Philip Moore & Co Ltd v Surridge
[2018] NZHC 562
•28 March 2018
IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRY
CIV-2016-485-735
[2018] NZHC 562
IN THE MATTER OF General Civil Proceedings BETWEEN
PHILIP MOORE & COMPANY LIMITED
Plaintiff
AND
ANNE JOSEPHINE SURRIDGE
Defendant
Hearing: 6-10 November 2017 (further memoranda filed on 6 and
20 December 2017 and 21 February 2018)
Appearances:
S Iorns for Plaintiff
D Grove for Defendant
Judgment:
28 March 2018
JUDGMENT OF CHURCHMAN J
Pursuant to r 11.5 of the High Court Rules I direct the delivery time of this judgment is
3:30 pm on 28 March 2018
PHILIP MOORE & COMPANY LIMITED v SURRIDGE [2018] NZHC 562 [28 March 2018]
Introduction [1]
The facts [3]
Kyle Chemicals Ltd [6]
Mediation [19]
Developments after the deed of settlement executed [30]
Developments regarding Kyle [39]
6 September 2016 events [52]
7 September 2016 events [69]
9 September 2016 events [82]
The proceedings [89]
Admissibility of without prejudice communications [132]
The supplementary agreement [147]First cause of action [161]
Misleading and deceptive [171]
The Supreme Court test [180]
Misleading behaviour [182]
Second cause of action [191]
Intentional interference with a business by unlawful means [192]
Interference with a contractual relationship [202]
Third cause of action [209]
Was the defendant’s conduct an effective cause of the plaintiff ’s loss? [214]
The plaintiff’s loss [217]
The establishment of loss [221]
Additional evidence of loss [236]
Exemplary damages [243]
Third cause of action [251]Summary [269]
Introduction
[1] By all accounts Wilbur George Surridge (Lofty) was something of a curmudgeon. His children described him as someone who, at times, could be difficult to get along with, as being stubborn, unreceptive to taking advice and having scant regard for rules and regulations. He did not put much store in fully documenting legal transactions even important ones such as the creation of leases or employment agreements. He entered into business relationships on a handshake.
[2] However, although his business practices were idiosyncratic or unorthodox he managed to build a substantial and successful business manufacturing and distributing cleaning products. This case arises as a result of Lofty’s health deteriorating to the point where he was unable to continue to be actively involved in the business and is essentially a dispute between Lofty’s son Paul and daughter-in-law Marion Pearson
on the one hand and daughter Anne on the other hand as to control of the various business entities forming Lofty’s manufacturing and retailing group.
The facts
[3] The entity through which Lofty conducted his cleaning products business was a company called Philip Moore & Co Ltd (PMC). This company had originally been incorporated in 1954 with Lofty being appointed a director in 1986. PMC was based in Wellington where Lofty lived.
[4] Lofty’s business extended throughout New Zealand. In 1997, Lofty incorporated a company called Philip Moore (Auckland) Ltd (PMA) giving his daughter, Anne Surridge (the defendant in these proceedings), a 49 per cent shareholding and retaining the balance himself. In 1999, Philip Moore & Co (S.I.) Ltd (PMSI) was incorporated with Lofty owning 100 per cent of the shares. That company was based in Christchurch.
[5] In 2007, Philip Moore Taranaki Ltd was incorporated. It was based in New Plymouth. It is not relevant to these proceedings.
Kyle Chemicals Ltd
[6] The other company relevant to these proceedings is Kyle Chemicals Ltd (Kyle). It was incorporated by Lofty in 1995.
[7] At the instigation of Lofty’s son, Paul Surridge (a lawyer), the shareholding in Kyle was placed as to 90 per cent nominally in the name of Anne Surridge and 10 per cent in the name of a trust controlled by Lofty.
[8] Kyle was incorporated to operate a factory situated at Otaki which manufactured cleaning products from domestic and imported ingredients. The process of manufacturing cleaning products from potentially dangerous chemicals was seen to possibly give rise to liability both in relation to the storage and use of the chemicals and to potential action by customers should the products be defective. Kyle was formed in order to protect Lofty and PMC from such potential liability, with Anne
Surridge as the director and nominal majority shareholder. At the time of the incorporation of Kyle, Anne Surridge had few assets and it was thought that she would be regarded as not worth suing in her capacity as a director by someone who might be contemplating suing the company. Kyle itself was operated by Lofty in a negative asset situation and without the ongoing financial support of Lofty/PMC would have been insolvent.
[9] Initially, Lofty had intended that Kyle would be partly owned by Peter Kyle, the employee who assisted Lofty to establish the company. However, as a result of concerns about potential personal exposure to risk, Peter Kyle declined the opportunity to be either a shareholder or director. He was the company’s production manager for many years and was ultimately succeeded in that role by his son-in-law, Aran Ratai.
[10] In spite of the Kyle corporate structure, the factory at Otaki remained very much under Lofty’s personal control and direction.
[11] The cleaning products manufacturing business undertaken at the Otaki factory was not structured so as to make a profit and, in order to keep going, required regular and substantial advances of capital from either PMC or Lofty. The principal, although not only, customers for the products manufactured at the Otaki factory were the Philip Moore Auckland, Wellington and Christchurch businesses.
[12] The only activity undertaken by Kyle in Otaki was the manufacture of cleaning products. The administration of the company was undertaken by PMC who attended to matters such as payroll, taxation and the sourcing of chemicals from overseas. PMA provided some assistance in relation to its computer software and health and safety documentation.
[13] By 2014, age and infirmity had caught up with Lofty. He stepped back from some of his business activities. On 21 January 2014, Lofty granted an enduring power of attorney (EPOA) to lawyer Peter Connor, made a will and assigned to Marion Pearson (Paul Surridge’s wife) management rights of all his assets and gave her the option to purchase his assets.
[14] In June 2014, Marion Pearson assumed responsibility for running the Otaki factory, including operating Kyle’s bank account, paying wages and arranging payments for chemicals. Lofty had, by this time, re-established his relationship with his son Paul from whom he had been estranged for some time.
[15] Although Lofty got on well with Marion Pearson, Anne Surridge did not. Relations between Anne Surridge and Marion Pearson and her husband Paul deteriorated.
[16] As a result of Lofty’s progressive dementia, Peter Connor assumed acting under the EPOA.
[17] In order to address the dysfunctional interfamily relationships, exercising the EPOA, Peter Connor removed Anne Surridge as a director of PMC in August 2014. At the same time, he appointed Marion Pearson as a director of PMA, PMC and PMSI.
[18] In February 2015, Anne Surridge commenced High Court proceedings challenging these actions. She also commenced separate proceedings in the Family Court at Porirua challenging the EPOA under which Mr Connor had acted.
Mediation
[19] In an effort to address the issues that had been raised in various court proceedings and in an attempt to resolve the dysfunction between various family members, the parties agreed to participate in a mediation. That mediation occurred on 2 and 3 May 2016. Auckland barrister, Chris Patterson, represented Anne Surridge and her interests and Wellington solicitor, Alwyn O’Connor, represented Marion Pearson, Paul Surridge and their interests. Local lawyer, Robert Brace, who had been appointed by the Family Court to represent Lofty under the Protection of Personal and Property Rights Act 1988 (PPPR Act), attended to represent Lofty.
[20] The mediation produced what was described as an interim settlement agreement (the deed of settlement). The essence of the deed of settlement was that Anne Surridge would be given the option to purchase the 51 per cent shareholding in
PMA that Lofty owned as well as the premises in Nugent Street, Auckland (also owned by Lofty) from which PMA traded and in which Anne resided.
[21] Paul Surridge was given the option of acquiring shares in PMC and PMSI. He was also to acquire the assets of Kyle for $1. The Kyle company itself was to be wound up.
[22] A contentious issue is whether or not, in addition to the terms set out in the written deed of settlement, there was a further oral agreement reached at mediation that PMC would no longer supply product to City Cleaning (a customer of PMA which owed PMC very substantial sums of money for cleaning products manufactured and supplied by Kyle). A further alleged component of the supplementary oral agreement was that Kyle would no longer supply product to PMA.
[23] PMC held two important exclusive distribution agreements. One was with an Italian manufacturer of cleaning equipment, Ghibli & Wirbel (Ghibli), and the other was with an American chemical company, Minuteman International Inc (Minuteman) which supplied floor polishes and similar products. Both agency relationships dated back to 1997.
[24]The deed of settlement specifically recorded that:
PMA and PMC will enter into a joint venture agreement on terms yet to be agreed for the purpose of retaining all current exclusive distribution agreements with any overseas supplier with one or both of them.
[25] It was agreed that Anne would change the name and branding of PMA to a name that did not include the words “Philip’ and/or ‘Moore” or any variation of the same”. The name of PMA was changed to NZ Cleaning Supplies Ltd (NZCS) on 26 October 2016. However, on that same date, a company that had been registered with the Companies Office under the name of NZ Cleaning Supplies underwent a name change to Philip Moore (Auckland) Ltd. The sole shareholder and director of their company, which was incorporated on 25 May 2016 shortly after the mediation, was Anne Surridge’s close business associate, Debra Munro.
[26] The deed of settlement contained an obligation for the parties to it to take all steps necessary to give effect to the deed and to use their best endeavours to take such steps promptly and without delay. The deed of settlement contained further provisions requiring that, in order to be effective, any variation of the deed needed to be in writing and that the deed and the documents referred to in it constituted the entire and only agreement between the parties.
[27] By order made in the Family Court at Porirua on 20 June 2016 the Public Trust was appointed as Lofty’s property manager. That order was amended by further order dated 24 August 2016.
[28] On 15 December 2016 Lofty passed away. This ended the involvement of the Public Trust as property manager.
[29] The trustee in Lofty’s estate, Mr de Gregorio appointed John Langford Law to represent the estate in relation to legal matters.
Developments after the deed of settlement executed
[30] Pursuant to exercise of its powers as property manager following an order made by the Family Court at Porirua on 20 June 2016, the Public Trust, at Anne Surridge’s instigation, removed Marion Pearson as a director of PMA. The practical effect of this was that, although Lofty was the majority shareholder in PMA, there was now no director on the board of that company representing his interests.
[31] Implementation of the terms of the deed of settlement did not proceed smoothly.
[32] Within days of the mediation, Ebin Sebastian, who was described as General Manager of PMA, attended the Interclean Conference in Amsterdam. He approached representatives of Ghibli and, as a result of that approach, an exclusive authorised dealer agreement was entered into between Ghibli and NZCS. A copy of that document, dated 5 August 2016 was produced as exhibit A at the hearing.
[33] In evidence, Anne Surridge claimed that this was necessary “… to stop competitors obtaining distribution of the product”. There was no evidence supporting this assertion or any explanation as to why the prior arrangement with Lofty which had operated successfully for nearly 20 years was suddenly at risk from competitors in New Zealand so as to justify Anne Surridge’s unilateral act in seeking an exclusive licence for NZCS. I therefore do not accept this assertion. Neither was there anything in the deed of settlement that could justify this surreptitious action. The deed of settlement had specifically provided for the two international agency agreements to be preserved for the benefit of both parties with a joint venture agreement being entered into to achieve that.
[34] Anne Surridge did not disclose to the plaintiffs that she had secured an exclusive authorised dealer arrangement with Ghibli for her company and the plaintiff ultimately found out in October 2016 when Ghibli refused to fill an order they had placed saying that their “… official dealer in NZ is [PMA] … .”
