Pernod Ricard New Zealand Limited v Lion Beer, Spirits & Wine (NZ) Limited
[2012] NZHC 2801
•26 October 2012
PUBLIC VERSION.
REDACTED FOR COMMERCIAL CONFIDENTIALITY REASONS
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2011-404-1664 [2012] NZHC 2801
BETWEEN PERNOD RICARD NEW ZEALAND LIMITED
Plaintiff
ANDLION - BEER, SPIRITS & WINE (NZ) LIMITED
First Defendant
ANDINDEVIN GROUP LIMITED Second Defendant
Hearing: 23 24, 26 27, 30 April, 1-4, 7-11, 14-18, 21-25 May, 11-14 June 2012
Appearances: A R Galbraith QC, D J Cooper and S V East for plaintiff
J A Farmer QC, M R Crotty and S P Pope for first defendant
R A Edwards for second defendant
Judgment: 26 October 2012
JUDGMENT OF ALLAN J
In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 2.30 pm on Friday 26 October 2012
Solicitors/counsel
A R Galbraith QC [email protected] Bell Gully, Auckland [email protected] Russell McVeagh [email protected] Dr J A Farmer QC [email protected] Alexander Paull, Christchurch [email protected]
PERNOD RICARD NZ LTD V LION - BEER, SPIRITS & WINE (NZ) LTD HC AK CIV 2011-404-1664 [26
October 2012]
INDEX
Para No.
1. Introduction 01
2. The dispute 08
3. Waiver of privilege 18
3.1 The documents in question 18
3.2 Were the documents privileged? 25
3.3 Waiver 35
Part 1: Excise Duty
4. The excise duty question 62
4.1 The statutory scheme 62
4.2 Interim distribution arrangements 68
4.3 The stock that Pernod supplied to Lion under theDistribution Agreement 75
4.4 Pernod’s pleadings 80
5. Implied term 87
5.1 Implied terms – the law 87
5.2 The parties’ broad positions 97
5.3 Key factual disputes concerning the evidence aboutevents before the agreements were signed 102
5.3.1 Book value 102
5.3.2 The implications of Lion’s financial modelling 110
5.3.3 E-mail and meeting evidence 118
5.4 Key events after the agreements were signed 123
5.4.1 The 21 October meeting 123
5.4.2 22 October 2010 126
5.4.3 The 26 October e-mail 133
5.4.4 The November and December meetings 134
5.4.5 Lion’s alleged change of position 139
5.5. Admissibility of post-contract evidence 140
5.6 Pernod’s submissions 147
5.7 Lion’s submissions (including discussion) 1505.8 Implied terms – conclusions 208
6. Rectification 215
6.1 Rectification – the law 215
6.2 The competing arguments 2226.2.1 Pernod’s submissions 222
6.2.2 Lion’s submissions (including discussion) 223
6.3 Rectification – conclusion 246
7. Contribution and recoupment 247
7.1 The law 253
7.2 The competing arguments 2547.2.1 Pernod’s submissions 254
7.2.2 Lion’s submissions 258
7.3 Conclusion 265
8. Mistake 269
9. Proof of quantum 271
Part 2 The counterclaims
10. The guaranteed margin counterclaim 274
10.1 Background to the counterclaim 274
10.2 Dynamics of the wholesale market 290
10.3 The introduction of margin guarantees between Pernod andProgressive 303
10.4 Relevant negotiation history 307
10.5 Lion’s revenue models 330
10.6 Post-contract developments 341
10.7 Breach of warranty 35510.8 Causation 367
11. The accrued discounts counterclaim 423
11.1 The counterclaim in outline 423
11.2 Estoppel principles 428
11.3 Estoppel claim 42911.3.1 A clear and unequivocal representation that
Pernod would pay for the accrued discounts 429
11.3.2 Lion reasonably relied on the belief or expectation 446
11.4 Claim for breach of contract 448
12. The fifth counterclaim 454
13. Result 455
14. Costs 456
1. Introduction
[1] Pernod Ricard (NZ) Ltd (Pernod) is the largest wholesale wine distributor in New Zealand. It is the New Zealand subsidiary of an international wine and liquor company. In 2010 it decided to sell some of its wine related assets. While it originally considered selling 100% of the shares in a proposed stand alone wine company called Lindauer Wine Company (LWC), Pernod later decided to sell certain assets. After protracted negotiations, it entered into a series of agreements with the first defendant (then known as New Zealand Breweries Ltd, but now Lion – Beer, Spirits & Wine (NZ) Ltd (Lion)), a subsidiary of an Australian company, Lion Nathan Pty Ltd. Lion is the leading New Zealand beer distributor. Prior to the transaction, it maintained a relatively small wine distribution business. Now, Lion is in substantial competition with Pernod.
[2] The second defendant, Indevin Group Ltd (Indevin), a purchasing entity formed by Impact Capital Management Ltd to enter into agreements with Pernod and Lion, was also a party to the transaction. It is an independent New Zealand wine infrastructure and supply company.
[3] The parties entered into the principal agreement, the asset sale and purchase agreement (SPA), on 18 October 2010. Under this agreement, Pernod sold wine brands, vineyards, plant and equipment intended to be used in the ongoing manufacture and sale of the wine brands to Lion and Indevin. Indevin would own the infrastructure assets, own and grow fruit, and process the wine; providing these services at arms’ length commercial rates to Lion. Indevin was also to assume Pernod’s liabilities in relation to employees’ salaries, wages, allowances and leave, and contracts with grape growers.
[4] Lion would be responsible for bottling, packaging, marketing and sales of the wine. Under the SPA, Lion was to purchase wine stock from Pernod and
guarantee Indevin’s obligations to employees and grape growers and to pay the
final stock amount.1
[5] Among the brands passing to the defendants were Lindauer, a popular sparkling wine, Corbans, Saints and Bernadino. As part of the deal, Pernod also sold stock so as to enable the defendants to take over the business as a going concern. The relevant stock included bottled wine (known as “finished goods”), tirage (partly processed sparkling wine stored in either bottles or tanks and also known as “cuvee”), and bulk wine (unbottled wine stored in vats). The total sale price jointly offered by Lion and Indevin was $85 million. It later increased to
$88.3 million, as the result of further sales of finished goods by Pernod to Lion.
[6] At the same time as the SPA was signed, the parties entered into a number of collateral agreements, including a Distribution Agreement. Under this agreement, Lion was appointed as Pernod’s distributor from 1 November 2010 until such time as the transaction had settled, following receipt of the necessary approval under the Overseas Investment Act 2005. That consent was obtained on 6
December 2010, and the transaction settled on 22 December 2010. Lion therefore carried on business as distributor between 1 November and 22 December 2010, pursuant to the terms of the Distribution Agreement.
[7] The Distribution Agreement was intended to ensure that Lion was able to take advantage of the pre-Christmas trading period, when a significant proportion of annual wine sales occurs.
2. The Dispute
[8] Within days of the execution of the SPA and the Distribution Agreement, a dispute arose among the parties. Pernod contended that, although the SPA made no provision for the payment of excise duty on the finished goods sold pursuant to the
agreements, the defendants were nevertheless liable to reimburse Pernod for the
1 ”Final stock amount” is defined in cl 5.7 as including finished goods (bottled wine) finished under
both the SPA and Distribution Agreement.
amount of excise duty it paid to New Zealand Customs on finished goods supplied to them.
