Talleys Group Limited v Biomex Trustees Limited
[2020] NZHC 591
•20 March 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-000773
[2020] NZHC 591
BETWEEN TALLEYS GROUP LIMITED
Plaintiff
AND
BIOMEX TRUSTEES LIMITED
First Defendant
MACLAB (NZ) LIMITED
Second DefendantJ W BROADBENT NOMINEES PTY LIMITED
Third DefendantMCFARLANE MARKETING (AUST) PTY LIMITED
Fourth DefendantMACLAB AUSTRALIA PTY LIMITED
Fifth DefendantJAMES MEREDYTH BROADBENT
Sixth DefendantANDREW CHRISTOPHER BROADBENT
Seventh DefendantWILLIAM RAMSDEN BROADBENT
Eighth Defendant
Hearing: 11 March 2020 Appearances:
R J Hollyman QC and A J Steel for Plaintiff Z G Kennedy and O J Skilton for Defendants
Judgment:
20 March 2020
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
TALLEYS GROUP LTD v BIOMEX TRUSTEES LTD [2020] NZHC 591 [20 March 2020]
Introduction
[1] The substantive dispute involves the parties’ rights and obligations under an agreement for the procurement and supply of mussels dated 12 March 2014 (the Agreement). The mussels were to be made into supplements.
[2] Under the Agreement, the plaintiff (TGL) agreed to grow and supply the mussels. TGL was to be paid the price for the mussels, commission and monthly royalty payments. In addition, the first defendant agreed to transfer to TGL five per cent of the issued capital of a new entity, which was to be established to hold the first defendant’s assets.
[3] TGL sues the defendants for breach of contract, rectification and knowing assistance.
[4] In this present interlocutory application, the defendants seek orders for further particulars from TGL, pursuant to r 5.21 of the High Court Rules 2016, in relation to three disputed paragraphs in the statement of claim.
The nature of the proceedings and the allegations
[5] Schedule 3 of the Agreement included the following clauses, which are central to TGL’s claim:
(a)Clause 13
… Talleys shall receive a monthly royalty payment equal to five per cent of Maclab’s1 gross revenue in each calendar month. …
(b)Clause 18
… Maclab shall transfer to Talleys five per cent of the issued capital (ranking equally in all respects) in an entity to be established (which may, for the avoidance of doubt, include a limited partnership) then holding substantially the assets held by Maclab as at the date of this Agreement (including all sales contracts, equipment, intellectual property rights and other assets reasonably required to operate the Maclab Group business) (the “New Entity”) on the basis which fairly represents a 95 per cent/five per cent business relationship.
…
1 The plaintiff alleges that the “Maclab Group” was defined in the Agreement to mean the first defendant, the fifth defendant, the Biomex Trust (of which the first defendant is a trustee) and all “related parties” of the first defendant, which includes the second to eighth defendants.
[6] The defendants say that to meet their obligations under cl 18 of the Agreement, a unit trust called Maclab (NZ) Unit Trust (Trust) was formed on 9 November 2016. The first defendant then transferred its assets as at 12 March 2017 to the Trust. The second defendant is the trustee of the Trust. Further, the defendants say that in May 2017, five per cent of the units in the Trust were issued to TGL. Since 23 April 2019, TGL is also said to have owned five per cent of the shares in the second defendant.
[7] The affidavit of Mr Milan Talley, for the plaintiff, sets out the key events that Talleys rely upon in support of its claim. The defendants have not responded to it, and dispute generally its relevance and admissibility. However, while I accept the evidence is disputed, the affidavit does provide some assistance at this interlocutory stage in understanding the matters in dispute (also bearing in mind the issue here is one of particulars).
