Teat v Willcocks
[2013] NZCA 162
•21 May 2013
| For a Court ready (fee required) version please follow this link |
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA707/2010 [2013] NZCA 162 |
| BETWEEN JAMES BUNNEY TEAT |
| AND ARTHUR WILLCOCKS |
| Hearing: 12 November 2012 |
| Court: Arnold, French and Miller JJ |
| Counsel: R B Stewart QC and M A Karam for Appellant |
| Judgment: 21 May 2013 at 11.30 am |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellant must pay the respondent costs for a standard appeal on a band A basis, plus usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Arnold J)
Table of Contents
Para No
Introduction [1]
Background [4]
High Court decision [14]
Factual matrix [16]
Contemporaneous documents [18]
Subsequent conduct [20]
Basis of appeal [25]
Was there a contract? [28]
Was the contract varied? [49]
Decision [58]
Introduction
The respondent, Mr Willcocks, claimed that in September 1999 he and Mr Teat, who were long-standing friends, agreed orally that they would become equal partners in G B Teat Ltd, a family company of which Mr Teat was the major shareholder and the sole director. According to Mr Willcocks, the terms of the arrangement were that he would acquire 50 per cent of the shares of the company at a price equal to the book value of the shares.
The arrangement was neither formalised nor implemented at the time. Mr Willcocks worked for the company for a number of years until he and Mr Teat had a falling out. Mr Willcocks claimed that when he asked Mr Teat to honour their agreement, Mr Teat denied its existence. Mr Willcocks said that this denial was an act of repudiation by Mr Teat, which he accepted on 10 November 2008. He issued proceedings seeking damages for breach of contract in the amount of the fair value of the shares in the company as at November 2008.
Wylie J issued an interim judgment dealing with liability.[1] The Judge found that there was an oral contract between Mr Willcocks and Mr Teat for the sale of 50 per cent of the shares in the company at book value. Mr Teat now appeals against that finding.
Background
[1] Willcocks v Teat HC Rotorua CIV-2008-463-784, 27 September 2010 [interim judgment].
Mr Teat, an engineer, and Mr Willcocks, a chartered accountant, had been friends for more than 40 years. G B Teat Ltd was established in 1947 by Mr Teat’s father. It supplies and installs air conditioning units, under-floor heating systems and refrigeration units. As at September 1999, the company had a share capital of 37,500 $2 shares, of which Mr Teat held 33,001 and Mrs Teat 4,499.
In the mid-1970s, Mr Willcocks became involved an engineering business that had been established by his father-in-law. He was a director and shareholder, ultimately owning 50 per cent of the shares. The business was operated by Mr Willcocks and his two brothers-in-law, who were also shareholders. There were differences between them, which came to a head when Mr Willcocks and his wife separated in 1998. After that, Mr Willcocks began to look for other employment options.
After his separation, Mr Willcocks saw Mr Teat and his wife socially on a regular basis. Wylie J found that at this time G B Teat Ltd was not performing well on a day-to-day basis, although its fundamentals were sound. Mr Teat was a skilled engineer but he was not a good businessman. The Judge found that there were a variety of operational problems: some jobs were not costed properly; costing often took a long time; there was no system for attributing materials and labour to particular jobs; some jobs were not invoiced on completion and in respect of those that were, the rendering and payment of invoices was often delayed. The Judge said that there were cash flow problems and the company was sometimes refused goods because its suppliers would not make credit facilities available to it.
Wylie J also said that the evidence suggested that the company’s business premises were untidy and its systems and administration were poor. Mr Teat was somewhat dilatory about making business decisions and tended to put things off. Although the company had a manager, Mr Bennett, Mr Teat was unhappy with his performance.
The Judge accepted that:
(a)Mrs Teat had asked Mr Willcocks whether he was interested in becoming involved in G B Teat Ltd and invited him to spend a weekend with them at their holiday home in Mt Maunganui. During the course of the weekend, Mrs Teat prompted her husband to discuss the company’s problems with Mr Willcocks.
