Precast NZ Limited v Anystep Limited
[2017] NZHC 1371
•21 June 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-3171 [2017] NZHC 1371
BETWEEN PRECAST NZ LIMITED
Plaintiff
AND
ANYSTEP LIMITED First Defendant
PETER JOSEPH EVANS Second Defendant
AND
PAUL TREVOR CANE Third Party
Hearing: 13 to 17 and 20 to 22 March 2017 Counsel:
MJ Fisher and KJ Ng for plaintiff and third party
B Gustafson and TP Refoy-Butler for defendantsJudgment:
21 June 2017
JUDGMENT OF FITZGERALD J
This judgment was delivered by me on 21 June 2017 at 4 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Claymore Partners Ltd, Auckland (B Langdon) Morrison Mallett, Wellington (M Morrison)
Precast NZ Limited v Anystep Limited [2017] NZHC 1371 [21 June 2017]
Contents
Introduction ..........................................................................................................[1] Factual background .............................................................................................[8] Precast NZ’s claims against Any Step - introduction......................................[34]
Sale of Mould to McIntosh
Introduction ......................................................................................................[36]
Clause 2.2 - interpretation ...............................................................................[39] Is there an implied term of constructive knowledge?.......................................[43] McIntosh sale - facts ........................................................................................[51] Did Any Step breach clause 2.2? .....................................................................[94]
Alleged failure by Any Step to supply rubber extrusion strips to Precast
NZ in January 2016
Introduction ....................................................................................................[100]
Is Any Step obliged to supply rubber extrusion strips?..................................[104] Was there a breach of the obligation to supply rubber extrusion strips? ...... [113] What relief, if any, ought to be granted?........................................................ [114]
Any Step’s counterclaim - introduction ......................................................... [117]
Breach of Support Clause
Introduction .................................................................................................... [118]
Interpretation of Support Clause ...................................................................[122] Breach of Support Clause - facts ...................................................................[130] What “hat(s)” was Mr Cane wearing when dealing with Mr Lawley
and the South African contact? ................................................................[169]
Breach as result of Bradford and/or Balcrom agreements
Introduction ....................................................................................................[182]
Did Precast NZ assign its rights to Bradford and Balcrom?
Introduction ....................................................................................................[188]
What is the difference between assignments and licences? ...........................[189] Determining whether there is an assignment or sub-license .........................[195] Were the arrangements with Bradford/Balcrom an assignment or a
sub-licence? .............................................................................................[201]
Is there a duty not to sub-license?
Introduction ....................................................................................................[206]
Duty not to sub-license - analysis ..................................................................[208]
Any Step’s claim against Mr Cane personally
Introduction ....................................................................................................[227]
Breach by Mr Cane - analysis........................................................................[230] Result .................................................................................................................[239] Concluding observations .................................................................................[242] Costs ..................................................................................................................[244]
Introduction
[1] The plaintiff (“Precast NZ") and the defendant (“Any Step”) are parties to an exclusive licence agreement (“Agreement”) in respect of a system or mould to make concrete precast stairs (“Mould”). The third party (“Mr Cane”) is a director of Precast NZ and for a period of time was also a director of Any Step.
[2] The Agreement was entered into on 22 December 2009, although it has an effective commencement date of 15 May 2009. It has a 25-year term (with a 25-year right of renewal). Pursuant to the Agreement, Any Step granted Precast NZ the exclusive right to use and sell the Mould in New Zealand. No royalties are payable by Precast NZ. Rather, Precast NZ agreed to support Any Step in its overseas marketing initiatives (the relevant contractual clause referred to as “the Support Clause”). It is not in dispute that Any Step’s primary focus was to market and sell the Mould overseas, rather than in New Zealand. Precast NZ was also obliged to purchase at least five Moulds over a defined period of time. Finally, and consistent with the grant of an exclusive licence, Any Step agreed that it would not sell a Mould to any overseas party if it knew that the Mould would in turn be supplied to the New Zealand market.
[3] Initially, the relationship between the parties was amicable. In August 2011, Precast NZ acquired a 10 per cent shareholding in Any Step. In May 2012, Mr Cane was appointed a director of Any Step. From that time in particular, the relationship became strained and ultimately dysfunctional. Mr Cane ceased to be a director of Any Step in May 2013.
[4] Precast NZ commenced these proceedings in December 2014. Precast NZ alleges that in breach of the Agreement, Any Step supplied a Mould to a third party knowing it was to be on-supplied to a New Zealand-based precaster.
[5] Any Step counterclaimed. Initially its counterclaim was limited to alleged breaches by Precast NZ of the Support Clause. The counterclaim has since expanded. Any Step now also alleges that Precast NZ breached the Agreement by selling a Mould to each of Bradford Precast Ltd (“Bradford”) and Balcrom Ltd
(“Balcrom”),1 on terms which grant each of those entities exclusive use of the Mould in the area in which each operates. Any Step also claims against Mr Cane personally, alleging he breached his fiduciary duties as a director of Any Step (arising out of the same facts that are alleged to give rise to Precast NZ’s breach of the Support Clause). Any Step has also purported to terminate the Agreement at various times as a result of these breaches. Precast NZ disputes that it has breached the Agreement and that the Agreement has been validly terminated in any event.
[6] These proceedings have a long history and have been hard fought. There have been at least five interlocutory judgments, including in respect of two interim injunction applications; an application for summary judgment; an application for joinder of parties; an application for determination of preliminary issues prior to trial, and various other interlocutory matters. The substantive trial was heard over eight days. The parties’ claims give rise to a broad range of factual and legal issues which I must determine. Fortunately, there is a significant body of contemporaneous documents available which is of considerable assistance in determining the issues.
[7] The structure of the balance of this judgment is as follows:
(a) First, I set out the factual background to the claims. I do so in a summary form only, as where certain factual matters are relevant to a particular claim, I set out those facts in detail in the context of that claim.
(b) Second, I address Precast NZ’s claims against Any Step. (c) Third, I address Any Step’s claims against Precast NZ. (d) Finally, I address Any Step’s claims against Mr Cane.
Factual background
[8] Precast NZ is one of the largest manufacturers of precast materials for the construction industry in New Zealand. One of the products it manufactures is
precast concrete stairs, for use in both commercial and residential construction
1 Precasters based in Ashburton and Wanaka respectively.
projects. Precast NZ has manufacturing operations in Auckland and also at Otaki, just north of Wellington.
[9] As noted, Mr Cane is a director of Precast NZ. The other director of Precast
NZ is Mr Brett Russell. Mr Cane gave evidence at the trial (Mr Russell did not).
[10] Any Step’s directors are Mr Peter Evans, Mr Robert Costello and Mr John Gardner, all of whom gave evidence at the trial. Mr Costello and Mr Gardner are two of the three “inventors” of the Mould. The Mould is subject to patents protecting the intellectual property associated with it. The Mould is said to be a significant improvement on traditional timber framing moulds used to make precast concrete stairs, in that it is reusable and adjustable. Many of the witnesses who gave evidence at the trial, including Mr Cane himself, emphasised their enthusiasm for the product.
[11] There was some dispute as to who now owns the intellectual property in the Mould. However, despite the attention this issue received during the course of the hearing, it is not relevant to the matters I must determine. I accordingly say no more about it in this judgment.
[12] Mr Costello gave evidence that in 2009, he and his fellow directors began looking for a precaster in New Zealand that could be used to “showcase” the Mould. Any Step’s intention was that a New Zealand-based precaster purchase and use the Mould, so that the Mould’s benefits and virtues could then be demonstrated to the overseas market, being Any Step’s primary target.
[13] To this end, Mr Gardner and Mr Costello visited a number of New Zealand precasters with a Mould on the back of a trailer. One of those precasters was Precast NZ.2 Mr Cane said that he was impressed with the Mould. Discussions ensued and
led to negotiation of the Agreement.
2 Mr Evans gave evidence that Precast NZ was not a particular “target” in the context of showcasing the Any Step Mould, and a number of precasters had expressed an interest in doing so.
[14] Negotiations commenced in or around April 2009 and carried on until December 2009. It seems that broad agreement in principle had been reached by May 2009, and Moulds were supplied to Precast NZ from that time – hence the Agreement’s effective date of 15 May 2009. In the ensuing months, various iterations of a draft agreement were produced and exchanged. I will say more about these drafts later in this judgment. As noted the Agreement was ultimately executed on 22 December 2009.
[15] At this point, it is appropriate to say a word about the overall purpose of the Agreement. Mr Costello made it very clear in his evidence that his and Any Step’s sole focus was the potential overseas market. He said the New Zealand market was simply too small to “fund his retirement”. There was no real dispute about Any Step’s focus. Nor was there any real dispute that the overriding purpose of the Agreement was therefore to have the Any Step Mould installed and in use with a New Zealand-based precaster, so that it could be showcased to potential purchasers in the international market.
[16] Mr Evans gave evidence that another key purpose of the Agreement was the sale of as many Moulds as possible throughout New Zealand. I consider his evidence on this point to be over-stated. Mr Evans acknowledged that the Agreement’s primary purpose was to enable Any Step to showcase the Mould for international marketing purposes. In addition, any desire to see the Mould sold throughout New Zealand is not reflected in the terms of the Agreement itself. Rather, under the Agreement, and over a 25-year term, Precast NZ is only obliged to purchase five Moulds. Further, Precast NZ is not obliged to sell any Moulds in New Zealand.
[17] Turning back to the chronology of events, it seems that all progressed reasonably well in the first year or so. Mr Evans, Mr Costello and Mr Gardner did refer to some frustration over Precast NZ’s ongoing delay in paying for the Moulds which it purchased under the Agreement. It also seems that there was some delay or issue in Precast NZ getting information about the Mould onto its website (as required by the Support Clause). However, these matters do not form part of Any Step’s claims.
[18] In mid-2011, Mr Cane began discussions with Mr Fleming from Bradford, a precaster which operates out of Ashburton in Canterbury. On 1 August 2011, Precast NZ agreed to sell a Mould to Bradford. The terms of the sale were not, however, documented in a formal manner at this time. That occurred a few months later, on
17 October 2011, when Precast NZ and Bradford entered into a “sub-license” agreement. I will return to the content of this agreement later in my judgment. The key point arising from the sub-license agreement is that Bradford was granted exclusive use of the Mould in the Canterbury and Otago regions.