[9] Settlement negotiations were unsuccessful. In March 2011, Pernod commenced this proceeding. It claims from the defendants reimbursement of excise duty of $10,997,196.88, together with GST of $1,649,579.53, and interest which, as at the date of commencement of the trial, amounted to $1,060,390.21. At the start of the trial, its total claim was therefore $13,707,766.62.
[10] Pernod pleads an implied term, rectification, contribution, and mistake (both common and unilateral).
[11] Lion (but not Indevin), has filed a counterclaim. It alleges that Pernod failed to disclose the existence of a guaranteed margin arrangement with Progressive Enterprises Ltd (Progressive), one of the two major supermarket chains. Lion claims that the non-disclosure, considered in the light of such material as was disclosed by Pernod prior to the execution of the SPA, led Lion to pay too much for the wine brands. It alleges that Pernod is in breach of the warranties contained in paras 3 and 4.1 of sch 1 to the SPA, and claims damages of
$19,813,000. This has been termed “the guaranteed margin claim”.
[12] A second counterclaim is maintained in respect of what has become known as the “accrued discounts claim”. This claim arises by reason of long established arrangements between distributors and supermarkets whereby, following the making of a retail sale, the supermarket becomes entitled to a discount from the distributor. In practice, the arrangement entails the payment of a deferred portion of the agreed retailer margin.
[13] Lion claims that the terms of the SPA entitle it to recover from Pernod amounts paid by Lion to the major retailers in respect of sales made to retail customers of stock supplied by Pernod to the supermarkets prior to 1 November
2010. The amount involved is $1,354,815. Lion pleads both breach of the SPA and estoppel.
[14] A further counterclaim was abandoned during the course of the trial and another has been the subject of settlement between Pernod and Lion.
[15] This was a complex case in every respect. The trial occupied 28 sitting days. I am grateful to counsel for the skilful conduct of their respective cases and for the efficiency with which the trial proceeded.
[16] On the first hearing day I heard argument concerning Pernod’s claim to privilege in respect of four documents, which had already been disclosed to Lion. Counsel for Pernod argued that disclosure was inadvertent and mistaken, and sought a ruling that the documents remained privileged. Counsel for Lion argued that privilege had been waived. I agreed. On the second morning of the trial I gave an oral ruling to the effect that, to the extent that the documents had been privileged, such privilege had been lost. I said that my reasons would be incorporated in this judgment. The documents were subsequently deployed in evidence.
[17] It is convenient to commence this judgment with the reasons for my privilege ruling.
3. Waiver of privilege
3.1 The documents in question
[18] Two of the four documents in issue are Excel spreadsheets created by Pernod’s finance director at the time, Mr Ramounet. The first of these spreadsheets contains various workbooks relating to the sale of divested brands, margin variants, and guaranteed margin payments made by Pernod to Progressive.2 Mr Ramounet says that he created this spreadsheet with the assistance of other Pernod employees at the request of Ms Thompson, legal and corporate affairs director of Premium Wine
Brands Pty Ltd, and a director of Pernod. She is also a qualified lawyer. Mr
Ramounet says that the spreadsheet was prepared in order to assist Ms Thompson
and Bell Gully, Pernod’s solicitors, in assessing Lion’s guaranteed margin
2 Agreed bundle reference 13.690.
counterclaim and providing legal advice about those claims. He says Ms Thompson
made her request after Pernod was advised of Lion’s claims in early November 2010.
[19] A second spreadsheet contains Mr Ramounet’s analysis of the guaranteed margin arrangements, using Lindauer as an example, and an analysis of the volumes of stock sold through various retailers from November 2009 to October 2010, for the purpose of assessing Lion’s stock loading counterclaim (now abandoned).3 Again, Mr Ramounet says that this spreadsheet was created by him in November 2010 at Ms Thompson’s request, in order to assist her and Bell Gully to assess two of Lion’s
counterclaims and to give legal advice on those claims.
[20] The remaining documents are e-mail chains. The first consists of an exchange of e-mails on 8 and 9 December 2010 between Mr Ramounet and Ms Thompson.4
[21] In the e-mail messages, Ms Thompson asked Mr Ramounet certain questions about the payment of excise duty on finished goods sold by Pernod to Lion. Mr Ramounet provided advice. He says that it was for the purpose of assisting Ms Thompson and Bell Gully to give legal advice to Pernod on the excise duty dispute, which had intensified somewhat following Lion’s formal advice during the course of a meeting on 8 December 2010 that it would not pay the disputed excise duty.
[22] The final document consists of an e-mail chain exchanged on 15 December
2010 between Mr Ramounet and Ms Thompson. It is concerned with reimbursement of scanned discounts and so relates to the accrued discount counterclaim. Mr Ramounet provided certain information to Ms Thompson to enable her to understand the basis for Lion’s claim. He understood that she was asking for the information in order to assess the claim, so that she and Bell Gully could give legal
advice to Pernod about it.5
3 Agreed bundle reference 14.720.
4 Agreed bundle reference 12.606.
5 Agreed bundle reference 12.618.
[23] Pernod claims that the two e-mail chains were created for the purpose of giving and receiving legal advice, and are accordingly subject to solicitor/client privilege, pursuant to s 54 of the Evidence Act 2006. Pernod further says that the spreadsheets were created in the context of Lion’s signalled counterclaims for the purpose of enabling Pernod’s legal advisers to provide legal advice, and that they are accordingly also the subject of litigation privilege pursuant to s 56 of the Evidence Act.
[24] Mr Farmer for Lion argues that all of Pernod’s claims to privilege must fail.
3.2 Were the documents privileged?
[25] I deal first with the claim to solicitor/client privilege. Such privilege is protected by s 54 of the Evidence Act 2006. Section 54(1) reads:
54 Privilege for communications with legal advisers
(1) A person who obtains professional legal services from a legal adviser has a privilege in respect of any communication between the person and the legal adviser if the communication was—
(a) intended to be confidential; and
(b) made in the course of and for the purpose of—
(i) the person obtaining professional legal services from the legal adviser; or
(ii) the legal adviser giving such services to the person.
[26] At common law, solicitor/client privilege extended to materials brought into existence by a client for the purpose of communication to a solicitor, whether or not the materials were ever provided to the solicitor, and regardless of whether any advice was communicated to the client in respect of those materials.6
[27] But Mr Farmer submits that s 54(1) now restricts the range of materials to which solicitor/client privilege may attach. He argues that s 54(1) is not wide
enough to cover an “intention to communicate” when it uses the word
6 See for example Trade Practices Commission v International Technology Holdings Pty Ltd (1995)
31 IPR 466 at 469 and Saunders v Commissioner, Australian Federal Police (1998) 160 ALR 469 at
472.
“communication”. In other words, a strict reading of s 54(1) suggests that solicitor/client privilege is restricted to a communication actually made by a client to a legal adviser for the stipulated purpose.7 He is critical of the decision in R v Huang, where it was accepted that certain handwritten notes were privileged under s 54, because they were an aide memoire written for the purpose of briefing counsel (as yet unretained).8 In that case, it appears that the Court and counsel assumed that the expression “communication” encompassed a document intended to be communicated to a legal adviser.