(b)Mr Willcocks expressed some interest, but at a subsequent meeting made it clear that he would only join the business as a partner and a 50 per cent shareholder in the company.
(c)Mr Teat accepted these terms and agreed to transfer 50 per cent of the shareholding in G B Teat Ltd to Mr Willcocks at book value to be paid at the time of transfer. (Mr Willcocks calculated the book value as being $34,369.) The parties agreed that they would both stay in the business for at least 10 years.
Mr Willcocks started work at G B Teat Ltd in late 1999. Initially he took a salary of $60,000. From 2003, when the company was on a better footing, both Mr Willcocks and Mr Teat received an equal share of distributed profits from the company.
Mr Willcocks and Mr Teat agreed that in either early 2000 or early 2001, they had a further discussion about the transfer of the shares as they were travelling back from pricing a job in Whakatane (the business was based in Rotorua). Mr Teat told Mr Willcocks that he had discussed the transfer with his accountant, who had advised him “to delay the decision until [he] was absolutely sure one way or the other”. Mr Willcocks took this to mean that there would be a trial period to see how the two men worked together and agreed that the accountant’s advice was sound.
The parties’ evidence diverged as to what happened next:
(a)Mr Teat said that there was a further discussion in June 2001 when he told Mr Willcocks that he could not transfer shares in the company to someone outside the family. He said that Mr Willcocks accepted that and suggested that they enter into a profit share arrangement instead. Mr Teat agreed to this.
(b)Mr Willcocks denied that this discussion had occurred and said that he had asked Mr Teat numerous times when the shares would be transferred. Mr Teat always replied to the effect that he would attend to it soon. Mr Willcocks said that he did not press the matter because he trusted Mr Teat.
In any event, the shares were never transferred. The Judge found that Mr Willcocks was a competent businessman and managed the company’s financial affairs with efficiency and skill. That, together with an increase in the demand for heat pumps, led to a gradual improvement in the company’s performance, to the point that from the year ending March 2003, Mr Teat and Mr Willcocks were able to take significant amounts by way of salary and/or profit share from the company, in excess of $200,000 each annually from 2005. Initially only a portion of the profits generated by the business were distributed but over time the proportion of distributed profits increased. Mr Teat said that he did not fully appreciate this for some time.
One of Mr Teat’s sons worked in the business. Mr Teat transferred a small shareholding to a trust for him in 2005. Another son returned from overseas in 2007. He had discussions with his father about the business and about succession planning. Mr Willcocks began to feel that he was being excluded from discussions and decisions affecting the business and the relationship between him and Mr Teat began to deteriorate, including disagreements about the distribution of profits. Eventually, on 6 November 2008, Mr Willcocks’ employment was terminated. At the same time, Mr Teat’s solicitors advised Mr Willcocks that Mr Teat denied the existence of any agreement in relation to the shareholding in the company. Mr Willcocks responded that he was treating that as a repudiation and was cancelling the contract. He then filed the present proceedings seeking damages for breach of contract. He also raised a personal grievance against the company. That has been put on hold until the present proceedings are resolved.
High Court decision
As we have said, Wylie J accepted that there was an oral contract as alleged by Mr Willcocks. The Judge considered the matter in light of, first, the matrix of facts from which the agreement arose, second, the contemporaneous documents and third, the parties’ subsequent conduct. We briefly summarise the Judge’s findings under each head.
Before doing so, however, we note that Wylie J found Mr Teat to be an unconvincing and unreliable witness. He said that Mr Teat was frequently not prepared to answer the most mundane of questions without referring to his written brief of evidence. The Judge also said that, when pressed in cross-examination, Mr Teat’s answers were confused and conflicting. As a result, the Judge preferred the evidence of Mr Willcocks on all significant issues.
