Wagner v Gill
[2014] NZCA 336
•18 July 2014 at 10.00 am
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| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA428/2013 [2014] NZCA 336 |
| BETWEEN | NICOLA JOANNE WAGNER |
| AND | ROBERT GILL |
| DIGITAL PARTNERS (NZ) LIMITED Second Respondent | |
| BRAND ADVANTAGE MEASUREMENT AND CONSULTING LIMITED Third Respondent | |
| CPG YORK LIMITED Fourth Respondent | |
| 91991 LIMITED Fifth Respondent | |
| 11260 LIMITED (IN RECEIVERSHIP) Sixth Respondent | |
| BRAND ADVANTAGE LIMITED (IN RECEIVERSHIP) Seventh Respondent |
| Hearing: | 18 March 2014 |
Court: | Ellen France, French and Miller JJ |
Counsel: | J R Eichelbaum for Appellant |
Judgment: | 18 July 2014 at 10.00 am |
JUDGMENT OF THE COURT
AThe appeal is dismissed and the decision of the High Court confirmed.
BThe appellant must pay the respondents one set of costs for a standard appeal on a band A basis and usual disbursements of each of the respondents.
____________________________________________________________________
REASONS OF THE COURT
(Given by French J)
Introduction
Ms Wagner is owed money by two companies that were under the control of the first respondent, Mr Gill. Both companies are now in liquidation and there is no realistic prospect of Ms Wagner being able to recover the debt from either of them. Ms Wagner contends that Mr Gill together with various other entities associated with him deliberately stripped the assets of the debtor companies so as to defeat her claim. She says such conduct is actionable in the tort of unlawful means conspiracy.
Ms Wagner issued proceedings in the High Court for damages against the relevant entities and Mr Gill personally. The case was heard by Ellis J. The Judge found that the elements of the tort of unlawful means conspiracy were not established and that in any event the conduct complained about had not caused the loss because the two debtor companies were already insolvent.[1] The Judge dismissed the claim.
[1]Wagner v Gill [2013] NZHC 1304.
Ms Wagner now appeals that decision.
The key issues raised by the appeal are:
(a)Does a breach of fiduciary duty qualify as an unlawful means for the purpose of the tort of unlawful means conspiracy?
(b)What is the nature of the intention required under the tort? In particular, must the unlawful conduct be directed at the plaintiff?
(c)Is Ms Wagner entitled to damages on the basis of loss of a chance?
Background
Ms Wagner had established two websites, which she owned and operated through two companies.
In 2008 she sold 75 per cent of the shareholding in her two website companies to Digital Partners Ltd (DPL) for the sum of $700,000.
DPL was one of a group of companies owned and controlled by Mr Gill. The group comprised companies variously involved in the media, advertising, brand development and marketing.
DPL’s obligations to Ms Wagner under the sale agreement were guaranteed by another company in Mr Gill’s group, BA Partners Ltd (BAP). BAP was in the business of sponsorship management, including in particular arranging and managing sponsorship for Netball New Zealand Ltd (Netball NZ).
Under the sale agreement between Ms Wagner and DPL, the purchase price of $700,000 was payable in five instalments subject to the performance of the website companies.
After paying approximately half the purchase price, DPL stopped payments in November 2009. Ms Wagner claimed there was no justification for stopping the payments. She threatened legal action in February 2010. DPL denied that anything was owing as the website companies had not been as profitable as anticipated.
It was a term of the sale agreement that any dispute would be submitted to arbitration. An arbitration hearing was duly scheduled for December 2010, but in November it was adjourned at DPL’s request until 22 January 2011. On 22 December 2010, DPL’s solicitors advised the arbitrator that it was likely receivers would be appointed and the company would not be in a position to secure his costs. DPL withdrew from the arbitration. The arbitration then proceeded on an undefended formal proof basis in February 2011, and Ms Wagner obtained an arbitral award of $319,606. The arbitrator also awarded her costs of $21,000 on 12 April 2011.
DPL went into receivership on 20 April 2011.
At the same time receivers were also appointed to BAP, which, as mentioned, had guaranteed DPL’s obligations to Ms Wagner under the sale contract.
According to the evidence of the receivers, Ms Wagner will never receive any payment from DPL. And while BAP’s future is said to be contingent on the outcome of other litigation, unsecured creditors are unlikely to receive any payment.
The claim in the High Court
The statement of claim alleges that the respondents conspired to implement an asset stripping scheme to disadvantage creditors. The conspiracy is said to have two limbs.
The first limb – the alleged conspiracy involving BAP – relates to what is described as “the without consideration transfer” of the Netball NZ contract from BAP to another Gill entity, the third respondent Brand Advantage Measurement and Consulting Ltd (BAMC).
The second limb – the alleged conspiracy involving DPL – relates primarily to the signing of general security agreements in February 2010 in favour of the fourth respondent over the assets of the website companies and the later sale of those assets.
The conspiracies are pleaded as supporting four causes of action – conspiracy with intent to injure and conspiracy to injure by unlawful means pleaded against all but two respondents,[2] unlawful means conspiracy against Mr Gill only and an application under s 174 of the Companies Act 1993, also against Mr Gill only. The application under s 174 of the Companies Act was withdrawn prior to the hearing in the High Court.
[2]These causes of action are not pleaded against the fifth and sixth respondents, 91991 Ltd and 11260 Ltd.
At the hearing before us, the focus was primarily on the Judge’s findings in relation to the first limb of the conspiracy (the conspiracy involving BAP) and the cause of action based on unlawful means conspiracy. The discussion that follows of the High Court decision is accordingly also primarily focused on those findings.