[28] Mr Farmer invites the Court to hold Huang to have been wrongly decided, in that a party cannot claim solicitor/client privilege over a document never actually communicated to the legal adviser.
[29] It is unnecessary to determine whether or not the approach in Huang ought to be followed. That is because I am satisfied that Mr Ramounet prepared the documents for transmission to Ms Thompson, and that she received the documents in her capacity as Pernod’s internal legal adviser. In my view, Mr Ramounet was entitled to claim privilege over communications with her if, as he asserts, the communications were sent so that she might provide legal advice. There is ample evidence that it was among her duties to provide Pernod with such advice from time to time. It is to be further noted that s 54(1) is not confined to legal advice. Rather, it speaks of “professional legal services” which in my view is a more expansive term than mere legal advice. It must be taken to encompass all aspects of the services
normally undertaken by a lawyer in respect of his or her work for a client.9
[30] Mr Farmer further argues that the litigation privilege claimed by Pernod in respect of the two spreadsheets cannot be maintained. In order for a communication or other information to be subject to litigation privilege under s 56 of the Evidence Act, that communication or information must be made, received, compiled or prepared for the dominant purpose of preparing for a proceeding or an apprehended
proceeding. The spreadsheets came into existence long before this proceeding was
7 See in support of that approach Donald L Mathieson Cross on Evidence (Looseleaf ed, Lexis Nexis)
at [EVA 54.12(d)].
8 R v Huang HC Auckland CRI-2005-004-21953, 19 September 2007 at [53]-[57].
9 See Hart v Bankfield Farm Ltd (2008) 9 NZCPR 685 (HC) at [45].
commenced. The party seeking to claim privilege must be aware of circumstances which rendered litigation between that party and a particular person (or class of persons) a real likelihood, rather than a mere possibility.10
[31] Pernod’s evidence is to the effect that one spreadsheet was created in September 2010, but that most of the worksheets within the document were created in early November 2010, and thereafter. Mr Ramounet said the other spreadsheet was prepared in early November 2010. No precise dates have been provided.
[32] I accept Mr Farmer’s submission that Lion’s first formal indication of a pending dispute appeared in its letter of 12 November 2010 to Pernod, in which it reserved its rights in relation to a warranty claim in respect of stock loading (a claim abandoned during the course of the trial). On the same day, Lion gave notice of a warranty claim in respect of the non-disclosure of the margin guarantee with Progressive.
[33] Spreadsheets prepared in “early November” were not therefore prepared when litigation was reasonably apprehended. Prior to 12 November 2010 there was a mere possibility that litigation could occur in the future, rather than a reasonable prospect of litigation. The mere possibility of litigation is insufficient.11
[34] In summary, therefore, I conclude that both the e-mails and spreadsheets were the subject of solicitor/client privilege, but not litigation privilege.
3.3 Waiver
[35] Both e-mail chains were listed in Part 1 of the schedule to Pernod’s affidavit of documents, sworn by Ms Joanna Cumberland on 26 July 2011. Ms Cumberland was senior in-house legal counsel for Pernod. Each e-mail was classed as “Discoverable (Redacted)”. One of the spreadsheets was likewise listed as
discoverable in Part 1 to that schedule.12 But the other spreadsheet was listed
10 United States of America v Philip Morris [2004] 1 CLC 811(EWHC and EWCA).
11 See the judgment of Brooke LJ in United States of America v Philip Morris (EWCA) at [68].
12 Agreed bundle reference 13.690.
among documents in Pernod’s control for which it claimed confidentiality.13
Accordingly, this document appeared in Part 2 of the schedule, and was classified as “Discoverable (Confidential)”. Copies of all of these documents were provided to the solicitors for Lion in CD form on 11 August 2011.
[36] Lion applied for further and better discovery. Pernod responded by filing a supplementary affidavit of documents sworn by Ms Cumberland on 28 October
2011. This affidavit included an amended schedule, intended to replace the schedule in her July affidavit. The two e-mail chains were listed in Part 1 of the replacement schedule, with an amended classification to show they had been redacted for solicitor/client privilege. Both spreadsheets now appeared in Part 2 of the replacement schedule, as being documents for which Pernod claimed confidentiality.
[37] As Mr Farmer submits, it appears that the changes to the listing of each of these documents formed part of Pernod’s broader reconsideration of its list of documents and of the detail of its privilege claims. For example, in the replacement schedule, alterations were made where certain documents were identified as having been incorrectly listed in Part 1 of the previous schedule:
(a) One document had privileged communications redacted;
(b)Four documents inadvertently disclosed as not privileged were reclassified as privileged;
(c) Six documents previously classified as confidential were reclassified as non-confidential.
[38] The spreadsheets for which confidentiality was claimed were originally provided to Lion’s legal advisers, Russell McVeagh, on the basis that inspection could be undertaken by counsel and independent experts only. Following correspondence between the parties’ respective solicitors in December 2010 (in
which the spreadsheets were specifically referred to), Pernod agreed to provide those
13 Agreed bundle reference 14.720.
documents and others to five Lion executives, subject to the terms of a confidentiality undertaking.
[39] Pernod first asserted privilege over the documents on 6 March 2012, in a letter from Bell Gully to Russell McVeagh. This letter read:
It has come to our attention that four documents in Pernod Ricard’s discovery were inadvertently listed in Parts 1 or 2 of the list whereas they should have been listed in Part 3 of the list as privileged documents. The documents in question are:
(a) ED.22130 and ED.22191: These were discovered in Part 1 with redactions, but in fact the full documents are privileged and the unredacted parts were listed in Part 1 in error. The documents consist of communications between Mr Laurent of Pernod Richard and Ms Thompson in her capacity as an internal legal advisor of Pernod Ricard.
(b) ED.37557 and ED.22179: These documents were created by Pernod Ricard employees in response to Lion’s counterclaims and in order for Pernod Ricard’s internal legal advisers to give legal advice in relation to Lion’s counterclaims. Pernod Ricard claims solicitor-client privilege and/or litigation privilege in relation to these documents.
We therefore enclose an affidavit of Ms McBride-Stewart on behalf of Pernod Ricard which amends Pernod Ricard’s affidavit of documents by claiming privilege for these documents. Please return to us all copies of the documents or provide us with your confirmation that they have been destroyed.
Yours faithfully
Bell Gully
[40] This letter was written a week before Lion’s reply briefs were due to be served and about six weeks prior to the commencement of the trial. The spreadsheets were referred to in the brief of evidence of Mr David Bridgman, one of Lion’s expert witnesses. A copy of that brief, including the reference to the spreadsheets, was served on Pernod on 15 March 2012.
[41] Mr Cooper, counsel for Pernod, argues that the disclosure of the four documents to Lion was inadvertent and did not give rise to a waiver of privilege. He relies on s 65(4) of the Evidence Act.
[42] Mr Farmer, for Lion, points out that Pernod’s advisers expressly turned their minds to the issue of privilege when redacting the e-mails and reclassifying the spreadsheets in October 2011. One of the spreadsheets was included in the agreed bundle of documents without objection from Pernod; Lion was entitled to assume that any privilege that may initially have existed had been waived. Disclosure was not the result of an obvious mistake.