Factual matrix
The Judge was satisfied that G B Teat Ltd was in some difficulty in August/September 1999 and that it needed sound financial guidance and administrative assistance. Accordingly, Mr Teat had every reason to approach Mr Willcocks. The evidence established that Mr Willcocks was a skilled businessman with considerable financial acumen who at that time had a 50 per cent shareholding in his wife’s family company. The Judge considered it unlikely Mr Willcocks would have accepted a position as manager for a modest salary of $60,000, without more. The Judge accepted Mr Willcocks’ evidence that he agreed to go into partnership with Mr Teat and buy 50 per cent of the shares in anticipation of making a capital gain.
The Judge also thought it clear on the evidence that Mr Willcocks had become disenchanted with the concept of family businesses and was not prepared to become involved in another company where family could intervene in business decisions. The Judge noted that Mr Teat had initially said that the issue of Mr Willcocks acquiring a shareholding was not raised until sometime after he had joined G B Teat Ltd as manager, but upon questioning changed his stance and accepted that it was raised when Mr Willcocks agreed to join the company.
Contemporaneous documents
Contemporaneous documents indicated that Mr Teat’s understanding at time was that Mr Willcocks would join the company as a shareholder. Four documents written by Mr Teat and his solicitors in October and November 1999 (when Mr Bennett, the former manager at the business, was made redundant) referred to Mr Willcocks as an incoming shareholder or a new partner in the business. By way of example, one was a letter from G B Teat Ltd’s solicitors to Mr Bennett’s solicitors dated 23 November 1999. It contained the following:
It was with considerable regret that out client needed to make Mr Bennett redundant as office manager. This was as a consequence of restructuring the business to make way for an incoming shareholder. As a consequence, Mr Bennett’s job became superfluous to the needs of the company, as much of the work previously undertaken by Mr Bennett will now be completed by the new shareholder.
…
There can be no dispute that the redundancy was brought about by a genuine restructuring of the business. As you know, your client did not have a written employment contract and there was no pre-existing arrangement your client would be paid redundancy in the event of that occurring.
(Emphasis added.)
Moreover, evidence was given by four associates of Mr Willcocks to the effect that in late 1999 he told them he was going into business with Mr Teat on a 50/50 basis.
Subsequent conduct
The parties made all significant decisions regarding the running of the business jointly. Moreover, there was no logical reason why profits would have been shared equally if Mr Willcocks was simply an employee. Mr Teat’s claim that he took a hands-off attitude allowing Mr Willcocks to distribute profits on an ad hoc basis without consultation or agreement was implausible if Mr Teat was the principal shareholder.
In addition, Mr Willcocks received a company car, had signing authority on the company’s cheque book and was directly involved in the employment of staff (to the extent that he occasionally hired staff members without Mr Teat’s involvement).
Finally, when in 2008 Mr Willcocks suggested that he and Mr Teat each write down their recollections of the original arrangement, Mr Teat described his recollection as being that Mr Willcocks would leave his wife’s family business “and would come and work for [G B Teat Ltd] and become a partner”.
Having satisfied himself that the parties had reached agreement on all essential terms, the Judge considered whether the agreement had been varied by the discussion that occurred in the van as Mr Willcocks and Mr Teat were returning to Rotorua from Whakatane. Mr Teat had argued that if there was an oral contract, it was varied by the addition of a term making it conditional on the satisfactory completion of a trial period. He argued that because the varied contract did not stipulate a time for the satisfaction of the additional term, the term had to be satisfied within a reasonable period or either party had to give notice making time of the essence. He said that the term was never satisfied.
Wylie J doubted that there was a variation as argued. Further, he considered that, if there was a variation by the addition of the new term, the term would have been void for uncertainty as its scope was not delineated. In the alternative, the Judge considered that the new term would have been fulfilled or waived given the length of time that Mr Willcocks worked for the company after the variation was made and the basis on which he worked.