[19] Precast NZ thereafter set about ordering a Mould from Any Step. There is no dispute that Any Step knew the Mould was being sold to Bradford. Indeed, Any Step personnel assisted install the Mould at Bradford’s site. What Any Step says it did not know was that Bradford had been granted exclusivity in the Canterbury and Otago regions.
[20] It was also around this time (in August 2011) that Precast NZ acquired a
10 per cent shareholding in Any Step. The shares were acquired from Mr Evans. As a result of the acquisition, Precast NZ was entitled to nominate a director of Any Step. Mr Cane was appointed a director of Any Step in March 2012.
[21] It was apparent from the evidence I heard at the hearing, and consistent with the contemporaneous record, that the parties’ relationship deteriorated markedly from this point. This was particularly so in respect of Mr Cane and Mr Evans, and to a lesser degree, Mr Cane and Mr Costello. Mr Gardner gave evidence that, while he was aware of the issues between Mr Cane on the one hand, and Mr Evans and Mr Costello on the other, he was located at his factory up in Kerikeri and therefore was not so involved. He accepted in cross-examination that he did not have any particular issues himself with Mr Cane.
[22] One of the key issues on which Mr Cane and Mr Evans disagreed was the period over which the purchase price of a Mould could be recovered through the savings generated by it. In a customer presentation in mid-2011, Mr Cane said the Mould’s purchase price could be recovered within 12 months. Mr Evans on the
other hand, said that based on his analysis of financial material Mr Cane had also included in the client presentation, the recovery period was around six weeks only.
[23] The ongoing dispute in relation to the correct “payback” period is not relevant, however, to any of the key issues I must determine. Accordingly, while it no doubt served to exacerbate the difficulties in Mr Cane and Mr Evan’s relationship, it is not necessary to deal with the issue further.
[24] Subsequently in early 2012, Mr Derek Lawley of Reid Construction Systems Ltd (“Reid”) was introduced to Any Step as a useful contact for Any Step’s entry into the United Kingdom and Middle East markets. Reid is a part of a multi-national operation. Precast NZ was (and presumably still is) a significant customer of Reid in New Zealand.
[25] Mr Lawley gave evidence that he visited the United Kingdom in August 2012 and while he was there, he promoted the Mould to a number of precasters.
[26] Mr Cane and Mr Evans also clashed over how the Mould should be promoted overseas. Mr Cane’s view was that, as a precaster himself, he was best placed to handle the initial contact with off-shore precasters (and other potential contacts), so that he could engage with them with a first-hand view of the Mould’s benefits. He said that if he could get the potential customer or contact sufficiently interested, that would be the time to pass them over to Mr Evans, who would then take the lead on commercial discussions. Mr Evans, on the other hand, was of the view that any potential customers or contacts should be passed to him to deal with from the outset. He said that this was how the Any Step directors had agreed marketing would be carried out.
[27] I discuss subsequent events surrounding these and other issues in more detail below, in the context of Any Step’s claim that Precast NZ breached the Support Clause. It is sufficient to record at this point that Any Step alleges that in late 2012 and early 2013, Precast NZ, and Mr Cane in his capacity as a director of Any Step, failed to pass on to Mr Evans, or any of the other Any Step directors, certain information received from Mr Lawley of Reid, as well as details concerning a
potential lead in the South African market. Any Step says that Mr Cane was looking to take control of Any Step at this time, and intentionally sought to frustrate Any Step’s overseas marketing initiatives to keep the Any Step share price low.
[28] Matters ultimately came to a head in May 2013. One of the items of business at an Any Step AGM held at that time was Mr Cane’s removal as a director. Mr John Blacklow attended the AGM for Precast NZ. It was agreed by the three other directors that Mr Cane would cease to be a director.
[29] Mr Cane ceased to be a director of Any Step as of 10 May 2013. In
December 2013, Precast NZ sold its shares in Any Step to Mr Evans.
[30] In July 2014, Any Step sold a Mould to Ancon Building Products Ltd (“Ancon”). Ancon then sold the Mould to McIntosh Precast Ltd (“McIntosh”), a precaster based in Ashburton. This was of concern to Bradford (also based in Ashburton) to whom Precast NZ had sold a Mould on an exclusive basis in 2011.
[31] Again, I will examine the facts surrounding the McIntosh sale in more detail below. In short, however, Precast NZ says that when Any Step sold the Mould to Ancon, it knew, or ought to have known, that it was going to be on-sold to McIntosh. Precast NZ says that the sale to Ancon in such circumstances was a device to get around the exclusivity clause in the Agreement.
[32] The final key event occurred in March/April 2015, when Precast NZ sold a Mould to Balcrom, a precaster operating out of Wanaka. It sold the Mould on similar terms as the sale to Bradford, including exclusivity in the Otago region. Given Precast NZ had already granted exclusivity in Otago to Bradford, Bradford’s consent was sought, and obtained, to the Balcrom sale.
[33] Like the sale to Bradford, Any Step alleges that the sale to Balcrom (on an exclusive basis) amounted to a breach by Precast NZ of the Agreement.
Precast NZ’s claims against Any Step - introduction
[34] Precast NZ alleges three breaches by Any Step of the Agreement:
(a) First, the sale of a Mould to Ancon, and Ancon’s on-sale of the Mould to
McIntosh;
(b) Second, a failure by Any Step to supply rubber extrusion strips3
requested by Precast NZ in January 2016; and
(c) Third, Any Step’s purported termination of the Agreement on or about
29 January 2016.
[35] Dealing with the last point first, Any Step’s purported termination relied on Precast NZ’s alleged breach of the Agreement as a result of the sub-licenses to Bradford and Balcrom. If those matters did not give rise to a right to terminate at
29 January 2016, Any Step relies on what it is says was another pre-existing breach at that time, namely Precast NZ's breach of the Support Clause. Given both these matters are central to Any Step’s counterclaim, I deal with them in the context of the counterclaim.
Sale of Mould to McIntosh
Introduction
[36] Precast NZ alleges that Any Step’s sale of a Mould to Ancon breached clause
2.2 of the Licence Agreement. Clause 2.2 provides as follows:
2. GRANT OF LICENCE
…
2.2The Licensor agrees that for the duration of the Term the Licensor will not supply to any other person Any Step Moulds where the Licensor knows those Any Step Moulds will be used in New Zealand to manufacture Products.
[37] Precast NZ says that when Any Step sold a Mould to Ancon, it knew or
“ought to have known” that Ancon was going to on-sell the Mould to McIntosh.
[38] This aspect of Precast NZ’s claim gives rise to the following issues:
3 A part used in conjunction with the Mould.
(a) First, whether the concept of knowledge within cl 2.2 extends beyond actual knowledge to wilful blindness.
(b)Second, whether it is an implied term of the Agreement (as pleaded by Precast NZ) that Any Step will not counsel or procure or facilitate or assist any person to purchase a Mould where Any Step knows or ought reasonably to know that the Mould will be used in New Zealand to manufacture products.
(c) Third, whether, on the facts as I find them to be, Any Step breached cl 2.2 of the Agreement (properly interpreted).
(d) Fourth, if the answer to (c) is “yes”, whether I ought to grant any or all of
the relief sought by Precast NZ.
Clause 2.2 - interpretation
[39] The text of cl 2.2 is set out above. Mr Fisher for Precast NZ submits that cl 2.2 is the only clause within the Agreement which gives Precast NZ the ability to enforce by injunction the benefit of its exclusive licence. Mr Fisher says that, given the importance of cl 2.2 to Precast NZ’s ability to protect its exclusive licence, limiting the word “knows” in cl 2.2 to actual knowledge only would unnecessarily diminish the value and benefit of Precast NZ’s exclusive licence.4
[40] Mr Gustafson on the other hand, submits that there is no reason or basis upon which to depart from the natural and ordinary meaning of the words in the clause, which require actual knowledge. He submits that Precast NZ could have contracted for a broader concept of knowledge and did not do so.
[41] I did not understand Mr Gustafson to strongly resist the proposition that cl 2.2 extends to wilful blindness. In my view, he was right not to do so. I am
4 As matters developed at the hearing, however, it was plain that the primary basis upon which Precast NZ said Any Step breached clause 2.2 was that Any Step did have actual knowledge that Ancon was to on-supply the Mould to McIntosh. This is inherent in Precast NZ’s essential proposition that Any Step and Ancon conspired together to supply the Mould to McIntosh via Ancon in Australia, as a device to get around the exclusive licence to Precast NZ.
satisfied that, properly interpreted, cl 2.2 does extend to wilful blindness, in the sense described in Westpac New Zealand Ltd v Map & Associates Ltd.5 That is, a “sufficiently strong suspicion” of a sale into New Zealand, “coupled with a deliberate decision not to make inquiry lest the inquiry result in actual knowledge”.6
I say this because I am satisfied that the parties’ objective intent would not have been that Any Step could deliberately “turn a blind eye” to conduct which would undermine Precast NZ’s exclusive licence – being the core and most important right granted to Precast NZ under the Agreement.
[42] I am not, however, persuaded that the clause can be interpreted to extend to “constructive knowledge”, or circumstances where Any Step “ought to know” of a supply into New Zealand. Constructive knowledge is a considerably broader (and much less prescriptive) concept. Had that broader concept been intended, it could have (and ought to have been) spelled out in clear terms. It would have been relatively simple to add to the clause the words “knows or ought reasonably to know”. Those additional words, had they been proposed, might well have been the subject of significant negotiation. However, the short point is that those words do not appear in the clause, and I do not consider that the word “knows” can properly be interpreted to include “or ought to know”.
Is there an implied term of constructive knowledge?
[43] Mr Fisher submits that it would give business efficacy to the Agreement for knowledge to be imputed to Any Step where it ought reasonably to know that a Mould would be used in New Zealand.7 Mr Fisher submits that this is so because Any Step would easily be able to protect its position by securing a contractual obligation from any purchaser prohibiting the Mould from being used in New Zealand.
[44] Mr Gustafson submits that the proposed implied term would ignore the Privy
Council’s decision in Attorney-General of Belize v Belize Telecom Ltd,8 namely that
5 Westpac New Zealand Ltd v Map & Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751.
6 At [27].
7 The concept of “business efficacy” is of course drawn from the seminal judgment in BP Refinery
(Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC) at 283.