[8]The salient points of Mr Milan Talley’s affidavit are as follows:
(a)In 2013, TGL was approached by the sixth, seventh and eighth defendants (the Broadbents) with a proposal for TGL to become a business partner in the Maclab business operation, and there was a key meeting in Nelson in October 2013;
(b)the Broadbents wanted TGL to gain a stake in the Maclab business, to improve their operation and better fulfil their supply obligations;
(c)they had experienced a substantial increase in demand and needed TGL to ensure they could keep up;
(d)the Maclab business was structured across the first, third and fifth defendants (all controlled by the Broadbents), but they told TGL that if they invested with them (as TGL did) then they would re-structure the business to run everything via the New Zealand company. This is key to TGL’s complaint because, as it claims, this did not happen;
(e)at meetings in November 2013, the Broadbents made it clear that they wanted TGL to take over the mussel farming operation (as it did) as part of the arrangements and a memorandum of understanding (MOU) was signed;
(f)the MOU provided for TGL’s purchase of operational assets in Maclab, and an agreement to supply mussels. TGL was to receive a royalty payment of five per cent of Maclab’s total revenue, as well as five per cent of the issued capital in the Maclab business (to be re-structured as previously indicated); and
(g)the parties later entered into the Agreement, signed as part of an agreement for sale and purchase of assets – it contains cls 13 and 18 as set out at [5] above.
[9]TGL says that contrary to these obligations (as set out in the Agreement):
(a)Maclab established a unit trust (rather than a company or similar entity) as the New Entity (referred to in the Agreement) despite TGL’s objections. TGL’s main concern, as set out in the pleading, was that the terms of the relevant trust deed did not provide protections for TGL such as those that would be available if the New Entity were a company;
(b)the Trust did not receive all of the assets of the Maclab Group business, and the Broadbents did not re-structure the business to go through the Trust;
(c)the assets that were transferred were subject to a debt back so that their value would be netted out of the Trust; and
(d)The five per cent royalties were not (and are yet to be) paid in accordance with cl 13 of the Agreement, and Maclab has refused to allow TGL to audit the accounts to check what was included.
Relevant legal principles
[10]The High Court Rules provide that a statement of claim must:
(a)Show the general nature of the plaintiff’s claims to the relief sought;2 and
(b)Give sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the Court and the party or parties against whom relief is sought, of the plaintiff’s cause of action.3
[11]McGechan on Procedure provides the following summary:
Particulars are of pleadings but they are not themselves pleadings, and an opposing party does not plead to particulars (just as a defendant does not plead to the prayer for relief). Particulars serve a different function from pleading; their role is to illuminate, but that is all: Ayers v LexisNexis NZ Ltd [2012] NZHC 3055, (2012) 21 PRNZ 313 at [47]–49].
Particulars help to ensure that the pleading states a clear issue and informs the opposite party of the case to be met or defence to be argued. A party’s pleading is not simply the minimum which the opposing party needs so as to be able to plead: Price Waterhouse v Fortex Group Ltd CA179/98, 30 November 1998 at 19. It is intended to:
“[S]upply an outline of the case advanced, sufficient to enable a reasonable degree of pre-trial briefing and preparation. Discovery and interrogatories are only an adjunct, not a substitute for pleading.”
[12] In Platt v Porirua City Council, the Court noted that particulars of pleadings are important to:4
(a)Inform a defendant as to the case it has to meet;
(b)limit the scope of matters the plaintiff may put in issue at trial (or at pre-trial settlement discussion);
2 High Court Rules 2016, r 5.26(a).
3 Rule 5.26(b).
4 Platt v Porirua City Council [2012] NZHC 2445 at [19].
(c)enable a defendant to know what witnesses it will need to retain and enable it to start preparing evidence ahead of the formal exchange of evidence; and
(d)provide an opportunity for a defendant to seek summary determination on the basis that the claim as pleaded is untenable.
[13]McGechan on Procedure further states:
The temptation to insist upon excessively refined pleadings is to be resisted as unnecessary and wasteful of costs and court time. That is particularly so in complex cases, where over-pleading can obscure rather than clarify the issues: BNZ Investments Ltd v Commissioner of Inland Revenue (2008) 23 NZTC 21,821 at [45]. Pleading is not an area for mechanical approaches or pedantry: Price Waterhouse v Fortex Group (above) at 19.