Basis of appeal
For Mr Teat, Mr Stewart QC said the appeal raised two issues:
(a)whether the Judge was right to find on the balance of probabilities that there was a binding agreement for the sale of 50 per cent of the shares in G B Teat Ltd at book value; and
(b)if so, what was the legal effect, if any, of the subsequent conversation in the van on the agreement.
In addressing these grounds, Mr Stewart went in some detail through the evidence, arguing that it did not support the findings made by the Judge. In this context, Mr Stewart submitted that the Court is now less restricted in its capacity to reject factual findings made by trial courts, relying in particular on three Australian cases: Fox v Percy,[2] Goodrich Aerospace Pty Ltd v Arsic[3] and CSR Ltd v Della Maddalena.[4]
[2] Fox v Percy [2003] HCA 22, [2003] 214 CLR 118.
[3] Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187, (2006) 66 NSWLR 186.
[4] CSR Ltd v Della Maddalena [2006] HCA 1, (2006) 224 ALR 1.
We do not propose at this point to outline in detail the arguments made by Mr Stewart. Rather, we will deal with them in the course of our discussion of the two issues.
Was there a contract?
As we have said, Wylie J analysed the evidence under three heads: the factual matrix, the contemporaneous documents and the subsequent conduct of the parties. Mr Stewart challenged the Judge’s findings under these heads.
Before turning to the detailed arguments, however, we should address the question of credibility. Mr Stewart submitted that the Judge gave too much weight to his impression of Mr Teat’s credibility as a witness. More important, Mr Stewart said, was the position revealed by contemporaneous facts and documentary evidence. However, to the extent that credibility was at issue, Mr Stewart argued that Mr Willcocks’ credibility was also suspect as significant portions of his evidence were inconsistent with contemporaneous materials. He gave as examples Mr Willcocks’ evidence that he had no idea about loans to the company secured by certain guarantees and a mortgage given by Mr and Mrs Teat, when documents in his handwriting referred to them; Mr Willcocks’ claim that it would have been madness to throw in his lot with Mr Teat for only a salaried position, when he was actively seeking salaried positions elsewhere; and his evidence that he did not refer to himself as director in company documents because he did not want to misrepresent the position, despite his evidence that he initially referred to himself as a director because that was what he was meant to be from the outset.
In Austin, Nichols & Co Inc v Stichting Lodestar the Supreme Court addressed the role of a court on a general appeal (that case concerned an appeal to the High Court from a decision of an Assistant Commissioner of Trade Marks).[5] The Court said:
[16] Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ. In such circumstances it is an error for the High Court to defer to the lower Court’s assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.
(Footnote omitted.)
However, the Court accepted that the position is different where issues of credibility are involved. In such cases, the Court acknowledged, caution on the part of the appellate court is appropriate.[6]
[5] Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
[6] At [5], [13] and [17].
An appellate court is likely to disagree with a credibility finding made by a trial judge only in limited circumstances, such as where the finding is shown to be inconsistent with incontrovertible or uncontested factual material[7] or is “glaringly improbable” or “contrary to compelling inferences”.[8]
[7] See Fox v Percy, above n 2, at [28].
[8]CSR Ltd v Maddalena, above n 4, at [21]. See also Hutton v Palmer [1990] 2 NZLR 260 (CA) at 268.
Against that background, we turn to the points advanced by Mr Stewart.