[43] Section 65 of the Evidence Act 2006 provides:
65 Waiver
(1) A person who has a privilege conferred by any of sections 54 to 60 and 64 may waive that privilege either expressly or impliedly.
(2) A person who has a privilege waives the privilege if that person, or anyone with the authority of that person, voluntarily produces or discloses, or consents to the production or disclosure of, any significant part of the privileged communication, information, opinion, or document in circumstances that are inconsistent with a claim of confidentiality.
(3) A person who has a privilege waives the privilege if the person—
(a) acts so as to put the privileged communication, information, opinion, or document in issue in a proceeding; or
(b) institutes a civil proceeding against a person who is in possession of the privileged communication, information, opinion, or document the effect of which is to put the privileged matter in issue in the proceeding.
(4) A person who has a privilege in respect of a communication, information, opinion, or document that has been disclosed to another person does not waive the privilege if the disclosure occurred involuntarily or mistakenly or otherwise without the consent of the person who has the privilege.
(5) A privilege conferred by section 57 (which relates to settlement negotiations or mediation) may be waived only by all the persons who have that privilege.
[44] As a preliminary point, Mr Cooper argues that s 65 completely replaces the common law on waiver, and that earlier authorities are now irrelevant. Mr Farmer on the other hand argues that the Court is entitled to take into account the substantial body of authority on the question of what constitutes a waiver (often in the context
of overall fairness) as part of the decision making process in individual cases, but according primacy, of course, to the statutory test.
[45] In R v Bain, the Court of Appeal considered that s 65 was not intended to change the existing law in any material respect.14 Duffy J appears to have taken a similar view in Whakatane District Council v Bay of Plenty Regional Council.15
[46] But there is no express reference in s 65 to fairness considerations. As is pointed out by Asher J in Body Corporate No. 191561 v Argent House Ltd:16
… I do not approach the question of waiver from the perspective of “fairness” which was a consideration in a number of cases prior to 2006, and had been emphasised as a key consideration … However, the issue of fairness is not referred to in s 65 as a matter to be considered in determining whether waiver has occurred … Clearly then, the concept of fairness is subsumed in the requirement for inconsistency [with a claim of confidentiality].
[47] I agree. In my view, considerations of fairness are now subsumed within the “inconsistent with the claim of confidentiality” test, and so the extent to which fairness is taken into account will depend upon the nature of the privilege concerned and the other circumstances of the case.
[48] I turn to the issue of whether privilege has been waived in this case. Mr Cooper places principal reliance on s 65(4). He argues that the case falls squarely within that subsection and that privilege has not therefore been waived. However, in Argent House, Asher J held that the subsection was restricted in its application:
[42] I conclude that the mistake must be a mistake as to the act of disclosure itself rather than the implications of it. Thus, a mistake in the handing over of a group of documents which were thought to contain all non-privileged material, but which unbeknownst to the discloser contained privileged material, would be the sort of mistake envisaged. It would be a voluntary but mistaken act. It would be unintentional. However, if the mistake was a deliberate handing over of a document without a consideration that it was privileged, or forgetting that it was privileged, that would not be the sort of mistake covered by the section.
14 R v Bain [2008] NZCA 585 at [70].
15 Whakatane District Council v Bay of Plenty Regional Council (2008) 18 PRNZ 984 (HC) at [11]. .
16Body Corporate No. 191561 v Argent House Ltd (2008) 19 PRNZ 500 at [32]-[33].
[49] In my view Asher J’s analysis is plainly correct. The subsection is directed at the not uncommon situation of an administrative error or procedural mishap, where the party handing over or disclosing a document never intends to do so. Section
65(4) was not intended to preserve privilege where a document is knowingly and deliberately disclosed after close attention has been given to its status for privilege purposes.
[50] In the present case Pernod, by its solicitors, turned its mind to the question of whether the documents were privileged, and decided that they were not. That much is plain from the replacement schedule in the second affidavit of documents. The disclosure was therefore deliberate and does not fall within s 65(4).
[51] Accordingly, Pernod’s claim to continuing privilege, if any, must rest on s
65(2) which requires the Court to consider whether the disclosure of the documents was inconsistent with a claim to confidentiality.
[52] In that context, Mr Cooper relies upon the decision in Spicers Paper (NZ) Ltd v Whitcoulls Group Ltd in support of his argument that the production of these documents to Lion without a claim to privilege did not amount to a waiver.17 In my view, that was a quite different case. There, two documents in Whitcoulls’ list of documents were produced to executives of Spicers, who inspected them. No claim to privilege had been made in the list of documents. On the following day,
Whitcoulls declined to furnish a copy of the two documents on request. Instead, it filed a further list of documents claiming privilege in respect of the two documents for the first time, on the ground that they were prepared for the purpose of instructing Whitcoulls’ solicitors in anticipation of a counterclaim. There was evidence that the documents had been misclassified by oversight in the first place, that the disclosure on inspection was inadvertent, and that it was not made with the intention of waiving privilege. On an application by Spicers for further and better discovery, the Court held that privilege had not been waived by the production of the
documents in the first place.
17Spicers Paper (NZ) Ltd v Whitcoulls Group Ltd [1996] 1 NZLR 72 (HC).
[53] Similarly, in Corporate Group Holdings Ltd v Corporate Resources Group Ltd, the Court rejected an application for an order directing the production of a document in mid-trial.18 There had been a reference in evidence to a facsimile letter from the solicitors for a party to the proceeding to their client, for which no claim to privilege was made in the list. One of the other parties and its counsel said that they had seen the document, although this was disputed. No copy of the document had been obtained prior to trial. Hillyer J declined to order production. He said there was a distinction between making use of privileged documents which have come
into the possession of a party, and actually requiring delivery up of copies of privileged documents for use. Privilege was only lost once a privileged document passed into the hands of another party to litigation. That party might then use the document or a copy of it as evidence. However, the Court retained an equitable discretion to prohibit the use of confidential material, particularly where fraud was involved or where there had been disclosure by inadvertence and the error was immediately sought to be rectified.
[54] Through the s 65(2) lens, it might be said that what occurred in those two cases was not inconsistent with a claim to confidentiality.
[55] The common thread linking Spicers Paper and Corporate Group Holdings, is the celerity with which the producing party, having realised its error, moved to correct it. In neither case had the document concerned actually been handed over to the party seeking production. Each case might well have fallen under s 65(4) had the Evidence Act been in force.
[56] In my view, Mr Cooper’s reliance on authorities such as these is misplaced. They are very different cases from the present. Here, Pernod intentionally disclosed the four documents to Lion on successive occasions. The documents appeared in the schedule to the list of documents as discoverable. Those affidavits were filed and served in July and October 2011 respectively. In December 2011, copies of the relevant documents were provided to certain Lion executives upon the giving of
confidentiality undertakings.
18 Corporate Group Holdings Ltd v Corporate Resources Group Ltd [1991] 1 NZLR 115 (HC).
[57] Early in 2012, Lion prepared its briefs of evidence. The documents were relied upon by certain Lion witnesses for that purpose. It was not until March 2012, a matter of weeks prior to trial, that Pernod took the point that the documents were privileged and sought to retrieve them.