The decision of the High Court
In her judgment, Ellis J described Ms Wagner’s claim as bristling with legal and factual difficulties.[3]
[3]At [4].
The legal difficulties were said to arise largely because of two recent “contentious” decisions in the House of Lords concerning unlawful means and the tort of unlawful means conspiracy.[4]
[4]At [6], referring to OBG Ltd v Allan [2007] UKHL 21, [2008] 1 AC 1; and Revenue and Customs Commissioners v Total Network SL [2008] UKHL 19, [2008] 1 AC 1174.
The cause of the factual difficulties was twofold. The first issue was that Ms Wagner was not able to give evidence herself about most of the matters in issue, and so was dependent on the Court drawing inferences of dishonesty and illegality against the respondents from circumstantial evidence. The second issue was the role of Mr Gill’s former business partner, Mr Regan, in the proceedings.
Prior to 2010, Mr Gill ran his group of companies effectively in partnership with Mr Regan. Mr Regan (either personally or through associated entities) was a minority shareholder in a number of the companies, including DPL and BAP, and he was also the group’s Chief Financial Officer. Towards the end of 2009 and in early 2010, Mr Gill’s relationship with Mr Regan and another employee, Mr Beattie, soured. Mr Regan left the group at the end of February 2010 and since then there has been what the Judge described as “highly acrimonious and ongoing litigation” between the three men.[5] Mr Gill accuses the two employees of misappropriating highly lucrative contracts belonging to the group.
[5]At [16].
In the current proceeding, Mr Regan gave evidence for Ms Wagner. The Judge said it was quite clear that Ms Wagner and Messrs Regan and Beattie had for better or worse chosen to join forces across their respective proceedings against Mr Gill, and that pursuit of Mr Regan’s own agenda had influenced his part in the proceeding.[6] In the Judge’s assessment, Mr Regan lacked the necessary independence to qualify as an expert witness and she was not prepared to treat his opinions about accounting and financial matters as carrying any evidentiary weight. That left the respondents’ expert witness as the only properly qualified accounting expert.
[6]At [17].
Turning to the merits of the claim, the Judge said she proposed to deal with each of the two limbs of the conspiracy separately, although whether they were analysed as two separate conspiracies or as two parts of one larger combination would make no difference to her ultimate conclusions.
The Judge stated that liability for conspiracy depended on the answer to the following questions asked in relation to each limb:[7]
(a)Can it be said that there was a conspiracy between the relevant defendants as that term is interpreted in the relevant cases?
(b)If so, can the conspirators be said to have acted (pursuant to their common design) either:
(i)for the dominant purpose of injuring Mrs Wagner’s interests; or
(ii)through use of unlawful means and with the intention of injuring Mrs Wagner?
(c)If so, was the pleaded loss caused to Mrs Wagner thereby?
[7]At [115].
As regards question (a), the Judge accepted (correctly in our view) that as a matter of law a company can conspire with its directors and/or shareholders for the purposes of the tort of conspiracy. She further found that the evidence established there were conspiracies or combinations of the general kind pleaded in relation to both of the alleged conspiracies.
The alleged conspiracy involving BAP centred on the sponsorship and rights marketing contract held by BAP with Netball NZ. Under the contract, Netball NZ had a right of immediate termination if Mr Gill, who was regarded as key personnel, were to resign. The netball contract was BAP’s chief asset.
On 18 March 2010, Mr Gill wrote to “the directors” of BAP (in effect to himself, he being at that point the sole director) resigning from his employment as the company’s Chief Executive Officer. In evidence he said he did this because BAP was no longer in a position to pay his salary.
Subsequently, Mr Gill had a meeting with the Chief Executive Officer of Netball NZ, Ms Castle. He then wrote Ms Castle a letter in May 2010 stating that BAP was in financial difficulty and that he had resigned. The letter said this was due to major changes in the group structure and the departure of Messrs Regan and Beattie, which had dramatically affected the business.
The letter then continued by acknowledging Netball NZ’s right and need to terminate BAP’s appointment, but seeking Ms Castle’s support to allow “us” to gain an appointment on the same terms and conditions through “our” new company BAMC. The letter was written on BAMC letterhead.
Netball NZ responded with a letter dated 17 June 2010 terminating the contract with BAP. This letter had been drafted by Mr Gill himself.
On the same day, Netball NZ sent a separate letter (also drafted by Mr Gill) to BAMC confirming its appointment to provide sponsorship and marketing services formerly provided by BAP. BAMC then entered into a contract with Netball NZ.
The other important development in June 2010 was that BAP wrote to all its unsecured trade creditors seeking their agreement to an informal scheme whereby they would each receive approximately 75 cents in the dollar. There was unanimous agreement. The proposal did not include Ms Wagner and she knew nothing about it. She was regarded as a contingent creditor, pending the outcome of the arbitration which as at June 2010 was still being actively defended.
The Judge said the most that could be said was that Mr Gill was careful to structure the business and financial affairs of BAP in a way that gave him a degree of flexibility and that enabled him to protect the company’s valuable asset (the netball contract) from creditors.[8] The Judge had no doubt he would have been aware that in the event Ms Wagner succeeded in the arbitration, BAP’s lack of assets, its intercompany debts and the general security agreements would make it difficult if not impossible for Ms Wagner to recover from that company. While there was no reason to think Mr Gill would be unhappy about that consequence, the Judge said she was unable to infer that this was his predominant or actuating purpose in taking the steps he did. It followed that the claim founded on the tort of conspiracy to injure (also known as unlawful purpose conspiracy) must fail.