[35] Shortly after the mediation, Anne Surridge also arranged for the Philip Moore Group website to be altered so that the site exclusively referred to Philip Moore (Auckland) Ltd with references to PMC and PMSI being deleted. When questioned as to why she had done this, Anne Surridge said “That was paid for by Philip Moore (Auckland) Ltd. We spent a fortune on it: high pixel photographs. It took absolute [sic] a few years to build.” She agreed that she had altered the site after mediation, probably in August 2016. Again, this was done by her surreptitiously without any consultation with the plaintiffs or disclosure as to what she had done. Neither was there any lawful justification for her actions.
[36] Anne Surridge, through NZCS, also approached Minuteman International Inc (Minuteman), the manufacturers of the multi-clean product and sought to transfer that agency from PMC to NZCS.
[37] In evidence, Ms Surridge claimed not to be able to remember the date upon which the Minuteman contract was taken.
[38] Again, Ms Surridge did this without any notification to the plaintiffs who only learnt about it in February 2017 when they followed up as to why an order had not been fulfilled and were informed by Minuteman International Inc that NZCS was their master distributor in New Zealand.
Developments regarding Kyle
[39] The plaintiffs allege that, in addition to the terms set out in the written settlement agreement, two further matters were agreed upon orally at the mediation. These were that neither PMC or PMSI would continue to supply a client of PMA, City Cleaning Ltd, with Kyle products. This was because City Cleaning Ltd owed some
$750,000 to PMC/PMSI for Kyle products. It was also asserted that there was an agreement that Kyle would no longer provide product to PMA.
[40] PMA continued to place orders for product directly with Aran Ratai for Kyle products following the mediation and those products were supplied. Aran Ratai was not aware, at that time, of what had transpired at mediation. When he did become aware, he was also torn between conflicting loyalties to Anne Surridge/PMA and Marion Pearson/Lofty Surridge/PMC.
[41] Anne Surridge also attempted to fill orders for PMA’s client, City Cleaning, from Christchurch based PMSI.
[42] As soon as this came to the plaintiff’s attention, their lawyer wrote to the defendant’s then barrister, Chris Patterson, by way of email sent at 3.15 pm on 23 May 2016. The relevant passages in that email state:
The interim agreement at mediation was that City Cleaning (for various reasons) would not be supplied by PMC or PMCHCH. It was also agreed that Kyle would not be supplying any chemical orders to PMA.
Ms Surridge I understand is now seeking to fill orders for City Cleaning from PMCHCH.
Could you please remind Ms Surridge of the agreement reached on these points?
[43]At 6.15 pm the same day, Chris Patterson emailed the plaintiff’s lawyer saying:
The matter is now (as of this evening) resolved. There will not be any further requests from anyone for WEL or CHCH to transact business with City Cleaning.
[44] No suggestion was made in the response from Mr Patterson that the email from the plaintiff’s lawyers of 23 May 2016 was incorrect in asserting it had been agreed at mediation that product would not be supplied to City Cleaning or that Kyle would not supply any chemical orders to PMA.
[45] In August 2016, Anne Surridge phoned Marion Pearson asking her for a “handshake deal” on the supply of Kyle Chemicals to PMA. If she had thought that, post mediation, PMA was entitled to a continuation of supply of product from Kyle, she would not have needed to do this.
[46] By email of 18 August 2016, Marion Pearson replied to Anne Surridge indicating that it wasn’t her place to agree to this or not and noting that:
During the mediation there were two elements outside of the deed that had to be agreed upon.
1. Philip Moore Wellington would no longer supply you the unpaid service of filling City Cleaning orders.
2. The supply of Kyle Chemicals to [PMA] was to cease immediately.
[47] Anne Surridge did not respond to this email. Instead, she went on the offensive. She arranged for her lawyers to prepare trespass notices trespassing Paul Surridge and Marion Pearson from the Otaki site from which Kyle Chemicals operated. These notices were prepared and signed on 22 August 2016.
[48] At the time the trespass notices were issued, the site at Otaki was owned by PMC. Typical of Lofty’s informality in relation to legal arrangements, there was no lease agreement and there was no evidence that any rent was being paid by Kyle to PMC. Although Anne Surridge was nominally the majority shareholder in Kyle and was the sole director, the majority of Kyle’s administration was at this time undertaken by PMC. Marion Pearson operated Kyle’s bank account. Kyle would not have been able to function without the extensive financial support from PMC/Lofty and, at this point, owed some $600,000 to PMC.
[49] By email of 23 August 2016, the day after she had signed the trespass notices, Anne Surridge sent an order on PMA letterhead to Kyle which totalled $52,613.71 (inclusive of GST). This was much higher than PMA’s normal monthly order of about
$12,000. Supplying this order would have cleaned Kyle out of all its raw materials stock. The letter was sent on PMA letterhead notwithstanding the fact that on 25 May 2016, NZCS had been incorporated and Anne Surridge had started using this name, including for the new business she was commencing in Wellington.
[50] The magnitude of the order was such as to cause Aran Ratai to telephone Marion Pearson and suggest that she go to the factory and see what was going on. This was telling as Aran Ratai was someone who wished to have no involvement in the dysfunctional relationship between Anne Surridge and Marion Pearson and had been prepared to supply PMA at historic order levels. He obviously appreciated that something was amiss. Marion Pearson attended the factory on 23 August and gave instructions that the order not be filled. Communicating this advice to Anne Surridge appears to have been the catalyst for her to have instructed Chris Patterson to write to the Otaki Police on 25 August requesting that the trespass notices be served on Paul Surridge and Marion Pearson.
[51] In addition to serving the trespass notices, after being unsuccessful in enlisting help from the Police, Anne Surridge instructed a local security firm, Main Security, to send guards to the factory premises and to take control over it.
6 September 2016 events
[52] On 6 September 2016, a number of things happened. Anne Surridge prepared a tax invoice on Kyle letterhead addressed to PMA purporting to be for the sum of
$41,760.40 (GST exclusive). The typed invoice had the words “Sole Director” written on it in pencil above the signature “Anne Surridge”.
[53] At Anne Surridge’s instigation, her lawyer Chris Patterson telephoned the Otaki Police twice on the morning of 6 September attempting to persuade Sergeant Slade Sturmey that Anne Surridge was entitled to act on behalf of Kyle, that the trespass notices she had issued were valid and that the orders placed by Anne Surridge on behalf of PMA should be filled. Nicola Hartwell, a staff barrister working under
Chris Patterson’s supervision, also wrote a letter to the Otaki Police dated 6 September 2016 making the same assertions.
[54] Acting on Anne Surridge’s instruction, on 6 September 2016, Chris Patterson also wrote to the Public Trust in an endeavour to seek their assistance (as Lofty’s property manager) in getting the PMA orders filled.
[55] Both of the letters written on behalf of Anne Surridge on 6 September 2016 contained a number of material misrepresentations or omissions. Neither letter mentioned that, at the mediation on 2 and 3 May 2016, PMA and Anne Surridge had agreed that PMC would buy the assets of Kyle for $1 and that all parties would use their best endeavours to promptly implement all the terms of the deed. Nor did the letters disclose that Kyle was, in fact, Lofty’s company and had been operated by him through PMC and, more recently, with the assistance of Marion Pearson, on the basis that he had absolute control of the company.
[56] These were significant omissions. Neither did the letters refer to the correspondence on 23 May 2016 where Alwyn O’Connor had reminded Chris Patterson of what he said was the “interim agreement at mediation” that Kyle would not supply City Cleaning or PMA. The letter from Chris Patterson to the Public Trust made a number of representations which were untrue. It said:
Anne Surridge has continued to run both [PMA] and Kyle Chemicals during this transition period (since the appointment and involvement of the Public Trust) on a status quo and business as usual basis.
[57] The only company in the Philip Moore group that Anne Surridge had any involvement in running was PMA. She had not run Kyle during this period at all.
[58]The letter also said:
She is doing absolutely everything in her power to ensure that the interests in both Kyle Chemicals and [PMA] are not adversely affected, and therefore the interests for Lofty Surridge are likewise not adversely effected.
[59]This claim was also false, as was the claim:
The fulfilment of the chemicals order is absolutely critical to enable [PMA] to discharge its contractual obligations to its customer. [PMA] cannot obtain any alternative supplier. It is therefore inevitable that [PMA] will suffer significant financial loss unless the order is immediately fulfilled and supplied to [PMA]. As a consequence Lofty Surridge’s interests will be prejudiced.
[60] The chemicals were not required for PMA at all, but rather for the new business that Anne Surridge was setting up to operate from a building in Kaiwharawhara, Wellington. That company was going to be in direct competition with PMC.
[61] Lofty was the owner of PMC. It was directly contrary to his interests as the owner of shares in PMC for Kyle (a company that he was the beneficial owner of and which he had, for its entire life, run as his business) to be suppling large amounts of cleaning products manufactured at or below cost, to a direct competitor.
[62] It was also definitely not in PMC’s and therefore Lofty’s interests for Kyle to be cleaned out of chemical stocks and therefore unable, at least in the short term, to adequately supply PMC, PMSI or other customers.
[63] At [86] of her brief of evidence, Anne Surridge admits that the 23 August 2016 order (which was the one inadvertently delivered to PMC rather than Anne Surridge’s new Wellington business) was intended, not for PMA but “… was supposed to be delivered to [NZCS’s] Wellington premises”.
[64] The supply by Kyle of large quantities of product to a Wellington direct competitor of PMC could not be said to be maintenance of the “status quo” or “business as usual” as represented by Chris Patterson in his letter of 6 September 2016 to the Public Trust.
[65] At 2.36 pm on 6 September 2016, Alwyn O’Connor wrote to Chris Patterson’s office in response to the letters Chris Patterson had sent to the Public Trust and Otaki Police pointing out the errors of fact in Chris Patterson’s letters.
[66] Mr O’Connor again referred to the alleged agreement reached at mediation that Kyle would not supply PMA with product. No direct response was made to that allegation.
[67] Chris Patterson’s letter of 6 September 2016 to the Otaki Police also wrongly implies that there was a lease agreement in place between Kyle and PMC. It claims:
Kyle has a legal entitlement as a tenant to occupy the Property pursuant to a lease granted by PMC a number of years ago (approximately 25).
[68]There was and is no such lease.
7 September 2016 events
[69] The various submissions and misrepresentations in Chris Patterson’s letter of 6 September 2016 clearly influenced the Public Trustee. At 11.04 am on 7 September 2016, Clare Martin, a Trust Solicitor at the Public Trust, wrote to Sergeant Slade Sturmey claiming, among other things:
Please be advised Marion Pearson has no control over Kyle Chemicals at this juncture and should not be interfering in any way, shape or form with that business or its running. Therefore Marion Pearson has no rights to and should not be instructing staff with Kyle Chemicals (including Aran Rati [sic]) in any way to prevent orders from being fulfilled.
[70] With the blessing of the Public Trust, Anne Surridge also seized control of Kyle’s bank account.
[71] The statement in Clare Martin’s letter on behalf of the Public Trust that “Marion Pearson has no control over Kyle Chemicals” was incorrect. Lofty had always run Kyle Chemicals on the basis that it was his business and he had appointed Marion Pearson to run it for him. She had continued to do that consistently both before and after the mediation.
[72] At 10.30 am on 7 September 2016, PMC’s lawyer emailed Chris Patterson pointing out the errors of fact in Chris Patterson’s correspondence, noting that Anne Surridge and PMA were engaging in misleading and deceptive conduct and committing the tort of interference with PMC’s business.