8 Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 at [16].
the Court has no power to improve upon a contract but was concerned only to discover what it means as a whole.
[45] In BP Refinery (Westernport) Pty Ltd v Hastings Shire Council, Lord Simon of Glaisdale said before a term may be implied it must:
(a) Be reasonable and equitable;
(b)Be necessary to give business efficacy to the contract, so no term will be implied if the contract is effective without it;9
(c) Be so obvious as to go without saying; (d) Be capable of clear expression; and
(e) Not contradict any express contractual term.
[46] The Privy Council in Attorney General of Belize v Belize Telecom Ltd referred to the above test and observed (Lord Hoffmann giving the advice of the Board):10
[27] The Board considers that this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of ‘necessary to give business efficacy’ and ‘goes without saying’. As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant.
[47] More recently however, and at least in the United Kingdom, there has been a
9 The United Kingdom Supreme Court in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2016] AC 742 at [21] has subsequently said that this factor can more helpfully be put as asking, whether without the implied term, the contract would “lack commercial or practical coherence”.
10 The New Zealand Supreme Court adopted this approach in Dysart Timbers Ltd v Nielsen [2009] NZSC 43, [2009] 3 NZLR 160.
“return” to the five-step test in BP Refinery.11
[48] Both approaches were discussed by the New Zealand Supreme Court in Mobil Oil New Zealand Ltd v Development Auckland Ltd.12 William Young J observed that there was “scope for argument whether adoption of the undiluted version of Lord Hoffmann’s interpretation approach is appropriate”.13 The point was not, however, resolved in that case.
[49] I am satisfied that on either approach outlined above, there is not an implied term as sought by Precast NZ, or the Agreement itself cannot be interpreted to that effect. In the case of the latter, this is for the reasons already given above in respect of whether the express terms of clause 2.2 can properly be interpreted to include constructive knowledge. That is also largely the reason for rejecting the proposed implied term. Adopting the five factors from BP Refinery (Westernport) Pty Ltd v Hastings Shire Council:
(a) There is no reason why such a term would not be reasonable and equitable.
(b) Such a term is not necessary to give business efficacy to the Agreement.
Absent such an implied term, the Agreement still retains commercial and practical coherence.
(c) Given the concept of constructive knowledge is quite distinct from actual knowledge, I am not satisfied that the implication of such a term is so obvious that it goes without saying. Again, as noted, inclusion of this broader concept may have been the subject of considerable negotiation, rather than a collective shrug of the parties’ shoulders and the observation “but of course”.
(d) The implied term is capable of clear expression (for example, the use of
the words “or ought to have known”), though its application in any given
11 Marks & Spencer plc v BNP Paribas Securities Service, above n 9.
12 Mobil Oil New Zealand Ltd v Development Auckland Ltd [2016] NZSC 89, [2017] 1 NZLR 48.
13 At [81].
factual circumstances would not necessarily be straightforward. This latter factor further reinforces that the proposed implied term is not so obvious it goes without saying.
(e) Finally, while the implied term would not strictly contradict the express terms of cl 2.2, it would extend that express term and, in my view, improve the bargain struck by Precast NZ.
[50] For completeness, Mr Gustafson also submits that to imply the term would be inconsistent with the entire agreement clause in the Agreement. I do not agree. An entire agreement clause is simply confirmation that the parties’ agreement is captured solely by the terms of the agreement between them. An implied term is as much a part of an agreement as an express term.14
McIntosh sale - facts
[51] I now turn to the facts surrounding the sale of a Mould to McIntosh. It is necessary to traverse them in some detail, given they are crucial to determining Any Step’s state of knowledge at the time of the sale.
[52] On 19 February 2014, Mr John McIntosh emailed Mr Evans, inquiring about the potential purchase of a Mould for use at the McIntosh precasting factory in Ashburton. Mr Evans replied later that day, noting that Any Step was not able to supply machines into the New Zealand market due to the arrangements it had with another party. On the same day, Mr Evans forwarded Mr McIntosh’s email to Mr Russell, the second Precast NZ director.
[53] A few days later, Mr McIntosh replied to Mr Evans, noting that it was a shame that they (Any Step) were cutting themselves out of the New Zealand market, and querying whether he could “purchase one through an overseas company and ship it back to me”? There is no evidence of Mr Evans responding to that query.
However, given Mr Evans had told Mr McIntosh only a few days before that Any
14 See for example, the observations of Lord Neuberger in Marks & Spencer plc v BNP Paribas Securities Service, above n 9, at [26] that “…[B]oth (i) construing the words which the parties have used in their contract and (ii) implying terms into the contract, involve determining the scope and meaning of the contract” (emphasis added).
Step could not supply the Mould and had passed the query to Precast NZ, I consider it unlikely that Mr Evans or Any Step pursued Mr McIntosh’s suggestion at that time.
[54] Neither party called Mr McIntosh to give evidence at the trial.
[55] Mr Evans later met with a Mr Stephen Broomfield, who was the Business Development Manager for Ancon (Australia and New Zealand). Their first contact was on or about 2 May 2014. Mr Broomfield was a longstanding friend of Mr Gardner, the Any Step director based in Kerikeri.
[56] Mr Evans gave evidence that his discussions with Mr Broomfield were directed to the potential contacts and use of Ancon in relation to overseas opportunities, including Australia and Europe. This was because Ancon is a division of “CRH”, a significant global engineering company. That this was the focus of the early discussions is consistent with the contemporaneous documentation.
[57] In an email dated 2 May 2014 (referencing the first meeting between Mr Evans and Mr Broomfield on that day), Mr Broomfield suggested that Any Step try to attend and/or get a speaking role at various industry conferences, including the forthcoming Australian and New Zealand Precast Association conference to be held in Queenstown in August 2014. However, in an email from Mr Evans to Mr Costello dated 4 May 2014, Mr Evans stated:
I am not sure about doing the NZ shows as per Stephen given our licensing agreement with Precast – as these will only raise our profile in NZ and we need it off-shore.
[58] This indicates, in my view, that Mr Evans was alive to the fact that, pursuant to the Agreement, Any Step could not supply Moulds for use in New Zealand; hence his comment about raising Any Step’s profile in New Zealand, upon which it could not act.
[59] On 18 May 2014, Mr Evans sent Mr Broomfield a short three-page summary of Any Step’s product offerings, together with a copy of an Any Step brochure. The summary document recorded (in response to the question “what is Any Step looking
for?”) that “Any Step is seeking a sales distribution partner who has a global reach”. The summary document also confirmed that the potential sales distributor being envisaged was CRH, given its international presence and reach. The Any Step brochure which also accompanied Mr Evans’ email noted that the Any Step moulding system was “exclusively licensed to New Zealand to one of the largest precast businesses in New Zealand”. The document also referred to Precast NZ’s experience with the Mould (“Precast NZ Limited – A New Zealand Case Study of Any Step’s Commercial Success”), and concluded “as a result of this, we have been contacted by a significant number of other stair manufacturers in NZ wanting to acquire our machines.”
[60] Mr Broomfield responded on 22 May 2014, noting that he had discussed the matter with his managing director in Sydney (Mr Jon Bond), and they (CRH) were interested in working with Any Step.
[61] Mr Evans sent further information to Mr Broomfield in June 2014, which
Mr Broomfield forwarded to Mr Bond in Sydney. Notably, by email dated 2 July
2014, Mr Evans forwarded Mr Broomfield the earlier email inquiry he had received from McIntosh in Ashburton in February 2014. In his cover email, Mr Evans stated “as discussed we have had plenty of interest from NZ companies, as illustrated by the inquiry below”.
[62] Mr Evans gave evidence that the reason he sent the McIntosh query to Mr Broomfield was in the context of the potential relationship with Ancon/CRH internationally, to demonstrate that there was “live” interest in the Mould in New Zealand. This would also be consistent with the statement made in the earlier summary document sent to Mr Broomfield (see [59] above) that “…we have been contacted by a significant number of other stair manufacturers in NZ wanting to acquire our machines”. Mr Evans gave evidence that he had met with Mr Broomfield around this time, and Mr Broomfield had asked for some examples of such inquiries. This was also said to be the reason for a comment by Mr Evans in an email to Mr Broomfield of 8 July 2014 (at 10.29 am), in which he stated “just thought I would touch base re Australia etc. I will call. Yesterday I had John
McIntosh from Ashburton call me again”. The email also set out specifications and
prices (in US dollars) for three standard Moulds.
[63] Later the same day. (8 July 2014) Mr Broomfield approached McIntosh directly, and by email, provided a quote (in NZ dollars) for an Any Step Mould. The specifications in relation to that Mould appear to have been drawn from Mr Evans’ email of earlier that day. In response, and also on 8 July 2014, Mr McIntosh sent Mr Broomfield some shop drawings of stairs he was to manufacture, and sought further information on a Mould in relation to those stairs. Later in the day, Mr Broomfield emailed Mr Evans asking what an Ancon purchase price would be for the Moulds, and asked “do we have any units in stock now?”. Notably, Mr Broomfield’s email was a response to Mr Evans’ original email of 10.29am, i.e. it did not forward on or provide direct visibility to Mr Evans of Mr Broomfield’s intervening communications with Mr McIntosh. Mr Evans responded with pricing information (in both US and New Zealand dollars) and details and the types of Moulds being made by Mr Costello at that time. Mr Evans’ email also stated that Ancon’s margin would be 20 per cent on the selling price.
[64] On 9 July 2014, Mr Broomfield forwarded to Messrs Evans, Gardner and Costello the email he has received from Mr McIntosh (together with the shop drawings of the stairs) on 8 July 2014. In his cover email, Mr Broomfield stated:
Hi guys
Please can you look at attached drawings and email below regarding the stairs, do we have a solution? I submitted a quote already and they are keen to place an order ASAP.
[65] Mr Broomfield, who gave evidence pursuant to a subpoena issued by Precast NZ, said that when he sent this email to Any Step, he had “inadvertently” forwarded the email from McIntosh.
[66] Mr Gardner responded to Mr Costello that same day, providing to Mr Costello (but not Mr Broomfield) the technical dimensions in respect of the stairs. Mr Gardner said in evidence at the hearing that he simply looked at the drawings and gave his opinion to Mr Costello about what the specifications needed
to be. The following day, 10 July 2014, Mr Broomfield followed up with a further email to Messrs Gardner, Costello and Evans stating:
Please can I get a reply today? The customer is waiting for a response as they have to make a choice this week between Any Step and conventional steel mould as they will be running out of time to meet precast timetable.