[8]Wagner v Gill, above n 1, at [125].
There is no challenge on appeal to the Judge’s rejection of the unlawful purpose claim.
As regards unlawful means conspiracy, the Judge accepted that the transfer of the Netball NZ contract from BAP to BAMC involved a breach by Mr Gill of his fiduciary duty as a director of BAP. She said there was little question that he had contrived to remove a valuable asset from BAP when it was at a critical financial point and had done so for his own personal gain:
[133] While it may be that Mr Gill looked at matters from the point of view of his Group as a whole, in my view he was ultimately actuated by his perception of his own best interests. He wanted to ensure that he would be able to continue performing the work for NBNZ under the contract and receive a salary for doing so. His ability to do that was in jeopardy if the contract remained with BAP, due to its parlous financial state. On balance, therefore, I consider that the steps he took to engineer the transfer of the NBNZ contract from BAP to BAMC was in breach of his duty to act in the best interests of BAP.
Noting that the duty Mr Gill had breached was a duty owed to his company, not a creditor, the Judge went on to hold that such a breach could not constitute unlawful means for the purpose of unlawful means conspiracy at the suit of Ms Wagner.[9] There being no other potentially relevant unlawfulness,[10] it followed that the claim based on unlawful means conspiracy must also fail.
[9]At [142]–[144].
[10]The Judge was not prepared to hold that the decision to compromise with unsecured creditors without notifying Ms Wagner was capable of constituting misfeasance by Mr Gill: at [135].
That finding meant it was not necessary for the Judge to consider the other element of the tort, namely whether the conspirators had the relevant intent to injure Ms Wagner, other than to observe that there was a conflict in the authorities about the correct test to be applied and that in this case Ms Wagner might have succeeded under one test but not the other.[11]
[11]At [145].
The Judge then considered the question of loss, saying that irrespective of the difficulties with the BAP conspiracy claim, Ms Wagner would also need to establish that the alleged conspiracy or combination did in fact cause the inability of BAP to meet its liability under the arbitral award.
The Judge found that BAP’s financial position was such that without shareholder support it was already effectively insolvent by late 2009 (before the netball contract was removed) and that even if it had retained the Netball NZ contract, the profit generated by that contract would still not have been enough to enable it to pay Ms Wagner. She therefore accepted Mr Gill’s submission that there was no causal link between the conduct complained about and Ms Wagner’s loss. Ms Wagner would have suffered the loss anyway.[12]
[12]At [148].
As regards the conspiracy involving DPL, the Judge found that the evidence did not support the existence of a dominant purpose to injure Ms Wagner’s interests.[13] Nor was the Judge able to ascertain the existence of any unlawfulness.[14] She also found that DPL was effectively insolvent prior to the course of conduct that was followed as a result of the DPL combinations and would have been unable to meet the arbitration debt even if that conduct had not occurred.[15]
[13]At [151]–[158].
[14]At [159]–[166].
[15]At [167].
The Judge concluded by saying that Mr Gill was a shrewd businessman and that although there may have been an element of sharp practice in what had taken place, his conduct and that of the other respondents was neither directed enough nor sufficiently unlawful to establish the tortious liability alleged.[16]
Grounds of appeal
[16]At [170].
The notice of appeal and written submissions filed on behalf of Ms Wagner challenged the Judge’s findings in relation to both conspiracies. However at the hearing, counsel Mr Eichelbaum told us his best argument related to the BAP conspiracy and the cause of action in unlawful means conspiracy. We agree. In our view, the Judge’s conclusions regarding the DPL conspiracy were indisputably correct and we therefore do not propose to address them any further.
The grounds of appeal relating to the BAP conspiracy were:
(a)The Judge was wrong to find that a breach of fiduciary duty does not qualify as unlawful means for the purposes of the tort.
(b)In determining whether the conspirators had the necessary intention to injure, the correct legal test was not whether they had targeted Ms Wagner, but rather whether they were mindful of the harm that would be caused to her. In any event, even if the more exacting test of “targeted” were applied, that was satisfied on the evidence.
(c)The Judge erred in her approach to the issue of loss. She should have assessed damages on the basis of a lost chance.
For his part, counsel for the respondents Mr Gilchrist emphasised the Judge’s finding that there had been no loss. He submitted this finding, which was based on the only expert accounting evidence called, was unassailable and effectively disposed of the appeal. Mr Gilchrist supported the Judge's reasoning in relation to the elements of the tort but submitted that ultimately the case turned on the fact of there being no loss.
Analysis
The elements of the tort
The tort of conspiracy is one of a group of torts loosely known as the economic torts, all of which have as their purpose the prevention or control of conduct that damages or interferes with the business interests of others.[17]
[17]The other economic torts have been said to include procuring a breach of contract, intimidation, unlawful interference and causing loss by unlawful means: see Revenue and Customs Commissioners v Total Network SL, above n 4, at [216].
There are two forms of the conspiracy tort. The first form is conspiracy to injure, sometimes called predominant purpose conspiracy or unlawful purpose conspiracy. The second form is the tort of unlawful means conspiracy. It is the second form that is the subject of this appeal.
The tort of unlawful means conspiracy is said to be committed where two or more persons combine and agree that at least one of them will use unlawful means to cause damage to the claimant.[18] The claimant must in fact suffer loss or damage as a result.
[18]The intention required is less demanding than that needed for conspiracy to injure. See Cynthia Hawes “Interference with Business Relations” in Stephen Todd (ed) The Law of Torts in New Zealand (6th ed, Brookers, Wellington, 2013) 667 at 707.