Beginning with the factual matrix, an important plank of Wylie J’s analysis was that, although its fundamentals were sound, G B Teat Ltd was not functioning well as at September 1999. Mr Willcocks had described the company as “practically moribund” when explaining why the book value of the shares had been adopted as the sale price. Mr Stewart challenged this finding. He submitted, on the basis of the accounting and other evidence, that the company was in fact earning healthy profits prior to Mr Willcocks becoming involved. In this context, Mr Stewart said the analysis of the company’s profitability should have been based on EBITDA[9] or EBIT[10] figures. It was improbable, Mr Stewart argued, that Mr Teat would have agreed to sell 50 per cent of his family’s business for just over $34,000 (the book value of the shares) given that the 1999 accounts indicated that the company had generated a salary of $45,000 for him as well as a profit share of $80,000 for him and his wife. Moreover, Mr Stewart noted that Mr Willcocks had not undertaken any due diligence on the company or even contemplated matters such as what the position would be if the company incurred losses or if Mr Teat died leaving him with no record of the agreement, steps which one would have expected a diligent businessman such as Mr Willcocks to undertake if his version of events was true. For his part, Mr Willcocks said in evidence that although he did not know precisely what the book value of the company was, he had had access to the company’s management accounts, which showed that the company was operating at a loss. Accordingly, he said, he knew that the book value “wasn’t going to be a zillion dollars”.
[9]Earnings before interest, taxes, depreciation and amortisation.
[10] Earnings before interest and taxes.
We pause at this point to make two observations. First, as Mr Parmenter for Mr Willcocks noted in his submissions, there was significant evidence of the company’s operational shortcomings in 1999. Mr Bennett, the company’s former manager (who was not required for cross-examination, his evidence being adduced through his brief), said that over the years it had been a constant battle to hold the company together financially. He said that Mr Teat insisted on costing jobs himself and noted that difficulties had arisen as a consequence. He identified a range of problems with the operation of the company, including that Mr Teat had an inability to get some things done in a timely way. Moreover, Mr Willcocks gave evidence as to the state of the company’s operations when he joined it, listing a catalogue of problems. He also talked about Mr Teat’s “inertia”. Mr Teat accepted that he was inclined to procrastinate.
Mr Stewart attempted to dismiss these problems as largely office administration or operational matters falling outside Mr Teat’s area of responsibility. However, it is clear from the evidence that there were significant problems in respect of matters for which Mr Teat had taken responsibility, such as costing, and that they were having a marked detrimental impact on the company’s performance.
Second, Mr Teat’s accounting witness, Mr Graham, accepted under cross‑examination that EBITDA analysis showed that a decline in the company’s profitability from 1995 to 2000, followed by a substantial increase over the subsequent years. This is consistent with a company with declining performance undergoing a revival.
In short, then, we consider that there was ample evidence to support the Judge’s findings as to the state of the company in 1999.
Turning to the contemporaneous documents, it will be recalled that communications sent to Mr Bennett and/or his advisers referred to Mr Willcocks as an incoming shareholder and business partner. The Judge regarded these as “damming of the version of events advanced by Mr Teat at the hearing before me”.[11] Mr Stewart noted that Mr Teat had acknowledged in evidence that the explanations given to Mr Bennett were untrue and were aimed at ensuring his departure without a personal grievance claim. He said that Mr Willcocks had advised him to tell Mr Bennett that he was being replaced as a result of restructuring so that no redundancy would be payable. Mr Stewart drew attention to the fact that Mr Willcocks acknowledged in his evidence that he had discussed the matter with Mr Teat.
[11] Interim judgment, above n 1, at [36].
However, the Judge rejected Mr Teat’s explanation. As the Judge said, one of these communications, namely the letter that we have quoted from at [18] above, was a formal response to a personal grievance claim under the Employment Contracts Act 1991. Had the personal grievance not been resolved, the letter would have featured in the proceedings which followed. The Judge thought it unlikely that Mr Teat (through his solicitors) would have misrepresented the position in that letter in these circumstances, a view with which we agree. The other communications were less formal but they involved Mr Teat:
(a)advising Mr Bennett orally that he was taking a new partner and that Mr Bennett’s job would be coming to an end as a consequence;
(b)providing a handwritten note to Mr Bennett explaining that “our new shareholder will join us in early November”; and
(c)providing two references for Mr Bennett which explained Mr Bennett’s departure from the company by saying that his work was being performed by an “incoming shareholder”.