Pleadings in dispute and the relevant procedural background
[14] The defendants’ application for particulars relates to three paragraphs in TGL’s statement of claim. These are, para 28(g) (alleged failure to account); para 29(a) (loss of adequate protections); and para 32 (alleged common intention with respect to the alternative claim of rectification).
(a)Paragraph 28(g) – Failure to account
[15]TGL alleges at para 28(g) a breach of the contract by:
Failing to account properly [as required by the terms of the contract] to TGL for the royalty of five per cent of the gross revenue of the Maclab Group attributable to the sale of mussel powder and oil to Pharmalink and other third party customers.
[16]The defendants deny the breach in their statement of defence.
[17] On 30 April 2019, the defendants gave notice requiring further particulars in the following terms:
In relation to paragraph 28(g), please specify the manner in which it is alleged that the first defendant failed to account “properly” to the plaintiff in accordance with clause 13 of the Procurement and Supply Agreement dated 12 March 2014.
[18]The plaintiff responded as follows:
This is not an appropriate request for particulars.
Refer to paragraph 28(g) of the statement of claim for “particulars”. For the avoidance of doubt “properly” means “as required by the terms of the contract.”
(b)Paragraph 29(a) – Loss of adequate protections
[19] TGL alleges at para 29(a) that as a result of the first defendant’s breaches of contract it has suffered loss and damage as follows:
(a)Loss of the benefit of owning five per cent of an entity which fully owns, controls and utilises the Assets for the purposes of conducting the Maclab Group business, and which provides adequate protections including against related party transactions and conflicts of interest.
[20] In its notice requiring further particulars, the defendants requested the following:
In relation to paragraph 29(a), please specify the “adequate protections” that the plaintiff alleges it has lost by reason of the first defendant’s alleged breaches of contract.
[21]The plaintiff’s response was as follows:
The “adequate protections” are the legal rights and protections referred to in para 24 of the statement of claim, and include the legal rights and protections enjoyed by a minority shareholder of a company incorporated under the laws of New Zealand, and in particular the Companies Act 1993 or as a partner in a limited partnership.
[22]In a further response, the plaintiff stated:
The particulars in the claim are sufficient to enable the defendants to plead to paragraph 29(a) of the statement of claim. The precise value is a qualitative matter that will require evidence and cannot be particularised at this stage.5
(c)Paragraph 32 – rectification
[23]At para 32 TGL pleads:
At all material times in the negotiation leading up to and at the time of the execution of the contract, including the memorandum of understanding, TGL
5 Letter from Malone Solutions Law Office to the defendants’ solicitors dated 24 September 2019.
and the defendants had the same intention in relation to the contract and in relation to any related contractual arrangements entered into between the plaintiff and the defendants, namely that the defendants would re-structure their mussel extract business in Australia and New Zealand by putting all assets reasonably required to operate that business into the ownership of one entity for the purpose of enabling the defendants to give effect to the contractual obligation to transfer to the plaintiff fully five per cent ownership of the defendants’ mussel extract business.
[24]In a notice requiring further particulars, the defendants requested as follows:
In relation to paragraph 32, in which the plaintiff alleges that it had the “same intention” as the defendants “in relation to the contract” and “any related contractual arrangements”:
(a)specify if the alleged “same intention” was express or implied or partly expressed and partly implied;
(b)insofar as the alleged “same intention” was express, whether it was in writing, oral or partly in writing and partly oral;
(i)insofar as it was in writing, identify the documents relied upon;
(ii)insofar as it was oral, specify when, where, by and to whom that the relevant statement was made;
(c)Insofar as it was implied, the facts relied on as giving rise to the implication.
[25]TGL responded as follows:
This is not an appropriate request for particulars in relation to the allegation of common intention and claim for equitable relief by way of rectification.