It was common ground that there are four essential elements or ingredients of the tort:
(i)the existence of a combination;
(ii)unlawful action (unlawful means);
(iii)intention to injure the claimant; and
(iv)actual damage caused to the claimant.
As to the first element (the existence of a combination), it will be recalled that Ellis J found this to be satisfied on the evidence. There has been no cross-appeal against that finding and accordingly we proceed on the basis that it has been established.
The other three elements, however, are disputed and we now consider each in turn.
Does Mr Gill’s breach of fiduciary duty qualify as unlawful means?
The unlawful act relied upon is Mr Gill’s breach of his fiduciary duty to BAP in transferring the netball contract from BAP to BAMC. The respondents object to the use of the word “transfer”. They say that what happened is that BAP’s contract was terminated and a new contract was entered into with BAMC. However be that as it may, there has been no challenge to the Judge’s finding that Mr Gill breached his fiduciary duty to BAP in obtaining the netball contract for BAMC.
The concept of “unlawful means” in the context of the economic torts is a controversial and difficult one. There are inconsistent authorities. Some limit the concept to torts, others to torts and breaches of contract, and others yet again to any unlawful conduct of any kind, whether civil or criminal. To complicate matters further, recent English decisions suggest there may be different patterns of liability depending on whether it is a three party tort situation or a two party tort situation.[19] A three party situation is where the harm is inflicted on the claimant through an intermediary, as distinct from being inflicted directly by the defendant.
[19]OBG Ltd v Allan, above n 4; and Revenue and Customs Commissioners v Total Network SL, above n 4.
The facts of the present case are capable of being viewed as a three party situation. The fiduciary duty owed by Mr Gill was a duty owed to BAP, not Ms Wagner. Further, his breach of that duty was only actionable by BAP. On Ms Wagner’s case, the breach did however affect BAP’s ability to deal with her and therefore the harm was inflicted through an intermediary, BAP.
The statement of claim pleaded that BAP was also one of the conspirators, which is problematic when at the same time BAP was alleged to be the victim of the unlawful act. However the pleading is only in the alternative. In our view, correctly analysed, Ms Wagner’s case can only be that the conspirators were Mr Gill and the company that ultimately acquired the netball contract, BAMC.
As mentioned, in her judgment Ellis J referred to two recent House of Lords decisions.
The first of these was OBG Ltd v Allan.[20] It was not a conspiracy case. However, the decision is relevant because the House of Lords had occasion to consider the scope of “unlawful means” for the purposes of another economic tort, namely the tort of causing loss by unlawful means.
[20]OBG Ltd v Allan, above n 4. OBG Ltd was one of three conjoined appeals involving economic torts heard by the House of Lords. The others were Mainstream Properties Ltd v Young (inducing breach of contract) and Douglas v Hello! Ltd (No 3) (causing loss by unlawful means).
The majority of the Law Lords held that in a three party tort situation, the required “unlawful means” must be a civil wrong actionable at the suit of the third party. Although the phrase “civil wrong” is not defined in the speeches, it appears the Law Lords meant it to encompass torts and (possibly) breaches of contract. Under this approach, Mr Gill’s breach of fiduciary duty clearly would not qualify as the necessary unlawful means. It is not a tort or breach of contract.
Lord Nicholls however, dissenting on this issue, favoured a much broader view. He considered that “unlawful means” should encompass anything a defendant is not permitted to do by law. As he put it:[21]
So understood, the concept of ‘unlawful means’ stretches far and wide. It covers common law torts, statutory torts, crimes, breaches of contract, breaches of trust and equitable obligations, breaches of confidence and so on.
[21]At [150].
This wide interpretation is in keeping with the approach taken by Canadian courts in conspiracy cases.[22]
[22]Canada Cement LaFarge Ltd v British Columbia Lightweight Aggregate Ltd [1983] 1 SCR 452; Indutech Canada Ltd v Gibbs Pipe Distributors Ltd 2011 ABQB 38, [2011] 8 WWR 60; Agribrands Purina Canada Inc v Kasamekas 2011 ONCA 460, (2011) 334 DLR (4th) 714, followed in EnerWorks Inc v Glenbarra Energy Solutions Inc 2012 ONSC 414; Cruise Connections Canada v Cancellieri 2012 BCSC 53, (2012) 98 BLR (4th) 32; and AI Enterprises Ltd v Bram Enterprises Ltd 2012 NBCA 33, (2012) 350 DLR (4th) 601.
In New Zealand, this Court held in a conspiracy case prior to OBG that what is required to establish “unlawful means” is “an overt act that is independently actionable at the suit of the plaintiff”.[23]
[23]Jiao v Barge CA236/05, 19 July 2006 at [70].
While in principle such a formula would encompass a breach of fiduciary duty, it still would not assist Ms Wagner because of the added requirement that the unlawful act be actionable at the suit of the plaintiff.
Mr Eichelbaum submitted, however, that any possible legal barriers to finding liability in this case have been completely removed as a result of the later House of Lords decision in Revenue and Customs Commissioners v Total Network SL.[24] Total Network was the second recent House of Lords decision discussed by Ellis J.
[24]Revenue and Customs Commissioners v Total Network SL, above n 4.