[67] On 10 July 2014 (and it seems, before Mr Broomfield had received a response from Any Step to his emails of 9 and 10 July, discussed above), Mr McIntosh submitted an order for a Mould with Ancon. That same day, Mr Broomfield forwarded Mr McIntosh’s email to Mr Evans and Mr Gardner, stating:
First order, how easy was that? J
Well done boys. Please provide ETA asap.
[68] Unsurprisingly, Precast NZ relies heavily on this sequence of email communications in support of its submission that when Any Step subsequently supplied the Mould to Ancon, it knew that it was going to be on-sold to McIntosh.
[69] Mr Evans said in evidence that upon receiving Mr Broomfield’s email of
10 July 2014 confirming the placement of the McIntosh order, he had spoken with Mr Costello, and it was agreed that Mr Evans would speak to Mr Broomfield, confirming that Any Step could not supply a Mould that would be used in New Zealand. Mr Costello gave similar evidence. Mr Evans said that he spoke to Mr Broomfield and conveyed this information. He said that Mr Broomfield said that Ancon nevertheless still wanted to proceed with the purchase, as Mr Broomfield believed he had a buyer for the Mould in Australia.
[70] Mr Gardner gave evidence that his recollection from around this time was that Any Step was selling a Mould to Ancon and that it was going to be the first Mould installed in Australia. He also said that “I recall that we had to keep telling Ancon in 2014 that Any Step could not supply any mould that was going to be used in New Zealand”.
[71] Mr Broomfield also gave evidence about these matters. I comment on his evidence further below, which was, unfortunately, rather jumbled and vague (largely, I believe, as a result of the events having taken place some years ago, and that he was giving evidence with no briefing or prior review of the documents being put to him).
[72] However, when questioned about whether there was a discussion with him about the exclusive licence Any Step had had granted to Precast NZ, the following exchange took place between Mr Broomfield and Mr Fisher:
QWas there any discussion at this point in time about this exclusive licence that Any Step had entered into with Precast NZ?
AYes, so I was – Peter had told – email saying there was an exclusivity on the Any Step system and the belief, the assumption I made, rightly or wrongly, was that we could parallel import this machine to circumvent the exclusivity and that was my, that was our intentions. And hindsight is a wonderful thing but that was the intentions of myself.
Q May I just ask you to explain what you mean by parallel importing? A At the time we held offices in Australia and I was based running
between two countries. And we thought we could try and do the
transaction through the Australian business. So we’d take the
machine to the port in Lyttelton and it wasn’t going to go overseas, we’d do the transaction through the Australian office and then it would be seen as the machine going overseas. At the time of transaction, we’d actually opened up our New Zealand office and we had to use our New Zealand tax numbers and bank account details.
Q Did you discuss this concept in parallel importing with any of the
Any Step directors?
AYeah, I told them that was the – that was our route to market, I suppose the word would be. You know, if we could get one and take it overseas, we were trying to get one into Victoria and into Newcastle and that was the plan we were going to try and do but at that moment in time we were trying to use parallel importing and I think that’s what I told Peter.
QSo with this transaction, can you tell us whether or not there was any intention to ship this mould from Lyttelton to Australia?
AAt that time we had another customer – potential customer in Victoria and so if it, whichever came first we were going to send it so at that time it was a decision made by Ancon that – not by myself, you know, that we might have to leave in New Zealand and the customer in Australia might not want it so we would send it on to Macintosh.
[73] Later, the following exchange took place:
QHow would you know whether the mould that had been ordered by Macintosh was one that would be suitable to a potential purchaser in Victoria?
ABecause I'd spoken to Justin DeNally in Australia about the product and advised him what was available and it was practical for the job he was using in Victoria.
[74] Based on at least these exchanges, it seemed that Any Step was aware of
Ancon’s plan to “parallel import” a Mould into New Zealand.
[75] Turning back to the documentary record, on 22 July 2014, Mr Costello sent Mr Broomfield a drawing showing the overall dimensions of the machine to be purchased by Ancon. In his email, Mr Costello noted that the machine has 15 tread plates, but that “your first machine will only have 14 tread plates as requested but the overall dimension will be the same”. I note that the reference to 14 tread plates appears to be a reference back to the requirements taken from the McIntosh drawings supplied by Mr Broomfield to Any Step, and in respect of which Mr Gardner had noted the need for 14 tread plates.
[76] Also on 22 July 2014, Mr Costello sent an email to Mr Evans, asking “did you send the letter to Stephen Broomfield stating you could not sell the machines in New Zealand?”. Mr Costello gave evidence that after Mr Evans had spoken with Mr Broomfield about not supplying into the New Zealand market, he (Mr Costello) had suggested to Mr Evans that out of an abundance of caution, Mr Evans should record the position in writing.
[77] Later the same day, Mr Costello sent another email to Mr Evans, noting that he (Mr Costello) had spoken with Mr Broomfield, who had passed on that representatives from Ancon/CRH in England and Australia were coming to New Zealand the following week, and that “because they have sold one already they are very positive”.
[78] Presumably in response to Mr Costello’s reminder of 22 July 2014, Mr Evans sent an email to Mr Broomfield on 25 July 2014 attaching an invoice for 50 per cent
deposit “for the Any Step machine you have recently sold”. The email went on to
state:
As discussed we have an arrangement whereby we cannot sell into the New Zealand market, we can however, sell to any other country in the world and we are keen to engage with Ancon in Australia and globally in this regard.
[79] The attached invoice noted that the Mould was “to be supplied FIS to Ancon’s export carrier in Auckland”. Mr Broomfield was questioned about this email from Mr Evans:
QAnd you’ll see the second to last paragraph “As discussed we have an arrangement whereby we cannot sell into the New Zealand market, we can however sell to any other country in the world and we’re keen to engage with Ancon Australia and globally in this regard.” Did you discuss that with Mr Evans, the subject matter of that sentence?
A Yes after that, yeah, yes.
Q And can you just tell us what it was that you discussed with him?
AI was, we were trying to advise Peter that we were, we were in a stronger situation there and we were trying to parallel import using the Ancon Australia to facility the sale. (sic)
[80] Again, this suggests that Any Step was alive to Ancon’s plans to parallel import the Mould into New Zealand.
[81] However, in cross examination, Mr Broomfield accepted that the only time parallel importing had been discussed with Any Step was after Precast NZ had complained about the sale of a Mould to McIntosh (i.e. after September 2014). He also accepted that in response to Mr Evan’s email of 25 July, he told Mr Evans that the Mould was going to go to Australia. Mr Evans also denied that he had had a discussion with Mr Broomfield about parallel importing until around or after the time that Precast NZ raised the issue of the supply of a Mould to McIntosh (in September 2014).
[82] On 28 July 2014, Mr Hayman of Ancon in Christchurch emailed Mr Broomfield. Mr Hayman asked whether the 50 per cent deposit invoice had gone to Australia. He noted “presumably he [Mr Evans] needs to invoice Ancon Oz to meet his local supply arrangements and we will need to purchase from Ancon Oz”.
This indicates that Mr Broomfield had discussed the matter with Mr Hayman, and had passed onto him the restrictions concerning Any Step selling into the New Zealand market. There is no response from Mr Broomfield in the evidence, but on its face, this communication would be inconsistent with Mr Broomfield’s earlier advice to Any Step that the Mould was now intended for a customer in Australia.
[83] In the background, Mr Broomfield continued to correspond with Mr McIntosh, including in relation to the dispatch date of the Mould which, consistent with his earlier email exchange with Mr Costello, he confirmed as likely to be around August 11.
[84] On 18 August 2014, Mr Broomfield forwarded to Mr Evans a flyer for an up- coming New Zealand Concrete Society conference. Mr Evans responded and said “great if you can sell some more machines into Australia” (emphasis added). On the same day, he forwarded a final invoice for the remaining 50 per cent price for the Mould recently sold to Ancon, which stated “to be supplied FIS to Ancon’s export carrier in Christchurch”.
[85] In mid-September 2014, Mr Fleming of Bradford informed Mr Cane that McIntosh had an Any Step Mould in Ashburton. Mr Cane advised that Precast NZ had not supplied the Mould to McIntosh. It is not in dispute that the Mould had been supplied by Ancon.
[86] Mr Costello gave evidence that he was very surprised and disappointed to find that Ancon had sold the Mould to McIntosh, and reiterated that when Any Step sold the Mould to Ancon, he thought the Mould was going to Australia. In cross examination, Mr Costello said the following:
AI was annoyed, yeah, I was annoyed. Well, we’d just built five machines to go into the international market. It took us a little while to get that money together to build those five machines and the whole idea of those five machines was to actually start getting them into the overseas market which was always our target. I mean, it’s very hard when you’re running a small company to get funds to drive ahead and I was – that part of it was, you know, that’s why I was really annoyed because now I only had four machines to put into the international market.
[87] In a solicitor’s letter dated 7 October 2014, Precast NZ alleged that at the time the Mould was sold by Any Step to Ancon, Any Step knew that the machine would be ultimately on-sold to a purchaser in New Zealand. The letter alleged that the arrangements involved a deliberate attempt by Any Step to circumvent the terms of cl 2.2 of the Agreement.
[88] Mr Evans responded by letter dated 9 October 2014. Relevantly for current purposes, he stated that “according to a lawyer I spoke to today if a machine has been parallel imported into NZ then Any Step is also powerless to act and indeed if we do act then we would also be breaking the law in NZ”.
[89] The final factual events relevant to this aspect of the claim occurred in early to mid November 2014. On 7 November 2014, Mr Broomfield emailed Mr Gardner and Mr Evans, asking whether Mr Gardner was available at his premises in Kerikeri for a Mr Phillip Bates from Balcrom (in Otago) to visit to look at the Moulds. Mr Broomfield stated “he is looking at purchasing an exact match of the ones we sent to Ashburton”. Mr Gardner forwarded the email to Mr Costello noting “maybe we need to talk to Peter before I reply to this”. In turn, Mr Costello forwarded the email to Mr Evans, stating “this bloke just does not get it”.