[73] Chris Patterson replied to that email at 12.08 pm the same day in an email which began with the statement:
All of my communications with third parties had been on the basis of instructions that I have received from my clients in circumstances where I had no reason to believe that those instructions were false.
[74] I do not accept this statement. Chris Patterson had attended the mediation. He knew that it had been agreed that Anne and Lofty would sell Kyle’s assets to PMC for
$1 and that Kyle would be removed from the Companies Register. He knew that the property at Otaki was owned by PMC. He knew that Marion Pearson, not Anne Surridge, was the person Lofty had appointed to be responsible for Kyle. He knew that at mediation all parties had agreed to formalise this by transferring Kyle’s assets to PMC for the nominal sale of $1 and removing Kyle from the register.
[75] Chris Patterson replied to Alwyn O’Connor’s letter with an email of 1.48 pm on 7 September 2016. That email contained the statement:
My clients have merely acted in a manner consistent with their practice during the past two decades. Importantly, they have acted in a manner that protects Wilbur (Lofty) Surridge’s interests.
[76] Neither of these statements are true. The “consistent practice” for the past two decades was that Lofty had run Kyle and, for the two most recent years, had appointed Marion Pearson to run it for him. The suggestion that Anne Surridge’s actions in attempting to seize control of the factory and force it to supply large quantities of product to her new Wellington business was somehow in Lofty’s interest is completely unfounded.
[77] At 5.19 pm on 7 September, PMC’s lawyer wrote a letter to Chris Patterson which included the statement:
At the heart of the issue is your client’s wish to depart from an oral agreement made at mediation (that PMA would not be supplied chemicals from the Otaki factory run by PMC).
[78]No response was ever made to that allegation.
[79] In addition to having Chris Patterson write to the Public Trustee on 7 September, Anne Surridge met with Mike Pynenburg and Helen Rhodes of the Public Trust in Wellington to attempt to persuade them she controlled Kyle and that Kyle should be directed to fill NZCS’s order.
[80] After that meeting, Anne Surridge sent an email directly to Marion Pearson, Alwyn O’Connor (PMC’s solicitor) and Stephen Iorns (PMC’s barrister). The relevant passage in that email says:
I met with Mike and Helen from the Public Trust yesterday. They reiterated the fact that they were Property Manager for Lofty’s affairs and must therefore act in his best interest.
As Lofty is a shareholder and director of Kyle Chemicals Ltd, the Public Trust do not feel it is in Lofty’s best interest to stop supply to Kyle’s largest customer PMA. Mike confirmed the Public Trust is of the view that at this stage “everything is to be treated as the status quo” until valuations are completed and the deed of settlement finalised. Therefore it is the Public Trust’s wish that PMA continued to be supplied goods at the originally agreed price, on the original payment terms of 20th following month until settlement. (emphasis in original)
[81] The statement that Lofty was a “shareholder and director Kyle Chemical’s Ltd” is untrue. Lofty was never a director; Anne Surridge was appointed as his nominee and was the sole director. Neither did he ever own shares in his own name. They were owned by Anne Surridge as his nominee (as to 90 per cent) and by a trust (as to the remaining 10 per cent).
9 September 2016 events
[82] By email of 8.23 am on 9 September 2016, Stephen Iorns wrote to Chris Patterson pointing out that Anne Surridge’s security guards were still on site preventing orders leaving the factory and indicating that if the security guards were not stood down by 10 am injunctive relief would be sought.
[83] By email of 9.45 am, Chris Patterson replied indicating that he had spoken with Anne Surridge and saying “Anne denies causing any business interruption to Kyle Chemicals … The security firm had been instructed to stand down”.
[84] The fact that Anne Surridge could deny having caused any business interruption when her security guards were preventing the factory operating normally, she had seized control of the bank account and was encouraging the police to enforce the trespass order she had served on Marion Pearson, indicates a startling indifference to the truth.
[85] As it turned out, the claim that the security guards had been stood down also proved to be untrue.
[86] By email of 9.29 am on 9 September, Anne Surridge wrote directly to Stephen Iorns (with a copy to others) contradicting that statement in Chris Patterson’s email and saying: “The security guard has NOT been stood down, but will be as soon as we can all agree to business as usual.”
[87] At 2.30 pm on 9 September 2016, the plaintiff applied on a without notice basis seeking an injunction which was granted at 6.27 pm that day restraining Anne Surridge and Main Security Ltd from interfering with the business operations at 42 Riverbank Road, Otaki.
[88] Anne Surridge has never moved to have that injunction set aside and it remains in place.
The proceedings
[89] The plaintiff filed an amended statement of claim on 8 May 2017. After referring in detail to the provisions of the deed of settlement reached at the May 2016 mediation, the amended statement of claim pleaded: “Following the death of Lofty Surridge, the deed of settlement has been frustrated”. Notwithstanding that pleading, the case proceeded on the basis that the agreements recorded in the deed of settlement (and the alleged oral supplementary agreement) were still effective and enforceable.
[90] Three separate causes of action were pleaded with the second cause of action having two alternative pleadings.
[91] The first and third causes of action alleged misleading and deceptive conduct in trade and a breach of s 9 of the Fair Trading Act 1986.
[92] The first cause of action alleged that the defendant was, in relation to her interactions with staff at Kyle, the Otaki Police, Main Security Ltd and the Public Trust, acting either in her capacity as a Director of PMA or in pursuit of her new Kaiwharawhara venture (NZCS) set up in competition to the Philip Moore Group.
[93] It was alleged that her communications with these entities were misleading and deceptive in that she did not disclose her lack of involvement with the operations of the Otaki chemical factory, the true structure of the Philip Moore Group or the supplementary agreement that PMA would not obtain product from PMC or Kyle.
[94] Various heads of loss were pleaded including $20,000 legal fees said to have been incurred in obtaining injunctive relief; loss of goodwill caused by customers’ orders being unable to be fulfilled; locksmith expenses ($172); weekend transport to trade customers who usually collected product ($1,200); security guard costs to watch premises while occupied by Main Security Ltd ($2,559.90) and overtime wages paid to on-site staff for extraordinary opening hours ($385); loss of sales ($250) and unspecified losses in relation to “loss of the ability to operate Kyle”.
[95] Although not expressly pleaded, this cause of action clearly rests on the assumption that, notwithstanding that Kyle Chemicals Ltd was a separate legal entity to PMC, it was effectively PMC’s business that was being operated through Kyle and, therefore, it was PMC that was able to claim the losses.
[96] The first alternative pleading is an allegation of “intentional interference with a business through unlawful means”.
[97] It was alleged that by submitting orders that would have cleaned Kyle out of product and by instructing Main Security Ltd to prevent orders from leaving the factory, the defendant intended to cause loss to the plaintiff.
[98] It was alleged that, from 5 September 2016 until the injunction was obtained on 9 September 2016, PMC was prevented from “fulfilling orders”. The unlawful aspect of the defendant’s conduct relied on was said to be the defendant’s attempt to seize control of the chemical factory through her misleading and deceptive conduct.
[99] The same losses were pleaded in relation to the first cause of action with the exception that there was no reference to loss of ability to enjoy tax losses or loss of goodwill associated with the Kyle name.
[100] Exemplary damages were also sought in the sum of $50,000 “due to the wilful and prolonged nature of the conduct and the impact it would have had on the Philip Moore Group had an injunction not been granted.”
[101] The alternate pleading in the second cause of action alleged “interference with contractual relationship”.
[102] It was alleged that by instructing Main Security Ltd to prevent products leaving the chemical factory the defendant prevented the plaintiff from performing its contractual relationships with third parties. The third parties were said to be PMC’s “… trade customers and other members of the Philip Moore Group.” The losses pleaded were the same as the losses alleged in relation to the alternate pleading of intentional interference with the business through unlawful means.
[103] The third cause of action alleged misleading and deceptive conduct in trade and focused on the alleged breach of the obligation in the deed of settlement of 3 May on PMA and PMC to enter into a joint venture agreement for the purpose of retaining all current exclusive distribution agreements with any overseas supplier and the corresponding obligation on PMA and PMC to “… use their best endeavours” and to “act in good faith to negotiate and settle the terms of the joint venture agreements”.
[104] It was alleged that at the relevant times the defendant was acting either in her capacity as a Director of PMA or in pursuit of her new venture set up in competition to the Philip Moore Group. The losses alleged to flow from this conduct were said to be: the difference between the cost price of Ghibli products and those charged by PMA to PMC; the loss to the goodwill of PMC by being unable to fulfil orders from existing clients and the cost of sourcing new exclusive supplies of vacuum cleaners and cleaning products. No detail of these losses was pleaded but it was said: “The quantum of this loss will be confirmed in due course.”
[105] The amended statement of claim also contained a prayer for relief that was not associated with any one of the three pleaded clauses of action. It involved, in the alternative, an application for a declaration that the defendant was a director of Kyle “by nomination only” and that Kyle was “effectively controlled by the plaintiff” or,
alternatively, judgment in a sum of money “to reflect the total loss of the beneficial use of Kyle Chemicals Ltd as a subsidiary of the plaintiff”. No precise figure was put on this alleged loss with the pleading being that it was “… yet to be quantified but estimated at $600,000 which consists of the outstanding intercompany loans and goodwill”.
[106] The defendant filed a statement of defence to the amended statement of claim on 14 June 2017.
[107] It admitted that PMC and PMA were formerly part of the Philip Moore Group but then pleaded that “… the association was concluded pursuant to a Settlement Deed entered into on 16 May 2016”.
[108] It claimed that Lofty “… to a limited extent and with the assistance of others including the defendant … ” managed PMC, PMA, PMSI and Kyle. It further pleaded that “… pursuant to the Settlement Deed, Kyle should not be operating, and should be struck off the Companies Register”.
[109] The statement of defence denied that PMC owned the chemical factory at Otaki, importing raw chemicals and creating proprietary cleaning products sold under the Kyle Chemicals brand, but asserted “rather, Kyle previously manufactured cleaning products at 42 Riverbank Road, Otaki”. It specifically denied that PMC was historically responsible for the operation of the chemical factory, claiming that “… the only relationship that PMC has historically held with Kyle is that it is one of three customers, the other two being PMSI and NZCS”.
[110] It denied that PMC was responsible for maintaining Kyle’s Companies Office registration, company accounts, bank accounts and the daily operation of the company. It admitted that Kyle operated as a loss but denied intercompany loans from Kyle to PMC of approximately $600,000. It admitted that members of the Philip Moore Group obtained products from the chemical factory at and sometimes below cost.
[111] It was admitted that Anne Surridge signed the deed of settlement arising from the mediation both in her personal capacity and as a director of PMA. The existence
of an oral supplementary agreement in relation to the supply of chemicals by PMC or Kyle to PMA and supply of chemicals by PMSI to City Cleaning Ltd was denied.
[112] It was expressly admitted that the existence of the supplementary agreement was raised by Alwyn O’Connor with Chris Patterson shortly after the mediation and its existence was not disputed by Chris Patterson. It was pleaded that:
… all actions and/or omissions by Christopher Patterson and/or NZCS were in furtherance of the commercial objectives of the Defendant and NZCS rather than in compliance with the alleged supplement [sic] agreement.
[113] It was expressly admitted that the defendant did not dispute a communication from Marion Pearson referring to the alleged supplementary agreement and claims that this was because “… the Defendant decided it was not in her or the interests of NZCS to respond to Marion Pearson”. It was asserted that cl 45 of the Deed of Settlement limited the sum of money payable by PMA to PMC in respect of PMA debts to Kyle to a sum no greater than $115,000 rather than the $150,000 pleaded in the amended statement of claim.