In TotalNetwork, the Revenue and Customs Commissioners had issued proceedings against the defendant for damages arising out of the defendant’s alleged participation in a series of complex VAT frauds, the whole purpose of which was to cheat the public revenue. On the assumed facts, the method used by the conspirators featured a circular series of transactions involving the same goods, with all of the participating companies complicit in one of their number obtaining a VAT credit to which it was not entitled. The defendant, which was at the start and end of the carousel, was registered for VAT in another European Community State and was not pursuable under the VAT laws.[25]
[25]See the helpful summary of the facts in Hazel Carty “The Economic Torts in the 21st Century” (2008) 124 LQR 641 at 661.
The Commissioners contended that they could recover the lost VAT from the defendant by means of the tort of unlawful means conspiracy, the unlawful means being the criminal offence at common law of cheating the revenue.
The Court of Appeal said it felt constrained by previous authority to hold that it was an essential requirement of unlawful means conspiracy that the unlawful means relied upon had to be independently actionable in tort at the suit of the claimant.[26] The commission of a crime alone was therefore insufficient to constitute unlawful means and the Commissioners’ claim could not succeed.
[26]Revenue and Customs Commissioners v Total Network SL [2007] EWCA Civ 39, [2007] 2 WLR 1156.
The House of Lords took a different view. The Law Lords unanimously held that criminal conduct can constitute unlawful means in unlawful means conspiracy, regardless of whether or not that same conduct on the part of a single individual would be actionable as some other tort.
In so holding, the House of Lords rejected any suggestion that the tort of unlawful means conspiracy was a form of secondary liability for acts that are actionable as torts in themselves. They reasoned that if the conspiracy tort was so confined, it would deprive the tort of any meaning because the conspirators would always be joint tortfeasors anyway.
Their Lordships acknowledged that a narrower view of “unlawful means” had been taken by the majority in OBG, which had limited “unlawful means” to civil wrongs. However, the Law Lords distinguished OBG on the grounds that in OBG Lord Hoffmann had been dealing with a different tort and indeed had further limited his comments by dealing with only the three party variety of that tort. They accepted it was unfortunate that “unlawful means” might have different meanings for the purposes of different torts, but pointed out that the law of torts has always taken a particularly censorious view of conspiracy. It was therefore appropriate in their view that unlawful means should have a wider meaning in a conspiracy case.
We accept that Total Network is authority for the proposition that in order to qualify as unlawful means for the purposes of unlawful means conspiracy, the conduct need not be independently actionable at the suit of the claimant. The English authority relied upon by this Court in Jiao v Barge to support a contrary view has now been overruled.[27] We also accept that Total Network is authority for the proposition that unlawful means is not limited to tortious conduct.
[27]Powell v Boldaz [1998] Lloyd’s Rep Med 116 (CA). See also SSC & B: Lintas New Zealand Ltd v Murphy [1986] 2 NZLR 436 (HC).
All of that is obviously helpful to Ms Wagner’s case.
However, TotalNetwork does not offer Ms Wagner’s case unqualified support. It is also important to note the following limitations:
(a)The Law Lords were careful to confine their ruling to criminal conduct, which they saw as the most reprehensible of the possible categories of unlawful means. Whether conduct lower on the scale of blameworthiness, such as a breach of fiduciary duty, would qualify is not expressly considered.
(b)It is clear from the decision that not even every criminal act will qualify as unlawful means. It must be a crime that has as its purpose the protection of the particular claimant. The imposition of a fiduciary duty on directors is not for the purpose of protecting creditors.
(c)The Law Lords were also careful to limit their comments to the two party tort situation, relying on the fact of there being no third party as additional grounds for distinguishing the case from OBG. Lord Hope said:[28]
I entirely appreciate … that caution is needed where the unlawful act is directed against a third party at whose instance it is not actionable because he suffers no loss. There the claimant’s cause of action is … parasitic on the unlawful means used by the defendant against another party. As to that situation I would prefer to reserve my opinion. But in this case there was no third party … [and that] raises altogether different issues.
In Ms Wagner’s case, the unlawful means is levied against another party.
(d)It was a central feature of the reasoning that a tort remedy was the only remedy available to the Commissioners. There was therefore a gap in the law that for policy reasons needed to be filled. Those same considerations do not apply to this case.
[28]At [43].
We therefore cannot accept Mr Eichelbaum’s submission that TotalNetwork removes all possible barriers to liability in this case.
We also do not accept Mr Eichelbaum’s further submission that a post Total Network English decision, Concept Oil Services Ltd v En-Gin Group LLP, is “on all fours” with the present case.[29] Concept Oil was admittedly an asset stripping case but the key facts were very different. The case turned on an express representation made to the claimant before the debt was incurred that the defendant would not change its corporate structure. The unlawful means was thus the tort of deceit.
[29]Concept Oil Services Ltd v En-Gin Group LLP [2013] EWHC 1897 (Comm).
We note two further points.
The first is that in all of the cases cited to us by Mr Eichelbaum where breach of fiduciary duty has been held to be unlawful means, the fiduciary duty in question was a duty owed to the claimant, not a third party as in the present case.[30] Our own research found one decision where the fiduciary duty was owed to someone else, but only one.[31]
[30]Novoship (UK) Ltd v Mikhaylyuk [2012] EWHC 3586 (Comm); Berry v Pulley 2012 ONSC 1790, (2012) 218 ACWS (3d) 993; Sphere Drake Insurance v Euro International Underwriting [2003] EWHC 1636 (Comm); SSC & B: Lintas New Zealand Ltd v Murphy, above n 27; Ontario Realty Corp v P Gabriele & Sons Ltd (2009) 173 ACWS (3d) 1251 (ONSC); Olive Hospitality Inc v Woo 2006 BCSC 1554, [2007] BCWLD 167; varied on other grounds 2007 BCCA 355, [2007] BCWLD 5161; Beach Petroleum NL v Johnson (1993) 115 ALR 411 (FCA); Levy-Russell Ltd v Tecmotiv Inc (1994) 13 BLR (2d) 1 (ONCJ); and Aerostar Maintenance International Ltd v Wilson [2010] EWHC 2032 (Ch).