[90] Mr Fisher submits that Mr Costello’s statement that Mr Broomfield “didn’t get it” relates to Mr Broomfield laying a paper trail evidencing Any Step being involved in the sale of Moulds into New Zealand. I do not read the email in that way. In my view, a more natural reading of the email is Mr Costello’s surprise that, given the recent issue in relation to the McIntosh sale, Mr Broomfield was contemplating a second sale into New Zealand. Moreover, Mr Evans’ reply is also consistent with this interpretation. In his reply, Mr Evans stated “I agree this is in Otago! What we have all told h–has to be in Australia or nothing (sic)”. Consistent with these emails, on 10 November 2014, Mr Evans emailed Mr Broomfield and stated:
As mentioned previously we are unable to sell machines in the New Zealand market because of the licensing arrangement in place. However, we are happy to support an Australian marketing initiative as we have also discussed before.
[91] Despite the controversy which had just arisen between Precast NZ and Any Step in relation to the supply of the Mould to McIntosh, Any Step, somewhat surprisingly, went ahead with Mr Bates’ visit to Mr Gardner’s factory in Kerikeri. A more straightforward (and less controversial) approach would have been to direct Mr Bates to Precast NZ, as Mr Evans had done when he was first contacted by Mr McIntosh. Mr Gardner gave evidence that he had raised this with Mr Broomfield at the time, who told him that Mr Bates was going to be up in Northland at the time in any event (visiting family) and was interested to see the Mould. Mr Gardner said that on this basis, he agreed, but that he told Mr Broomfield that it wasn’t going “to do him [i.e. Mr Bates] any good and, you know, he’ll have to go – we can’t – we’re not allow to sell him one”. Mr Costello also agreed that to continue with the meeting was unusual, but said that the Any Step directors thought it was a “fit up” by Precast
NZ (i.e. to lead Any Step into a sale to Balcrom).15 He said that they thought they
had it under control and that the meeting could go ahead, so long as it was made clear that Any Step could not supply a Mould to Balcrom.
[92] Mr Bates also gave evidence in relation to his visit to the Kerikeri factory. Mr Broomfield also attended (he said that he was in that region at the time for work purposes). Both Mr Broomfield and Mr Gardner said that Mr Gardner told Mr Bates that Any Step could not supply a machine to Balcrom. Mr Bates did not recall that being discussed.
[93] In any event, in 2015, it was Precast NZ who sold Balcrom a Mould for exclusive use in the Otago region.
Did Any Step breach clause 2.2?
[94] It was somewhat unfortunate that Mr McIntosh was not called to give evidence, which may have shed light on how and why McIntosh came to deal with Ancon in respect of its purchase of a Mould. It is also unfortunate that Mr Broomfield’s evidence was given as a result of a subpoena and, it seems, with no
prior refreshing of his memory of events and the underlying documents. I found his
15 In this context, Mr Cane gave evidence that in early December 2014, Mr Bates had mentioned to him that he was going to look at the Mould at Mr Gardner’s factory, and Mr Cane asked him to report back on the visit.
evidence in particular to be confused, vague and at times, internally inconsistent. I therefore did not find him to be a particularly reliable witness (that is not to suggest, however, that Mr Broomfield was trying to be anything other than truthful when giving his evidence). As a result, I do not ascribe significant weight to Mr Broomfield’s evidence. I found Messrs Evans, Costello and particularly Mr Gardner’s evidence on this topic broadly credible and reliable, though at times, I got the sense that Mr Evans and Mr Costello were advancing a “party line” which was consistent with their case.
[95] I place more significant weight on the contemporaneous documentary record, which I consider provides the most reliable and accurate record of what occurred in respect of the sale to McIntosh.
[96] There is no doubt from that documentary record, and it was not challenged by Mr Evans or Mr Costello, that at least by mid-July 2014, Any Step was on notice that Ancon was proposing to sell a Mould to McIntosh. That was abundantly clear from the “smiley face” email sent by Mr Broomfield upon McIntosh placing its order. As such, the central inquiry is the state of Any Step’s knowledge from that point onwards, and whether, by the time Any Step actually sold the Mould to Ancon, it knew or was wilfully blind to Ancon on-selling the Mould to McIntosh.
[97] Taking all of the documentary and oral evidence into account, and while I accept that the evidence, on its face, gives rise to some concern as to Any Step’s involvement in the sale to McIntosh, I am not satisfied that Precast NZ’s claim is made out. I say this for the following reasons:
(a) First, when originally approached by McIntosh directly, Mr Evans referred the inquiry to Precast NZ. This was only a few months prior to the sale by Ancon to McIntosh. That referral, is in my view, inconsistent with the theme developed by Precast NZ, namely that Any Step used the device of selling to Ancon in order to supply a Mould into New Zealand.
(b) Second, the contemporaneous documents are largely inconsistent with
Precast NZ’s claim. In particular, once Mr Broomfield had made it
known to Any Step that he was engaging with McIntosh, the contemporaneous documents, including internal emails between Any Step directors, indicate that they were cognizant of Any Step’s obligations under cl 2.2 of the Agreement. In particular, Mr Costello specifically raised with Mr Evans that he should speak with Mr Broomfield to confirm that Any Step could not sell into the New Zealand market, and this was also followed up by way of written communications from Mr Evans to Mr Broomfield. Recognising that the contemporaneous documents did not support its case, Precast NZ argued that the documents were a deliberately laid “paper trail”. However, this ascribes a significant degree of contrivance and forward-planning on the part of those drafting the contemporaneous documents, which I do not consider is likely in all of the circumstances.
(c) Third, each of Mr Evans, Mr Costello and Mr Gardner gave evidence that they were not aware that the Mould they sold to Ancon was to be supplied to McIntosh, and that Mr Broomfield had told Any Step that it was to be supplied to a customer in Australia. Acceptance of Precast NZ’s claim would require me to make a finding that each of Mr Evans, Mr Costello and Mr Gardner lied when giving their evidence. While, as noted earlier, I found aspects of Mr Evans’ and Mr Costello’s evidence to be somewhat strained, I do not consider that each of them was lying when they gave evidence on this point.
(d)Fourth, Any Step conspiring with Ancon to sell the Mould to McIntosh would be contrary to the undisputed fact that Any Step’s focus was to target and sell Moulds into the international market. Both Mr Evans and Mr Costello in particular gave evidence they would not jeopardise Any Step’s legal position by knowingly being involved in the sale of a single Mould into the New Zealand market. Mr Costello also gave evidence, which I accept, that it had taken considerable time and money to build the five Moulds then available for sale, and he would not knowingly have allowed one of those five
Moulds to be sold into the New Zealand market, rather than his target overseas market.
(e) Fifth, there is no clear evidence that the concept of parallel importing was discussed between Mr Evans and Mr Broomfield prior to Precast NZ becoming aware of the sale to McIntosh. Mr Evans was clear that this discussion occurred only after Precast NZ had raised the issue, and in the context of explaining what Ancon had actually done, rather than what Any Step had proposed to do from the outset. And while at one point in his evidence, Mr Broomfield appeared to acknowledge that his plan to parallel import a Mould had been discussed with Mr Evans at an earlier stage (see the extract from the transcript at [72] above), Mr Broomfield subsequently accepted that the topic had only been discussed later.
(f) Finally, events subsequent to the sale to Ancon are consistent with Any Step’s position. When Mr Broomfield emailed Any Step to see if Mr Bates could come and observe a Mould in Kerikeri, Mr Costello’s email to Mr Evans recorded “this guy simply does not get it”. Rather than a further example of a contrived paper trail, in my view, that email (and Mr Evans’ reply) demonstrates Any Step’s genuine surprise and frustration at Mr Broomfield’s further attempt to sell into the New Zealand market.
[98] For completeness, I record that, had I found Any Step to have breached clause 2.2 of the Agreement, I would not have granted the injunctive relief sought by Precast NZ. There is no suggestion in the evidence that there is an ongoing risk of Any Step supplying Moulds for on-sale into New Zealand. A declaration of breach would, in my view, have been sufficient to protect Precast NZ’s position going forward.
[99] Nor would I have granted leave that any damages claim by Precast NZ could be pursued at a later date, if and when Bradford substantiates a claim against Precast NZ. If I had found Any Step breached the Agreement, and Precast NZ later
commenced proceedings against Any Step for damages arising from that breach, Any Step would presumably apply to strike out those proceedings as an abuse of process (relying on the principles set out in Henderson v Henderson and more recently discussed by Asher J in Rafiq v Secretary for Department of Internal Affairs of New Zealand).16 In those circumstances, it would be a matter for the judge hearing the strike-out application to determine whether Precast NZ’s damages claim ought to be permitted to proceed.
Alleged failure by Any Step to supply rubber extrusion strips to Precast NZ in
January 2016
Introduction
[100] There does not appear to be any dispute that the rubber extrusion strips in issue are required to operate the Mould and that they need to be replaced from time to time. Nor is it in dispute that, since the inception of the Agreement, Any Step has supplied these consumable parts to Precast NZ as and when required.
[101] It is also not in dispute that in January 2016, Precast NZ ordered a number of rubber extrusion strips from Any Step, and that Any Step did not provide them. Precast NZ alleges that, as a result, Any Step breached the Agreement. Given the extrusion strips are needed to operate the Mould, in March 2016, Precast NZ sought and obtained interim orders that Any Step continue to supply the rubber extrusion strips pending resolution of the dispute as to whether the Agreement had been validly terminated.
[102] The following issues arise on this aspect of Precast NZ’s claim:
(a) First, whether Any Step is obliged under the Agreement to supply rubber extrusion strips to Precast NZ.
(b) Second, whether Any Step’s failure to supply rubber extrusion strips to
Precast NZ on 19 January 2016 amounted to a breach of the Agreement.
(c) Third, if the answer to (b) above is “yes”, whether I ought to grant the relief sought at paragraph (b) to the prayer for relief in the statement of claim (a permanent mandatory injunction to supply the strips), or any further or other injunctive orders that may be necessary.
[103] There was scant attention paid to this aspect of Precast NZ’s claim, in either the evidence or the parties’ closing submissions.
Is Any Step obliged to supply rubber extrusion strips?
[104] I am of the view that the Agreement does require Any Step to supply rubber extrusion strips to Precast NZ. This is on the basis of cl 9.1 of the Agreement, or if required, an implied term to that effect.