The effect of Mr Teat’s evidence was that he was prepared to, and did, misrepresent the true position to Mr Bennett, to Mr Bennett’s solicitors, to his own solicitors (and through them to the Employment Relations Tribunal, if necessary) and to recipients of Mr Bennett’s references. It is not surprising that the Judge rejected this evidence.
Mr Stewart submitted that the parties’ subsequent conduct strongly supported a conclusion that no concluded agreement for the transfer of the shares was ever reached. He pointed to a number of matters, including the following:
(a)Mr Willcocks’ inaction between 1999 and 2008, despite the fact that Wylie J found him to be a skilled businessman with considerable financial acumen. Mr Stewart submitted that it was inconceivable that Mr Willcocks would have let the situation drift for almost a decade given there was nothing in writing and the alleged purchase price was very low.
(b)Mr Willcocks prepared a number of documents while with the company in which he described himself as “Manager” and Mr and Mrs Teat as the owners of the company or his employers. On the company accounts Mr Willcocks did not list himself as a shareholder.
(c)Two loans taken out by the company during the relevant period were secured by existing personal guarantees given by Mr and Mrs Teat and by a mortgage over their home (these appear to have been given in the early 1990s). Mr Willcocks did not provide any security. He denied any knowledge of the loans, but there are documents written by Mr Willcocks that refer to them.
(d)In early 2006 Mr and Mrs Teat gifted 10 per cent of the shares in the company to their son Ben. Mr Willcocks was aware of this but did not object or request that shares be transferred to him at the same time. Mr Willcocks said he was not bothered because there were still sufficient shares left to transfer 50 per cent to him, but that would have left Mr Teat with only 28 per cent.
(e)Mr Willcocks did not have a shareholder’s current account, and only received “additional management remuneration” (the title given in the accounting records to the profits paid out to Mr Willcocks and Mr Teat) after the time that Mr Teat claimed he advised Mr Willcocks that he would not transfer shares to him but would agree to a profit sharing arrangement.
(f)The first document prepared by Mr Willcocks in 2008 setting out his understanding of the agreement made no reference to the shares being sold at book value. Mr Stewart submitted that all of the available evidence strongly suggested that there was no agreement as to price. Any agreement to sell the shares was therefore void for uncertainty.
Second, Mr Stewart submitted that the evidence of Mr Willcocks’ associates that Mr Willcocks had told them he was to become a partner or shareholder in the business was of little value given that other witnesses called by the appellant gave evidence to the contrary. The most significant was Jacintha Bryant, who gave evidence that in 2003 Mr Willcocks said that he was not a partner in the business and had no financial interest in the company. As Mr Parmenter noted, however, this evidence was not put to Mr Willcocks in cross-examination.
Third, Mr Stewart submitted that the Judge placed too much emphasis on the sharing of profits. He argued there was good reason for Mr Teat to agree to share profits with Mr Willcocks despite the fact that he was not a shareholder. As Mr Teat said at trial, Mr Willcocks was good at what he did and was helping the business to progress. Mr Teat’s claim that he was unaware of the extent of the profit share was consistent with the High Court’s findings that he was not a particularly good businessman and had little interest in or understanding of accounting matters.
Fourth, Mr Stewart addressed the Judge’s reliance on the 2008 document setting out Mr Teat’s understanding of the agreement, which referred to Mr Willcocks becoming a partner. The Judge rejected as inconsistent with the wording of the document Mr Teat’s explanation that he meant discussions of Mr Willcocks becoming a partner would continue after a trial period. Mr Stewart submits that explanation is consistent with the document, which goes on to state “...we never got down to the nitty gritty ... let’s get down to work and see how it goes”. That suggested, Mr Stewart said, that there were discussions about Mr Willcocks becoming a partner in a general sense, but nothing was finally agreed.
We do not propose to address individually all the points about subsequent conduct raised by Mr Stewart. There are countervailing points to many of them. For example:
(a)Although Mr Willcocks’ first 2008 note did not refer to the shares being transferred at book value, the second did.