The allegation at paragraph 32 of the statement of claim in relation to such a claim for relief is that objectively, i.e. as assessed by the Court, the parties have the same intention as alleged in paragraph 32. The Court will make that assessment if required, on the basis of all of the evidence admissible to such a question.
The first defendant has in the statement of claim, together with the further particulars in this response, sufficient detail to inform it of the basis for the alternative ground for relief in paras 32 and 33 of the statement of claim.
[26] The defendants notified TGL on 23 May 2019 requesting further particulars. On 20 August 2019, TGL responded.
[27] The defendants then considered that four of the particulars sought were still outstanding, therefore issuing a further request for particulars on 4 September 2019.
[28] TGL responded in a letter dated 24 September 2019, and on 9 October 2019 the defendants filed their application for further particulars in relation to the now three outstanding matters.6
Analysis and decision
[29] In relation to all three disputed pleadings, the critical issue is whether in the individual circumstances of each case, the plaintiff’s pleading has stated the issue and informed the defendant (the opposite party) of the case to be met. As the Court of Appeal noted in Price Waterhouse v Fortex Group Ltd, in marginal cases, it is better to avoid generalities and rules of thumb and return to principles.7 The pleader in court simply asks, “[i]n the circumstances of this claim, is that statement sufficiently detailed to state a clear issue and inform the opposite party of the case to be met?”8
[30]I now address each of the three disputed pleadings in turn.
(a)Paragraph 28(g) of the statement of claim – Failing to “account properly”
[31] Paragraph 28(g) is to be understood in the context of the whole pleading of a breach of contract. It is apparent from para 28’s general terms (including the broad allegation of creating the Trust in breach of cl 18) that the plaintiff claims that all the group assets should have gone to the New Entity, but this has not happened. The failure to account for the five per cent royalty flows directly from that allegation. In my view, the pleading at para 28(g) does provide fair and sufficient notice of the issue, which is the extent to which the defendants have accounted for the royalty due on the revenue.
[32] I also find that this is one of those cases where I should allow the pleading to stand with further particulars to be given after discovery. There is enough substance to the claim for failing to account properly for it to be allowed to run.9
6 In the defendants’ application there was a fourth matter at issue but the defendants no longer pursue that point.
7 Price Waterhouse v Fortex Group Ltd (30 November 1998) CA178/98 at [19].
8 At [19].
9 See Red Stag Timber Ltd v Juken NZ Ltd [2018] NZHC 2459 at [28].
[33] It is well settled that if the particulars sought are solely within the knowledge or control of the party seeking them, then the Court may decline an application to provide them, pending discovery. That principle was recognised by Osborne AJ in Truck Master Ltd v Mastagard Waste Ltd:10
In some circumstances, particulars can neither be reasonably expected nor appropriately sought by order from a plaintiff. The cases recognise that the usual expectation as to detailed particulars of a claim will give way in cases where the party which would be entitled to particulars has knowledge concerning those particulars which the other party does not have. This is approach to the requirements of pleading recognised in both England and New Zealand. The courts recognise as adequate a pleading which pleads all material particulars other than those which can be derived from information within the particular knowledge or control of the defendant.
[34] I accept the submission of the plaintiff that, by reason of not having the benefit of discovery, it cannot set out the extent to which it alleges that the first defendant has failed to account properly for the royalties.
[35] Under cls 16 and 17 of the Agreement, the first defendant had to retain records during the term of the contract and provide access to them, to ensure amounts due were properly paid. The statement of defence at para 28(f) appears to acknowledge that the plaintiff did not seek access to the first defendant’s documents during the term of the contract and even if that was the fault of the plaintiff (I make no finding on that point), it appears the only way the plaintiff can now obtain the necessary records is through discovery.
[36] In my view, this is a different case from Red Stag Timber Ltd v Juken NZ Ltd,11 where the cause of action at issue was entirely speculative and where it was baldly alleged by the plaintiff, in a breach of s 9 of the Fair Trading Act 1986, that the defendant had made representations in trade as to compliance with applicable laws and standards. Here, TGL has identified through para 28 the conduct that the first defendant has allegedly taken in breach of the Agreement. The failure to account is to be understood in the context of an alleged breach of both cls 13 and 18.