[105] Clause 9.1 provides that “the Licensor will provide Licensee with parts, drawings and manuals relating to each Any Step mould”. Given it is not in dispute that rubber extrusion strips are required in order to operate the Mould, I am satisfied that they fall within the concept of “parts” relating to each Mould.
[106] Further, and if required, I would have implied a term to the effect that Any Step will supply rubber extrusion strips when required by Precast NZ, on Any Step’s usual terms of trade.
[107] Any Step granted Precast NZ the right to use and sell the Mould. It is not in dispute that in order to use the Mould, rubber extrusion strips are required. And while there was some evidence that extrusion strips could be obtained from other manufacturers,17 these are not the extrusion strips that are designed specifically for use with the Mould and which are patented for that purpose.
[108] As noted earlier, the primary commercial purpose of the Agreement, at least from Any Step’s perspective, is to “showcase” the use of the Mould in operation. It would plainly make sense in that context that the Mould being showcased is in fact able to be operated. And given the desire to “showcase” the Mould, it is logical, in
my view, that the parties would have intended the Mould to operate in “peak” condition, including through the use of parts specifically designed for use in conjunction with the Mould.
[109] I accordingly consider a term to the effect of that set out at [106] above meets the tests for an implied term addressed earlier in this judgment, at [45] to [48] above.
[110] The conclusions I have reached above are reinforced by two further matters:
(a) First, since the inception of the Agreement, Any Step has supplied rubber extrusion strips to Precast NZ as and when required. This includes after Precast NZ ceased to be a shareholder of Any Step and after the parties’ relationship became dysfunctional. While such post-contract conduct is by no means determinative, Any Step’s willingness to continue to supply is at least consistent with it being obliged to supply.
(b)Second, and more relevantly, the only basis upon which Any Step challenged the failure to supply on 19 January 2016 is that, at that point in time, the Agreement had either been terminated or “is in the process of being terminated”.18 In other words, there was no suggestion by Any Step that it was not otherwise obliged to supply the rubber extrusion strips to Precast NZ.
[111] Mr Gustafson submits that it is not appropriate that any term in relation to the rubber extrusion strips be framed by reference to Any Step’s “usual terms of trade”, as that is too uncertain. I disagree. As a preliminary point, I note that the interim injunctive relief granted by Thomas J in March 2016 was framed by reference to such a term. No opposition was taken at that time to any purported uncertainty.
[112] Further, Any Step’s usual terms of trade for rubber extrusion strips is a question of fact that would be reasonably easily ascertained. Any Step has sold the strips to Precast NZ over a period of many years. That sales history would evidence Any Step’s usual terms of trade. And by not tying supply to a fixed price, Any Step
has sufficient flexibility to change its prices from time to time, to reflect, for example, increased manufacturing costs and/or general inflation.
Was there a breach of the obligation to supply rubber extrusion strips?
[113] Having concluded that Any Step is obliged to supply the rubber extrusion strips on its usual terms of trade, I find that Any Step breached that obligation by failing to supply the strips in January 2016. As noted above, the reason for the failure to supply is said to be that the Agreement was either terminated or in the process of being terminated. However, for the reasons given in the later sections of this judgment, I have found that the Agreement was not terminated by that point in time.
What relief, if any, ought to be granted?
[114] Precast NZ seeks an order by way of permanent mandatory injunction requiring Any Step to supply to Precast NZ rubber extrusion strips as and when requested by Precast NZ and in accordance with its usual terms and conditions of trade.
[115] I do not consider that a permanent mandatory injunction is necessary or appropriate. As noted, the reason why the rubber extrusion strips were not supplied in January 2016 was Any Step’s belief that the Agreement was terminated or in the process of being terminated. There is no suggestion that, but for those matters, Any Step does not intend to continue to supply the rubber extrusion strips as it has always done.
[116] In my view, I consider that the appropriate course is to make a declaration as
to Any Step’s contractual obligation to supply the rubber extrusion strips.
Any Step’s counterclaim - introduction
[117] Any Step’s counterclaim against Precast NZ focuses on two primary issues:
(a) First whether Precast NZ breached the Support Clause; and
(b)Second, whether Precast NZ breached the Agreement by entering into the sub-license agreements with Bradford and/or Balcrom.
Breach of Support Clause
Introduction
[118] Precast NZ’s alleged breach of the Support Clause arises out of Mr Cane’s failure to pass on to the other Any Step directors information received by him from Mr Lawley of Reid on 1 November 2012, and his failure to pass on to any of the other Any Step directors details concerning a potential contact in the South African market.
[119] In his closing submissions, Mr Gustafson confirmed two matters:
(a) First, no damages are now sought against Precast NZ as a result of any breach of the Support Clause; rather, Any Step relies on the breach as a basis for Any Step’s termination of the Agreement; and
(b)Second, the only breach relied on to support Any Step’s termination of the Agreement is the alleged breach in respect of the South African contact (the alleged breach in respect of the Reid information having been remedied by March 2015).
[120] Despite the confirmation referred to at [119](b) above, it remains necessary to consider the evidence concerning the information from Reid, as it is relevant to Any Step’s claim against Mr Cane personally.
[121] The following issues arise on this aspect of Any Step’s counterclaim:
(a) First, the proper interpretation of the Support Clause.
(b)Second, and as pleaded by Any Step, whether it is an implied term of the Agreement that Precast NZ would honestly and reasonably co-operate with Any Step in achieving overseas sales and licences through Precast NZ’s contacts and enquiries it received.
(c) Third, whether Precast NZ itself breached the Agreement as a result of Mr Cane failing to pass on information received from Mr Lawley at Reid and/or a South African contact (rather than those actions being attributed to Mr Cane personally, as an Any Step director).
(d)Fourth, if the answer to (c) is “yes”, whether Any Step affirmed that breach thereby disentitling it to terminate the Agreement.
(e) Fifth, if the answer to (d) above is “no”, whether the Agreement was
validly terminated by Any Step.
Interpretation of Support Clause
[122] The Support Clause provides as follows:
The Licensee agrees to support the Licensor in respect to (potential) overseas contacts and interested parties who are interested in licence or purchase options of the Any Step moulding system. This includes but is not limited to Any Step’s moulds etc being included on the Licensee’s website.
[123] The Support Clause accordingly requires Precast NZ to “support Any Step” in respect of those matters set out in the clause. It does not require, expressly at least, Precast NZ to proactively take steps to seek out and deliver up to Any Step potential overseas contacts and purchasers.
[124] Nor do I consider it appropriate to interpret the clause in that way. At the time the Agreement was entered into, Precast NZ was, first and foremost, a significant precast business in New Zealand. It was not at that time a shareholder in Any Step. Against that backdrop, I do not consider the parties would have intended that, over a 25-year term, Precast NZ would be obliged to distract itself from its own business by proactively taking steps to promote Any Step’s business.
[125] That is not, however, to undermine the importance of the Support Clause from Any Step’s perspective. As noted, no royalties are payable by Precast NZ under the Agreement. Rather, in return for the grant of the exclusive licence (in relation to a territory in which Any Step itself did not propose to operate), Any Step secured its desired “vehicle” to showcase the Mould for the international market. It
is this context in which Precast NZ’s obligation to “support Any Step” must be considered. That support might involve, for example, providing references to potential purchasers when asked to do so by Any Step; engaging with potential overseas buyers at Any Step’s request; making its facilities available for visits from potential offshore purchasers who want to see the Mould in operation;19 and as expressly noted in the Support Clause, including the Mould in Precast NZ’s website material.
[126] In addition to these types of activities, does the Support Clause require Precast NZ to pass on to Any Step inquiries or leads it receives in respect of potential offshore purchasers of the Mould? While I do not consider the Support Clause obliges Precast NZ to actively seek out such leads or contacts, if an overseas contact expressed interest in the Mould to Precast NZ, the Support Clause would in my view oblige Precast NZ to pass that contact to Any Step. That would not involve any distraction from Precast NZ’s own business or any costs being incurred on Precast NZ’s behalf. It could hardly be described as “supporting Any Step” for Precast NZ to withhold from Any Step genuine inquiries from persons who might be interested in purchasing or licensing a Mould.
[127] However, while this is so as a general proposition, whether or not there has been a breach of such an obligation would need to be considered on a case-by-case basis, including the nature and content of the communication in question and any reason why Precast NZ might not have passed on the inquiry.
[128] Any Step also pleads that it was an implied term of the Agreement that Precast NZ had a duty to honestly and reasonably cooperate in achieving overseas sales and licences through Precast NZ's contacts and inquiries it received.
[129] I do not agree that the Agreement contains such an implied term. This is largely based on my interpretation of the express obligations imposed on Precast NZ by the Support Clause itself, and my reasoning for that interpretation. Further, having turned their minds to Precast NZ’s support of Any Step and crafted a
prescriptive clause in that regard, I do not consider the proposed implied term is
19 As occurred in relation to a visit by Charcon Precast, a UK precaster, in August 2011.
necessary to give business efficacy to the Agreement or is so obvious it goes without saying. And the scope of the proposed implied term is potentially very broad; and which arguably obliges Precast NZ to do more than I have found it is obliged to do pursuant to the express terms of the Support Clause. As Mr Gustafson submitted in opposition to the implied term argued for by Precast NZ, I consider the implied term proposed by Any Step would improve the bargain Any Step actually struck.
Breach of Support Clause - facts
[130] Any Step’s allegations of breach of the Support Clause centre on events which transpired late in 2012 and early 2013. It is necessary, however, to examine events from a few months before that crucial period, to put the alleged misconduct in context.
[131] I have already addressed in the summary factual section above the increasing tension between Mr Cane and Mr Evans, including in respect of their different views on the best way of engaging with potential off-shore customers and contacts. In this context, on 24 September 2012, Mr Evans sent an to email the Any Step directors, suggesting an annual general meeting be held two days later to discuss “and agree the future strategy and direction for Any Step”. Mr Cane responded that he and his colleague, Mr John Blacklow, were not available for an AGM at such short notice, but that he, i.e. Mr Cane, would be able to meet at that time to discuss generally the business going forward.