[114] There was a denial that the deed of settlement had been frustrated and reference to the obligation in [59] to use best endeavours to give effect to the terms of the deed of settlement.
[115] Anne Surridge denied the pleading in [38] of the amended statement of claim that she personally had contacted the General Manager of the chemical factory to arrange ongoing supply of Kyle chemicals to PMA saying that it was an employee of her company NZCS who had done this.
[116] It was admitted that Marion Pearson had written to Anne Surridge on or about 18 August 2016 and that the correspondence contained an allegation of the existence of the supplementary agreement including the term that supply by Kyle of chemicals to PMA/NZCS was to cease but the existence of the supplementary agreement was not admitted.
[117] It was expressly admitted that Anne Surridge “circumvented PMC” by ordering Kyle chemicals direct from the factory manager but claimed that this was “…
at all times and furtherance of seeking the completion of NZCS’ chemical order being consistent with her obligations to Kyle, NZCS and Public Trust as Property Manager of Wilbur Surridge.” It was denied that the order for product totalling $52,618.71 would have cleared the chemical factory product out for some three months.
[118] It was admitted that Anne Surridge attempted to seize control of Kyle but it was said that this was done: “… in her capacity as both the sole director of NZCS and Kyle and in the best interests of both NZCS, Kyle and the Public Trust as the Property Manager of Wilbur Surridge …”. It was admitted that she asserted a legal right to occupy the premises at Otaki and it was again claimed that this was in the interests of NZCS, Kyle and the Public Trust.
[119] It was admitted that Anne Surridge had served trespass notices in an attempt to prevent Marion Pearson and Paul Surridge from attending the chemical factory and that she had arranged to have the locks changed, instructed security guards to stop product leaving the factory and instructed her lawyer to write to the Otaki Police seeking to have them enforce the trespass notices and arrest Ms Pearson and Mr Surridge.
[120] She admitted seizing control of Kyle’s bank account and proposing to pay PMC for products supplied by Kyle by making a payment into the bank account of which she had seized control.
[121] In relation to the allegations involving Ghibli, she admitted the pleading that she had authorised an employee of PMA to enter into an exclusive supply agreement with Ghibli but she claimed that the historical relationship with Ghibli had been with NZCS rather than the plaintiff. She admitted that PMC had paid for product from Ghibli but said that prior to Lofty’s incapacity she had assumed the role of having responsibility for international ordering.
[122] It was admitted that Ebin Sebastian, who as PMA’s general manager reported directly to her, sometime between 7 and 14 May 2016 had secured an exclusive supply agreement between PMA and Ghibli.
[123] It was denied that, following the securing by PMA of the exclusive distribution agreement, PMA charged PMC significant mark-ups for Ghibli products, interrupted supplies or did not supply components for repair work.
[124] In relation to Minuteman, it was admitted that she authorised an employee of PMA to enter into an exclusive supply agreement. She denied that there had been an exclusive supply arrangement between Minuteman and Philip Moore Group and said that the relationship was between Minuteman and PMA. It was expressly admitted that PMC had been able to order directly from Minuteman prior to PMA securing the master distributorship.
[125] In relation to the first cause of action, she admitted that she was acting as a director of NZCS, denied that there was any new venture, and said that NZCS was not restrained from competing against the plaintiff pursuant to the deed of settlement.
[126] It was denied that the defendant’s representations referred to at [77] of the amended statement of claim were misleading or deceptive.
[127] The defendant denied that filling of the orders she had placed on behalf of PMA would have cleaned the chemical factory out of product and denied that her instructions to Main Security were for the purposes of preventing any of the plaintiff’s orders leaving Kyle. She denied attempting to seize control of the chemical factory through misleading and deceptive conduct or unlawfully interfering with the plaintiff’s business.
[128] It was expressly admitted that she instructed Main Security to “prevent persons entering Kyle” but denied having instructed Main Security “to prevent products leaving”. It was denied that this prevented the plaintiff from performing its contractual relationships with third parties including trade customers and other members of the Philip Moore Group.
[129] In relation to the third cause of action, the defendant admitted that she was acting in her capacity as a director of NZCS; she admitted that pursuant to the deed of settlement that she had agreed to enter into a joint venture agreement and said that the
terms of a joint venture “were yet to be agreed”. She denied the pleading that until the joint venture was settled the exclusive supply agreements would carry on as they always had. She denied that her conduct in obtaining exclusive distribution contacts with Ghibli and Minuteman was misleading or deceptive.
[130]Certain affirmative defences were also pleaded including:
(a)the entire agreement clause in the deed of settlement;
(b)an allegation that the relief sought in relation to Kyle Chemicals Ltd was prohibited by the deed of settlement;
(c)that if the Court found that the supplementary agreement was reached during mediation then no consideration was provided by the plaintiff for any promises by the defendant;
(d)that it was an implied term of the supplementary agreement that there was an obligation not to order product except in a situation where the order was in the best interests of Lofty;
(e)that the defendant was not a party to the supplementary agreement with the party being PMA/NZCS;
(f)that the defendant’s actions were not causative of any loss to the plaintiff;
(g)that if the defendant engaged in misleading and deceptive conduct this did not cause any loss to the plaintiff; and
(h)that if there was a finding of interference with business by unlawful means or a breach of contractual relations then this did not cause loss to the plaintiff.
[131] By way of reply, the plaintiff raised estoppel arguments alleging that the defendant was estopped from denying the existence of the supplementary agreement.
Admissibility of without prejudice communications
[132] A number of issues as to admissibility of evidence arose during the hearing and were dealt with. The plaintiff led extensive evidence about what had occurred during the May 2016 mediation with the purpose of establishing the existence, as part of the mediated settlement, of the supplementary agreement.
[133] Evidence was also sought to be led of communications between the parties and/or their representatives following the mediation for the purpose of establishing that the plaintiff had immediately and consistently asserted the existence of the supplementary agreement and the defendant had not, for many months, denied the terms of the supplementary agreement.
[134] During the course of the hearing, particular objection was taken to passages in the evidence of two witnesses for the plaintiff. The first was [12]–[14] of the brief of evidence of Alwyn O’Connor and the second was [13]–[19] of the brief of evidence of Chris Patterson who appeared for the plaintiff under subpoena. I ruled that the evidence would be provisionally admitted on the basis that all of the evidence needed to be considered in context before it could be decided whether one of the exceptions to s 57 of the Evidence Act 2006 applied.
[135] The starting point in relation to issues of privilege regarding mediation or without prejudice communication is s 57 of the Evidence Act. Section 57(1) provides that:
57 Privilege for settlement negotiations or mediation
(1) A person who is a party to, or a mediator in, a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of any communication between that person and any other person who is a party to the dispute if the communication—
(a)was intended to be confidential; and
(b)was made in connection with an attempt to settle or mediate the dispute between the persons.
[136] This section creates two separate privileges, both related to without prejudice communications or preparations for those communications.1
[137] However, the privilege created by s 57(1) is not absolute. Section 57(3)(b) specially provides that s 57 does not apply to:
… evidence necessary to prove the existence of [an agreement settling the dispute] in a proceeding in which the conclusion of such an agreement is in issue …
[138] Section 57 was also amended on 8 January 2017 by s 21(4) of the Evidence Amendment Act 2016 by the insertion of a new subs (3)(d) which provided that s 57 did not apply to:
the use in a proceeding of a communication or document made or prepared in connection with any settlement negotiations or mediation if the court considers that, in the interest of justice, the need for the communication or document to be disclosed in the proceeding outweighs the need for the privilege, taking into account the particular nature and benefit of the settlement negotiations or mediation.
[139] There were a number of common law exceptions to the without prejudice rule including ambiguity and impropriety.2 Morgan v Whanganui College Board of Trustees3 confirmed that unlawful conduct could never attract the protection of the without prejudice rule, as did Bradbury v Westpac Banking Corporation.4 Although other common law exceptions are not specifically referred to in s 57, there is no doubt that they continue to apply5
[140] The application of the common law exceptions has been justified on the basis that they are best seen as examples outside the true scope of privilege rather than as exceptions to it.6
1 See Cross on Evidence New Zealand Edition Butterworths para EVA57.4.
2 See the decision of the UK Supreme Court in Unilever plc v The Proctor & Gamble Co [2001] 1 All ER 783 at 792 and the decision of the New Zealand Court of Appeal in Morgan v Whanganui College Board of Trustees [2014] NZCA 340.
3 Morgan v Whanganui College Board of Trustees, above n 2, at [32].
4 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [83].
5 See Sheppard Industries Ltd v Specialized Bicycle Components Inc [2011] 3 NZLR 620 (CA) at [15].
6 See Cross on Evidence at EVA57.9 and New Zealand Institute of Chartered Accountants v Clarke
[2009] 3 NZLR 264.
[141] The New Zealand courts have permitted evidence relating to a mediation to be tendered to establish that, notwithstanding a requirement in a mediation agreement that it must be in writing, that an oral agreement was concluded. The Court of Appeal overturned the High Court and held that it was not possible to contract out of the exception to the without prejudice rule in s 57(3)(b) and held that evidence of what occurred during the course of the mediation going to the issue of whether the parties reached a binding oral agreement at the conclusion of the mediation could therefore be adduced.7
[142] The issue of the impact of the “entire agreement” clause in the deed of settlement is separate to issues arising under s 57 of the Evidence Act. Counsel for the defendant, Mr Grove, in his closing submissions referred to the decision of the Court of Appeal in PAE (New Zealand) Ltd v Brosnahan8 and acknowledged that, in that case, Harrison J delivering the judgment for the Court, had observed that due to s 4(1) of the Contractual Remedies Act 1979, entire agreement clauses are neither absolute nor conclusive, and the courts have a wide discretion to refuse to uphold them where it is not “fair and reasonable that the provision should be conclusive”.9
[143] Mr Grove referred to s 5D of the Fair Trading Act 1986. This section authorises certain parties in trade to contract out of the Fair Trading Act and specifically, in sub (2), refers to “entire agreement” clauses.
[144] However, in order to be effective in contracting out of the Fair Trading Act, an entire agreement clause must be: in writing; relate to goods, services, or an interest in land which are both supplied and acquired in trade; all parties to the agreement must be in trade and agree to contract out of s 9, 12A, 13, or 14(1); and that it is fair and reasonable that the parties are bound by the provision of this agreement.10
[145] On the face of things, this clause cannot apply to the deed of settlement. Not all parties to the deed were “in trade” (the parties specifically included various members of the Surridge family); there is no indication that the parties applied their
7 Sheppard Industries Ltd, above n 5, at [42]–[53].
8 PAE (New Zealand) Ltd v Brosnahan [2009] NZCA 611.
9 At [15].
10 Fair Trading Act 1986, s 5D(3).
minds at all to the Fair Trading Act, let alone specifically agreed to contract out of s 9, 12A, 13 or 14(1); and it is difficult to see how it could be said to be fair and reasonable for the obligations under the Fair Trading Act to be excluded.
[146] Mr Grove submitted that the courts have held that entire agreement clauses “… can negative an otherwise misleading pre-contractual statement, by making it unreasonable for the other party to rely on such a statement”. However, this misses the point. This case is not about a misleading pre-contractual statement but about allegedly misleading and deceptive conduct occurring after the deed of settlement was entered into. For that reason, the decision in PAE (New Zealand) Ltd v Brosnahan11 and the Court of Appeal decision in the same case12 are irrelevant.
