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Malthouse Ltd v Rangatira Ltd

Malthouse Ltd v Rangatira Ltd

Case [2018] NZCA 621 20 December 2018

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IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA276/2018
[2018] NZCA 621

BETWEEN	THE MALTHOUSE LIMITED Appellant
AND	RANGATIRA LIMITED Respondent

Hearing:	8 November 2018
Court:	Miller, Lang and Moore JJ
Counsel:	H N McIntosh for Appellant SCDA Gollin and J E Standage for Respondent
Judgment:	20 December 2018 at 10.00 am

JUDGMENT OF THE COURT

AThe appeal is allowed. Judgment is entered for the appellant on its claim.
BThe respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements.
CCosts in the High Court are quashed and should be fixed in light of this judgment.

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REASONS OF THE COURT

(Given by Miller J)

This case tests the limits of a court’s willingness to read words into a contract to make what the court thinks is commercial common sense of it.

The facts

The appellant, The Malthouse Ltd (TML), represents the founding shareholders of Tuatara Brewing Company Ltd, a successful craft brewer. The respondent, Rangatira Ltd, is a private equity firm which the founding shareholders introduced in 2013 to provide management expertise and capital the business needed for expansion. They wanted to make the company an attractive purchase for a major brewer. The dispute concerns the price payable by Rangatira for the 35% shareholding it acquired under an investment agreement dated 30 June 2013.
It is common ground that the parties could not agree price. The vendors believed the company was worth $12 million as at the date of the transaction and wanted Rangatira to pay $4.5 million for its stake. Rangatira asserted that the company was worth no more than $10 million and sought to pay $3.5 million for its stake. The parties avoided an impasse by settling on a contractual mechanism under which Rangatira would pay the lesser sum on settlement and pay the difference if the company proved to be worth $12 million. The additional payment would be required should either of two events happen.
The first triggering event was Tuatara achieving before a sunset date, 30 December 2015, earnings that implicitly valued the company at $12 million. That target was earnings before interest, tax, depreciation and amortisation (EBITDA) of $2 million over any period of 12 consecutive months. It was an all or nothing obligation, meaning that the payment would not be scaled if the company fell short of the target. Through a change of accounting policy, which the founding shareholders resent but do not challenge, this target was not met before the sunset date.
The second triggering event, which is in dispute, was the sale of Tuatara for a price exceeding $12 million. The question is whether Rangatira’s obligation to pay the balance arose only if that event happened before the sunset date. No words to that effect appear in the clause creating the obligation. Rangatira would have us read them in.
On 31 January 2017, the parties sold Tuatara to Dominion Breweries for a price far in excess of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Malthouse Ltd v Rangatira Ltd

Details

AGLC: Malthouse Ltd v Rangatira Ltd [2018] NZCA 621
Case: [2018] NZCA 621
Decision Date: 20 December 2018 at 10.00 am

CaseChat Overview and Summary

The Court of Appeal of New Zealand heard an appeal brought by Malthouse Limited (TML) against Rangatira Limited (Ranga). TML represents the founding shareholders of Tuatara Brewing Company Ltd, a successful craft brewer, while Ranga is a private equity firm that acquired a 35% shareholding in Tuatara in 2013. The dispute concerns the price payable by Ranga for its shareholding, specifically whether Ranga was obligated to pay an additional sum if Tuatara was sold for more than $12 million. The additional payment obligation was contingent upon either Tuatara achieving certain earnings targets or being sold for a price exceeding $12 million. The central issue was whether the obligation to pay the additional sum was subject to a sunset date of 31 December 2015. The High Court had previously ruled in favour of Ranga, but the Court of Appeal allowed the appeal.

The Court of Appeal addressed three main issues. Firstly, it considered whether a conversation between the parties, which the High Court found had occurred, supported Ranga's interpretation of the contract. The Court of Appeal found that while the conversation did occur, it did not necessarily mean that both parties agreed that clause 9.8 was subject to the sunset clause. Secondly, the Court of Appeal examined the correct interpretation of clause 9.8, concluding that it was not limited by the sunset date. The Court found that the absence of any reference to the sunset date in clause 9.8 was deliberate, and that the clause operated independently when read in the context of the entire agreement. Thirdly, the Court of Appeal considered whether an implied term should be added to clause 9.8 to make it subject to the sunset date. The Court found that it would not be appropriate to imply such a term, as it would change the balance of the bargain and was not necessary for the clause to be efficacious.

As a result of the appeal, the Court of Appeal allowed the appeal and entered judgment for TML on its claim. Ranga was ordered to pay TML costs for the appeal, and the costs awarded to Ranga in the High Court were quashed.

Orders