(b)Mr Willcocks explained his “inaction” in not insisting that the share transfer be sorted out by saying that he did raise the issue with Mr Teat from time to time and Mr Teat said he would take care of it but never did. The effect of Mr Willcocks’ evidence was that he was relatively relaxed about matters, at least before 2008. As he put it in evidence, “Call me stupid, call me naive, but I never ever thought that [Mr Teat] would have reneged on the deal”.
(c)References to Mr Willcocks as “the Manager” in the company documents and accounts were not necessarily inconsistent with him being entitled to become a shareholder. Mr Teat wrote in one of the references he provided for Mr Bennett:
Unfortunately, due to a restructuring of our business the position of Manager will be administered by an incoming shareholder who will take up the position of General Manager.
So, the description is consistent with the way Mr Teat described Mr Willcocks’ role in October 1999. Moreover, as Mr Parmenter noted, Mr Willcocks was not in fact a shareholder or director at the relevant times, so could hardly identify himself as such in the accounts and other documents.
In addition, we should say that we are not surprised at Wylie J’s rejection of Mr Teat’s explanations concerning the rationale for and operation of the profit share arrangement. Given the importance of the matter, aspects of Mr Teat’s explanations appear to us to lack plausibility, in particular his claim that the increased level of profit share over the years was the result of unauthorised decisions by Mr Willcocks rather than reflecting Mr Willcocks’ position in the company. The evidence was that Mr Teat took the company’s accounts to his personal accountant to discuss them and his accountant knew that there was a profit-sharing arrangement in place.
That said, we accept that there are elements of the factual background that do not sit comfortably with Mr Willcocks’ version of events. But that, of course, is also true of Mr Teat’s version of events. Difficulties of recollection, lack of precision, internal inconsistencies and failure to follow through on detail are not surprising where people who are long-standing friends enter into undocumented business arrangements that run for many years, but then fall out.
Ultimately, if Mr Willcocks was to succeed, the Judge had to be satisfied on the balance of probabilities that his version of events was essentially correct. This required an assessment of the competing versions in the light of all the circumstances, including an assessment of the credibility and reliability of the two principal protagonists, Mr Teat and Mr Willcocks. We consider that the Judge went about the process of examining and assessing the factual material in a principled and careful way. Our own review of the evidence satisfies us that the Judge’s conclusion as to the existence of the agreement was well justified despite the points raised by Mr Stewart. Accordingly, we reject this ground of appeal.
Was the contract varied?
There is no doubt that in 2000 or 2001 there was a discussion in the van between Mr Teat and Mr Willcocks about the share transfer. The parties are agreed on that much at least. What is in dispute is what was agreed.
The Judge described the arrangement discussed as being that before the share transfer was effected, the parties would work together to see how things went – in effect, there would be a trial period. This is consistent with the way that Mr Willcocks saw it. Mr Stewart argued that the Judge was wrong to find that the arrangement was for a trial period. He said the term went further: the transfer would not occur until Mr Teat was sure that Mr Willcocks becoming a shareholder was in the best interests of his family and the company. Whether the parties could work together was simply one aspect of this.
As we noted earlier, the Judge dealt with the legal consequences of the new term in several different ways:
(a)First, the Judge expressed doubt about whether there was any variation of the contract. He said that it was not clear that the parties had agreed that their original unconditional contract should be aborted and replaced by a conditional contract, to the effect that the shares would only be transferred if they both felt they could work together.
(b)Second, the Judge considered that even if there was a variation, it was void for uncertainty. This was because the alleged term had no time limit and there was no mechanism or reference point by which the Court could determine its length.
(c)Third, Wylie J considered the authorities on the question of whether the variation required consideration. The Judge concluded that the effect of the suggested variation was to bring the existing unconditional contract to an end. There was no variation of that contract; rather, a new and different contract was substituted. The Judge considered that as there was no consideration for that new contract, it could not be enforced.