The supplementary agreement
[147] Much of the evidence called by both parties focused on whether a supplementary agreement had been reached and whether otherwise privileged communications could be referred to in order to establish that such an agreement had, in fact, been concluded and what its terms were. Notwithstanding this, both counsel, in their closing submissions, questioned whether, in order to dispose of the case, I needed to make findings as to the existence, or otherwise, of the supplementary agreement. The reasons for their submissions differed. Mr Grove for the defendant said there was no claim for damages from breach of the supplementary agreement and its existence or otherwise was therefore irrelevant, whereas Mr Iorns said that the relevance of the supplementary agreement was as to ownership of Kyle and as this had now been conceded, the court did not need to make a finding on the existence or terms of the supplementary agreement.
[148] A review of the amended statement of claim reveals that although breach of the alleged supplementary deed of settlement is pleaded at [37], [52] and [56], no specific relief is sought as a remedy for its breach. However, the existence of the supplementary agreement is potentially relevant to the claim under the Fair Trading Act, so I am obliged to determine whether such an agreement was entered into.
11 PAE (New Zealand) Ltd v Brosnahan HC Wellington CIV-2005-485-835, 10 September 2008.
12 PAE (New Zealand) Ltd v Brosnahan, above n 8.
[149] In assessing whether there was a supplementary agreement, the first is to ascertain whether all of the evidence tendered in support of its existence is admissible. That is because some of the evidence relied on by the plaintiff related to admissions allegedly made by the defendant’s solicitor in conversations that were agreed to be “off the record”.
[150] These conversations are referred to at [12]–[14] in Alwyn O’Connor’s evidence and [13]–[19] in Chris Patterson’s evidence. I have concluded that the material in these passages is inadmissible. It was undisputed that, at the start of the telephone conversation between Mr Patterson and Mr O’Connor on 3 April 2017 Mr Patterson sought to talk to Mr O’Connor “off the record regarding a number of affairs concerning the Deed of Settlement”. Mr O’Connor obtained specific instructions from Mr Iorns that he was authorised to hold such a discussion. Although Mr O’Connor disclaimed having any instructions to act for the plaintiff, the reality was he had been contacted in his capacity as the plaintiff’s legal representative and had sought and obtained specific instructions from the plaintiff’s barrister to engage in such an off-the-record discussion. There are strong public policy reasons why, in those circumstances, Mr O’Connor should be bound to his agreement that the contents of the discussion would be “off-the-record”.13 The only exception to this would be those parts of the inadmissible passages that clearly related to the alleged supplementary agreement and which would not be privileged pursuant to s 57(3)(b) of the Evidence Act.
[151] However, I am satisfied that there is sufficient evidence other than the contents of the “off the record” discussions that establishes the existence of the supplementary agreement. I am satisfied that the issues both of non-supply to City Cleaning and non- supply to PMA were discussed and agreed at the mediation but not recorded in the deed of settlement.
[152] The reasons why I have reached this conclusion are that the whole purpose of the mediation was to address the level of dysfunction and antagonism that existed between Anne Surridge on the one hand and Marion Pearson and Paul Surridge on the
13 Morgan v Whanganui College Board of Trustees, above n 2, at [11].
other hand. The agreement reached allowed the parties to completely sever their business relationship so that, other than in relation to the agreement to enter into a joint venture so that the benefit of the Ghibli and Minuteman exclusive distribution agreements would be held for both entities jointly, they would not be obliged to have anything to do with one another on any form of cooperative basis and indeed, were free to compete with each other as vigorously as they wished.
[153] I am also heavily influenced by the fact that, as detailed above, almost immediately after the mediation, the existence of the asserted supplementary agreement was raised, initially by Alwyn O’Connor and then subsequently by Marion Pearson and, over many months, was not denied. Given the antagonistic nature of the relationship between Anne Surridge and Marion Pearson/Paul Surridge, it is inconceivable that if the existence of such a supplementary agreement had been wrongly asserted by Marion Pearson/PMC, it would not have been immediately and vigorously denied.
[154] I also note that the email from Mr O’Connor of 23 May 2016 asserted unequivocally that:
The interim agreement at mediation was that City Cleaning (for various reasons) would not be supplied by PMC or [PMSI]. It was also agreed that Kyle would not be supplying any chemical orders to PMA.
[155] Chris Patterson responded by saying: “The matter is now (as of this evening) resolved.”
[156] This apparent concession was explained by Mr Patterson saying that: “At the time when I was reading Mr O’Connor’s email, I overlooked a sentence ‘It was also agreed that Kyle would not be supplying any chemical orders to PMA’.”
[157] If there had been no supplementary agreement, then Mr Patterson would have challenged the assertion that part of that agreement was that City Cleaning would not be supplied by PMC or PMSI. The fact that he did not do that leads to the conclusion that he accepted that there was such a supplementary agreement.
[158] Mr O’Connor’s email clearly refers to Kyle chemicals both in the subject matter heading and in its text. If there had been no agreement at mediation that PMA would not be supplied with Kyle chemicals then the reference to the non-supply of Kyle products to PMA is something of such magnitude that it could not have been missed.
[159] As well as these factors, I am also influenced by the fact that Anne Surridge telephoned Marion Pearson to ask for a “handshake agreement” for Kyle chemicals to be supplied to PMA. This would not have been necessary if there had been an agreement that such supply was to continue.
[160] I therefore find that the parties agreed to vary the terms of the settlement agreement to incorporate the terms of the supplementary agreement into it.
First cause of action
[161] The first cause of action relies on s 9 of the Fair Trading Act. That section provides that: “No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”
[162] Such an offence is one of strict liability in the sense that intent is not a necessary element of the offence.14
[163] A door through which those who would access s 9 must pass is a narrow one, in the sense that the person against whom the breach is alleged must be “in trade”.
[164] The Courts have taken a broad approach to interpreting the meaning of the word “in trade”. In Body Corporate 202254 v Taylor, the Court of Appeal confirmed that a broad approach was appropriate.15
[165] The issue here is whether or not Anne Surridge (as opposed to PMA) could be said to be in trade.
14 See Roger Thornton (ed) Fair Trading (looseleaf ed, Thomson Reuters) at [FT9.03].
15 Body Corporate 202254 v Taylor [2009] 2 NZLR 17 (CA) at [78].
[166] Mr Iorns referred me to a passage from Commercial Law in New Zealand on the Fair Trading Act which said:16
A person who owns shares in a company that is “in trade” is not from that fact alone “in trade”, but when such a person takes an active part in the activities of the company as an employee, agent or director then the person may be acting “in trade” and therefore liable for his or her conduct.
[167] In the present case, Anne Surridge acknowledged that at all material times she was acting on behalf of PMA/NZCS.
[168] I find as a fact that, at all times relevant to these proceedings, Anne Surridge was in fact the alter ego of PMA/NZCS and that she was personally responsible for either carrying out herself or directing others to carry out all of the acts claimed by the plaintiff to have given rise to liabilities.
[169] Mr Grove referred me to another proposition set out in Commercial Law in New Zealand at chapter 9.3. This was a passage that says:17
Where a member or employee or agent of a corporation of other composite entity indulges in misleading or deceptive conduct towards another employee, agent or member, there is no relevant conduct “in trade”. The statute is aimed at the protection of consumers, not the regulation of the internal affairs of commercial entities.
[170] Was this then merely conduct towards another employee or agent of the same organisation devoid of any element of consumer protection? There was some common shareholding between PMA/NZCS, PMC and Kyle, however, it was clear that the purpose of the deed of settlement was to sever the connection between PMA/NZCS and the other entities. It is also clear that, through Kyle, PMC sold product to PMA and to PMA’s customers. I am satisfied that, on that basis, the conduct complained about in this case could not be said to simply be internal conduct between employees or agents of the same entity and that it had a sufficient consumer element to warrant the application of the Fair Trading Act.18
16 Henry Holderness (ed) Commercial Law in New Zealand (looseleaf ed, LexisNexis) at [9.3.1(d)] citing Megavitamin Laboratories (NZ) Ltd v Commerce Commission (1995) 6 TCLR 231.
17 At [9.3.1(a)].
18 Even entities which are not primarily “in trade” have been held by the Courts to be subject to the Fair Trading legislation if an incidental aspect of their activity is of a trading nature. This has included activities relating to the protection or promotion of business: Hay v Chalmers (1991)
Misleading and deceptive
[171] The next question for determination is whether the conduct complained of in the first cause of action falls to be characterised as “misleading and deceptive” under s 9.
[172] The first cause of action relates to communications by the defendant, both personally and through her lawyer Chris Patterson, with the Otaki Police, Main Security Ltd and the Public Trustee with the intent of enlisting their assistance to compel PMC/Kyle to supply PMA/NZCS with product.
[173] It is not alleged that the plaintiff was misled or deceived by any of the representations made by the defendant but that third parties were. It therefore needs to be established whether the Fair Trading Act permits an entity other than the person to whom the misleading or deceptive conduct is addressed to seek a remedy for it and, if so, what remedy is authorised by the statute.
[174] There is no doubt that third parties (i.e those other than the people to whom the misleading and deceptive conduct is addressed) can bring proceedings under s 9.19
[175] It is also clear that where a person has suffered or is likely to suffer loss or damage by the conduct of another, s 43(3)(f) empowers the Court to make an order directing the person engaging in the misleading or deceptive conduct to pay the other person the amount of the loss or damage.20
[176] The issue in this case is whether, given the consumer protective nature of the Fair Trading Act, for a third party who has suffered losses as a result of misleading or deceptive conduct to be able to successfully sue, they need to show that the misleading or deceptive conduct was addressed to the public or a section of the public.
3 NZBLC 102,000 as well as cases such as Hughes v Western Australian Cricket Association (Inc)
(1986) 69 ALR 660.
19 See Taylor Bros Ltd v Taylors Group Ltd [1988] 2 NZLR 1 (CA) and Neumegen v Neumegen & Co
[1998] 3 NZLR 310 (CA).
20 See Thornton, above n 14, at [FT43.13].
[177] While it is generally accepted that the Act’s primary purpose is to contribute to a trading environment in which the interests of consumers are protected,21 another purpose is to allow businesses to compete effectively.22
[178] In the case of Darrell McGregor (Contractor) Ltd v Mountain Lake Holdings Ltd, Mountain Lake had engaged PL Design Ltd for design work and pricing on a Queenstown building development.23 McGregor Contracting, acting on the request of Mr Lewis (PL Design Ltd’s director), placed fill on a site even though no contract for earthworks had been let. Mountain Lake sued Mr Lewis under the Fair Trading Act for falsely representing that he had the authority to make such a request. This was a situation in which a misrepresentation was made to a party other than the party claiming loss. The Judge said: “… it is well-established that the Fair Trading Act is not confined to conduct which misleads or deceives consumers in the sense of the public at large.”24
[179] It is therefore not necessary to show that the defendant’s misleading conduct was directed at the general public. On the facts of this case, Ms Surridge made misrepresentations to a limited group: the employees of Kyle, the Otaki Police, Main Security and the Public Trust. While these misrepresentations were not made to the public at large, they were addressed to specific members of the public. Although these members of the public were not consumers of either company’s products, the defendant’s misrepresentations were such as to impact on the plaintiff’s ability to compete effectively.
The Supreme Court test
[180] In the case of Red Eagle Corp Ltd v Ellis, the Supreme Court formulated a test for ascertaining a breach of s 9 which deals consecutively with the requirements of ss 9 and 43 of the Fair Trading Act.25 Section 43 is relevant once a breach of s 9 has been proved, enabling the court to provide remedies where someone has suffered loss.