[58] This is major litigation. The common bundle of documents contains almost
1000 documents, which in total run to more than 6000 pages. I accept that the task of identifying and preparing relevant documents and the necessary lists would have been arduous and challenging. But it was the same for both sides. For its part, Lion was justified in assuming that there would be no claim to privilege in respect of the four documents, having regard to the history of their inclusion in the lists, and then production of the documents themselves. On the face of the documents, there was nothing to place Lion on notice that they attracted privilege. Given the time that had elapsed since the documents were first listed, and Pernod’s on-going characterisation of them as discoverable and non-privileged, Lion was entitled to assume upon receipt of the documents that they were available for use in the proceeding. In other words, there was nothing to suggest to Lion that the production of the documents was consistent with a continuing claim of confidentiality.
[59] Of course the reference to “confidentiality” in s 65(2) is a reference to a protection from production in the proceeding, rather than to commercial confidentiality, which looms large in this case, but is not a consideration in the context of the waiver argument.
[60] It follows, in my view, that the production of these documents to Lion without any claim to privilege constituted a waiver of privilege. The outcome at common law would, in my opinion, have been the same. Ordinarily, a party to litigation who sees a particular document referred to in the other side’s list without privilege being claimed and is subsequently permitted to inspect that document, is entitled to assume that any privilege which might otherwise have been claimed for it has been waived.
[61] For these reasons, I held that privilege in the four documents had been waived by Pernod, and that Lion was at liberty to refer to the documents concerned during the course of the trial.
Part 1: Excise Duty
4. The excise duty question
4.1 The statutory scheme
[62] Alcoholic drinks, including wine, may lawfully be manufactured only in an area licensed under the Customs and Excise Act 1996.19 That area is referred to in the Act as a “Customs controlled area”, more commonly termed a “bonded” area.20
When wine is removed from a bonded area, the manufacturer must notify Customs of the volume and quantity of that wine. That notification triggers an obligation on the part of the manufacturer to pay the appropriate excise duty. The notification process is known as “entering” the goods.21 Goods must be “entered” no later than
15 working days from the end of the month in which the goods are removed from the Customs controlled area.22 Excise duty is not payable where wine is destined for export.23
[63] The payment of excise duty is governed by s 76 which provides:
76 Excise duty a Crown debt
(1) Excise duty is a debt due to the Crown and is recoverable by action at the suit of the chief executive on behalf of the Crown,—
(a) in relation to goods specified in Part A of the Excise and Excise-equivalent Duties Table that are manufactured in a manufacturing area, immediately on removal of the goods for home consumption in accordance with section 72:
(b) in relation to goods specified in Part A of the Excise and Excise-equivalent Duties Table that are, except as provided in section 74(2), manufactured outside a manufacturing area, immediately on manufacture.
(2) Excise duty owed under subsection (1) is owed by—
(a) the occupier of the place where the goods have been or are manufactured; and
19 Customs and Excise Act 1996, s 68.
20 Customs and Excise Act 1996, ss 2 and 10.
21 Customs and Excise Act 1996, ss 70 and 73.
22 Customs and Excise Regulations 1996, reg 52.23 Customs and Excise Act 1996, s 72(c).
(b) every person who is or who becomes the owner of the goods before the excise duty has been fully paid.
(3) The liability of the persons referred to in subsection (2) is joint and several.
(4) For the purposes of this section, excise duty owed under subsection (1) must be paid to the Customs within the time required by or prescribed under this Act.
[64] The prescribed time for payment of excise duty to Customs is the last working day of the month following the month in which the goods are removed from a Customs controlled area. In the present case, Pernod made the relevant excise duty entries, was invoiced for excise duty by Customs, and paid the excise duty.
[65] Up to the time of payment, liability to pay excise duty is owed not only by the manufacturer, but every person who is, or becomes, the owner of the goods before the excise duty is paid.24 But once paid, all liability is extinguished.25
Accordingly, excise duty is to be distinguished from taxes such as GST, where successive supplies may trigger a fresh liability.
[66] Excise duty rates are set annually by regulation. At the time of the transaction, the relevant excise duty rate was $2.6021 per litre of wine, a figure equivalent to $1.95 for a standard 750 ml bottle of wine, or $23.42 for a 12 bottle case of wine. Excise duty is fixed at a standard rate per litre, and does not vary according to the value of the wine. It follows that excise duty comprises a much larger proportion of the value of cheaper wine than it does of a more expensive product.
[67] It is convenient by way of illustration to refer to Corbans White Label Sauvignon Blanc, a brand passing from Pernod to Lion as part of the transaction. This brand is often sold in supermarkets at a promotional price of $6.99 per bottle. GST of 15% amounts to 91c, so the GST exclusive price is $6.08. The excise duty rate applicable at the time of the transaction was $1.95 per bottle, approximately
32% of the GST exclusive retail price of $6.08. At that same time, Pernod’s
production costs for Corbans White Label Sauvignon Blanc were $2.69. Excise duty
24 Customs and Excise Act, 1996 s 76(2).
25 Customs and Excise Act, 1996 s 105.
of $1.95 was therefore equivalent to 72.5% of that production cost. The costs of production together with excise duty totalled $4.64 which, deducted from the GST exclusive retail sale price of $6.08, left a margin of $1.44 per bottle. From that figure, further costs such as transport and distribution costs must be deducted. The remainder is shared between retailer and manufacturer as their respective margins.
4.2 Interim distribution arrangements
[68] The Distribution Agreement conferred upon Lion the benefits of the important pre-Christmas trading period. Under cl 5 of the Distribution Agreement, Pernod was to supply finished goods to Lion from 1 November 2010 until the completion date (which turned out to be 22 December 2010). It was obliged to supply a specified quantity of initial inventory within three business days prior to 1
November 2010, and additional finished goods in response to orders from Lion. Pernod was to invoice Lion for finished goods following delivery. Under cl 6.1, the purchase price for these goods was to be ascertained according to the formula prescribed by the SPA.
[69] Schedule 8 of the SPA made detailed provision for calculation of the purchase price of the stock purchased by Lion from Pernod. The invoice price was to be the volume supplied multiplied by the “stock value”, defined in the SPA as the value per litre for each brand specified in sch 8. The evidence for Pernod was that these stock values corresponded with Pernod’s actual costs of production.
[70] Schedule 8 is in four parts. The first page contains a summary of the volume and value of finished goods, bulk wine and tirage. The summary discloses a total volume of 1,858,957 nine litre cases, having a total stock value of $52,394,402.
[71] The second page shows the “finished goods” inventory requirements, and lists each separate wine product, the required volume in nine litre units, the stock value per litre, and the total value. The total required volume is shown as being
340,491 cases, having a total value of $16,700,200. The third page shows the total required tirage, and the fourth, the required quantity of bulk wine.
[72] The purchase price payable for stock upon completion was to be calculated based on the actual volume of stock supplied.
