purchased by J Swap, Hunter Grain (NZ) Ltd effectively underwriting the viability of the purchase of the premises by entering into the lease. The lease was drawn up by J Swap‟s solicitors and Mr Dossor said that he executed it promptly.
[404] On its face, the lease provided for an annual rental in the sum of $200,000 plus GST. Mr Dossor said that in practice the arrangement was that while Hunter Grain (NZ) Ltd would have been entitled to exclusive possession of the warehouse, the store was to be operated and was operated by J Swap. The rental was by way of payment of the storage charges for Hunter Grain‟s product stored there. Included in the evidence were invoices directed by J Swap to various Hunter Grain entities for amounts that varied but were generally based on monthly sums of $17,000 (exclusive of GST) which would have been slightly above the annual rental referred to in the lease. Stephen Swap agreed that the basis on which the $200,000 figure had been fixed was an estimated 30,000 tonnes per annum of product required to be stored at about $7 per tonne.
[405] The lease was produced in evidence, although the version referred to was only signed by Mr Dossor. Stephen Swap said that J Swap had executed it separately, although he doubted that the parties had each executed the one document. Nevertheless, in correspondence to which I will shortly refer, J Swap referred to the lease of the New Plymouth premises as a deed of lease “between J Swap Contractors Ltd as lessor and Hunter Grain (NZ) Ltd as lessee”.
[406] The lease commencement date was 11 July 2005, the term was for three years and there was a right of renewal for a further three year term commencing on 11 July
2008. By letter dated 1 April 2008, Mr Dossor wrote on Hunter Grain (NZ) Ltd‟s
letterhead purporting to exercise the company‟s option to renew the lease for a
further period from 11 July 2008.
[407] Mr Dossor‟s evidence was that he handed that letter over when he met with the Swaps on 2 April. In his letter of 20 May 2008, written on behalf of J Swap, David Swap dealt with Mr Dossor‟s letter. Amongst other things, he recorded “formally” that the lease had been “terminated by the mutual consent of the parties in September 2007 and when Hunter Grain (NZ) Ltd stopped paying rent and the lessor re-entered the ... premises”. He expressed the view that the lease had not existed since 1 October 2007 so that, by 1 April 2008 when Mr Dossor wrote purporting to renew the lease, there had been no right of renewal for Hunter Grain (NZ) Ltd to exercise.
[408] It was Mr Dossor‟s evidence that when Hunter Grain Ltd was incorporated, it was formed so as to take over Hunter Grain (NZ) Ltd‟s commodity trading business. That business, which included the “trading partnership venture” (as he put it) with J Swap was then transferred over to the new company. In his written brief he said that the lease did not form part of the commodity trading business and so it was not transferred to Hunter Grain (NZ) Ltd. There was certainly no evidence of any assignment, although Mr Dossor stated in response to questions from Mr Taylor that there was an intention at the time to transfer the lease to the new entity. Mr Fisher seized on that evidence in his closing address. He contended that Hunter Grain (NZ) Ltd had assigned the lease in equity to Hunter Grain Ltd when the latter was formed. Consistently with that, in September 2007 there had been a mutual agreement that the lease would be surrendered by Hunter Grain Ltd. That had coincided with and reflected the change in trading terms; it was then no longer necessary for Hunter Grain Ltd to maintain its New Plymouth storage capacity since J Swap was purchasing the product from the ship.
[409] The plaintiffs counter with the allegation that any agreed surrender of the lease by Mr Price was without authority from Hunter Grain (NZ) Ltd, a company in which he never had an interest and by which he was not employed in September
2007. Further, while Mr Dossor gave evidence about an intention to transfer the
lease to Hunter Grain Ltd, he also said that had never occurred. There was no evidence to contradict that claim.
[410] I do not consider that the evidence justifies a conclusion that there was an assignment of the lease. That necessarily means that Mr Price could not have surrendered it on behalf of Hunter Grain Ltd. Further, he had no authority to take any action on behalf of Hunter Grain (NZ) Ltd. The fact that rental payments were evidently not demanded or paid from October 2007 may simply reflect the view of Mr Price and Mr Swap that the lease had been effectively surrendered with the change in trading terms. It was Stephen Swap‟s evidence that Hunter Grain had not stored product at the premises after 1 October 2007 and J Swap did not invoice Hunter Grain for rent. However, no written surrender was produced in evidence, or referred to by Mr Swap. Nor would the facts justify an implied surrender of the lease by Hunter Grain (NZ) Ltd. Theoretically, J Swap could have asserted its right to receive rental payments, and making such payments would have been a prerequisite to the effective exercise of the right of renewal under clause 34.1 of the lease. Such payments were not demanded, J Swap simply adopting the stance set out in its letter of 20 May.
[411] In a letter dated 28 May 2008, Izard Weston, acting for Hunter Grain dealt extensively with the New Plymouth lease issue, putting forward Hunter Grain‟s position that the lease was between Hunter Grain (NZ) Ltd and J Swap and that Hunter Grain (NZ) Ltd had not consented to termination of the lease. They argued also that J Swap had never re-entered the premises, asserting that the arrangement between the parties was that J Swap had retained possession of the warehouse from, and despite, the commencement of the lease. The suggestion that Hunter Grain (NZ) Ltd had stopped paying rent from 1 October 2007 was also rebutted on the basis that since J Swap had retained exclusive possession despite the existence of the lease it must have occupied the premises under an implied sub-tenancy. As the implied sub- tenancy related to the same premises that were the subject of a lease there must have been back to back payments due by J Swap to offset Hunter Grain (NZ) Ltd‟s obligations to pay rent under the lease.
[412] The letter concluded by purportedly giving notice of termination of the implied tenancy pursuant to s 105 of the Property Law Act 1952 from Monday
30 June 2008. It asserted that Hunter Grain (NZ) Ltd had alternative uses for the New Plymouth warehouse and required J Swap to vacate and remove all stock by Monday 30 June 2008. It asserted that as from that date Hunter Grain (NZ) Ltd would pay the rent plus outgoings as specified in the first schedule of the lease.
[413] None of these issues were explored in any depth in the evidence. In the prayer for relief the sum claimed for damages was not specified. Nor was there any real showing by the plaintiffs as to what damages may have been sustained as a consequence of the events that occurred. I note, however, that there was an alternative prayer seeking an inquiry into damages.
[414] Having determined that there was no assignment of the lease, and that it cannot be concluded that the lease was surrendered, I consider that the proper course is to hold that Hunter Grain (NZ) Ltd is entitled to succeed in its claim and that there should be an inquiry into damages. It follows that the alternative cause of action based on the lease, advanced in the name of Hunter Grain Ltd, must fail.
Result
[415] Hunter Grain Ltd is entitled to judgment against the defendant in the sum of
$4,638,521 together with interest in accordance with the Judicature Act 1908.
[416] Hunter Grain (NZ) Ltd is entitled to judgment on its claim based on the lease of the New Plymouth premises. There is to be an inquiry as to the damages it has sustained on that cause of action.
[417] J Swap is entitled to judgment on Hunter Grain Ltd‟s claim based on the
lease.
[418] The plaintiffs are entitled to costs. If the sum cannot be agreed between the parties I will receive memoranda from the plaintiffs within 15 working days of the date of delivery of this judgment, and from the defendant within 15 working days of
receipt of the plaintiffs‟ memorandum. In their submissions the parties should address the appropriate disposition of the applications for costs that have been made on behalf of Mr Price and Staples Rodway, having regard to the judgment now delivered.
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