21 Taylor Bros Ltd, above n 19, at 39.
22 Fair Trading Act 1986, s 1A(1).
23 Darrell McGregor (Contractor) Ltd v Mountain Lake Holdings Ltd (2006) 11 TCLR 643.
24 At [40].
25 Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28]–[31].
[181]The Court laid down a two-stage test:
(a)First stage (s 9): has the claimant proved a breach of s 9 by the defendant?
(b)Second stage (s 43): has the claimant suffered loss or damage by the contravening conduct of the defendant? The court asks:
(i)Was the particular claimant misled or deceived?
(ii)If so, was the defendant’s conduct the effective cause, or an effective cause, of the claimant’s loss or damage?
Misleading behaviour
[182] In Red Eagle, the Supreme Court asked whether a reasonable person in the claimant’s situation would likely have been misled or deceived.26 If so, a breach of s 9 would be established.
[183] The Court of Appeal in AMP Finance NZ Ltd v Heaven applied a three-pronged test for determining whether conduct is caught by s 9 of the Fair Trading Act.27 It is necessary to ask whether:
(a)the conduct was capable of being misleading;
(b)the people concerned were in fact misled by the relevant conduct; and
(c)it was, in all the circumstances, reasonable for them to have been misled.
[184] I conclude that the defendant engaged in conduct that was misleading as she did not disclose:
26 At [28].
27 AMP Finance NZ Ltd v Heaven (1997) 8 TCLR 144, (1988) 6 NZBLC 102,414 (CA).
(a)her lack of involvement with the operations of Kyle; or
(b)the true structure of the Philip Moore Group.
[185] Failing to disclose this information was capable of being misleading as it would leave people with the impression that she was authorised to act on behalf of Kyle and was thereby entitled to trespass people from the factory.
[186] The next element to address is whether the people concerned were, in fact, misled by the defendant’s conduct. The defendant’s lawyer, acting on her instructions, attempted to persuade the Otaki Police that she was entitled to act on behalf of Kyle and that the trespass notices issued against Ms Pearson and Mr Surridge were valid. The Police, though, contacted Mr Surridge and were not prepared to assist the defendant in ensuring there was no breach of the trespass notices. This would indicate that although the defendant attempted to mislead the Police, they were not actually misled.
[187] It would, however, appear that the defendant did successfully mislead the Public Trust, enlisting their assistance in attempting to convince the Police that she was entitled to control Kyle. Main Security was also clearly led to believe that the defendant was responsible for Kyle as guards from the firm attended Kyle’s premises, preventing orders from leaving the factory. As to Kyle employees, Mr Ratai was not misled as such but was unsure as to whose instructions he should act upon.
[188] Given the misrepresentations made to the Public Trust and Main Security, it was reasonable for them to believe the defendant was entitled to act on behalf of Kyle.
[189]Therefore, the plaintiff has proved a breach of s 9 of the Act by the defendant.
[190] However, the plaintiff still needs to establish that these misrepresentations were causative of loss. This element will be considered at a later point in the judgment, under the heading of “Establishment of loss”.
Second cause of action
[191] For the second cause of action, the plaintiff advanced two tortious causes of action in relation to the defendant’s actions in seizing Kyle and preventing the shipping of PMC’s orders. The first of these is intentional interference with a business by unlawful means. The second, in the alternative, is interference with a contractual relationship.
Intentional interference with a business by unlawful means
[192] This is a residual common law tort which may be committed in circumstances not necessarily covered by the other existing torts.28
[193]The elements of this tort comprise: 29
(a)the defendant’s interference with the economic interests of the plaintiff;
(b)by unlawful means;
(c)such interference being actuated in whole or in part by an intention to harm the plaintiff, as distinct from mere foreseeability that the plaintiff would be harmed by an act having some other purpose; and
(d)actual damage caused to the plaintiff in consequence.
[194] The first element is met in this case as the defendant, in acting so as to prevent orders from leaving Kyle, interfered with PMC’s economic interests.
[195] As to the second element, in relation to intentional interference, while there is as yet no established definition of “unlawful means”, decisions made under other heads may be applied by analogy.30
28 Laws of New Zealand Tort (online ed) at [315].
29 Van Camp Chocolates Ltd v Aulsebrooks Ltd [1984] 1 NZLR 354 (CA).
30 Laws of New Zealand Tort (online ed) at [318].
[196] In the related tort of economic damage by intimidation, the defendant’s threat must be to do something unlawful such as a threat to commit a breach of contract or to breach an equitable obligation.31 Loss caused by lawful means is not actionable.32
[197] In the related tort of economic damage by conspiracy, unlawful means includes the commission of other torts33 and breach of confidence.34
[198] The act of ordering Kyle products in quantities much greater than historic levels was not an unlawful act, as such, although there is the issue of the supplementary agreement in which it was agreed that Kyle would not supply chemicals to PMA. However, arranging for her lawyer to prepare trespass notices trespassing Paul Surridge and Ms Pearson from Kyle’s premises, despite the fact that the site at Otaki was owned by PMC and there was no lease agreement, nor was rent paid by Kyle to PMC, was an unlawful act by Ms Surridge.
[199] The defendant also instructed her lawyer to contact the Otaki Police and persuade them that she was entitled to act on behalf of Kyle. Although Ms Surridge was nominally the majority shareholder of Kyle and was the sole director, much of Kyle’s administration was undertaken by PMC. It had also been agreed in the Deed of Settlement that PMC would buy the assets of Kyle for $1 and that all parties would use their best endeavours to promptly implement all the terms of the deed. This misrepresentation by the defendant was another unlawful act. The second element is, therefore, met.
[200] The third element is that the defendant must intend to harm the plaintiff’s economic interests. Such intention need not be the defendant’s primary intention35 but must at least be a contributing cause of the defendant’s conduct.36 It was argued on behalf of the defendant that all she was doing was advancing her own interests and she had no intention of harming the plaintiff’s interests. However, having observed the
31 Broadlands Finance Ltd v Leland HC Auckland A249/80, 7 September 1983.
32 Pete’s Towing Services Ltd v Northern Industrial Union of Workers [1970] NZLR 32.
33 Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435 at 462.
34 SSC & B: Lintas New Zealand Ltd v Murphy [1986] 2 NZLR 436.
35 Dominion Rent A Car Ltd v Budget Rent A Car Systems (1970) Ltd [1987] 2 NZLR 395 (CA) at 438.
36 Van Camp, above n 29, at 360.
defendant in the witness box it is evident that there is a significant level of hostility on her part to her brother, Paul Surridge, and his wife, Marion Pearson. While I accept that the defendant thought that she would advance her own interests by acting as she did, I am satisfied that her animosity towards those who controlled PMC and her wish to inflict economic harm on them was a significant motivating factor behind her actions. I am therefore satisfied that the defendant, by submitting an order that would have cleaned Kyle out of product and by instructing Main Security to prevent orders from leaving the factory, was acting with the intent to harm the plaintiff’s economic interests.
[201] It has therefore been established that the defendant intended to harm the plaintiff’s economic interests and did so through unlawful means. The final element to establish is loss. The plaintiff must show damage, usually of a pecuniary nature.37 This will be discussed below under the heading of “Establishment of loss”.
Interference with a contractual relationship
[202]This tort is defined as:38
Where one person intentionally induces a second person to commit a breach of contract against a third, or prevents or hinders the performance of that contract, that first mentioned person commits a wrong actionable at the suit of the third person if that third person suffers damage…
[203] The case of OBG Ltd v Allan, which looked at the tort of inducing breach of contract, identified the following elements of the tort:39
(a)There must be a legally enforceable contract in existence.
(b)The defendant must have engaged in conduct which in fact induced a breach of the contract.
(c)The defendant must have known that his or her conduct would induce the breach.
37 Fairbairn Wright & Co Ltd v Levin & Co Ltd (1914) 34 NZLR 1 at 30.
38 Laws of New Zealand Tort (online ed) at [292].
39 OBG Ltd v Allan [2007] UKHL 21, [2008] 1 AC 1 at [38].
(d)The defendant’s conduct inducing the breach must have caused loss or damage to the plaintiff.
(e)The defence of justification may arise.
[204] Inducement is said to occur where the breaking of the contract can be fairly attributable to any pressure, persuasion, or procuration on the part of the defendant. A direct inducement of breach is wrong in itself and it is not necessary that the means employed be unlawful.40
[205] In terms of knowledge and intention, the plaintiff must show that the defendant knew of the existence of the contract and intentionally or recklessly procured its breach.41 Exact knowledge of all the terms of the contract is not necessary and it may be sufficient to show knowledge of how a business is conducted.42 It is, however, necessary that the defendant act with the purpose of procuring breach of the contract in order to be liable; conduct which foreseeably hinders the performance of a contract as an incidental and secondary consequence is not tortious.43
[206] While there must be actual damage, particular damage does not need to be proved if the breach is such as would in the ordinary course of business inflict damage.44 The damage is recoverable if it was a reasonably foreseeable consequence of the defendant’s conduct or was intended by the defendant.45
[207] The plaintiff had contractual obligations to supply product from the Kyle factory to trade customers and other members of the Philip Moore Group. The defendant, by instructing Main Security Ltd to prevent products leaving Kyle, prevented the plaintiff from fulfilling these obligations. Ms Surridge would have been aware of these contractual obligations yet acted to frustrate the plaintiff’s ability to discharge its contractual obligations.
40 Pete’s Towing, above n 32, at 47.
41 Mainstream Properties Ltd v Young [2007] 4 All ER 545 (HL) at 567.
42 Pete’s Towing, above n 32, at 46.
43 At 46 and 47.
44 Nauru Local Government Council v New Zealand Seamen’s Industrial Union of Workers [1986] 1 NZLR 466 (CA).
45 At 481.
[208] The plaintiff has succeeded in proving the first alternate to the second cause of action, being the tort of intentional interference with a business by unlawful means. With regards to the second alternate, while the first three elements of the tort have been established, there is a problem with regards to the fact that the plaintiff is the second party referred to in the definition of the tort provided at [202] that has been prevented or hindered in performing its contracts, rather than the third party against whom an actionable wrong has been committed. However, as the first alternate has been established, this issue need not be addressed further.
Third cause of action
[209] The third cause of action, like the first cause, relies on s 9 of the Fair Trading Act. However, its focus is on events relating to the defendant’s actions, after entering into the settlement agreement, in securing exclusive distribution arrangements for herself with Ghibli and Minuteman.
[210] In order to determine whether the defendant’s conduct is caught by this section of the Act, I will apply the test from Heaven as set out above.
[211] The defendant had signed the settlement agreement which contained the following paragraph:
PMA and PMC will enter into a joint venture agreement on terms yet to be agreed for the purpose of retaining all current exclusive distribution agreements with any overseas supplier with one or both of them. PMA and PMC will use their best endeavours and will act in good faith to negotiate and settle the terms of the joint venture agreement. Geoff Sharp will be appointed by them to act as a mediator in the event of any deadlock.
[212] The plaintiff submits that as the defendant subsequently entered into new exclusive contracts with existing suppliers, her representations that she was willing to preserve the status quo with international suppliers pending the negotiation of a joint venture agreement were misleading and deceptive.