[73] The ultimate purchase price for the various components of the transaction was calculated in accordance with cl 4.2 of the SPA, which provided as follows:
4.2 Components of the Initial Purchase Price
The initial Purchase Price for the Assets will be the aggregate of:
(a) $5,923,374 for the Completion Plant and Equipment, comprising: ((i) $3,919,048 for the winery;
(ii) $463,751 for the vineyards; and
(iii) $1,540,575 for capitalised costs relating to the winery and vineyards (including the Additives); plus
(b) $24,876,626 for the Properties, comprising:
(i) $19,256,001 for the PAML Properties; and
(ii) $5,620,625 for the Properties listed in Part A of Schedule 3;
plus
(c) the Required Stock Amount; plus
(d) $1 for the Contracts; plus
(e) $1 for the Vendor IP; plus
(f) $1 for the Business Records; plus
(g) $1 for the Statutory Licences; plus
(h) $1 for any die lines, printing plates and 0800 numbers owned by the Vendor immediately prior to Completion and which relate solely to the Brands; plus
(i) $5,109,053 for the Deferred Completion Plant and Equipment.
[74] Clause 4.2(c) incorporated into the ultimate purchase price an unquantified component described as the “Required Stock Amount”. This figure was adjusted as at the completion date so that it reflected the actual volume of stock supplied under the two agreements.
4.3 The stock that Pernod supplied to Lion under the Distribution Agreement
[75] Initially, Pernod supplied to Lion 340,491 cases of finished goods to a total value of $16,007,200 (a case comprises 12 750 millilitre bottles, making a total volume per case of nine litres) under the Distribution Agreement.
[76] Under cl 5, Lion ordered from Pernod additional finished goods with a stock value of $5,364,742.87. Following settlement, Lion took from Pernod a further small quantity of finished goods, having a stock value of $221,182.08. Accordingly, the total stock value of the finished goods supplied by Pernod to Lion was
$21,593,124.95. Pernod also sold its stocks of bulk wine and tirage, having a total stock value, in accordance with sch 8 of the SPA, of $32,824,254.23.
[77] The total amount of the duty excise liability triggered by the supply of finished goods was $10,997,196.88. Of this figure, $10,890,665.55 arose in respect of the finished goods supplied to Lion under the Distribution Agreement.
$106,531.33 arose in respect of finished goods supplied under the SPA.
[78] No excise duty liability arose in respect of the bulk wine and tirage supplied under the SPA, because that wine did not leave the bonded area prior to the sale by Pernod. Rather, on the completion date, 22 December 2010, Lion and Indevin acquired title to the properties upon which the bulk wine and tirage were located. Excise duty on that wine became payable by Lion at a later date, when it was removed from the bonded area (that is, once it had been bottled and shipped by Lion to its own customers).
[79] There was no provision in either the Distribution Agreement or SPA requiring Lion to reimburse Pernod for the excise duty it paid to Customs for finished goods furnished prior to 22 December 2010.
4.4 Pernod’s pleadings
[80] Pernod seeks to imply a term into the Distribution Agreement and SPA, or
rectify the agreements, in order to reflect the parties’ common intention that Lion
would be liable to pay excise duty in respect of finished goods acquired from
Pernod. The implied term cause of action is pleaded as follows:26
29. When read as a whole against the relevant factual background:
(a) The Distribution Agreement must reasonably be understood to include, the implied term that Lion would pay to Pernod Richard any excise levied on Finished Goods sold under the Distribution Agreement (plus GST); and
(b) The Asset Purchase Agreement must reasonably be understood to include, and therefore did include, the implied term that, as part of its obligation to pay the Final Stock Amount, Indevin would pay to Pernod Ricard any excise levied on Finished Goods (plus GST).
[81] Rectification is pleaded in the following terms:27
35.At all times up to and including the execution of the Distribution Agreement and the Asset Purchase Agreement, it was the common intention of Pernod Richard, Lion and Indevin that Lion and Indevin would pay (or reimburse Pernod Richard for) any excise payable on Finished Goods sold under the Distribution Agreement and the Asset Purchase Agreement (plus GST).
36.That common intention was consistent with and necessary for the commercial sense of the transaction for the reasons set out in sub- paragraph 30(e) above.
37.By an oversight common to all parties, the Distribution Agreement and the Asset Purchase Agreement failed to specify that Lion and Indevin would pay (or reimburse Pernod Richard for) any excise payable on Finished Goods sold under the Distribution Agreement and the Asset Purchase Agreement.
38. In the circumstances:
(a) the Distribution Agreement should be rectified to provide that Lion is to pay excise on Finished Goods sold under the Distribution Agreement (plus GST); and
(b) the Asset Purchase Agreement should be rectified to provide that Indevin is to pay excise on Finished Goods which form part of the Final Stock Amount payable to Pernod Richard on completion (plus GST).
26 Plaintiff ’s amended statement of claim at [29].
27At [35]-[38].
[82] Alternatively, there is a claim for contribution, pleaded on the basis that Lion had obtained the full economic benefit of, and was unjustifiably enriched by, Pernod’s payment of the excise duty amount at Pernod’s expense.28
[83] Finally, Pernod pleads both unilateral and common mistake. The former cause of action is pleaded in the following terms:29
41.Pernod Ricard was materially influenced in its decision to enter the Distribution Agreement and Asset Purchase Agreement by its belief that it would be fully reimbursed for its cost of production of the Finished Goods.
42.That belief was a mistake in that the Distribution Agreement and the Asset Purchase Agreement failed to provide that Lion and/or Indevin would reimburse Pernod Ricard for excise payable on the Finished Goods and therefore failed to reimburse Pernod Ricard for its cost of production of the Finished Goods.
43. The existence of that mistake was known to Lion and Indevin.
Particulars
(a) It is well known to alcoholic beverage producers in New Zealand, including Lion and Indevin, that excise is payable on Finished Goods;
(b) Lion and Indevin knew that Pernod Ricard expected to be fully reimbursed for its cost of production of the Finished Goods, it being an unjust and commercially absurd outcome if that was not the case;
(c) Lion and Indevin knew that the Stock Values specified in Schedule 8 of the Asset Purchase Agreement, represented the cost of production of the stock in question, but did not include any excise payable on that stock. This is recognised, for example, in an e-mail dated 21 October 2010 from Mr Jeff Sutton of Lion and referred to in paragraph 24 above.
44. The mistake resulted in a “substantially unequal exchange of values”
in that:
(a) Pernod Ricard received a net price (ie after deducting the excise it paid) of $10,595,928.07 for Finished Goods with a cost of production of $21,593,124.95 (plus GST); and
(b) Lion and Indevin paid $21,593,124.95 (plus GST) for Finished Goods on which excise had been paid and which therefore had a value of at least $32,590,321.83 (plus GST).
28 At [52]-[56].
29 At [41]-[44].
[84] There is a corresponding pleading in respect of common mistake, in which it is alleged that Pernod, Lion and Indevin were all mistaken in a belief that the purchase price for the finished goods under the Distribution Agreement and the SPA would fully reimburse Pernod for its cost of production of the finished goods.30
[85] In his closing submissions, Mr Cooper indicated that Pernod placed less reliance on the mistake argument than on other causes of action.
[86] Against that pleading background, I turn to consider each of the grounds upon which Pernod seeks reimbursement of excise duty.
5. Implied Term
5.1 Implied terms - the law
[87] The most commonly cited exposition of the law relating to implied terms appears in BP Refinery (Westernport) Pty Ltd v Shire of Hastings, where Lord Simon of Glaisdale, delivering the majority judgment, said:31
Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
Their Lordships venture to cite only three passages - albeit they are familiar to every student of this branch of the law. In The Moorcock Bowen L.J. said:32
"I believe if one were to take all the cases, and they are many, of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have. In business transactions such as this, 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 ..."