10 Truck Master Ltd v Mastagard Waste Ltd [2014] NZHC 1676 at [15], cited approvingly by Bell AJ in Internet Traders Ltd v Hutson (formerly Williams) [2016] NZHC 1269 at [38]; see also Hickson v Scales (1900) 19 NZLR 202.
11 Above n 5.
[37] The defendants will of course (as the plaintiff accepts) be entitled to particulars following the completion of discovery. This will, as Mr Hollyman submitted, address their concerns in relation to preparing briefs of evidence and any risk of ambush at trial.
[38] There is no evidence before the Court that discovery would be unduly onerous. The statement of accounts may be all that is required for the plaintiff to provide further particulars.
(b)Paragraph 29(a) – TGL’s allegation that it lost “adequate protections” by reason of the first defendant’s alleged breaches of contract
[39] I find that TGL’s explanations, in response to the defendants’ notice requiring further particulars (as set out at [21] and [22] above) do not adequately inform the defendants of the plaintiff’s claims. Paragraph [24], which the plaintiff relies upon, does not refer to any “adequate protections” and simply records that the second defendant is not an entity which would qualify as the New Entity required under cl 18 of the Agreement.
[40] I find that the plaintiff ought to provide further particulars of the loss of adequate protections. As the pleadings currently stand, they do not adequately state the issue, nor do they inform the defendant parties of the case to be met. The allegation of loss of adequate protections is said to have been caused by the first defendant’s contractual breaches. However, I accept the submission of Mr Kennedy that it is difficult to understand the breach, causation and loss sequence upon which para 29(a) is premised. The question still arises, what are the particular rights they have lost that have caused them damage?
[41] It is, of course, correct that under the Companies Act 1993, shareholders are afforded a range of different rights. In particular, under s 174, a shareholder is entitled to apply for remedy in circumstances of unfair shareholder prejudice. However, that really says very little in the scheme of para 29. As currently framed, the pleading gives only a vague sense of the quantum and nature of the remedy at issue – and the defendants’ request for particulars does not amount to a request for an excessively refined pleading.
[42] In my view, this particular pleading is similar to the issue that was before Bell AJ in BN Global Trading Ltd v Broadtrust Group Ltd,12 where the plaintiff had alleged the defendant failed to adequately disclose a change in a regulatory environment. His Honour held at [21] that the plaintiff should be required to provide further details as to exactly what change had occurred to the regulatory environment and how it affected the business.
[43] I therefore conclude that the plaintiff should provide further particulars of lost “adequate protections”, as the defendants seek.
(c)Paragraph 32 – TGL’s allegation that the parties have the same “intention” in relation to the Agreement
[44] In pleading rectification as an alternative ground for relief against the first defendant, TGL alleges at para 32 that at all material times it had the “same intention” as the defendants in relation to the Agreement and any other contractual arrangements.
[45] The law in New Zealand as to rectification inter partes is well settled. There is no need for a concluded binding contract antecedent to the agreement to be rectified. If a common continuing intention as to a particular provision is proved, that intention is continued up to the execution of the formal instrument; and if the formal instrument does not conform with the common intention, the Court may rectify it.13
[46] It is also clear that the common intention must be objectively apparent. Tipping J held in Westland Savings Bank v Hancock, that while there need be no formal communication of the common intention by each party to the other or outward expression of accord, it must be objectively apparent from the words or actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each other party.14
[47] As is the case with pleadings generally, a claim for rectification must inform the defendant of both the essential basis of the claim and the necessary ingredients.
12 BN Global Trading Ltd v Broadtrust Group Ltd [2016] NZHC 987.
13 Equity and Trusts in New Zealand (2nd ed, A Butler, Thomson Reuters) at para 29.2, with reference to Dundee Farm Ltd v Bambury Holdings Ltd [1978] 1 NZLR 647.