[213] It seems that at the same time the defendant agreed to this provision, she had already made arrangements for Ebin Sebastian to travel to Amsterdam with one of the purposes of the trip being to negotiate an exclusive supply arrangement with Ghibli
for herself. Signing the settlement agreement in these circumstances was capable of being misleading conduct.46 The plaintiff was indeed misled by the relevant conduct, believing that exclusive supply agreements would carry on as they always had and that a joint venture arrangement would be entered into. It therefore did not attempt to negotiate supply agreements for itself. A reasonable person in this position would have been misled by the defendant’s action in signing the settlement agreement and agreeing to maintain the status quo when they had already embarked on a course of conduct inconsistent with that. Therefore, the defendant’s conduct in secretly negotiating exclusive contracts with existing suppliers, despite having agreed to enter into a joint venture agreement, is conduct which is caught by s 9 of the Fair Trading Act.
Was the defendant’s conduct an effective cause of the plaintiff ’s loss?
[214] The plaintiff, having signed the settlement agreement, did not pursue any distribution agreements believing that a joint venture agreement would be negotiated in the near future.
[215] The defendant, however, secured an exclusive supply agreement with Ghibli for the supply of vacuum cleaners and related products, allegedly causing loss to the plaintiff in not being able to order directly from Ghibli.
[216] It has already been determined that the defendant was at all material times acting on behalf of PMA/NZCS and was personally responsible for either carrying out herself or directing others to carry out the acts claimed by the plaintiff to have caused it them loss.
The plaintiff’s loss
[217] The plaintiff submits that this misleading and deceptive conduct caused loss to the plaintiff as follows:
46 This is one of those relatively rare cases identified by Chambers J in Gunton v Aviation Classics Ltd [2004] 3 NZLR 836 where at the time of making the promise to enter into a joint venture for the benefit of both parties, the defendant had no intention of carrying it out.
(a)The difference between the cost price of Ghibli products and those charged by PMA to PMC;
(b)The loss to the goodwill of PMC by being unable to fulfil orders from existing clients; and
(c)The cost of sourcing new exclusive suppliers of vacuum cleaners and cleaning products.
[218]The quantum of this loss was claimed to be $106,480.62.
[219] Due to the defendant’s actions in securing for PMA an exclusive supply agreement with Ghibli, the plaintiff was no longer able to obtain Ghibli products at cost price and was forced to either order through PMA at substantially higher prices or to find an alternative supplier. This loss can be directly attributed to the defendant’s actions. Therefore, the second stage of the Supreme Court’s test from Red Eagle has been met and the third cause of action proved.
[220] The next stage is to determine what exactly was the extent of the loss. This is an area where there are major difficulties for the plaintiff. The amended statement of claim dated 8 May 2017 said that the quantum of the alleged loss would be “confirmed in due course”. This was not done. The defendant put the plaintiff on notice, following receipt of the plaintiff’s briefs, that quantum was in issue. The briefs were not amended.
The establishment of loss
[221] The plaintiff pleads that the defendant’s conduct, whether under the Fair Trading Act, or in relation to the tort cause of action, caused specific losses. These relate to matters such as legal fees said to be incurred by having to obtain injunctive relief, alleged damage to goodwill by preventing customers from having orders filled, and some more modest expenses relating to matters such as locksmith expenses and security guard’s costs. Although they are not pleaded as alternatives, the first and
second causes of actions essentially cover the same conduct with special damages47 totalling $34,566 claimed in each case. The major difference is a claim for exemplary damages of $50,000 in relation to the second cause of action.
[222] It is axiomatic that a party alleging that they have suffered a particular loss as a result of the unlawful action of another has the burden of proving not only that they have suffered the loss but also its extent or amount.48
[223]Although the statement of claim pleads losses in very specific sums such as
$172 locksmith expense, security costs of $2,559.90 and overtime wages in the sum of $585, the briefs of evidence filed on behalf of the plaintiff do not provide details beyond what is set out in the statement of claim, nor were invoices produced. This is important, for two reasons. Firstly, the plaintiff in these proceedings is PMC as opposed to Kyle, Marion Pearson or Paul Surridge. It is important that the plaintiff establish that it, and not some other entity, sustained the loss which is sought to be recovered. Secondly, given that the defendant has put the plaintiff to proof in respect of the special damages claimed, the plaintiff needs to tender evidence discharging the burden of proving that the specific sums claimed were in fact incurred.
[224] Following the filing of the plaintiff’s briefs of evidence, the defendant put the plaintiff on notice that there did not appear to be any evidence in support of the various claims of loss. In those circumstances, it is surprising that the plaintiff did not take the simple step of filing a supplementary brief of evidence attaching the invoices for the costs which were said to have been incurred. This is all the more so given that a supplementary brief of evidence was filed by Marion Pearson dated 1 November 2017. That brief of evidence addressed the issue of alleged losses in relation to the defendant unilaterally obtaining an exclusive distribution agreement for Ghibli. A spreadsheet was provided in support of the Ghibli claim.
47 Although the final paragraph of the amended statement of claim refers to them as general damages, they are, in reality, special damages in the sense that they are particular forms of loss said to have been caused by the defendant’s unlawful conduct rather than general damages of a global nature.
48 Canavan v Wright [1957] NZLR 790 (CA) at 813.
[225] In his closing submissions, Mr Iorns acknowledged the absence of supporting documentation establishing these claims and gave various explanations as to why the necessary information had not been put before the Court.
[226] Mr Iorns went so far as to invite the Court to invoke r 1.9(2) of the High Court Rules to amend the pleadings so that the plaintiff could seek an order for account and/or an inquiry pursuant to r 16.2. Unsurprisingly, the defendant opposed that request given that it emerged in the plaintiff’s closing address.
[227] Rule 1.9(2) permits the Court at any stage of a proceeding to make any amendments to any pleading necessary for determining the real controversy between the parties.
[228] This rule does not merely apply to the correction of defects or errors49 and the Court may permit the introduction of a new cause of action.50
[229] However, amendment will be refused where there is a prejudice to the other party.51
[230] Amendments at a late stage, particularly after conclusion of the evidence are usually refused52 and an amendment sought during closing submissions will not be permitted if it requires the defendant to meet an entirely different case to that pleaded which might necessitate further evidence.53
[231] In the present case, the request for the Court to amend the pleadings was not made until after all of the evidence had been heard and the defendant had given closing submissions. By seeking to add what was effectively a cause of action based on breach of fiduciary duty in accordance with the principles enunciated in the case of Chirnside v Fay,54 the plaintiff was seeking to fundamentally change the nature of the case.
49 Wright Stephenson & Co Ltd v Copland [1964] NZLR 673.
50 Elders Pastoral Ltd v Pemberton (1990) 2 PRNZ 188.
51 Young v De Latour Partners (1992) 6 PRNZ 148.
52 Thurlow v Queen’s Park Golf Club Inc [1974] 2 NZLR 743.
53 Tewsley Properties Ltd v Wright Stephenson Properties Ltd (1993) 7 PRNZ 58.
54 Chirnside v Fay [2007] 1 NZLR 433 (SC).
Further evidence would have been required. The defendant would have been disadvantaged.
[232] The relief that the plaintiff sought leave to pursue was an order for the taking of account or an inquiry as to damages pursuant to r 16.2. This is a different type of remedy to damages under s 43 of the Fair Trading Act or the tort damages sought.
[233] Counsel for the plaintiff in opening had mentioned an order under r 16.2 although there was nothing in the amended statement of claim that referred to that rule and no indication in the opening that an application for amendment of the pleadings would be made. While there is no requirement in r 16.2 for the pleadings to specify, by way of prayer for relief, that an order for accounts and/inquiries is sought, that is the traditional way of doing things.
[234] However, an application for an order under r 16.2 cannot be used to remedy the situation where a plaintiff has pleaded special damages but has chosen not to lead any evidence to establish that the loss in question is owed to the plaintiff (as opposed to some other entity) and what the quantum is.
[235] I have decided that it is simply too late for the plaintiff to seek to amend the pleadings and add a cause of action based on breach of fiduciary duties in its closing submissions. This would be significantly prejudicial to the defendant and would require reopening of the hearing with an opportunity to call evidence and make rebuttal submissions.
Additional evidence of loss
[236] The plaintiff sought and was granted leave to file additional evidence in an attempt to try and quantify its loss. Affidavits from Mr Ingram and Mr Cooper, both former employees of PMC, and Ms Pearson were filed after the hearing which sought to explain to the Court how the losses calculated at page 107 of the Common bundle were arrived at. The defendant countered this evidence by filing affidavits in reply. However, the evidence filed is still insufficient to establish the losses claimed.
[237] I will now address each of the special damages claimed separately. The first is a claim for $20,000 being “incurrence [sic] of legal fees to prevent the physical interference with the premises by obtaining injunctive relief”. The defendant complains that these are legal fees which should be dealt with by the Court at the conclusion of this matter. In some circumstances, it is possible to claim legal fees as special damages,55 however, it is necessary to provide particulars. This is normally done by submitting copies of the relevant invoices so that a check can be made to establish exactly what legal work the fees relate to and to confirm that they are reasonable for that work.
[238] While it is obvious that legal fees will have been incurred in relation to the need to obtain the injunction, the plaintiff was put to proof and the onus was on the plaintiff to provide evidence to support its claim. The plaintiff has failed to provide invoices relating to the legal fees incurred in obtaining injunctive relief. When it granted the interim injunction, the Court did not deal with costs. Accordingly, they remain to be dealt with when costs are fixed at the conclusion of this case. Given that the necessity for the injunction action arose from the unlawful actions of the respondent, it is likely that a costs award in favour of the plaintiff will be made. Whether that is for scale costs or enhanced costs can only be determined after receipt of submissions. Accordingly, I decline to award costs as special damages and, as the defendant has submitted is preferable, leave the question of costs on the injunction to be dealt with at the same time as costs in respect of the substantive proceedings.
[239] In relation to the plaintiff’s claim of $10,000 for damage to the goodwill of the company by preventing customers from having orders fulfilled, no specific evidence was tendered in support of this claim. I accept that it is often difficult to quantify an adverse effect on the goodwill of a business. However, in the absence of any evidence of actual loss of customers, I conclude that because of the relatively short duration that the plaintiff was unable to operate the Otaki factory due to the plaintiff seizing control of it, and the limited nature of the customer base, any damage to goodwill was minimal and does not justify an award of damages.
55 Signal v Berry [2017] NZHC 2466.
[240] No invoices were provided for the claimed locksmith’s expenses to regain access of $172, weekend transport to a trade customer who usually collected of $1200, and security guard costs to watch premises while occupied by Main Security Ltd of
$2,559.90. Neither was supporting evidence provided with respect to overtime wages paid to onsite staff for extraordinary opening hours of $385 nor to support the plaintiff’s claim for loss in sales of approximately $250 due to lack of stock. Such evidence should have been readily available and it is inexplicable that it was not tendered.
[241] For the sake of completeness, I refer to the claim at [79] of the amended statement of claim where the plaintiff claimed losses from being unable to operate Kyle. These were the loss of the ability to enjoy the tax losses associated with that company and loss of the goodwill associated with that name. Although this claim was not formally abandoned, it was not the subject of evidence or submissions. In any event, there is no connection between the defendant’s actions in unlawfully seizing control of the Otaki factory for a brief period and tax losses which Kyle may or may not have been entitled to, or to the goodwill of the Kyle name.
[242] As the plaintiff has failed to establish any of the special damages claimed, I am unable to award any special damages under the first or second causes of action.
Exemplary damages
[243] The second cause of action includes a claim for exemplary damages of $50,000 for the wilful and prolonged nature of the conduct and the impact it would have had on the Philip Moore Group had an injunction not been granted. I therefore need to consider whether there is any basis for awarding exemplary damages in relation to the defendant’s conduct in seizing control of the Otaki factory.