30 At [46]-[49].
31 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-284.
32 The Moorcock (1889) 14 PD 64 (CA) at 68.
It is because the implication of a term rests on the presumed intention of the parties that the primary condition must be satisfied that the term sought to be implied must be reasonable and equitable. It is not to be imputed to a party that he is assenting to an unexpressed term which will operate unreasonably and inequitably against himself.
In Reigate v Union Manufacturing Co, Scrutton L.J. said:33
"A term can only be implied if it is necessary in the business sense to give efficacy to the contract i.e., if it is such a term that it can confidently be said that if at the time the contract was being negotiated someone had said to the parties, "What will happen in such a case?', they would both have replied: "Of course, so and so will happen; we did not trouble to say that; it is too clear.'"
In Shirlaw v Southern Foundries (1926) Ltd, MacKinnon L.J. said:34
"Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common, ‘Oh, of course.’”
[88] These principles were reaffirmed by the New Zealand Court of Appeal in
Devonport Borough Council v Robbins.35
[89] The Privy Council recently revisited implied term principles in Attorney- General of Belize v Belize Telecom Ltd.36 There, Lord Hoffman referred to the five- step test propounded in BP Refinery and said:
21 … in every case in which it is said that some provision ought to be implied in an instrument, the question for the Court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. …this question can be reformulated in various ways which a Court may find helpful in providing an answer – the implied term must “go without saying”, it must be “necessary to give business efficacy to the contract” and so on – but these are not in the board’s opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background would reasonably be understood to mean?
22 There are dangers in treating these alternative formulations of the question as if they had a life of their own. Take, for example, the question of whether the implied term is "necessary to give business efficacy" to the contract. That formulation serves to underline two important points. The first, conveyed by the use of the word "business", is that in considering what
33 Reigate v Union Manufacturing Co [1918] 1 KB 592, at 605.
34 Shirlaw v Southern Foundries (1926) Ltd (1939) 2 KB 206, at 227.
35Devonport Borough Council v Robbins [1979] 1 NZLR 1 (CA) at 23 and 29.36 Attorney-General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 (PC).
the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other. In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties. That was the basis upon which Equitable Life Assurance Society v Hyman [2002] 1 AC 408 was decided. The second, conveyed by the use of the word "necessary", is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.
23 The danger lies, however, in detaching the phrase "necessary to give business efficacy" from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean…
...
27 The Board considers that this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of "necessary to give business efficacy" and "goes without saying". As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant.
[90] Lord Hoffman also emphasised the need for implied term principles to be recognised as part of the Court’s overall approach to contractual interpretation. They are different aspects of the same question:
16 … The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. 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: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.
17 The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most
usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.
[91] But such an inference may be displaced:37
18 In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.
[435] Lion’s case is that this email imposed an obligation on Pernod to correct any misunderstanding if the 2 November email did not accurately reflect the assumption implicit in this email, namely that the parties were agreed on liability and that the only outstanding question was the selection of an appropriate calculation method. Failure to act, while not usually actionable, can still give rise to an estoppel.141
[436] On the other hand, Mr Partigliani says he understood that Pernod would only be responsible for accrued discounts on wine sold by the retailers before 1 November
2010, with Lion being liable for the accrued discounts on promotional slots on retailer sales after 1 November 2010. Mr Ramounet formed the same view, but accepted in cross-examination that Mr Sutton’s email suggested there had been a misunderstanding. However, Mr Ramounet did not contact Mr Sutton, or anyone else from Lion, with respect to any misunderstanding until several weeks later, because, he says, he was trying to work out what was going on with the contract as a whole and ascertain Pernod’s overall legal position.
[437] A second representation was said to have been made by Pernod at a meeting on 8 December 2010, referred to at [21] and [139] above. Lion says Pernod again confirmed that it would reimburse Lion for the accrued discounts. Pernod’s internal summary of the meeting records “A&D agreed in principal [sic] need supporting data (Stocks with Food stuffs [sic], progressives, promotional plans, customer claims)”.
[438] On 9 December 2012, Ms Thompson emailed a summary of that meeting to
Ms Cumberland, which records:
PRNZ agreed in principle with LN’s [Lion’s] argument, however PRNZ requested information from LN on its stock in trade an understanding on how LN has calculated the amount owing. LN advised that, on its calculation, the total amount owing is (around) $947k. LN noted the difficulty in determining the stock in trade amount for Progressives’ [sic] individual outlets and as such as [sic] assumed 20% total across the individual outlets. LN agreed to circulate its working papers showing SIT [stock in trade] and calculation.
The matter was parked until PRNZ had an opportunity to review LN’s
papers.
141 Purewal BS & JK Limited v Connell Street Limited [2012] NZCA 42 at [65].
Action: LN to send to PRNZ its working papers tonight.
[439] Mr Sutton’s contemporaneous notes also record that Pernod accepted liability. He also says that there was never any suggestion that Pernod would only pay accrued discounts on stock sold by retailers before 1 November.
[440] Mr Ramounet did or said nothing to indicate otherwise.
[441] Thirdly, on 8 March 2011, Lion sent Pernod a spreadsheet quantifying the estimated amounts paid as accrued scan discounts.
[442] On 10 March 2011, Pernod wrote to Lion as follows:
4.1PRNZ has no obligation under the Agreement to reimburse NZB [Lion] for amounts it has paid to purchasers. We are nonetheless prepared to accept a deduction from the outstanding amount of
$10,997,196.88 (plus GST) as set out in our notice of default dated
22 December 2010 to reflect price support arrangements agreed between PRNZ and its customers and which arise in respect of
products supplied to the relevant customer by PRNZ. To be clear,
PRNZ will not allow any such deduction for price support which relates to arrangements entered into by NZB or which relates to products sold by NZB.
[443] Lion argues the reference to “customers” in this letter means Progressive and Foodstuffs, and that the letter is wholly inconsistent with Pernod’s current stance that it only agreed to pay accrued discounts on finished goods sold by retailers to consumers before 1 November 2010.
[444] I am unable to accept that the cumulative effect of the evidence is that Pernod made a clear and unequivocal representation by act or omission, that it was liable to pay to Lion the accrued discounts in respect of sales made by retailers to their customers on or after 1 November 2010. There is evidence that the matter was discussed, but the evidence goes no further than showing that the parties were working their way towards a mutually acceptable outcome. The Pernod participants at the 1 November meeting believed the issue to relate only to sales made by retailers prior to 1 November 2010. Lion considered their claim to extend to discounts in respect of all sales made by Pernod to its customers prior to that date.