[31]HSBC Bank Canada v 1100336 Alberta Ltd 2011 ABQB 748, (2011) 530 AR 177.
The second point is that even the very broad approach to unlawful means advocated by Lord Nicholls in OBG was not expressed as being without limitation. Lord Nicholls instanced the example of a manufacturer being undercut by a competitor unlawfully failing to pay a licence fee to the owner of a patent. His Lordship said that the non-payment of the licence fee would not qualify as unlawful means because of the existence of a statutory regime regulating patents:[32]
Parliament has specified the nature and extent of the remedies available for infringement of patents. Remedial relief for infringement of a patent is available to patentees and exclusive licensees. It would be inconsistent with the statutory scheme if the common law tort were to afford a remedy more widely.
[32]At [157].
As will be readily apparent, it is not easy to reconcile the various decisions. An overriding theme, however, in all economic tort cases is that the encroachment of the common law into the regulation of economic competition must for obvious reasons be subject to some limits. In cases such as this one the drawing of those limits ultimately depends not on close textual analysis of the authorities but largely on policy considerations, having regard to the underlying purpose of the tort.
We accept, for the purposes of argument and without deciding the point, that a breach of fiduciary duty may in principle qualify as unlawful means for the purposes of unlawful means conspiracy.[33] That would be consistent with the statements of principle in two older New Zealand cases, Ruddock v Sinclair and Fairbairn, Wright & Co v Levin & Co Ltd.[34]
[33]Whether a breach of fiduciary duty does in principle qualify as unlawful means may depend on whether is a three party or two party situation, but that is for a future case to decide. In this case, we did not hear any developed argument about the implications of the distinction between three party and two party situations and it is not necessary for us to reach any concluded view.
[34]Ruddock v Sinclair [1925] NZLR 677 (SC); and Fairbairn, Wright & Co v Levin & Co Ltd (1914) 34 NZLR 1 (CA).
However, in our assessment, there are strong policy reasons why it should not be so recognised in the type of situation before us in this case.
The first is the issue of self-help. It would be standard commercial practice for someone in Ms Wagner’s position to have sought and obtained a personal guarantee from Mr Gill himself at the outset. The fact that a claimant had a readily available means to protect herself has always been an important factor in setting the boundaries of tort liability.
Secondly, just as in Lord Nicholls’ patent example, the unlawful behaviour at issue is a matter regulated by a statute, namely the Companies Act.
The Companies Act contains a comprehensive statement of the duties owed by directors, encompassing all the traditional common law duties as well as others. The listed duties include the duty that was breached by Mr Gill, namely the duty to act in good faith and in the best interests of the company. Section 169(3) specifically states that this duty is owed only to the company. Also regulated by the Companies Act are the rights of creditors of limited liability companies in liquidation. It is in this context – parliamentary intention – that the fact the breach is actionable only by the company and not a creditor is a factor weighing against recognising liability in tort.
Thirdly, Ms Wagner did have alternative remedies. Section 301 of the Companies Act allows a creditor in a liquidation situation to apply for an order that a director who has breached a duty to the company repay money directly to the creditor. This section is potentially available as a means of challenging the transfer of assets from one company to another in the same group of companies. Also potentially available, as Ellis J pointed out in her judgment, is the remedy provided by subpart 6 of pt 6 of the Property Law Act 2007. Under that subpart, it would have been possible for Ms Wagner to apply to have the transfer of the netball contract set aside.
We are satisfied that to allow a creditor like Ms Wagner a tort remedy would cut across Parliament’s intention as expressed in the Companies Act and the Property Law Act. There is no gap in the law as there was in the Total Network scenario.
We therefore hold that where a director has breached his or her fiduciary duty to a company by moving assets between companies under his or her control, that breach does not constitute unlawful means for the purposes of the tort of unlawful means conspiracy at the suit of an affected creditor.
This conclusion means that the appeal must fail. However given the depth of argument we heard on the other issues, we now turn to address those as well.
What is the correct legal test to be applied in determining intention to injure and was it satisfied on the evidence?
It was common ground that it was not necessary for Ms Wagner to prove that the conspirators’ sole or predominant purpose was to injure her.[35]
[35]As would be necessary for the tort of conspiracy to injure.
Conversely, it was also common ground following OBG that Ms Wagner was required to prove more than that it was reasonably foreseeable that the unlawful conduct was likely to cause her harm. We agree. Statements to the contrary in some New Zealand decisions are against the weight of authority and would in our view unreasonably widen the scope of the tort.[36]
[36]Swann v Secureland Mortgage Investment Nominees Ltd [1992] 2 NZLR 144 (CA); and ABC Development Learning Centres (NZ) Ltd v Artemis Early Learning Ltd HC Christchurch CIV-2010-409-1198, 25 June 2010.
The more contentious issue was whether Ms Wagner was required to prove a specific intention on the part of the conspirators to “target” her or whether some lesser mental element would suffice. Ellis J found that while the harm to Ms Wagner may have been reasonably foreseeable, it was not the target of Mr Gill’s breach of fiduciary duty. Harming Ms Wagner was not a specific object of the conspirators.