[244] Exemplary damages serve to punish a defendant who is guilty of outrageous wrongdoing, to deter others from engaging in similar behaviour and to register the court’s condemnation of such conduct.56 A court has jurisdiction to award exemplary
56 Couch v Attorney-General (No 2) (on appeal from Hobson v Attorney-General) [2010] NZSC 27, [2010] 3 NZLR 149 at [58].
damages where “the defendant has intended to cause harm to the plaintiff or has been subjectively reckless as to whether his conduct will cause harm.”57
[245] For the reasons discussed above, it is my view that the defendant, in having trespass notices issued against Ms Pearson and Mr Surridge, and attempting to persuade the Otaki Police that she was entitled to act on behalf of Kyle, acted outrageously and her conduct was intended to cause harm to the plaintiff. Therefore, a case has been made out for the awarding of exemplary damages.
[246] The next issue to determine is the quantum of exemplary damages to be awarded. Awards must be kept to moderate levels.58 The case of McDermott v Wallace held that there were six considerations relevant to the assessment of the quantum of exemplary damages:59
(i)whether the claimant was a victim of punishable behaviour;
(ii)awards should be moderate;
(iii)the means of the parties;
(iv)whether any other compensation has been awarded to the claimant, in criminal or regulatory proceedings;
(iv)whether there has been any criminal penalty imposed on the defendant (consideration of which was also a statutory requirement under the Injury Prevention, Rehabilitation, and Compensation Act 2001); and
(v)the conduct of the parties including, up to the date of judgment, improper behaviour on the part of the complainant being a factor which could reduce or even eliminate exemplary damages.
57 Bottrill v A [2003] 2 NZLR 721 (PC) at [76]. This test was adopted by the majority in Couch v Attorney-General (No 2).
58 Donselaar v Donselaar [1982] 1 NZLR 97 (CA) at 107 and 116.
59 McDermott v Wallace [2005] 3 NZLR 661 (CA) at [94]–[102].
[247] The issue of damages with regards to the tort of intentional interference with a business through unlawful means has been largely unexplored, meaning that it is best to look for analogies in the damages awarded in other torts.60
[248] There are a number of New Zealand tort cases in which exemplary damages have been awarded. In the case of McLaren Transport Ltd v Somerville, where a tyre exploded while inflating causing injury to the claimant, exemplary damages in the amount of $15,000 were awarded.61 In another personal injury case, in which the claimant sustained burns from a hairdressing treatment, exemplary damages of
$12,000 were awarded.62 Clapham v Russell dealt with a claim under trespass and
loss of privacy when trees were cut down without consent; the plaintiff was entitled to exemplary damages of $15,000.63 In a case dealing with the tort of conversion, the first defendant was liable to pay exemplary damages of $10,000.64 In McBride Street Cars Ltd v Rapana, $1500 was awarded for abuse of power by a bailiff.65 Exemplary damages in the amount of $25,000 have been awarded for persisting in making defamatory comments in contempt of court orders, after allowing some reduction for prior imprisonment for contempt.66 These cases all demonstrate that exemplary damage awards in New Zealand are generally modest in size.
[249] Moynihan v Berkett was a case dealing specifically with the tort of deliberate interference with business by unlawful means.67 The plaintiffs leased premises on Mayor Island near Tauranga which was subject to a claim to the Waitangi Tribunal by one of the defendants. The defendants trespassed on the plaintiffs’ property with the intent of preventing them from operating their business for the purpose of claiming tino rangatiratanga over the island. An award of $7500 was made against each of two of the defendants.
60 Harvey McGregor McGregor on Damages (Thomson Reuters, London, 2014) at [46-003].
61 McLaren Transport Ltd v Somerville [1996] 3 NZLR 424 (HC).
62 Boyle v Newcomb DC Auckland NP 2672-96, 19 December 1997.
63 Clapham v Russell DC Auckland CIV-2001-004-000532, 18 March 2004.
64 Powell v Koene [2003] DCR 341.
65 McBride Street Cars Ltd v Rapana [2006] NZAR 697 (HC).
66 Siemer v Stiassny [2011] NZCA 106, [2011] 2 NZLR 361.
67 Moynihan v Berkett HC Tauranga CP3/94, 27 July 1998.
[250] The main purpose of exemplary damages is to punish the defendant and they may be awarded when the award of compensatory damages will be inadequate to achieve this.68 While the plaintiff in this case was the victim of conduct that warrants the condemnation of the court, an award in the amount of $50,000 would be immoderate. However, in the present case an award of exemplary damages is justified. It is my view that the award of exemplary damages in the amount of $15,000 would be sufficient to punish the defendant, deter others from behaving in a similar fashion and to register the court’s condemnation of such conduct.
Third cause of action
[251] As the request of the plaintiff, permission was granted for the filing of further evidence and submissions after the closing of the hearing, the principal reason for this being to clarify issues of alleged loss. This further evidence sought to prove the losses sustained through the defendant’s securing for PMA the exclusive supply agreement with Ghibli.
[252] The losses were alleged to flow from two orders placed by the plaintiff, one from 2015 via PMA and one ordered direct from Ghibli in 2016. It was initially claimed that a first order for Ghibli product in 2015 never arrived. However, Ms Pearson later explained that she had been mistaken in this belief and that the order did, in fact, arrive but was not filled in whole.
[253] The evidence submitted at the hearing in support of the claimed loss included a spreadsheet. That spreadsheet listed a number of products and then calculated the difference between the cost price of the products ordered and the retail price. This difference between these two prices was claimed to be the loss suffered by the plaintiff. For the products on the list, the difference between the cost price and reseller price was said to be $53,240.31. It was claimed that there were two such orders with the implication that the second order was identical, and, for two orders, it was claimed that the total loss was $106,480.62.
68 A v B [1974] 1 NZLR 673 (SC) at 697.
[254] The defendant challenged the claim that there had been two such orders and that they had not been filled, claiming that the spreadsheet produced by the plaintiff was a fabrication. It was in part as a response to the claim of fabrication that the plaintiff sought and was granted leave to file further evidence about exactly what orders were placed.
[255] Marion Pearson filed a further affidavit on 6 December 2017. The affidavit indicated that the spreadsheet at p 107 of the common bundle was not an actual order as had previously been represented but a composite of two orders. One order which was said to have been placed by David Ingram and was said to have generated losses of $30,665 and the other order which Marion Pearson said had been prepared by her with Jim Cooper was said to have generated losses of some $22,564.
[256] The affidavit from Marion Pearson claimed that the ‘price’ shown in the spreadsheet included the landed cost (i.e. inclusive of freight and customs) and referred to screenshots from the Accredo system attached as exhibits to her affidavit, which she said confirmed this.
[257] Marion Pearson further said that she did not follow the legal advice she had received to keep buying Ghibli products through PMA and just claim as the measure of damages the difference between the price charged by Ghibli to PMA and the price charged by PMA to PMC. Had she done that calculation of loss would have been relatively straight forward.
[258] Marion Pearson’s affidavit of 6 December 2017 annexed a quote from NZCS dated 6 November 2017 for supply of Ghibli products at what were said to be greatly increased prices.
[259] James Cooper swore an affidavit dated 6 December 2017 which referred to Marion Pearson’s affidavit of the same date. He stated that one of the two orders which Marion Pearson now said were included in the original spreadsheet was one which was placed in December 2015, which should have arrived in March or April 2016 and which he had been chasing Anne Surridge for.
[260] An affidavit dated 30 November 2017 of David Ingram was filed by the plaintiff. It annexed a spreadsheet detailing an order Mr Ingram implied he submitted to PMA in December 2015. By affidavit of 23 January 2018, Ebin Sebastian replied to that affidavit. Annexed to his affidavit were emails which confirmed that Mr Ingram had placed the order in July (not December) 2015, the product had arrived in December 2015 and that on 10 December 2015 Mr Ingram had sent him an email advising him which products to send to Christchurch and which to send to Wellington.
[261] Mr Sebastian acknowledged receiving the orders evidenced in exhibits MJP 1-1 and MJP 1-6 of Marion Pearson’s affidavit but defended the prices quoted by saying that these were “quotes for the delivery of a small amount of product on an urgent basis”. He said that these were not bulk orders “but orders for very few parts that have to be specifically ordered from Ghibli”.
[262] As all Ghibli products whether part of large or small orders, “have to be specifically ordered from Ghibli”, this claim does not explain the significant increase in the quoted price for the units covered by this order. There was no indication that the prices quoted by PMA to PMC were proportional to any increase in price charged by Ghibli to PMA and Mr Sebastian confirmed that, as PMC had not accepted the quote, the orders had never actually been placed with Ghibli.
[263] I am satisfied that the order set out in exhibit DKI 1-1 was placed in July 2015 and filled in December 2015. It should therefore not have been included in the spreadsheet set out at p 107 of the common bundle or in the colour coded spreadsheet that was exhibit MJP 1-2 to Marion Pearson’s affidavit of 6 December 2017. With the items drawn from the DKJ 1-1 order deleted from the spreadsheet at p 107 of the common bundle that leaves claimed losses as set out in that spreadsheet of $22,564.
[264] However, it is clear from the cross-examination of Mr Cooper that when Mr Sebastian quoted him double the previous price for a wet floor tool/squeegee product ($38 instead of $19) he was able to source this particular product through the Australian Ghibli distributors at $24 each. It seems that the product number for this product was WD4OO/WS3 and it appears on MJP 1-11 as “floor squeegee” with a total of 70 ordered as having produced a claimed loss of $1,068.80. Because the
product was able to be purchased from Australia at a more realistic price, the actual loss would have been less than this.
[265] All that can confidently be asserted is that, by arranging for her manager, Ebin Sebastian, to secure an exclusive New Zealand dealership from Ghibli, Anne Surridge eliminated the ability of PMC to order product directly from Ghibli. She then greatly increased the prices which she quoted PMC for supplying Ghibli products so that it became uneconomic for PMC to purchase through PMA/NZCS. At least in respect of one product, PMC was able to ameliorate this loss by acquiring the product via the Australian Ghibli distributor.
[266] Undoubtedly, Anne Surridge’s action would have caused both direct economic loss to PMC and also indirect loss in the form of damage to their goodwill by being unable to supply product to their established customers. I am also satisfied that in securing the exclusive supply arrangement and substantially increasing the price at which she was prepared to supply Ghibli product to PMC, Anne Surridge intended to cause economic harm to PMC. She was also in flagrant violation of the obligation in the settlement agreement to enter into a joint venture to secure the benefit of the two overseas supply contracts for the benefit of both parties.
[267] In the circumstances, I think that justice can be done by marking this egregious behaviour by an award of exemplary damages in the sum of $15,000.
[268] I note that Anne Surridge’s obligation to enter into such a joint venture agreement is a continuing one in respect of both the Ghibli and Minuteman agencies and in order for her to avoid liability for ongoing losses she will need to comply with her contractual obligation or come to some varied agreement with PMC.
Summary
[269] The plaintiff has established that the defendant breached her obligations under the Fair Trading Act in relation to the first and third causes of action and exemplary damages of $15,000 are awarded in respect of each cause of action.
[270] The plaintiff has proved the second cause of action being intentional interference by the defendant with the plaintiff’s business by unlawful means but has failed to prove the special damages it claimed.
[271] The parties are invited to settle costs between themselves, but failing that, the plaintiff is to file submissions on costs (including in relation to the interim injunction application) within 14 days of the date of this decision with the defendant to have 14 days to reply.
Churchman J
Solicitors:
Alan Campbell for Plaintiff Kirstin Poole for Defendant
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