14 Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 29–30.
[48] I reject Mr Hollyman’s submission that the general background and narrative in the earlier paragraphs of the statement of claim provide adequate notice to the defendants of the circumstances relied upon by TGL as evidence of common intention. As the Court noted in Shell (Petroleum Mining) Co v Kapuni Gas Contracts Ltd, (a rectification case where it was held that further particulars of the common intention were to be supplied) it is important for the opposing parties to know exactly what it is they have to combat.15
[49] In my view, the plaintiff should provide at least some elementary particulars as to dates, key documents and parties to the alleged common intention so that the defendants can properly understand the case for rectification brought against them. As the pleading currently stands, it does not contain the necessary ingredients to inform the defendant of the essential basis of the claim. This will necessarily require the plaintiff to focus on key events and/or documents evidencing common intention, recognising that they must ultimately establish that the common intention is objectively apparent.
[50] It is well established that a party should provide particulars where it is alleged that an agreement or a common intention exists. In Waihopi Valley Vineyards Ltd v Savvy Vineyards 3550 Ltd, this Court held that particulars were to be provided as to whether the agreements at issue were written, oral, or partly both, or by conduct and the terms of those agreements.16 I do not accept Mr Hollyman’s submission that oral contracts are materially different to claims for common intention rectification. The defendant is entitled, in my view, to know whether the common intention was oral or written, or established by conduct and/or the documentation.
[51] In my view, this case is similar to Cornford v Union Steam Ship Co of NZ Ltd,17 where Chilwell J criticised the plaintiff, who was claiming rectification, for neither alleging nor giving particulars of the circumstances to be relied on as evidence of common intention between the parties.
15 Shell (Petroleum Mining) Co v Kapuni Gas Contracts Ltd (1994) 8 PRNZ 69 at 73.
16 Waihopi Valley Vineyards Ltd v Savvy Vineyards 3550 Ltd [2015] NZHC 592, (2015) PRNZ 724 at [68].
17 Cornford v Union Steam Ship Co of NZ Ltd (7 July 1986) HC Auckland A1568/85 at 17.
[52] I find, therefore, that the plaintiff ought to provide the particulars sought by the defendant in relation to para 32.
Result
[53] I grant the defendants’ application dated 19 October 2019, to the extent that it requires the plaintiff to provide the particulars recorded at paras 2 and 4 of the schedule of particulars (and as they relate to paras 29(a) and 32 of the statement of claim).
[54] I decline the defendants’ application in relation to para 1 of the schedule of particulars (as it relates to para 28(g) of the statement of claim).
[55] I order, in relation to para 29(a) of the statement of claim, that the plaintiff specify the “adequate protections” it alleges it has lost by reason of the first defendant’s alleged contractual breaches.
[56] I order, in relation to para 32 (in which the plaintiff alleges that it had the “same intention” as the defendants “in relation to the contract” and “any related contractual arrangements”), the plaintiff specify:
(a)Whether the alleged “same intention” was express or implied or partly expressed and partly implied;
(b)insofar as the alleged “same intention” was express, whether it was in writing, oral or partly in writing and partly oral;
(i)insofar as it was in writing, identify the documents relied on;
(ii)insofar as it was oral, specify when, where, by and to whom the relevant statement was made; and
(c)insofar as it was implied, the facts relied on as giving rise to the implication.
[57]The further particulars are to be provided to the defendants by 17 April 2020.
[58] I make a further order that the parties provide standard discovery by 26 June 2020. The listing and exchange protocol in Schedule 9 to Part 2 of the High Court Rules will apply.
[59] The proceedings will be called in the Chambers List in 31 July 2020 at 2.15 pm.
Associate Judge P J Andrew
This judgment was delivered by Associate Judge Andrew on 20 March 2020 at 4.00 pm
pursuant to R 11.5 of the High Court Rules Registrar / Deputy Registrar
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