(d)Finally, if there was a variation, it was either fulfilled or waived given the length of time that the parties’ business relationship continued and the basis on which it operated.
Mr Stewart challenged aspects of the Judge’s analysis.
Dealing first with the term’s content, Mr Stewart referred to extracts from the evidence which he said supported the view that the new term was wider than found by the Judge. He referred to the advice from Mr Teat’s accountant urging caution. That advice was that Mr Teat had to be sure of his relationship with Mr Willcocks and his desire to make him a shareholder. Further, the family’s control of G B Teat Ltd would be diluted if a new shareholder was introduced. Mr Teat’s evidence was that he told Mr Willcocks that he had been advised “to delay the decision until he was absolutely sure one way or the other” and that Mr Willcocks accepted that this was good advice.
We consider that the Judge’s finding as to the scope of the term is supported by the evidence. First, Mr Willcocks’ evidence was that the term related to finding out whether he and Mr Teat had the ability to work together. Second, what is important is not what the accountant said to Mr Teat but what Mr Teat said to Mr Willcocks. The evidence does not establish that Mr Teat conveyed the full import of his accountant’s advice to Mr Willcocks. The way in which Mr Teat said he put the matter to Mr Willcocks in their discussion (that the accountant’s advice was to delay until he was absolutely sure) was consistent with Mr Willcocks’ understanding of the position. It did not alert Mr Willcocks to the fact that the accountant had raised broader concerns.
Turning to the legal effect of the new term, we do not propose to discuss each of the alternatives identified by the Judge. On the basis that the term was that the parties would work together to see whether or not they could get on, as found by the Judge, the original agreement was, in our view, varied to include it. Although the position is not yet settled, we consider that consideration in the form of a benefit “in practice”[12] is sufficient to support a binding variation. Further, we are attracted to the alternative view expressed by this Court in Antons Trawling Co Ltd v Smith that no consideration at all may be required provided the variation is agreed voluntarily and without illegitimate pressure.[13] This seems to us to reflect the reality of what happened in the present case – a variation was proposed and willingly accepted, and the parties proceeded on that basis. In the context of an existing agreement supported by consideration, that seems to us to be sufficient to constitute a binding variation.
[12] See Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 (CA) at 15–16.
[13]Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 (CA) at [93]. For a useful discussion of the authorities, see John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at [4.62].
As the Judge noted, there was no explicit time frame included in the term. He considered that the term was therefore void for uncertainty. We prefer the view that the trial period had to be a reasonable one. Mr Willcocks said he thought the trial period would be six months. Taking into account the men’s longstanding relationship, Mr Willcocks’ need to have his position resolved reasonably promptly and the nature of the relationship envisaged, a time period of this order for a trial seems to us to be reasonable. In any event, we consider that this is a matter that could have been resolved by reference to expert evidence of market practice, if necessary.
As it happens, however, we do not consider that this was necessary. On any view of it, given that the parties kept working together for six or seven years after the variation, the condition must have been fulfilled or waived, as the Judge said. Mr Willcocks said that he asked Mr Teat to attend to the share transfer on a number of occasions but, although Mr Teat said he would do so, he never got round to it. As noted at [11](a) above, Mr Teat denied this and said that the parties had agreed in 2001 that they would not proceed with the share transfer and had instituted the profit share arrangement instead. The Judge did not accept Mr Teat’s account. Mr Willcocks’ version of events is consistent with either fulfilment or waiver.
In the result, then, we consider that the original agreement was varied by the addition of the term identified by Wylie J and the condition was either fulfilled or waived.
Decision
The appeal is dismissed. The appellant must pay the respondent costs for a standard appeal on a band A basis, plus usual disbursements.
Solicitors:
Davys Burton, Rotorua for Appellant
Bluett Legal Ltd, Hamilton for Respondent
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