In support of his argument that a mental element somewhere between reasonable forseeability of harm and targeting was sufficient, Mr Eichelbaum relied on the House of Lords decision in Douglas v Hello! (No 3) Ltd. Douglas was one of three appeals decided in conjunction with OBG. All three cases are discussed together in the speeches so for convenience we shall simply refer to it as OBG.
The Court of Appeal had held that for the purposes of the tort of causing loss by unlawful means, Hello! magazine did not have the necessary intent to cause loss to the claimant because it had not aimed, directed or targeted its conduct at the claimant. Rather it had acted so as not to disappoint its readership and to boost its own sales.
In requiring that the defendant’s conduct be directed or targeted in some way at the plaintiff, the Court of Appeal was following what was generally regarded as the orthodox approach in both England and Canada.
That approach was criticised on appeal by the House of Lords as artificial and placing too great a strain on the concept of intention, as well as rendering the tort ineffectual. Defendants almost always act out of self-interest. In the view of Lord Hoffmann, requiring the claimant to prove he or she was targeted would “enable virtually anyone who really has used unlawful means … in order to injure the plaintiff to say that he intended only to enrich himself, or protect himself from loss”.[37]
[37]At [135].
Lord Hoffmann said in considering intention it was necessary to distinguish between ends, means and consequences:[38]
One intends to cause loss even though it is the means by which one achieved the end of enriching oneself. On the other hand, one is not liable for loss which is neither a desired end nor a means of attaining it but merely a foreseeable consequence of one’s action.
[38]At [62].
Under this approach, the plaintiff’s loss must be either the desired end itself or the intended means of achieving the desired end. As noted in The Law of Torts in New Zealand, this means the intention to inflict loss must be a cause of the defendant’s conduct.[39]
[39]Hawes, above n 18, at 696.
A similar view was taken by Lord Nicholls. He pointed out that a defendant may intend to harm the claimant either as an end in itself (for example because of a grudge) or more usually as a means to an end, the end being the promotion of his own economic interests. In both instances the mental element of the tort is satisfied. Lord Nicholls went on to say:
[166] Lesser states of mind do not suffice. A high degree of blameworthiness is called for, because intention serves as the factor which justifies imposing liability on the defendant for loss caused by a wrong otherwise not actionable by the claimant against the defendant. The defendant’s conduct in relation to the loss must be deliberate. In particular, a defendant’s foresight that his unlawful conduct may or will probably damage the claimant cannot be equated with intention for this purpose. The defendant must intend to injure the claimant. This intent must be a cause of the defendant’s conduct … .
Lord Nicholls further noted as “an explanatory gloss” that if a defendant knows he cannot obtain the desired gain without bringing about loss to the plaintiff but goes ahead anyway, his state of mind will satisfy the mental element required.[40] His Lordship described this as a case where “loss to the claimant is the obverse side of the coin from gain to the defendant”.[41]
[40]At [167].
[41]At [167].
In the present case, Ellis J considered that Lord Hoffmann’s willingness to take an expansive view of intention was predicated on the assumption that the unlawful means requirement had a narrow scope.[42] She therefore questioned whether, as a result of Total Network broadening the scope of unlawful means, a higher threshold for intention was now required as the quid pro quo.
[42]Lord Nicholls was prepared to take a broad view of both elements.
Mr Eichelbaum was critical of these comments. He conceded that Lord Hoffmann’s analysis in OBG was based on the premise that it was necessary to keep the economic torts within reasonable bounds and that the more principled control mechanism was to adopt a narrow concept of unlawful means, rather than a narrow concept of intention. However, he submitted that the Law Lords in TotalNetwork had referred to Lord Hoffmann’s reasoning on intention without demur. Therefore they should be taken as having endorsed a broad view of both unlawful means and intention in conspiracy cases.
In our view, that is too simplistic an interpretation of Total Network. For the reasons already discussed, the extent to which it expands the scope of unlawful means beyond tortious and criminal conduct is highly debatable. As to intention, we accept that the speeches in TotalNetwork do not expressly disagree with what was said on intention in OBG. On the other hand, the issue of intention is not discussed in TotalNetwork in any depth and more importantly the terminology of “directed at” is to be found in all the speeches. Lord Mance also expressly refers to “targeted”. It is unclear whether by referring to “directed at” their Lordships intended a more stringent test than the OBG test, or whether it is intended that different tests should apply in the case of a two party tort as opposed to a three party tort, or whether different tests apply depending on whether the unlawful conduct is independently actionable or, as in the case of a crime, rendered actionable only because of the existence of a conspiracy.
Since TotalNetwork was decided, the OBG means and end/obverse side of the coin test has been applied in conspiracy cases without use of the “directed at” phrase.[43]
[43]Towry EJ Ltd v Bennett [2012] EWHC 224 (QB); Aerostar Maintenance International Ltd v Wilson, above n 30; Thames Valley Housing Assoc Ltd v Elegant (Guernsey) Ltd [2011] EWHC 1288 (Ch); WH Newson Holding Ltd v IMI plc [2012] EWHC 3680 (Ch); and Tullett Prebon plc v BGC Brokers LP [2010] EWHC 484 (QB).
As will be readily apparent, the state of the authorities is somewhat confused and confusing.
We acknowledge the validity of some of the criticisms of the orthodox approach made in OBG. However, in our view, the distinction between means and foreseeable consequences is itself a very narrow one and in practice often difficult to apply in any meaningful way. Further, in every case where defendants profit at the expense of the plaintiff the obverse side of the coin test will always be satisfied. Its function in such cases may be seen as doing no more than establishing causation, which is already required anyway.