[132] Mr Cane, Mr Evans, Mr Costello and Mr Gardner duly met on 26 September
2016. Some two weeks later, Mr Cane sent an email to his fellow Any Step directors, from which it is clear there had been some debate at the 26 September meeting and expression of dissatisfaction by Precast NZ as to its investment in Any Step. In his email Mr Cane stated:
Unfortunately, there appears to be some conflict in interests and my concern is that this has the potential to interfere with the progress we all need to make with our investment. My suggestion is that this situation is both unhealthy and unhelpful into making real progress, we need to approach this is in a more coordinated manner and agreement on the best way forward. I suggest that this needs to happen sooner rather than latter [sic], with discussion and agreement on a plan forward.
On this note, I have spoken with the MD of Reid Construction Systems, Derek Lawley who has recently returned from a month in Europe promoting his precast technology with his sales team. Derek took the opportunity while there to introduce our Any Step system to the precast operations he visited, some with extensive German moulding already in place. I am now meeting with Derek tomorrow at the NZ Concrete Conference and would be happy to report back on progress and where he sees our product offering in that market.
[133] Mr Cane suggested an AGM be called to discuss these matters following further discussions between Mr Cane and Mr Lawley of Reid.
[134] Mr Cane did not get a reply to his email, and sought further views by way of an email dated 19 October 2012, in which he also queried whether anyone had an interest in meeting with Mr Lawley. Mr Gardner replied the same day, noting that his understanding was that Mr Evans had already had a discussion with Mr Lawley, but a meeting with Mr Lawley would be a good idea. Ten days later, on 29 October
2012, Mr Cane followed up again, noting that he had not heard from Mr Evans in response to the emails and querying whether he wanted to be involved in the proposed meeting with Mr Lawley (which had been arranged for 1 November 2012). Mr Cane said “I suggest you should be there if you can”. In his evidence at the hearing, Mr Evans noted that he had been travelling a lot at this time, which might explain why he had not responded sooner to Mr Cane’s emails.
[135] A meeting was duly held between Mr Evans, Mr Cane and Mr Lawley on
1 November 2012. What was agreed at this meeting, and various emails sent by
Mr Lawley as a result of it, lies at the heart of this aspect of Any Step’s claim.
[136] Each of Mr Cane, Mr Lawley and Mr Evans gave evidence of about what transpired at the meeting. The UK, Europe and Qatar were identified as possible markets where Reid might be able to assist Any Step. Mr Cane gave evidence that at the meeting, Mr Lawley offered to send through a list of potential customers, or precasters, in the UK. Mr Lawley gave similar evidence, as did Mr Evans.20
[137] Subsequent to the meeting, Mr Lawley sent three separate emails, each dated
1 November 2012 and copied to Mr Cane. Mr Lawley said that Mr Cane had asked
20 Mr Evans said that Mr Lawley had offered to send through “a list of potential United Kingdom
domiciled companies who would be interested in buying Any Step’s machines.”
that he was copied in to any emails Mr Lawley sent relating to Any Step, and as Mr Cane (through Precast NZ) was a good and trusted customer of Reid, Mr Lawley was happy to do so.
[138] The three emails were as follows:
(a) An email to Geoff Pritchett and Trevor Ellis-Callow (sales agents for Reid in the UK), noting that Any Step and Reid were not going to achieve anything in the UK market until there was an Any Step Mould installed in that market to demonstrate its effectiveness; that Any Step had agreed to provide a Mould for this purpose; and listing several precasters who could be approached to potentially trial (for free) a Mould for this purpose, after which they could either buy it or give it back.
(b)An email to Owen Masterton of Doha, Qatar, querying whether he was contemplating producing any precast stair units in his yard. Mr Lawley attached to his email details of what he described as “a very efficient and economic machine for producing stairs”.
(c) An email to “Ed" of “Techmart” based in Europe, in which Mr Lawley noted that he was helping Mr Cane “market their Any Step precast stair manufacturing machines in those areas where we have representation”.
41 Frisby v British Broadcasting Corpn [1967] Ch 932 (Ch); JHP Ltd v BBC Worldwide Ltd [2008] EWHC 757 (Ch), [2008] FSR 29 at [13].
42 JHP Ltd v. BBC Worldwide Ltd, above n 42, at [13].
[203] Second, and perhaps more fundamentally, there is no suggestion that as a result of the arrangements, either Bradford or Balcrom “stands in the shoes” of Precast NZ and can enforce Precast NZ’s rights directly against Any Step – certainly not Precast NZ’s broader right under the Agreement, nor the more limited rights of exclusivity in the Canterbury and Otago regions.
[204] Accordingly, two of the fundamental aspects of an assignment are missing; the transfer of rights and the consequent ability of the assignee directly to enforce those rights. It is for this reason, for example, that in respect of the alleged breach of exclusivity resulting from the sale of a Mould to McIntosh, it is Precast NZ seeking to enforce that right, rather than Bradford itself.
[205] Given the Bradford and Balcrom agreements do not assign Precast NZ’s rights, they must therefore be sub-licenses. I accordingly turn to consider whether Precast NZ’s entry into those sub-licenses amounted to a breach of the Agreement.
Is there a duty not to sub-license?
Introduction
[206] Any Step’s amended counterclaim pleads that “it was a term of the
[A]greement that the plaintiff would sub-license only to the Three Companies”.43
Particulars44 are then provided as follows:
(a) Reference to Recital C of the Agreement, which records that:
The licensee is the management company of the Stresscrete Group comprising of Stresscrete Northern Ltd, Stresscrete Wellington Ltd and Formstress Precast Ltd and all of those companies are hereby licensed to use the moulds pursuant to the licence agreement.
(b) Reference to the proviso to cl 2 of the Agreement, namely that “all
rights not expressly licensed under this agreement are reserved by the
licensor”.
43 See paragraph 6 of the Third Amended Statement of Defence and Counterclaim dated 15 March
2007. The “Three Companies” are companies associated with Precast NZ.
44 Though not in the sense of particulars of the factual matters relied on, but more akin to legal submissions supporting the existence of the pleaded term.
(c) A statement that selling Moulds to third parties, other than to the Three Companies, “destroyed any right of the plaintiff to stop subsequent purchasers of those machines from operating the machine in question anywhere in New Zealand.”
[207] During the hearing and in his closing submissions, Mr Gustafson also placed significant reliance on the fact that an earlier draft of the Agreement (circulated on
8 June 2009) included an express term that “the licensee may only grant sub-licenses of the rights granted to the licensee under this agreement to the following persons [being the Three Companies]”. That term does not feature in the final form of the Agreement.
Duty not to sub-license - analysis
[208] The argument advanced on Any Step’s behalf at [206](c) above can be dealt with briefly. There is no dispute that pursuant to the Agreement, Precast NZ is permitted to sell Moulds to third parties within New Zealand. Accordingly, the very fact that that right had been granted to Precast NZ “destroyed [Any Step’s] right to stop subsequent purchasers of operating those [Moulds] in question anywhere in New Zealand”. Accordingly, this point does not advance, and in my view is not relevant to, Any Step’s pleaded duty not to sub-license.
[209] Taking into account the other matters relied on by Any Step and considering the terms of the Agreement as a whole, I am not satisfied that the Agreement imposes on Precast NZ a duty not to sub-license, and in particular, not to sell a Mould to a third party on an exclusive basis.
[210] In interpreting the Agreement, I may of course take into account the factual matrix which existed at the time the Agreement was entered into. As I have already addressed above, at the time the Agreement was entered into, Any Step’s sole focus was the overseas market. As such, the sale and license of the Mould to a New Zealand precaster was a vehicle by which to “showcase” the use of the Mould in its home jurisdiction.
[211] This is consistent with one of the early documents exchanged between the parties (prepared by Any Step), setting out the concept and rationale for the Agreement, which recorded, inter alia, that the proposed licensing arrangement “allows Stresscrete to control [the] NZ stair market”.
[212] It is correct that an earlier draft of the Agreement contained a term that Precast NZ may only sub-license its rights under the Agreement to the three Stresscrete companies. However, and as I intimated to Mr Gustafson at the hearing, I am hesitant to ascribe much, if any, weight to this fact.
[213] First, in my view, ascribing any significant weight to detailed drafting changes in the lead up to the execution of a commercial contract is fraught with risk. It cuts across the guiding principle that the task of interpretation is an objective exercise, with a contract’s meaning to be gleaned primarily from its terms. Further, commercial parties often alter their negotiating stance for a range of reasons unrelated to the proper (objective) interpretation of a contract’s final terms. For example, a draft clause might be excluded, not because either or both of the parties thought that the rights or obligations contained in that clause ought to be excluded, but perhaps because it was considered that those rights or obligations were already captured by other remaining clauses in the contract.
[214] Second, I am also mindful of the recent cautionary note expressed by the Court of Appeal in relation to pre-contractual negotiations, in Wilaci Pty Ltd v Torchlight Fund No. 1 LP (in rec).45 In that case, Kós P, giving the judgment of the Court, observed that pre-contractual detail is “freighted with a relevance, and significance, it simply does not bear”.46 His Honour went on to state:47
In cases where the issue is construction of a contract, evidence of wider background and circumstance may be considered, but not where it does no more than prove what the individual parties intended or understood their words to mean or what a party’s negotiation stance might have been at a particular time. To the extent necessary, and no more than that, evidence of pre-contractual negotiations is admissible to establish facts relevant as background known to both parties or to establish their knowledge of
45 Wilaci Pty Ltd v Torchlight Fund No 1 LP (in rec) [2017] NZCA 152.
46 At [6].
47 At [7].
circumstances relevant to their choice and use of words in the contract. [Emphasis added]
[215] Third, there is a further risk of ascribing weight to the detailed drafting of the Agreement in this case. The draft version of the Agreement upon which Mr Gustafson relies was, when looked at in the sequence of drafts then being exchanged, quite “out of step” with what had gone before and what followed. This was primarily in relation to the core rights granted to Precast NZ under that particular draft. In that version, the rights granted were simply to use the Mould in New Zealand, and to sell the resulting products. That is, of course, quite different to what was ultimately agreed, namely the right to use and sell the Mould within New Zealand. In addition, Mr Gustafson submits that the “no sub-license of rights” clause in the earlier draft was removed and replaced with the term “all rights not expressly licensed under this agreement are reserved by the licensor”. That is not, however, correct, as that term already featured in the earlier draft upon which Mr Gustafson relies.
[216] Accordingly, my primary focus is the terms of the Agreement itself.