[445] The expanded version of the minutes of 1 November 2010 provided by Pernod expressly refer to sales prior to 1 November. If Lion believed Pernod had a wider liability than that, then it was for Lion to correct the Pernod misunderstanding. Mr Sutton’s email of 2 November 2010 is relied upon as giving rise to an obligation by Pernod to respond or face the risk of being estopped. In my view, neither the contents of Mr Sutton’s email nor the position between the parties as at 2 November imposed any obligation on Pernod to respond. It is to be remembered that, by
2 November, both the excise duty issue and the GMA question had emerged as possible areas of dispute. Mr Ramounet was, in my view, entitled to defer any response to Mr Sutton’s 2 November email until these other issues had been considered. The 2 November email was nothing more than a proposal by Lion for a method of resolution to which Pernod was under no obligation to agree or even respond. The circumstances do not remotely approach the type of case in which an estoppel by omission may arise. Such cases are helpfully referred to in the judgment
of the Court of Appeal in Purewal.142
11.3.2 Lion reasonably relied on the belief or expectation
[446] Moreover, Lion has in my view been unable to demonstrate that it detrimentally relied upon any representation by Pernod.143 There is no evidence to suggest that it would not have paid the accrued discount claims by the retailers in any event. It is common ground that practical market place realities required Lion to meet the accrued discount claims from retailers in order preserve crucial customer goodwill. Retailers expected, as between themselves and Lion, that the Lion would
assume responsibility for any discounts, even if they related to sales made by Pernod. It was not realistic for Lion to resist these customer claims. To do so would be to risk long-term relationships.
[447] Lion, recognising these commercial imperatives, paid to its customers the amounts now claimed from Pernod on dates that preceded the 8 December meeting.
It follows that neither the discussions at that meeting nor the contents of the March
142 At [65] and [66].
143 Kerr v Meates [1991] ANZ ConvR 110 (HC); Banks v Auckland City Council and Ors HC Auckland CIV-2003-404-3483, 14 August 2003; Ingram v Patcroft HC Auckland CP387, 18 April
2000; Turner v Metro City Ltd HC Auckland CIV-2009-404-4831, 22 December 2009.
2011 letter from Pernod could possibly operate as an estoppel. In my opinion, Lion has been unable to demonstrate a qualifying detrimental reliance on this case. For that separate reason, I consider that the estoppel argument must fail.
11.4 Claim for breach of contract
[448] In the alternative, Lion claims that it is entitled to be reimbursed for the accrued discounts under cl 12.1(a)(B) of the SPA. Clause 12.1 provides:
Dealing with customer/supplier issues following Completion
(a) Purchaser’s responsibility
From the Commencement Date, if a customer of the Brands approaches or contacts the Purchaser in relation to the purchase by that customer of Finished Goods in relation to the Brands (including those purchased or supplied prior to the Commencement Date) and the amount of that customer claim, together with any related customer claims:
(i) exceeds $1,000 in aggregate, the Purchaser may (at its election) either:
(A) refer any customer directly to the Vendor; or
(B) deal with any such customer itself but seek reimbursement from the Vendor for the cost of any replacement Finished Goods provided to or monetary compensation paid to that customer, provided that the Vendor will not be obliged to reimburse the Purchaser for any amount under this Paragraph (B) unless the Purchaser has promptly advised the Vendor of the relevant claim upon becoming aware of that claim and acted in accordance with any instructions reasonably provided by the Vendor in relation to that claim (having regard to any on-going relationship that the Purchaser might reasonably be expected to have with any such customer; and
(ii) is equal to or less than $1,000 in aggregate, the Purchaser will have no recourse to the Vendor and may not direct the customer to the Vendor.
[449] In my view, this clause applies only to reimbursement for the cost of replacing finished goods or the payment of monetary compensation for finished goods. It is unrelated to promotional support, which involves a refund in respect of agreed promotional prices rather than “compensation”.
[450] Clause 12.1(a) applies in cases where a customer of Lion has approached or contacted Lion in relation to a matter that may result in the replacement of finished goods or alternatively, the payment of monetary compensation to the customer.
[451] Neither of these specified remedies is appropriate in the context of the accrued discounts claim. A replacement of finished goods would plainly not provide a remedy. Neither is the expression “monetary compensation” apt in the circumstances. It is intended, in my view, to cover situations where Lion’s customer has suffered a loss which might give rise to a claim for damages, entitling the customer to “compensation”. The accrued discounts claim, on the other hand, does not involve “compensation” at all. Rather, if valid, it entitles Lion’s customers to claim the amount of the relevant discount as a debt due and owing in terms of the pre-existing arrangements between the parties. The evidence is that accrued discounts are the subject of weekly invoices which are sent as a matter of routine. They do not involve “approaches or contacts” of the type envisaged in cl 12.1(a).
[452] The interpretation which Lion seeks to place on cl 12.1(a) is, in my view, inconsistent with cl 8.3 of the Distribution Agreement. Clause 8.3 provides that promotional slots would be transferred to Lion and become Lion’s responsibility as from 1 November 2010. Had cl 12 of the SPA been intended to cover accrued discounts, the parties would, in my view, have expressed themselves in much clearer language. In view of these conclusions, it is unnecessary to consider Pernod’s alternative argument that Lion did not comply with the notice requirements in cl 12.1(a)(i)(B), save to say that written notice appears not to be required and that Lion effectively gave sufficient notice by alerting Pernod to the accrued discounts question on 1 November 2010.
[453] For the foregoing reasons, I am satisfied that Lion’s alternative claim, based
upon the provisions in cl 12 of the SPA, cannot succeed either.
12. The fifth counterclaim
[454] As noted at the outset of this judgment, one aspect of the dispute has been the subject of settlement between the parties.144 It concerns the allegations appearing in Lion’s fifth counterclaim in which it is contended that Lion suffered losses by reason of Pernod’s alleged failure to deliver pallets of initial inventory (comprising finished goods) to an agreed delivery point in the South Island prior to 1 November 2010. Lion’s claimed loss is $66,164. Pernod has accepted that claim and has agreed that
Lion is entitled to judgment by consent for that sum.
13. Result
[455] My conclusions may be summarised as follows:
(a) Pernod has succeeded in its claim in respect of those causes of action based upon an implied term and rectification respectively. There will therefore be judgment in favour of Pernod against Lion and Indevin for:
(i)Rectification of the Distribution Agreement to provide that Lion is to pay excise duty on finished goods sold under the Distribution Agreement (plus GST);
(ii)Rectification of the SPA to provide that Indevin is to pay excise duty on finished goods which form part of the final stock amount payable to Pernod on completion (plus GST);
(iii)An order for specific performance requiring Lion and Indevin to pay to Pernod excise duty of $10,997,196.88;
(iv)An order for specific performance requiring Lion and Indevin to pay to Pernod GST of $1,649,579.53;
144At [14].
(v)Interest on those combined amounts from 22 December 2010 (the completion date under the SPA when in my view the defendants’ obligations arose) down to 23 April 2012 (the first day of the trial), of $1,067,527.78 calculated in accordance with the interest provisions in the Judicature Act 1908;
(vi)Judicature Act interest from 23 April 2012 down to the date of judgment of $322,233.84;
(b) Lion’s guaranteed margin and accrued discounts counterclaims are
each dismissed;
(c) Lion’s stock loading counterclaim (abandoned during the course of
the trial) is also dismissed;
(d) There will be judgment in favour of Lion against Pernod in the sum of
$66,164 by consent in terms of Lion’s fifth counterclaim, together with interest at Judicature Act rates from 01 November 2010 to the date of judgment, amounting to $8,055.47.
14 Costs
[456] Having succeeded, Pernod is entitled to costs, but having regard to the complexity of this proceeding costs are formally reserved. Counsel may file memoranda if they are unable to agree.
C J Allan J
16
5
0