On balance, our preference would be to retain the requirement that the conduct must be directed at the claimant. We consider that the application of the test was problematic in relation to Hello! magazine not because of inherent deficiencies in the test but because it was conflated with a primary purpose test.[44]
[44]OBG Ltd v Allan, above n 4. See also Hazel Carty An Analysis of the Economic Torts (2nd ed, Oxford University Press, Oxford, 2010) at 125–126.
It is not however necessary for us to reach a concluded view, first because of our conclusion regarding unlawful means and secondly because we agree with Mr Eichelbaum’s contention that regardless of which test is adopted, it was satisfied on the evidence. As Mr Eichelbaum submitted, Ms Wagner was the largest external unsecured creditor by a significant margin. Mr Gill knew that. His conduct in transferring the netball contract was actuated by a desire to retain the contract for his own benefit and to remove it from creditors. In those circumstances, we consider that in a very real sense, the conduct was directed at Ms Wagner.
Loss of a chance
The statement of claim sought damages in the sum of $340,606 (being the unpaid balance of the arbitration award and costs order) as well as interest and costs in relation to the High Court proceeding.
In light of the uncontested evidence that BAP was already insolvent at the time of the impugned conduct, Ms Wagner faced obvious difficulties in seeking to recover the full amount of the arbitral award.
Recognising this, Mr Eichelbaum sought damages during the course of the High Court hearing on an alternative basis, namely that rather than having suffered the loss of her ability to recover the amount of the arbitral award, Ms Wagner had suffered an earlier loss of a chance. The chance that had been lost was her chance to injunct or wind up the various companies at various points during 2010.
Justice Ellis said that because she had found the claims failed on their merits, it was not necessary for her to consider this alternative argument.[45] However in a footnote the Judge said it was far from evident how such a chance might be valued and that there was no basis on which the Court could develop an appropriate counterfactual.
[45]Wagner v Gill, above n 1, at [168].
On appeal, Mr Eichelbaum submitted that the Judge was wrong to be so dismissive of the alternative argument. He relied on authorities that have consistently held that where a loss of chance analysis is available, the court is obliged to undertake the exercise notwithstanding the difficulties.[46]
[46]For example, Davies v Taylor [1973] 2 WLR 610 (HL); Mallett v McMonagle [1974] AC 166 (HL); 4 Eng Ltd v Harper [2008] EWHC 915 (Ch); Takaro Properties Ltd v Rowling [1986] 1 NZLR 22 (CA); Benton v Miller & Poulgrain [2005] 1 NZLR 66 (CA); and Firth v Sutton [2010] NSWCA 90.
We accept that the case did lend itself to a loss of a chance analysis.
The chance Ms Wagner lost was the opportunity to negotiate from a position of strength with Mr Gill. So long as the netball contract remained an asset of BAP, Ms Wagner had some leverage. The evidence showed that Mr Gill was very keen to retain the netball contract and was prepared to go to a great deal of trouble to achieve that. While Ms Wagner was not BAP’s only creditor as at June 2010, BNZ had security and would have been unlikely to “pull the pin” while the remaining indebtedness was intercompany debt and so within Mr Gill’s control. In our assessment, there was a real and substantial chance that Mr Gill would have been prepared to try and negotiate a settlement with Ms Wagner, rather than allow BAP to go into liquidation and lose the netball contract.
However, Ms Wagner faces two further difficulties.
The first is that r 5.33 of the High Court Rules states that a plaintiff seeking to recover special damages must state their nature, particulars and amount in the statement of claim. The rule is mandatory. Damages calculated on the basis of loss of a chance are in our view special damages within the meaning of r 5.33 and should therefore be pleaded. In this case they were not, a failure that is likely to have affected the evidence that was called to the prejudice of the respondents. We would not have been prepared to allow Ms Wagner leave to amend the statement of claim.
The second difficulty is that any amount recoverable by Ms Wagner under loss of chance principles would in any event have been subject to heavy discounting.
That is because there are a number of significant contingencies or uncertainties, including of course the possibility that Mr Gill may have been prepared to abandon the netball contract. The evidence established that BAP did not have sufficient revenue to pay him a salary of any substance. There must be a real question mark as to whether he would have been prepared to keep working in those circumstances just for the sake of paying out Ms Wagner and retaining the netball contract. Further, even if Mr Gill and Ms Wagner did enter into negotiations, they may not have been able to reach a settlement.
While both had an incentive to settle, Mr Gilchrist submitted it could not be safely assumed that Ms Wagner would have behaved commercially. He pointed to evidence that showed a lack of understanding on her part of the concept of a limited liability company and submitted that nothing short of payment in full would have satisfied her, which would never have been acceptable to Mr Gill. Mr Gilchrist also pointed to independent expert evidence prepared by DPL and BAP for the purposes of the arbitration. The evidence, which the arbitrator never got to see, concluded that nothing was owing to Ms Wagner. That too may have influenced Mr Gill’s approach to the negotiations.
At best for Ms Wagner, had we been prepared to undertake a loss of a chance analysis, she would likely have recovered a sum representing only 20 per cent of the arbitral award. That figure represents the likely amount of any settlement, discounted by taking into account the possibility that no settlement at all may have been reached.
Outcome
The appeal is dismissed and the decision of the High Court confirmed
There is no reason why costs should not follow the event and accordingly the appellant must pay the respondents one set of costs for a standard appeal on a band A basis and usual disbursements of each of the respondents.
Solicitors:
Wynn Williams, Christchurch for Appellant
Dyer Whitechurch, Auckland for Respondents
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