[217] There is no dispute that the Agreement granted Precast NZ the right to use and sell the Mould in New Zealand. The question is whether in granting a right to sell the Mould in New Zealand, the Agreement limited or constrained Precast NZ in respect of the terms upon which it could sell.
[218] Inherent in granting the right to sell the Mould in New Zealand must be the right to sell the Mould on terms that the subsequent purchaser can use the Mould. That is obvious and is not disputed by Any Step. Any Step also does not dispute that the right to sell the Mould carried with it the right to sell on terms which restricted the purchaser to using the Mould in New Zealand. Any Step’s primary concern was that the sales to each of Bradford and Balcrom were on terms by which each of those parties was granted the exclusive use of the Mould in its respective region; in other words, Precast NZ had contractually agreed not to sell a Mould to any other party for use in that region.
[219] Both Mr Evans in his evidence and Mr Gustafson in his closing submissions said that it cannot have been the parties’ intention that, in light of the limited returns to Any Step under the Agreement (as no royalties are payable by Precast NZ), Precast NZ could sell the Mould to a purchaser on terms that “tied up” an entire region with potentially one Mould only. However, such a potential outcome had already been achieved by the terms of the Agreement itself. Other than purchasing five Moulds over a defined period of time, Precast NZ is not obliged to sell any Moulds, anywhere in New Zealand. Thus, the Agreement envisages that other than the five Moulds purchased by Precast NZ, there may be no other Moulds operating in New Zealand. And the Agreement does not oblige Precast NZ to use the five
Moulds,48 or to use them in any particular location. The Agreement therefore also
contemplates that all Moulds might be located in, for example, Auckland, with no
Moulds at all operating in the South Island.
[220] Nor do I consider that the points made in Any Step’s pleading (see [206])
above support Any Step’s case.
[221] Recital C to the Agreement is somewhat curious, as it envisages a direct licence between Any Step and each of the Three Companies (when the licence actually granted pursuant to cl 2 is in respect of Precast NZ only). Nevertheless, I do not agree that this recital assists determine whether the express right to sell Moulds to third parties in New Zealand permits the sale of Moulds on exclusive terms.
[222] Turning to the proviso to cl 2 of the Agreement, this provides that “all rights not expressly licensed under this agreement are reserved by the licensor”. I consider this to be the strongest basis for Any Step’s argument.
[223] Precast NZ plainly has the (express) right to sell the Moulds to third parties in New Zealand. On one view, and consistent with Any Step’s position, the proviso
to cl 2 prevents Precast NZ from selling Moulds other than on an unconstrained basis
48 Other than, of course, to the extent that might be required for Precast NZ to comply with its obligations under the Support Clause.
(as its express right is simply to “sell” the Moulds in New Zealand, and nothing
more).
[224] But I do not consider that, objectively, the parties could have intended this outcome. As noted, the express right to sell Moulds must carry with it the right to confer on the purchaser the right to use the Mould. And, as Any Step itself argues, the express right to sell the Mould must also carry with it the right to sell on terms that restrict the purchaser’s use of the Mould to within New Zealand. In a similar way, I do not see why the express right to sell the Mould does not carry with it the right to sell on terms of exclusivity. As noted, Precast NZ is not obliged under the Agreement to sell any Moulds into a particular region. Why then, if it chooses to sell one Mould into a region, is it prevented from agreeing with the purchaser that it will not sell any more Moulds into that region? For that is the true mechanism by which an exclusive right is granted.
[225] I therefore find that, in the context of the Agreement as a whole, the express right to sell Moulds in New Zealand carries with it the right to sell on exclusive terms.
[226] The terms upon which Precast NZ sold the Moulds to Bradford and Balcrom did not therefore breach the Agreement. Given this finding, it is not necessary for me to consider whether Any Step has validly terminated the Agreement (or what relief ought to be awarded).
Any Step’s claim against Mr Cane personally
Introduction
[227] The essence of Any Step’s claim against Mr Cane personally is that in failing to pass on the Reid information and details of the South African contact, Mr Cane was in breach of his duties owed to Any Step. Any Step says that Mr Cane’s failure to pass on these materials arose out of his desire to depress the value of Any Step, given at that time, he was looking to buy out the other shareholders of Any Step.
[228] The issues for determination arising on this claim are as follows:
(a) First, whether Mr Cane breached any of his fiduciary duties owed to Any Step, by failing to pass on any of the information he received from Mr Lawley of Reid on 1 November 2012, and the failure to pass on the email communications from the South African contact referred to at [152]-[161] above.
(b)Second, whether, while a director of Any Step, Mr Cane acted for an improper purpose as he wished to prevent the value of Any Step’s revenue increasing, in the context of what is alleged to be Mr Cane’s desire to buy out the other shareholders of Any Step.
(c) Third, if the answer to either (a) or (b) above is “yes”, whether I ought to award any of the relief sought by Any Step (being exemplary damages of $10,000 and/or damages for the loss of a chance to secure revenues from Byrne Brothers, quantified at approximately $61,000).
[229] There is no dispute as to the scope of Mr Cane’s duties while a director of
Any Step, being:
(a) To act in good faith by acting honestly and with a proper motive;
(b)To act in what the director believes to be the best interests of the company; and
(c) To act for a proper purpose.49
Breach by Mr Cane - analysis
[230] I have already set out above the evidence concerning the Reid information and the South African contact. I have already expressed my view that, in relation to those matters, Mr Cane was wearing his Any Step director “hat” and not that of
Precast NZ.
49 See paragraph 47 of Any Step’s Third Amended Statement of Defence and Counterclaim dated
15 March 2017.
[231] I am not satisfied that Any Step has proved to the requisite standard that in carrying out the activities described [227] above, Mr Cane breached his duties to Any Step.
[232] At times during the course of Mr Cane’s evidence, I formed the impression that he was deliberately being evasive in response to some of the questions put to him, and I did not find his evidence about why Mr Lawley did not provide the information to Mr Evans to be particularly persuasive. Nor did I consider his suggestion that he never received from Mr Lawley the information Mr Lawley had promised at the 1 November meeting particularly credible.
[233] Nevertheless, having reviewed the written evidence and observed the witnesses who gave evidence at trial, I consider it more likely than not that the reason Mr Cane did not pass the Reid information and the South African contact to Mr Evans (and requested that Mr Lawley also not pass his information to Mr Evans) was because of his personality clash with Mr Evans. I accept that Mr Cane, rightly or wrongly, held a view that it would not be in Any Step’s best interests for Mr Evans to have the initial contact with the potential customers, at least until Mr Cane had “got them on the hook”. I am satisfied that he considered it made more sense for him, as a precaster, to handle the initial dealings with the potential customers. Mr Gardner accepted in his evidence that this was not an unreasonable approach for Mr Cane to have taken (though noted that there was still a matter of communication between Mr Cane and his fellow directors). I am also mindful of the fact that the contacts in question were contacts of Mr Cane’s/Precast NZ’s, and not Mr Evans himself, which no doubt added to Mr Cane’s concerns about passing the information to Mr Evans, in respect of whom he had lost confidence.
[234] I am reinforced in my conclusions by the fact that, despite not passing the information to Mr Evans at the time, Mr Cane nevertheless continued to answer questions and provide positive information concerning the Any Step Mould to both the Reid agents in the United Kingdom and the contact in South Africa.50
Presumably he would not have engaged in such follow up and positive
50 See, for example, those steps taken by Mr Cane and set out at [140], [143], [157]-[159] above.
communications had his primary objective been to stifle any ongoing business opportunities for Any Step.
[235] In addition, the evidence was by no means clear that at the time Mr Cane took these actions, he was planning to buy out the other Any Step shareholders (and therefore might have a motive to “depress” Any Step’s value). On the contrary, and certainly by very early in 2013, the opposite was being discussed, namely Precast NZ selling its Any Step shareholding. In that context, Mr Cane’s incentive would have been to increase Any Step’s value.
[236] In relation to the South African contact, Any Step complains that the other
Any Step directors were not aware of the positive indications in the email dated
14 February 2013. Any Step says that, when it became clear that he was no longer going to be a director, Mr Cane ought to have at least passed this positive development on to other directors so they could follow up the opportunity.
[237] I accept that, in hindsight, that would have been an ideal outcome. However, I am not satisfied that Mr Cane’s failure to do so at the time amounts to a breach of his fiduciary duties to Any Step. Ultimately, and despite the positive indications in the email, the South African contact had effectively said “leave the matter with us, and we will come back for further information”. As noted, Mr Cane said that he did not know why he did not hear anything further, but that it is not unusual in the industry. Accordingly, while a “chaser” from Mr Cane, or passing the email to the other directors when it became clear he would no longer be a director, might have been ideal, Mr Cane’s failure to do such things does not reach the threshold of a breach of a director’s duties.
[238] Accordingly, Any Step’s claim again Mr Cane fails.
Result
[239] I make a declaration that the Agreement obliges Any Step to supply rubber extrusion strips to Precast NZ when requested by Precast NZ, on Any Step’s usual terms of trade.
[240] Precast NZ’s claims against Any Step are otherwise dismissed.
[241] Any Step’s claims against Precast NZ and Mr Cane personally are also
dismissed.
Concluding observations
[242] I appreciate that as a result of this judgment, each party has failed to make out its primary claim(s). Precast NZ and Any Step also remain parties to a long-term agreement against the backdrop of what is a somewhat difficult relationship. However, it is hoped that the findings made in this judgment assist the parties enter a more stable phase of their relationship. Precast NZ will obviously need to comply with its obligations under the Support Clause, as and when requested by Any Step. And if Precast NZ becomes aware of persons or entities who might be interested in the Mould, it will be obliged to pass that information to Any Step. Save for this, and any ongoing orders and payment for rubber extrusion strips, ongoing contact may in fact be relatively infrequent.
[243] I also note that the Agreement contains a mandatory dispute resolution clause, requiring mediation of any disputes and, if not resolved through that forum, arbitration. It is not clear to me whether the disputes which are the subject of this judgment were the subject of mediation, and even if so (but were not resolved through that process), why the disputes were not referred to arbitration. A formal mediation may assist the parties resolve any future differences, and avoid having to engage in hard-fought and drawn-out litigation.
Costs
[244] If the parties are unable to agree as to costs, memoranda may be filed within
15 working days of the date of this judgment. Absent a request for a hearing on costs, I will then determine costs on the papers.
Fitzgerald J
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